Exhibit 10.2
 

SECURITY DEVICES INTERNATIONAL INC.
as the Company
- and -
SECURITY DEVICES INTERNATIONAL CANADA CORP.
as the Guarantor
- and -
TSX TRUST COMPANY
as the Trustee

TRUST INDENTURE

Providing for Issuance of Debentures
As of December 7, 2016

--------------------------------------------------------------------------------

TABLE OF CONTENTS
ARTICLE 1 DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
1.1 Definitions
1.2 Compliance Certificates and Opinions
1.3 Effect of Headings and Table of Contents
1.4 Singular, Plural, Gender, Certain Phrases, etc.
1.5 Accounting
1.6 Successors and Assigns
1.7 Severability
1.8 Benefits of Indenture
1.9 Language
1.10    Payment on a Business Day 
1.11    Currency 
1.12     Schedules 
ARTICLE 2 THE DEBENTURES
2.1 Fixed Limitation
2.2 Characteristics of Debentures
2.3 Signature on Debenture Certificates
2.4 Authentication
2.5 Debentures Equally Secured
2.6 Issue in Substitution for Lost Debenture Certificates
2.7 Registry and Transfer
2.8 Payment of Principal and Interest on Debentures
2.9 Form of Debentures and Authentication
2.10  Book Entry Only Debentures 
2.11  Legends 
2.12  Exchange of Debenture Certificates 
2.13  Transfer of Debentures 
2.14  Ownership of Debentures and Persons Entitled to Payment
2.15  Trustee Not Bound to Make Enquiries 
2.16  Debentures Maturity Date 
2.17  Deposit of Monies 
2.18  Surrender of Debentures 
2.19  Cancellation of Debentures 
2.20  Repayment of Unclaimed Moneys 
2.21  Redemption of Debentures 
2.22  Purchase of Debentures 
2.23  Closing of Registers 
2.24  Withholding Tax 
ARTICLE 3 CONVERSION RIGHTS
3.1 Definitions
3.2 Conversion Privilege
3.3 Revival of Right to Convert
3.4 Manner of Exercise of Right to Convert
3.5 No Fractional Shares
3.6 Adjustment of Conversion Price
3.7 Rules Regarding Calculation of Adjustment of Conversion Price
3.8 Reservation of Common Shares
3.9 Tax Reporting
ARTICLE 4 SECURITY
4.1 General Security Agreement
4.2 Intellectual Property Security Agreement
4.3 Guarantee
4.4 Pledge of Securities
4.5 Protection of the Trustee
4.6 Additional Obligors
ARTICLE 5 SUBORDINATION
5.1 Definitions
5.2 Agreement To Subordinate.
5.3 Trustee To Effectuate Subordination
5.4 Trustee Not Fiduciary for Holders of Senior Debt
5.5 Reliance by Holders of Senior Debt on Subordination Provisions
5.6 Company to Request Subordination
5.7 The Toronto-Dominion Bank
ARTICLE 6 CHANGE OF CONTROL
6.1 Definitions
6.2 Offer to Redeem
6.3 Manner of Acceptance
6.4 Payment of the Change of Control Payment
ARTICLE 7 COVENANTS
7.1 Covenants of Each Obligor
7.2 Compliance Certificates
ARTICLE 8 DEFAULT AND ENFORCEMENT
8.1 Events of Default
8.2 Remedies in Event of Default
8.3 Enforcement and Waiver by or at the Direction of Holders
8.4 Entry by the Trustee
8.5 Appointment of Receiver
8.6 Sale by Trustee
8.7 Purchaser of the Collateral
8.8 Application of Proceeds of Sale or Realization
8.9 Distribution of Proceeds
8.10  Persons Dealing with Trustee 
8.11  Surrender by the Company 
8.12  Trustee Appointed Attorney 
8.13  Rights Cumulative 
ARTICLE 9 TRUSTEE
9.1 Trust Indenture Legislation
9.2 Conditions Precedent to Trustee's Obligation to Act
9.3 Evidence
9.4 Delegation; Experts and Advisers
9.5 Documents, Money, Etc. Held by the Trustee
9.6 Environmental Indemnity
9.7 Action by Trustee to Protect Security
9.8 Trustee Not Required to Give Security
9.9 Protection of the Trustee
9.10  Replacement of the Trustee 
9.11  Conflict of Interest 
9.12  Acceptance of Trust 
9.13  Rights and Duties of Trustee 
9.14  Force Majeure 
9.15  Not Bound to Act 
ARTICLE 10 DISCHARGE
10.1  Discharge 
ARTICLE 11 MEETINGS OF DEBENTURE HOLDERS
11.1  Right to Convene Meeting 
11.2  Notice of Meetings 
11.3  Chairman 
11.4  Quorum 
11.5  Power to Adjourn 
11.6  Show of Hands 
11.7  Poll 
11.8  Voting 
11.9  Proxies 
11.10  Holdings by the Company Disregarded 
11.11  Company and Trustee May be Represented 
11.12  Regulation of Meetings 
11.13  Powers Exercisable by Extraordinary Resolution 
11.14  Powers Cumulative 
11.15  Minutes 
11.16  Instruments in Writing 
11.17  Binding Effect of Resolutions 
ARTICLE 12 CONSOLIDATION, MERGER, SALE, CONVEYANCE OR TRANSFER OF ASSETS
12.1  Merger, etc. of the Company 
12.2  Successor Substituted 
ARTICLE 13 SUPPLEMENTAL DEEDS
13.1  Provision for Supplemental Deeds 
ARTICLE 14 NOTICES
14.1  Notice to Company 
14.2  Notice to Holders 
14.3  Notice to Trustee 
14.4  Postal Service Interruption 
ARTICLE 15 GOVERNING LAW
15.1  Governing Law and Submission to Jurisdiction 
ARTICLE 16 EXECUTION

--------------------------------------------------------------------------------

THIS INDENTURE is dated as of December 7, 2016 and is entered into
AMONG:
SECURITY DEVICES INTERNATIONAL INC. (the "Company"), a Delaware corporation,
- and –
SECURITY DEVICES INTERNATIONAL CANADA CORP. (the "Guarantor"), a Canada
corporation
- and -
TSX TRUST COMPANY (the "Trustee"), a trust company existing under the laws of
Canada.
RECITALS:
A. The Company wishes to create and issue the Debentures (as defined herein) and
is authorized to do so.
B. The Company wishes to provide certain collateral security interests to the
Trustee in support of their obligations to the Trustee.
C. All necessary resolutions of the board of directors of the Company have been
passed and all other necessary acts or things have been done and performed to
make this Indenture a legal, valid and binding agreement of the Company
according to its terms.
D. The foregoing recitals are made as representations and statements of fact by
the Company and not by the Trustee.
NOW THEREFORE in consideration of the mutual agreements contained herein and for
other good and valuable consideration (the receipt and adequacy of which are
acknowledged), the parties agree as follows:
ARTICLE 1 
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
1.1 Definitions
For all purposes of this Indenture, the following terms shall have the meanings
assigned to them below:
(a)
"Act" mean the Personal Property Security Act (Ontario), as amended or
re--enacted from time to time.

(b)
"Authenticated" means

(i)
with respect to the issuance of a Debenture Certificate, one which has been duly
signed by the Company and authenticated by manual signature of an authorized
officer of the Trustee,

--------------------------------------------------------------------------------

(ii)
with respect to the issuance of an Uncertificated Debenture, one in respect of
which the particulars of such Uncertificated Debenture are entered in the
Register, and

(c)
"Authenticate", "Authenticating" and "Authentication" shall have the appropriate
correlative meanings.

(d)
"Board" means the board of directors of the Company.

(e)
"Book Entry Only Debentures" means Debentures issued in the name of the
Depository or its nominee on the Register.

(f)
"Book Entry Only Participants" means institutions that participate directly or
indirectly in the Depository's book entry registration system for the
Debentures.

(g)
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which
is not a statutory holiday for banking institutions in the City of Toronto.

(h)
"CAD," "CAD$" or "Canadian Dollars" are references to the lawful currency of
Canada.

(i)
"CDS" shall mean CDS Clearing and Depository Services Inc., together with its
successors from time to time.

(j)
"Certificated Debenture" means a Debenture evidenced by a Debenture Certificate.

(k)
"Closing Date" means the date on which the completion of the sale and issuance
of Debentures occurs.

(l)
"Collateral" has the meaning given to that term in each general security
agreement to be executed under Section 4.1.

(m)
"Common Shares" means the common stock, USD$0.001 par value per share, of the
Company.

--------------------------------------------------------------------------------

(n)
"company" means any corporation, incorporated association, incorporated
syndicate or other incorporated organization.

(o)
"Counsel" means a firm of barristers and solicitors or attorneys, in each case
selected by the Company and satisfactory to the Trustee, acting reasonably.

(p)
"Debentures" means the debentures issued and Authenticated hereunder and
entitled to the benefit of the security hereof and for the time being
outstanding.

(q)
"Debenture Certificate" means a certificate representing one or more
Certificated Debentures substantially in the form of the certificate attached
hereto as Schedule 2.2(b).

(r)
"Depository" in respect of the Book Entry Only Debentures, means CDS and
includes any successor corporation or any other depository subsequently
appointed by the Company and acceptable to the Trustee as the depository in
respect of Book Entry Only Debentures.

(s)
"Event of Default" has the meaning specified in Section 8.1.

(t)
"Extraordinary Resolution" means (a) a resolution at any meeting of Holders
(including an adjourned meeting) approved by greater than 66.66% of the votes
cast upon such resolution, or (b) an instrument in writing signed in one or more
counterparts by Holders holding greater than 66.66% of the principal amount of
all of the outstanding Debentures.

(u)
"GAAP" means United States generally accepted accounting principles,
consistently applied.

(v)
"Global Certificate" means a Debenture Certificate that is registered in the
name of the Depository or its nominee pursuant to Section 2.9(b) for the purpose
of being held by or on behalf of the Depository as custodian for Book Entry Only
Participants.

--------------------------------------------------------------------------------

(w)
"Global Debentures" means Debentures representing all or a portion of the
aggregate number of Debentures issued in the name of the Depository represented
by an Uncertificated Debenture, or if requested by the Depository or the
Company, by a Global Certificate.

(x)
"Guarantee" means the guarantee entered into by the Guarantor under Section 4.3
and any entered into by any other Subsidiary under Section 4.3.

(y)
"Holder" means a person for the time being entered in the Register as a holder
of one or more Debentures.

(z)
"Holders' Committee" has the meaning given to that term in Section 11.13(j).

(aa)
"Holders' Indemnity" has the meaning given to that term in Section 8.3(a).

(bb)
"Holders' Request" means an instrument signed in one or more counterparts by the
Holder or Holders of not less than 10% of the principal amount of the Debentures
outstanding for the time being (supported by a Resolution of Holders if and to
the extent such Resolution may be required pursuant to the provisions hereof)
requesting the Trustee or Company to take some action or proceeding specified
therein;

(cc)
"Indemnified Parties" has the meaning specified in Section 9.6(1).

(dd)
"indenture legislation" has the meaning specified in Section 9.1.

(ee)
"Indenture", "herein", "hereby", "hereof", "hereunder" and similar expressions
mean this indenture, as amended in accordance with the terms hereof from time to
time, and not any particular article or section, and, unless the context
otherwise indicates, all indentures supplemental hereto from time to time in
effect; and the expression "Article" or "Section" followed by a number means the
specified Article or Section of this Indenture.

(ff)
"Intercreditor and Subordination Agreement" has the meaning specified in Section
5.1(b).

(gg)
"Intellectual Property" has the meaning given to that term in the intellectual
property security agreement attached as Schedule 4.2.

--------------------------------------------------------------------------------

(hh)
"Interest Payment Date" has the meaning assigned to that term in Section 2.2(e).

(ii)
"Interest Record Date" means with respect to an Interest Payment Date, the
seventh day prior to that Interest Payment Date.

(jj)
"Issuance Date" means the date on which the Debentures are originally issued.

(kk)
"liability" has the meaning specified in Section 9.6(2).

(ll)
"Lien" means any assignment, hypothec, mortgage, lien, charge, pledge, security
interest, encumbrance, title retention agreement or other agreement or
arrangement to secure the payment of any indebtedness or the performance of any
other obligation, or any other transaction or arrangement which, in substance,
is of the same effect or intent.

(mm)
"Maturity Date" means the date on which the Debentures become due and payable
under Section 2.2(g) unless otherwise redeemed in accordance with the terms of
this Indenture.

(nn)
"Obligor" means the Company and the Guarantor.

(oo)
"Officer's Certificate" means an instrument signed in the name of each Obligor
by any one of the then Chief Executive Officer, President, Secretary or Chief
Financial Officer of the Obligor or a senior officer of the Obligor designated
by the Obligor, certifying the matters specified therein and delivered to the
Trustee.

(pp)
"Permitted Liens" means:

--------------------------------------------------------------------------------

(i)
any Lien for Taxes not yet due or delinquent or being contested in good faith by
appropriate proceedings for which adequate reserves have been established in
accordance with GAAP,

(ii)
any statutory Lien arising in the ordinary course of business by operation of
law with respect to a liability that is not yet due or delinquent,

(iii)
any Lien created by operation of law, such as materialmen's liens, mechanics'
liens and other similar liens, arising in the ordinary course of business with
respect to a liability that is not yet due or delinquent or that are being
contested in good faith by appropriate proceedings,

(iv)
Liens securing the purchase price of assets purchased or leased by the Obligors
in the ordinary course of business; provided that (A) such Liens shall not
extend to or cover any other property of the Company or its Subsidiaries,
(B) the value of any such Lien shall not, individually, exceed USD$50,000 and
(C) the value of all Liens incurred under this subsection 1.1(pp)(iv) while any
Debenture is outstanding shall not exceed, in the aggregate, USD$500,000, and

(v)
Liens securing the Company's obligations under the Senior Notes and the
Debentures.

(vi)
those Liens listed in Schedule 1.1(pp).

(qq)
"person" means any individual, corporation, partnership, joint venture,
association, trust or unincorporated organization or any government or agency or
political subdivision thereof.

(rr)
"receiver's certificates" has the meaning specified in Section 8.5(e).

(ss)
"Redeemed Portion" has the meaning specified in Section 2.21(1)(a).

(tt)
"Redemption Date" has the meaning specified in Section 2.21(5)

(uu)
"Redemption Notice" has the meaning specified in Section 2.21(1).

(vv)
"Redemption Price" has the meaning specified in Section 2.21(1).

--------------------------------------------------------------------------------

(ww)
"Register" means the register of Holders maintained pursuant to Section 2.7.

(xx)
"Regulation S" means Regulation S under the U.S. Securities Act.

(yy)
"Required Holders" means Holders representing more than 50% of the aggregate
principal amount of the Debentures then outstanding.

(zz)
"Resolution" means (a) a resolution at any meeting of Holders (including an
adjourned meeting) approved by greater than 50% of the votes cast upon such
resolution, or (b) an instrument in writing signed in one or more counterparts
by Holders holding greater than 50% of the principal amount of all of the
outstanding Debentures.

(aaa)
"Security Agreements" means (i) the general security agreement delivered under
Section 4.1, (ii) the intellectual property security agreement delivered under
Section 4.2, (iii) the guarantee delivered under Section 4.3, (iv) the share
pledge agreement delivered under Section 5.4, and (v) any additional or other
guarantees or security agreements delivered under the terms of this Indenture or
any of the Security Agreements.

(bbb)
"Security Interest" means collectively the mortgage, charge, pledge, assignment,
transfer of, and security interest in, the Collateral granted to the Trustee by
each Obligor under this Indenture and the Security Agreements.

(ccc)
"Senior Notes" means the 10% Senior Secured Convertible Notes in the aggregate
original principal amount of USD$1,500,000, issued pursuant to that certain
Securities Purchase Agreement dated as of December 7, 2016 by and among the
Company and the Purchasers as defined therein.  The Senior Notes are in the form
and on the terms and conditions set out in Schedule 1.1(ccc).

(ddd)
"Stock Exchange" means the TSX Venture Exchange Inc. or, if the Common Shares of
the Company cease to be listed on the TSX Venture Exchange Inc., such other
exchange on which the Common Shares are listed and which forms the primary
trading market for the Common Shares.

(eee)
"Subsidiary" means any person that is controlled by (i) the Company, (ii) the
Company and one or more entities each of which is controlled by the Company, and
(iii) two or more entities, each of which is controlled by the Company . Any
person shall be deemed to "control" another person if such person possesses,
directly or indirectly, the power to direct or cause the direction of the
management and policies of such other person, whether through the ownership of
voting securities, by contract or otherwise; and the term "controlled" shall
have a similar meaning.

--------------------------------------------------------------------------------

(fff)
"Successor Person" has the meaning specified in Section 12.1.

(ggg)
"Successor Person Transaction" has the meaning specified in Section 12.1

(hhh)
"Taxes" means all present and future taxes, duties, levies, imposts, deductions,
charges, duties and withholdings and any charges of a similar nature (including
interest, penalties, additions to tax and other liabilities with respect
thereto) that are imposed by any government or other taxing authority.

(iii)
"Trading Day" means any day on which the Stock Exchange is open for trading.

(jjj)
"Trustee" means TSX TRUST COMPANY, including its successors and assigns.

(kkk)
"Uncertificated Debenture" means any Debenture which is not a Certificated
Debenture.

(lll)
"United States" means the United States as that term is defined in Regulation S.

(mmm)
"U.S. Person" means a U.S. person as such term is defined in Regulation S.

(nnn)
"U.S. Securities Act" means the United States Securities Act of 1933, as
amended.

--------------------------------------------------------------------------------

(ooo)
"U.S. Dollars" "USD" or "USD$" are references to United States dollars, the
legal currency of the United States.

1.2 Compliance Certificates and Opinions
(1) The Company shall furnish the Trustee with evidence of compliance with the
conditions in this Indenture relating to:
(a)
the issue, Authentication and delivery of Debentures;

(b)
the satisfaction and discharge of the Indenture; and

(c)
the taking of any other action to be taken by the Trustee at the request or on
the application of the Company.

(2) Evidence of compliance referred to in Section 1.2(1) shall consist of:
(a)
an Officer's Certificate stating that such conditions have been complied with in
accordance with the terms of this Indenture; and

(b)
in the case of conditions which in the reasonable opinion of the Trustee are
subject to review by legal counsel, an opinion of Counsel that such conditions
have been complied with in accordance with the terms of this Indenture.

(3) The Company shall also furnish to the Trustee evidence of compliance with
every condition specified in this Indenture or the Security Agreements relating
to any action not specified in Section 1.2(1) required or permitted to be taken
by the Company under this Indenture as to which evidence of compliance is
required to be furnished to the Trustee by this Indenture or is required by the
Trustee to be furnished to it in the exercise of its rights, duties and
obligations hereunder. Such evidence of compliance may consist of a report or
opinion of any Counsel, auditor, accountant, engineer or appraiser or any other
person whose qualifications give authority to a statement made by him, but if
such report or opinion is provided by a director, officer or employee of the
Company, it shall be in the form of an Officer's Certificate.
(4) Evidence of compliance required under Sections 1.2(1), 1.2(2), and 1.2(3)
shall be in form acceptable to the Trustee acting reasonably.
1.3 Effect of Headings and Table of Contents
The division of this Indenture into Articles and Sections, the insertion of
headings and the provision of a Table of Contents are for convenient reference
only and shall not affect the construction or interpretation hereof.
 

--------------------------------------------------------------------------------

1.4 Singular, Plural, Gender, Certain Phrases, etc.
Where the context permits and unless such interpretation would be inappropriate,
words importing the singular only shall include the plural and vice versa and
words importing gender may include any gender. In this Indenture and the
Debentures, (i) the words "including" and "includes" mean "including (or
includes) without limitation", and (ii) in the computation of periods of time
from a specified date to a later specified date, unless otherwise expressly
stated, the word "from" means "from and including" and the words "to" and
"until" each mean "to but excluding".
1.5 Accounting
Except as otherwise specifically provided herein, all accounting terms shall be
applied and construed in accordance with generally accepted accounting
principles in the United States of America.
1.6 Successors and Assigns
All covenants and agreements in this Indenture by each Obligor and the Trustee
shall bind its successors and assigns, whether so expressed or not.
1.7 Severability
In case any provision in this Indenture or in the Debentures shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
1.8 Benefits of Indenture
Nothing in this Indenture or in the Debenture Certificates, expressed or
implied, shall give to any person, other than the parties hereto and their
successors hereunder and the Holders, any benefit or any legal or equitable
right, remedy or claim under this Indenture.
1.9 Language
The parties to this Indenture hereby require that the Indenture be prepared in
the English language. Les parties à cet acte de fiducie demandent par les
presentes que l'acte de fiducie soit rédigé en anglais.
1.10 Payment on a Business Day
If any payment of principal or interest on the Debentures is provided to be paid
on a day which is not a Business Day, then such payment need not be made on such
date but may be made on the next succeeding Business Day.
1.11 Currency
The equivalent amount of U.S, dollars represented by an amount denominated in
Canadian dollars, or the equivalent amount of Canadian dollars represented by an
amount denominated in United States dollars, shall be calculated based on the
relevant currency exchange rate as published by The Wall Street Journal on the
reference date for that calculation.

--------------------------------------------------------------------------------

If a judgment or order made by any court for the payment of any amount in
respect of any Debentures is expressed in a currency other than Canadian
dollars, the Company will indemnify the relevant Holder against any deficiency
arising from any variation in rates of exchange between the date as of which the
Canadian dollar currency is notionally converted into the judgment currency for
the purposes of the judgment or order and the date of actual payment. This
indemnity will constitute a separate and independent obligation from the
Company's other obligations under the Indenture, will give rise to a separate
and independent cause of action, will apply irrespective of any indulgence
granted from time to time and will continue in full force and effect
notwithstanding any judgment or order for a liquidated sum or sums in respect of
amounts due under the Indenture or the Debentures.
1.12 Schedules
Following are the schedules to this Indenture:
Schedule 1.1(pp) Permitted Liens
Schedule 1.1(ccc)                   Form of Senior Note
Schedule 2.2(b)  Debenture Certificate
Schedule 2.21(2) Redemption Notice
Schedule 4.1             General Security Agreement
Schedule 4.2             Intellectual Property Security Agreement
Schedule 4.3                 Guarantee
Schedule 4.4          Pledge Agreement
Schedule 5.1(b) Intercreditor and Subordination Agreement
ARTICLE 2
THE DEBENTURES
2.1 Fixed Limitation
The aggregate principal amount of Debentures which may be issued under this
Indenture is limited to CAD$1,550,000, which Debentures may be issued hereunder
only upon the terms and subject to the conditions herein provided.
2.2 Characteristics of Debentures
The Debentures shall be known as "Series B Convertible Secured Debentures" and
shall be on the following terms:
(a)
Registered: Each Debenture shall be issued only in fully registered form.

(b)
Debenture Certificate: The Debenture Certificate shall be substantially in the
form attached hereto as Schedule 2.2(b);

(c)
Designation: Each Debenture shall be issued as part of a single series
designated as "Series B Convertible Secured Debentures";

(d)
Denominations: Each Debenture shall be issued for CAD$1,000 principal face
value;

(e)
Issue Date and Interest: Each Debenture shall be endorsed with the date on which
it is issued. The principal amount of each Debenture shall bear interest
calculated (i) from and including the date of issue of the Debenture, or
(ii) from and including the last Interest Payment Date, whichever shall be the
later, to but excluding the next Interest Payment Date on so much of the
principal as is outstanding from time to time at the rate of 12% per annum from
its issue date up until the Maturity Date and thereafter so long as any of the
principal amount is unpaid, calculated and paid semi-annually in arrears. The
first such payment of interest shall be made on May 31, 2017 and subsequent
payments of interest shall be made semi-annually thereafter on the last day of
November and May, with a final payment to be made on the Maturity Date or such
later date on which the principal amount is paid (each such date on which
interest is to be paid being an "Interest Payment Date"). Any interest not paid
on an Interest Payment Date shall be compounded on a semi-annual basis as and
from that Interest Payment Date and shall thereafter bear interest at the rate
of 12% per annum compounded as aforesaid until paid.

Interest shall be calculated on the basis of actual days elapsed over a 365 day
year and shall be calculated from and including the date on which the Debenture
is issued or the last Interest Payment Date (as applicable) to and excluding the
following Interest Payment Date. Interest shall be calculated and paid both
before and after maturity, default and judgment.
All payments of interest to be made on an Interest Payment Date shall be made to
the Holders thereof in whose names the Debentures are registered at the close of
business on the Interest Record Date with respect to that Interest Payment
Date.  All payments that the Company makes under or with respect to the
Debentures shall comply with Section 2.24

--------------------------------------------------------------------------------

(f)
Maximum Effective Interest Rate:  Notwithstanding any other provision of the
Debentures or this Indenture (including, for certainty, Section 2.21 (Redemption
of Debentures) and Section ARTICLE 6 (Change of Control)), the effective rate of
interest per annum may not exceed 25% and any payments otherwise required to be
made to the Holders will be reduced as necessary for that purpose. The Company
will provide written direction to the Trustee regarding any applicable
adjustments required to be made to payments pursuant to this Section 2.2(f).

(g)
Maturity Date: Each Debenture shall become due and payable on June 6, 2019.

(h)
Payment in Canadian Funds: The principal and interest of the Debentures and all
other sums which may be payable thereon, whether at maturity or otherwise, shall
be payable in lawful money of Canada.

2.3 Signature on Debenture Certificates
All Debenture Certificates shall be signed on behalf of the Company (either
manually or by facsimile) by any officer or director of the Company holding
office at the time of signing. A facsimile signature upon any of the Debenture
Certificates shall for all purposes of this Indenture be deemed to be the
signature of the person whose signature it purports to be and to have been
signed at the time such facsimile signature is reproduced. Notwithstanding that
any such person whose signature, either manual or in facsimile, may appear on
the Debenture Certificate is not an officer of the Company at the date of this
Indenture or at the date of execution of the Debenture Certificates or at the
date of the Authentication and delivery thereof, such Debenture Certificates
shall be valid and binding upon the Company and entitled to the benefits of this
Indenture.
2.4 Authentication
No Certificated Debenture shall be issued or, if issued, shall be obligatory, or
shall entitle the holder to the benefits of this Indenture or to the Security
Interest, until it has been Authenticated by manual signature on behalf of the
Trustee. Such Authentication on any Certificated Debenture shall be conclusive
evidence that such Debenture is duly issued, is a valid obligation of the
Company and is secured hereby and entitled to the benefit hereof. The Trustee
shall Authenticate Certificated Debentures only upon written direction of the
Company.
No Uncertificated Debenture shall be considered issued and shall be obligatory
or shall entitle the holder thereof to the benefits of this Indenture, until it
has been Authenticated by entry on the Register of the particulars of the
Uncertificated Debenture. Such entry on the Register of the particulars of an
Uncertificated Debenture shall be conclusive evidence that such Uncertificated
Debenture is a valid and binding obligation of the Company and that the holder
is entitled to the benefits of this Indenture.
The Authentication by the Trustee of any Debentures whether by way of entry on
the Register or otherwise shall not be construed as a representation or warranty
by the Trustee as to the validity of the Indenture or such Debentures (except
the due Authentication thereof) or as to the performance by the Company of its
obligations under this Indenture, and the Trustee shall in no respect be liable
or answerable for the use made of the Debentures or the proceeds thereof.
2.5 Debentures Equally Secured
Each Debenture as soon as issued, or as soon as transferred in accordance with
the provisions of this Indenture, shall be equally and rateably secured hereby
and equally entitled to the benefits hereof as if all of the Debentures had been
issued simultaneously.

--------------------------------------------------------------------------------

2.6 Issue in Substitution for Lost Debenture Certificates
If any Debenture Certificate issued and Authenticated hereunder shall become
mutilated or be lost, stolen or destroyed, the Company shall issue and thereupon
the Trustee shall Authenticate and deliver a new Debenture Certificate of like
date and tenor upon surrender and cancellation of the mutilated Debenture
Certificate or, in the case of a lost, destroyed or stolen Debenture Certificate
in lieu of and in substitution for the same, and the substituted Debenture
Certificate shall be in the form authorized under this Indenture with such
endorsements thereon as the Trustee may approve for the purpose of indicating
that it has been issued in substitution for a mutilated, lost, destroyed or
stolen Debenture Certificate, and shall be entitled to the security hereof and
rank equally in accordance with its terms with all other Debentures issued
hereunder.
The applicant for a new Debenture Certificate pursuant to this Section shall
bear the cost of the issue thereof and in case of loss, destruction or theft
shall, as a condition precedent to the issue thereof, furnish to the Company and
to the Trustee such evidence of ownership and of loss, destruction or theft of
the Debenture Certificate so lost, destroyed or stolen as shall be satisfactory
to the Company and to the Trustee in their discretion and such applicant may
also be required to furnish an indemnity and surety bond in amount and form
satisfactory to them in their discretion and shall pay the reasonable charges of
the Company and the Trustee in connection therewith.
2.7 Registry and Transfer
The Trustee shall cause to be kept a Register at its principal office in
Toronto, Ontario, in which shall be recorded the name and address of all Holders
and the particulars of the Debentures held by them together with the particulars
of any Debenture Certificate issued in substitution for previously issued
Debentures pursuant to Section 2.6 hereof, and the particulars of any transfers
of Debentures, in whole or in part.
The Register shall at all reasonable times be open for inspection by the Company
or by any Holder, and the Trustee shall from time to time when requested to do
so by the Company or any Holder, and upon payment of its reasonable fees,
furnish the Company or the requesting Holder, as the case may be, with a list of
the names and addresses of Holders entered on the Register and showing the
principal amount, and serial numbers of the Debentures held by each such Holder.
The Trustee may make a charge to reimburse itself for any stamp taxes or
governmental charges required to be paid by the Trustee. The Trustee may make a
reasonable charge for the Trustee's services upon any exchange or transfer of
Debentures. In the case of any exchange or transfer of debentures, payment of
such charge will be made by the person requesting the exchange or transfer as a
condition precedent to such exchange or transfer.
Any Holder may from time to time change its address in the Register by notice in
writing to the Trustee and Company in the manner provided in Article 14 of the
Indenture.
2.8 Payment of Principal and Interest on Debentures
As payments in respect of principal and interest on the Debentures become due,
(a)
the Company shall provide to the Trustee such payment by wire transfer to an
account designated by the Trustee, at or before 10:00 a.m. on the second
Business Day preceding the date on which payment of such principal or interest
is due, as the case may be, for all amounts due in respect of such principal and
interest on the Debentures to enable the Trustee to forward or cause to be
forwarded such funds to the Holders on the applicable date on which payment is
due;

(b)
the Trustee shall (except in cases of payments on maturity, redemption or
repurchase which shall be made only upon presentation and surrender of the
Debenture Certificates):

--------------------------------------------------------------------------------

(i)
if the Holder has requested payment by wire transfer and provided all
information required by the Trustee in that regard, make the payment by wire
transfer to an account designated by the Holder on the date on which payment is
due; or

(ii)
if the Holder has not requested payment by wire transfer or has not provided all
information required by the Trustee in that regard at least 3 Business Days
prior to the Interest Payment Date, on the date on which payment is due the
Trustee shall forward or cause to be forwarded on the day on which such payment
is due, by post, prepaid, addressed to the Holder, or, in the case of joint
Holders, to one of such joint Holders, at the address of the Holder as shown in
the Register a cheque for such payment, payable to the order of such Holder or
in the case of joint holders to the order of all such joint Holders and
negotiable at par.

In the case of any payment of interest, the forwarding of such funds by the
Company to the Trustee and the subsequent delivery of such funds by the Trustee
to the Holders in whose names the Debentures are registered at the close of
business on the Interest Record Date with respect to the applicable Interest
Payment Date by cheque or wire transfer shall satisfy and discharge the
Company's liability for payment of the interest on the Debentures to the extent
of the sums represented thereby, plus the amount of any withholding or other
Taxes deducted, unless such cheque is not paid at par on presentation. In the
event of the non-receipt of such cheque by the Holder, or the loss or
destruction thereof, the Trustee on being furnished with reasonable evidence of
such non-receipt, loss or destruction and indemnity reasonably satisfactory to
it shall issue to such Holder a replacement cheque for the amount of such
cheque. Notwithstanding the foregoing, if the Trustee is prevented by
circumstances beyond its control (including, without limitation, any
interruption in mail service) from making payment of any interest due on each
Debenture in the manner provided above, the Trustee may make payment of such
interest or make such interest available for payment in any other manner
acceptable to the Trustee with the same effect as though payment had been made
in the manner provided above.
Subject to the foregoing provisions of this Section, each Debenture delivered
upon the transfer of or in exchange for or in lieu of any other Debenture shall
carry the rights to interest accrued and unpaid, and to accrue, that were
carried by such other Debenture.
2.9 Form of Debentures and Authentication
The Debentures, including those issued to the Depository, may be issued as
Certificated Debentures or as Uncertificated Debentures, other than Debentures
issued to a U.S. Person, a person in the United States or to a person purchasing
for the account or benefit of a person in the United States or a U.S. Person,
which shall be issued as Certificated Debentures only.
(a)
Certificated Debentures: All Certificated Debentures shall be evidenced by a
Debenture Certificate (including all replacements issued in accordance with this
Indenture), substantially as set out in Schedule 2.2(b) hereto. Each Debenture
Certificate shall be Authenticated manually on behalf of the Trustee. Each
Debenture Certificate shall be signed by any duly authorized signatory of the
Company; whose signature shall appear on the Debenture Certificate and may be
printed, lithographed or otherwise mechanically reproduced thereon and, in such
event, certificates so signed are as valid and binding upon the Company as if it
had been signed manually. The Debenture Certificates may be engraved, printed or
lithographed, or partly in one form and partly in another, as the Trustee may
determine.

(b)
Uncertificated Debentures: The Company may, at its sole option, specify, in a
written order of the Company delivered to the Trustee, that some or all of the
Debentures are to be represented by one or more Global Certificates or
Uncertificated Debentures registered in the name of the Depository or its
nominee, and in such event the Company shall execute and the Trustee shall
Authenticate and deliver such Global Certificates or Uncertificated Debentures
that shall represent the aggregate number of outstanding Debentures to be
represented by such Global Certificates or Uncertificated Debentures and bear or
be deemed to bear a legend substantially to the following effect:

"UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF CDS
CLEARING AND DEPOSITORY SERVICES INC. ("CDS") TO SECURITY DEVICES INTERNATIONAL
INC. OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IN RESPECT THEREOF IS REGISTERED IN THE NAME OF CDS & CO., OR
IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF CDS (AND
ANY PAYMENT IS MADE TO CDS & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF CDS), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED HOLDER
HEREOF, CDS & CO., HAS A PROPERTY INTEREST IN THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HEREIN AND IT IS A VIOLATION OF ITS RIGHTS FOR ANOTHER PERSON TO
HOLD, TRANSFER OR DEAL WITH THIS CERTIFICATE"

--------------------------------------------------------------------------------

2.10 Book Entry Only Debentures
(1) Registration: Registration of beneficial interests in and transfers of
Debentures held by the Depository shall be made only through the book entry
registration system of the Depository and no Debenture Certificates shall be
issued in respect of such Debentures except where physical certificates
evidencing ownership in such securities are required, as set out herein or as
may be requested by the Depository, as determined by the Company, from time to
time. Except as provided in Section 2.10(2), owners of beneficial interests in
any Global Debentures shall not be entitled to have Debentures registered in
their names and shall not receive or be entitled to receive Debenture
Certificates or to have their names appear in the Register.
(2) Registration in the Name of the Depository: Notwithstanding any other
provision in this Indenture, no Global Debentures may be exchanged in whole or
in part for Debentures registered, and no transfer of any Global Debentures in
whole or in part may be registered, in the name of any person other than the
Depository for such Global Debentures or a nominee thereof unless:
(a)
the Depository notifies the Company that it is unwilling or unable to continue
to act as depository in connection with the Book Entry Only Debentures and the
Company is unable to locate a qualified successor;

(b)
the Company determines that the Depository is no longer willing, able or
qualified to discharge properly its responsibilities as holder of the Global
Debentures and the Company is unable to locate a qualified successor;

(c)
the Depository ceases to be a clearing agency or otherwise ceases to be eligible
to be a depository and the Company is unable to locate a qualified successor;

(d)
the Company determines that the Debentures shall no longer be held as Book Entry
Only Debentures through the Depository;

(e)
such right is required by applicable law, as determined by the Company and the
Company's Counsel;

(f)
the Debenture is to be Authenticated to or for the account or benefit of a
person in the United States or a U.S. Person; or

(g)
such registration is effected in accordance with the internal procedures of the
Depository and the Trustee, following which, Debentures for those holders
requesting the same shall be registered and issued to the beneficial owners of
such Debentures or their nominees as directed by the Depositary.

The Company shall provide an Officer's Certificate giving notice to the Trustee
of the occurrence of any event outlined in Sections 2.10(2)(a) through (f)
hereof.

--------------------------------------------------------------------------------

(3) Exchange of Global Debentures: Subject to the provisions of Section 2.10(2),
any exchange of Global Debentures for Debentures which are not Global Debentures
may be made in whole or in part in accordance with the provisions of Section
2.13 hereof, mutatis mutandis. All such Debentures issued in exchange for a
Global Debenture or any portion thereof shall be registered in such names as the
Depository for such Global Debentures shall direct and shall be entitled to the
same benefits and subject to the same terms and conditions (except insofar as
they relate specifically to Global Debentures) as the Global Debentures or
portion thereof surrendered upon such exchange.
(4) Rights of Beneficial Owners: The rights of beneficial owners of Debentures
who hold securities entitlements in respect of the Debentures through the book
entry registration system shall be limited to those established by applicable
law and agreements between the Depository and the Book Entry Only Participants
and between such Book Entry Only Participants and the beneficial owners of
Debentures who hold securities entitlements in respect of the Debentures through
the book entry registration system of the Depository, and such rights must be
exercised through a Book Entry Only Participant in accordance with the rules and
procedures of the Depository.
(5) Limitation of Liability: Notwithstanding anything herein to the contrary,
neither the Company nor the Trustee nor any agent thereof shall have any
responsibility or liability for:
(a)
the electronic records maintained by the Depository relating to any ownership
interests or any other interests in the Debentures or the depository system
maintained by the Depository, or payments made on account of any ownership
interest or any other interest of any person in any Debenture represented by an
electronic position in the book entry registration system (other than the
Depository or its nominee);

(b)
maintaining, supervising or reviewing any records of the Depository or any Book
Entry Only Participant relating to any such interest; or

(c)
any advice or representation made or given by the Depository or any Book Entry
Only Participant that relate to the rules and regulations of the Depository or
any action to be taken by the Depository on its own direction or at the
direction of any Book Entry Only Participant.

2.11 Legends
(1) Certificated Debenture and Global Debenture: Each Certificated Debenture and
each Global Debenture issued on the Closing Date (and each such Certificated
Debenture or Global Debenture, as the case may be, issued in exchange therefor
or in substitution thereof) shall bear or be deemed to bear the following legend
or such variations thereof as the Company may prescribe from time to time:
(a)
if issued before the date which is four months and one day after the Closing
Date

"UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY (AND
ANY SECURITY INTO WHICH THIS SECURITY MAY BE CONVERTED) MUST NOT TRADE THE
SECURITY BEFORE [THE DATE WHICH IS FOUR MONTHS AND ONE DAY AFTER THE CLOSING
DATE WILL BE INSERTED].

--------------------------------------------------------------------------------

(b)
if issued before the date which is six months and one day after the Closing Date

"THE DEBENTURES (AND THE COMMON SHARES INTO WHICH THE DEBENTURES MAY BE
CONVERTED) HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "U.S. SECURITIES ACT") AND MAY NOT BE OFFERED OR SOLD IN THE UNITED
STATES OR TO U.S. PERSONS (AS DEFINED IN REGULATION S PROMULGATED UNDER THE U.S.
SECURITIES ACT). THE DEBENTURES ARE BEING OFFERED ONLY TO NON-U.S. PERSONS
OUTSIDE THE UNITED STATES IN TRANSACTIONS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE U.S. SECURITIES ACT IN RELIANCE ON REGULATION S, PURCHASERS
OF THE DEBENTURES MAY NOT OFFER TO SELL, SELL, PLEDGE OR OTHERWISE TRANSFER THE
DEBENTURES (OR ANY COMMON SHARES INTO WHICH THE DEBENTURES MAY BE CONVERTED) IN
THE UNITED STATES OR TO OR FOR THE ACCOUNT OR BENEFIT OF ANY U.S. PERSON UNLESS
SUCH OFFER, SALE, PLEDGE OR TRANSFER IS REGISTERED UNDER THE U.S. SECURITIES ACT
OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE AND THE DEBENTURES MAY NOT BE
CONVERTED INTO COMMON SHARES BY OR ON BEHALF OF ANY U.S. PERSON EXCEPT PURSUANT
TO SUCH REGISTRATION OR AN EXEMPTION THEREFROM. HEDGING TRANSACTIONS INVOLVING
THE DEBENTURES OR THE COMMON SHARES MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE
WITH THE U.S. SECURITIES ACT."
(c)
if required under Stock Exchange rules, and the Trustee is instructed by the
Company to insert the following legend (the "TSXV Legend"):

"WITHOUT PRIOR WRITTEN APPROVAL OF TSX VENTURE EXCHANGE AND COMPLIANCE WITH ALL
APPLICABLE SECURITIES LEGISLATION, THE SECURITIES REPRESENTED BY THIS
CERTIFICATE (AND ANY SECURITY INTO WHICH THIS SECURITY MAY BE CONVERTED) MAY NOT
BE SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE TRADED ON OR THROUGH THE
FACILITIES OF TSX VENTURE EXCHANGE OR OTHERWISE IN CANADA OR TO OR FOR THE
BENEFIT OF A CANADIAN RESIDENT UNTIL [INSERT DATE]."
(2) Certificates for Common Shares: Each certificate evidencing Common Shares
issued upon conversion of any Debenture or any portion thereof in accordance
with Article 3 hereof shall, bear the following legend or such variations
thereof as the Company may prescribe from time to time:
(a)
if issued before the date which is four months and one day after the Closing
Date

"UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST
NOT TRADE THE SECURITY BEFORE [THE DATE WHICH IS FOUR MONTHS AND ONE DAY AFTER
THE CLOSING DATE WILL BE INSERTED]."
(b)
if issued before the date which is six months and one day after the Closing Date

"THE COMMON SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "U.S. SECURITIES ACT") AND MAY
NOT BE OFFERED OR SOLD THE UNITED STATES OR TO U.S. PERSONS (AS DEFINED IN
REGULATION S PROMULGATED UNDER THE U.S. SECURITIES ACT). THE COMMON SHARES ARE
BEING OFFERED AND SOLD ONLY TO NON-U.S. PERSONS OUTSIDE THE UNITED STATES IN
TRANSACTIONS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE U.S. SECURITIES
ACT IN RELIANCE ON REGULATION S, HOLDERS OF THE COMMON SHARES EVIDENCED BY THIS
CERTIFICATE MAY NOT OFFER TO SELL, SELL, PLEDGE OR OTHERWISE TRANSFER THE COMMON
SHARES IN THE UNITED STATES OR TO OR FOR THE ACCOUNT OR BENEFIT OF ANY U.S.
PERSON UNLESS SUCH OFFER, SALE, PLEDGE OR TRANSFER IS REGISTERED UNDER THE U.S.
SECURITIES ACT OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE. HEDGING
TRANSACTIONS INVOLVING THE COMMON SHARES MAY NOT BE CONDUCTED UNLESS IN
COMPLIANCE WITH THE U.S. SECURITIES ACT."
(c)
if the Debenture being converted in whole or in part contains a TSXV Legend,
bear the following legend or such variations thereof as the Company may
prescribe from time to time:

"WITHOUT PRIOR WRITTEN APPROVAL OF TSX VENTURE EXCHANGE AND COMPLIANCE WITH ALL
APPLICABLE SECURITIES LEGISLATION, THE SECURITIES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE TRADED ON OR
THROUGH THE FACILITIES OF TSX VENTURE EXCHANGE OR OTHERWISE IN CANADA OR TO OR
FOR THE BENEFIT OF A CANADIAN RESIDENT UNTIL [INSERT DATE]."

--------------------------------------------------------------------------------

(3) Compliance with Legend: Notwithstanding any other provisions of this
Indenture, in processing and registering transfers of Debentures, no duty or
responsibility whatsoever shall rest upon the Trustee to determine the
compliance by any transferor or transferee with the terms of the legends
contained in this Section 2.11, or with the relevant securities laws or
regulations, including, without limitation, Regulation S, and the Trustee shall
be entitled to assume that all transfers are legal and proper.
2.12 Exchange of Debenture Certificates
One or more Debenture Certificates representing any number of Debentures may, at
any time on compliance with the reasonable requirements of the Trustee, be
exchanged for one or more Debenture Certificates of different denominations
representing in the aggregate the same number of Debentures as the Debenture
Certificate(s) being exchanged. Debenture Certificates may be exchanged only at
the address of the Trustee or at any other place designated by the Company with
the approval of the Trustee. No charge will be levied on a presenter of a
Debenture Certificate pursuant to this Indenture for the exchange of any
Debenture Certificate.
Any Debenture Certificate tendered for exchange pursuant to this Section 2.12
shall be surrendered to the Trustee and cancelled.
2.13 Transfer of Debentures
The Debentures may only be transferred on the Register by the Holder or its
legal representatives or its attorney duly appointed by an instrument in writing
in form and execution satisfactory to the Trustee and only upon (1) in the case
of a Debenture Certificate, surrendering to the Trustee the Debenture
Certificates representing the Debentures to be transferred together with a duly
executed form of transfer (in the form attached to the Debenture Certificate),
(2) in the case of Book Entry Only Debentures, in accordance with procedures
prescribed by the Depository under the book entry registration system, and
(3) upon compliance with (i) the conditions herein; (ii) such reasonable
requirements as the Trustee may prescribe; and (iii) all applicable securities
legislation and requirements of regulatory authorities.
Upon compliance with such requirements, the Trustee shall issue to the
transferee a Debenture Certificate, or the Trustee shall Authenticate and
deliver a Debenture Certificate upon request that part of the Global Debenture
be certificated, and Debentures that are held as Book Entry Only Debentures
shall be transferred and recorded through the relevant Book Entry Only
Participant in accordance with the book entry registration system as the
entitlement holder in respect of such Debentures.
Notwithstanding any other provision of this Indenture, neither the Trustee nor
the Company shall be obligated to register the transfer of the Debentures not
made in accordance with Regulation S or pursuant to registration under the U.S.
Securities Act or an available exemption therefrom and the Company may request
such documentation as it deems appropriate to assure compliance with such
requirements.
2.14 Ownership of Debentures and Persons Entitled to Payment
The person in whose name any Debenture shall be registered shall be deemed the
owner thereof for all purposes of this Indenture and payment of or on account of
the interest or principal on such Debenture shall be made only to or upon the
order in writing of the Holder and such payment shall be a good and sufficient
discharge to the Company and the Trustee for the amount so paid. Neither the
Company nor the Trustee will be liable or responsible to any person for any
aspect of the records related to or payments made on account of beneficial
interests in any Global Debenture or for maintaining, reviewing or supervising
any records relating to such beneficial interests.
2.15 Trustee Not Bound to Make Enquiries
The Trustee, prior to the Authentication and delivery of any Debentures under
any of the provisions of this Indenture, shall not be bound to make any enquiry
or investigation into the correctness of the matters set forth in any of the
resolutions, opinions, certificates or other documents required by the
provisions hereof, but shall be entitled to accept and act upon the resolutions,
opinions, certificates and other documents provided, however, that the Trustee
may in its discretion cause to be made such independent investigation as it may
see fit.

--------------------------------------------------------------------------------

2.16 Debentures Maturity Date
All outstanding Debentures shall become due and payable on the Maturity Date.
From and after the later of the Maturity Date and the date on which the monies
necessary to pay and discharge such Debentures shall have been deposited as
provided in Section 2.17, interest on the Debentures shall cease to accrue and
the Debentures shall become void except as evidence of the each Holder's
entitlement to the monies so deposited.
2.17 Deposit of Monies
The Company shall, as provided in Section 2.8(a), deposit with the Trustee in
trust for the Holders, such sums as may be sufficient in aggregate to pay all
amounts which are due and owing under the Debentures on the Maturity Date, and,
if required by the Trustee, a sum sufficient to pay any charges or expenses
which may be incurred by the Trustee. From the sums so deposited the Trustee
shall pay or cause to be paid to the Holders, upon surrender of their
Debentures, all amounts which are due and owing on such Debentures on the
Maturity Date.
2.18 Surrender of Debentures
On the Maturity Date, the Holder of a Certificate Debenture shall surrender that
Holder's Debenture Certificate to the Trustee at the offices of the Trustee as
shown in the Debenture Certificate, or at such other offices of the Trustee or
its paying agent as the Trustee may notify the Holder in writing, against
delivery by the Trustee or its paying agent of all principal and interest owing
on the respective Debenture. If any Holder of a Certificated Debenture fails to
surrender any Debenture Certificate within 30 days of the Maturity Date, the
amount necessary to pay and discharge the principal and interest owing on such
Debentures may be set aside by the Trustee in trust for such Holder, to be held
without interest in a separate account maintained at a Canadian chartered bank,
and such setting aside shall for all purposes be deemed a payment to the Holder
of the sum so set aside. The Holder's Debentures shall thereafter not be
considered as outstanding to the extent of such payment and the Holder shall
have no right except to receive payment out of the monies so paid and deposited
of the principal and interest owing on such Debentures upon surrender and
delivery of such Debenture Certificates.
2.19 Cancellation of Debentures
(1) Subject to Section 2.19(3), all Debenture Certificates surrendered under any
provision of this Indenture shall be delivered to and cancelled by the Trustee.
(2) Subject to Section 2.19(3), all Debenture Certificates which shall have been
delivered to and cancelled by the Trustee shall be destroyed by the Trustee and,
if requested in writing by the Company, the Trustee shall furnish to it a
destruction certificate setting forth the numbers and denominations of the
Debenture Certificates so destroyed.
(3) If the Debenture Certificate surrendered under any provision of this
Indenture is a Global Debenture and if the entire principal amount represented
by that Debenture Certificate is not discharged as a result of the action taken
under that provision of this Indenture:
(a)
the obligation to surrender a Debenture Certificate to the Trustee shall be
satisfied if (i) the Trustee makes a notation on Exhibit "1" to the Global
Certificate of the reduction in the principal amount thereof resulting from the
action taken under that Section, and (ii) the Debenture Trustee is provided with
all other documentation which it may reasonably request; and

--------------------------------------------------------------------------------

(b)
so long as the requirements of Section 2.19(3)(a) are satisfied, the Trustee
shall be under no obligation to destroy the Debenture Certificate and the
Trustee shall instead deliver the revised Debenture Certificate to the
Depository or its nominee.

2.20 Repayment of Unclaimed Moneys
Any moneys set aside under Section 2.18 hereof and not claimed by and paid to
Holders as therein provided within six years after the date of such setting
aside, subject to any escheatment and unclaimed property laws, shall be repaid
to the Company by the Trustee on written demand by the Company and thereupon the
Trustee shall be released from all further liability with respect to such moneys
and thereafter the Holders in respect of which such moneys were so repaid to the
Company shall have no rights in respect thereof except to obtain payment of the
moneys so repaid from the Company.
2.21 Redemption of Debentures
(1) The Company shall have the right at its option to redeem the Debentures, in
whole or in part from time to time, on not less than 30 days prior notice (the
"Redemption Notice") to the Trustee and the Holders of Debentures to be
redeemed. Upon any such redemption, the Company shall pay to the Holders of
Debentures to be redeemed an amount (the "Redemption Price") equal to:
(a)
if the Redemption Notice is given on or before the first anniversary of the
Issuance Date, the sum of (i) the principal amount of the Debentures to be
redeemed (the "Redeemed Portion"), plus (ii) an amount equal to the interest
which is accrued and unpaid on the Redeemed Portion up to the Redemption Date,
plus (iii) an interest bonus equal to 100% of the interest which would have been
earned on the Redeemed Portion from the Redemption Date up to the Maturity Date;
and

(b)
if the Redemption Notice is given after the first anniversary of the Issuance
Date, the sum of (i) the principal amount of the Redeemed Portion, plus (ii) an
amount equal to the interest which is accrued and unpaid on the Redeemed Portion
up to the Redemption Date, plus (iii) an interest bonus equal to 50% of the
interest which would have been earned on the Redeemed Portion from the
Redemption Date up to the Maturity Date.

(2) The Redemption Notice shall be in the form set out in Schedule 2.21(2) to
this Indenture and the Redemption Notice shall be given in the manner provided
in Sections 14.2 and 14.3.
(3) At any time prior to redemption, the holders of Debentures to be redeemed
may exercise their right to convert the Debentures to be redeemed into Common
Shares as provided in ARTICLE 3.
(4) The Company shall, at least five days before the date upon which a
Redemption Notice is to be given, notify the Trustee of (A) its intention to
redeem such Debentures, (B) the aggregate principal amount of Debentures to be
redeemed, and (C) the Redemption Price to be paid.
If less than all the outstanding Debentures are to be redeemed, the Debentures
registered in the name of each Holder shall be redeemed on a pro-rata basis, to
the nearest multiple of CAD$1,000, in accordance with their proportional share
of the outstanding principal amount of the Debentures.
Debentures in denominations in excess of CAD$1,000 may be selected and called
for redemption in part only (such part being CAD$1,000 or an integral multiple
thereof) and, unless the context otherwise requires, references to Debentures in
this Section 2.21 shall be deemed to include any such part of the principal
amount of Debentures which shall have been so selected and called for
redemption. The Holder of any Certificated Debenture called for redemption in
part only, upon surrender of such Debenture Certificate for payment, shall be
entitled to receive, without expense to such Holder, a new Debenture Certificate
for the unredeemed portion of the Debenture so surrendered, and the Company
shall execute and the Trustee shall Authenticate and deliver, at the expense of
the Company, such new Debenture Certificate upon receipt of the Debenture
Certificate so surrendered.
(5) Upon a Redemption Notice being given in accordance with this Section 2.21,
the Redemption Price shall be and become due and payable on the date specified
in the Redemption Notice (the "Redemption Date") and with the same effect as if
that date was the Maturity Date of such Debentures. The Redemption Price will be
payable upon presentation and surrender of the Debentures called for redemption
at the office of the Trustee. From and after such Redemption Date, interest
shall cease on the Debentures called for redemption, unless payment of the
Redemption Price shall not be made on presentation for surrender of such
Debentures on or after the Redemption Date.
Upon the Debentures being called for redemption, the Company shall deposit with
the Trustee, in accordance with Section 2.8(a), such sums as are sufficient to
pay the aggregate Redemption Price. From the sums so deposited, the Trustee
shall pay or cause to be paid to the Holders, upon surrender of the Debentures,
the Redemption Price of the Debentures so surrendered.

--------------------------------------------------------------------------------

(6) All Debentures which are redeemed under this Section 2.21 shall be cancelled
and the Company shall not reissue any redeemed Debentures.
2.22 Purchase of Debentures
Provided that no Event of Default has occurred and is continuing, the Company
may purchase all or any of the Debentures in the open market (which shall
include purchase from or through an investment dealer) or by tender or by
private contract at any price, subject to compliance with applicable securities
laws. If an Event of Default has occurred and is continuing, the Company may
purchase all or any of the Debentures as aforesaid with the exception of by
private contract.
If, upon an invitation for tenders, more Debentures than the Company is prepared
to accept are tendered at the same lowest price, the Debentures to be purchased
by the Company will be selected by the Trustee in such manner as the Company may
deem equitable (which may include pro rata) as the Trustee will be directed in
writing by the Company, from the Debentures tendered by each tendering Holder
who tendered at such lowest price. The Holder of any Certificated Debenture of
which a part only is purchased, upon surrender of such Debenture Certificate for
payment, shall be entitled to receive, without expense to such Holder, a
replacement Debenture Certificate for and evidencing the same obligation as the
unpurchased part so surrendered and the Trustee, upon receipt of the written
direction of the Company, shall Authenticate and deliver such replacement
Debenture Certificate upon receipt of the Debenture Certificate so surrendered.
All Debentures purchased under this Section 2.22 shall be delivered by the
Company to the Trustee for cancellation and the Company shall not reissue any
such purchased Debentures.
2.23 Closing of Registers
Neither the Company nor the Trustee nor any registrar shall be required to:
(a)
make transfers, exchanges or conversions of Debentures on any Interest Payment
Date for such Debentures or during the seven preceding days;

(b)
make transfers, exchanges or conversions of Debentures on the date of any
selection by the Trustee of Debentures to be redeemed or during the seven
preceding days; or

(c)
make transfers, exchanges or conversions of any Debentures which have been
selected or called for redemption unless, upon due presentation thereof for
redemption, such Debenture shall not be redeemed.

2.24 Withholding Tax
(1) All payments that the Company makes under or with respect to the Debentures
and that any Guarantor makes under or with respect to any Guarantee will be made
free and clear of and without withholding or deduction for or on account of any
present or future Taxes imposed or levied by or on behalf of Canada or any other
jurisdiction (i) in which the Company or any Guarantor is incorporated,
organized or otherwise resident or doing business for tax purposes or (ii) from
or through which the Company, any Guarantor or any of their paying agents makes
any payment under or with respect to the Debentures or any Guarantee, or by, in
each case any political subdivision or taxing authority or agency thereof or
therein (each, a "Relevant Taxing Jurisdiction"), unless withholding or
deduction is then required by law.  If the Company or any Guarantor or any other
applicable withholding agent is required to withhold or deduct any amount for or
on account of Taxes imposed by a Relevant Taxing Jurisdiction in respect of any
payment made under or with respect to the Debentures or any Guarantee, the
Company or such Guarantor, as the case may be, will pay such additional amounts
("Additional Amounts") as may be necessary to ensure that the net amount
received by each Holder or beneficial owner of the Debentures after such
withholding or deduction (including any withholding or deduction attributable to
the Additional Amounts) will be not less than the amount the beneficial owner
would have received if such Taxes had not been required to be withheld or
deducted.
(2) Neither the Company nor any Guarantor will, however, pay Additional Amounts
to a Holder or beneficial owner of Debentures in respect or on account of:

--------------------------------------------------------------------------------

(a)
any Tax that would not have been imposed or levied by a Relevant Taxing
Jurisdiction, but for the Holder's or beneficial owner's present or former
connection with such Relevant Taxing Jurisdiction (other than any connection
arising solely from the acquisition, ownership or disposition of the Debentures,
the receipt of payments under or with respect to such Debentures or a Guarantee,
or the exercise or enforcement of rights under or with respect to the Debentures
or any Guarantee);

(b)
any Tax imposed by reason of a Holder, beneficial owner or any other recipient
of a payment being a Person with whom the Company or any Guarantor does not deal
at arm's length;

(c)
any Tax that is imposed or withheld by reason of the failure of the Holder or
beneficial owner of Debentures, following the Company's written request
addressed to the Holder or beneficial owner (and made at a time that would
enable the Holder or beneficial owner acting reasonably to comply with that
request, and in all events at least 30 calendar days before the relevant date on
which payment under or with respect to the Debentures or any Guarantee is due
and payable) to comply with any certification or identification requirements,
whether required or imposed by statute, regulation or administrative practice of
a Relevant Taxing Jurisdiction, as a precondition to exemption from, or
reduction in the rate of deduction or withholding of, Taxes imposed by the
Relevant Taxing Jurisdiction (including, without limitation, a certification
that the Holder or beneficial owner is not resident in the Relevant Taxing
Jurisdiction), but in each case only to the extent that the Holder or beneficial
owner, as the case may be, is legally eligible to provide such certification;

(d)
any estate, inheritance, gift, sales, transfer or similar Taxes;

(e)
any Tax imposed on or with respect to any payment by the Company or a Guarantor
to the Holder if such Holder is a fiduciary or partnership or person other than
the sole beneficial owner of such payment to the extent that such Taxes would
not have been imposed on such payment had the beneficiary, partner or other
beneficial owner directly held the Note; provided that there is no material cost
or material commercial or legal restriction to transferring the Debentures to
the beneficiary, partner or other beneficial owner and only to the extent such
Tax is imposed more than 90 days after the Company notifies such Holder of the
imposition of such Tax and requests the Holder to make such a transfer; or

(f)
any Tax that is imposed or levied by reason of the presentation (where
presentation is required in order to receive payment) of the Debentures for
payment on a date more than 30 days after the date on which such payment became
due and payable or the date on which payment thereof is duly provided for,
whichever is later, except to the extent that the beneficial owner or Holder
thereof would have been entitled to Additional Amounts had the Debentures been
presented for payment on any date during such 30 day period;

(3) The Company and each Guarantor, if they are the applicable withholding
agents, will (i) make such withholding or deduction required by applicable law
and (ii) remit the full amount deducted or withheld to the relevant taxing
authority in accordance with applicable law.
(4) At least 30 calendar days prior to each date on which any payment under or
with respect to the Debentures is due and payable, if the Company and any
Guarantor will be obligated to pay Additional Amounts with respect to such
payment (unless such obligation to pay Additional Amounts arises after the 30th
day prior to the date on which payment under or with respect to the Debentures
is due and payable, in which case it will be promptly thereafter), the Company
will deliver to the Trustee an Officer's Certificate stating that such
Additional Amounts will be payable and the amounts so payable and will set forth
such other information (other than the identities of Holders and beneficial
owners) necessary to enable the Trustee to pay such Additional Amounts to
Holders and beneficial owners on the relevant payment date. The Company will
provide the Trustee with documentation reasonably satisfactory to the Trustee
evidencing payment of such Additional Amounts.
(5) The Company or the relevant Guarantor will take reasonable efforts to
furnish to the Trustee or a Holder within a reasonable time certified copies of
tax receipts evidencing the payment by the Company or such Guarantor, as the
case may be, of any Taxes imposed or levied by a Relevant Taxing Jurisdiction. 
If, notwithstanding the reasonable efforts of the Company or such Guarantor to
obtain such receipts, the same are not obtainable, then the Company or such
Guarantor will provide such Holder with other evidence reasonably satisfactory
to the Holder of such payment by the Company or such Guarantor.

--------------------------------------------------------------------------------

(6) The Company and each Guarantor will pay any present or future stamp, issue,
registration, court documentation, intangible, recording, filing, excise or
property Taxes or other similar Taxes imposed by any Relevant Taxing
Jurisdiction in respect of any payment under or with respect to the Debentures
or any Guarantee, the execution, issue, delivery or registration of the
Debentures, any Guarantee or this Indenture or any other document or instrument
referred to thereunder and any such Taxes imposed by any jurisdiction as a
result of, or in connection with, the enforcement of the Debentures, such
Guarantee or this Indenture or any such other document or instrument following
the occurrence of any Event of Default with respect to the Debentures.
(7) The preceding provisions will survive any termination, defeasance or
discharge of this Indenture and shall apply mutatis mutandis to any jurisdiction
in which any successor person to the Company or any Guarantor is organized,
incorporated or otherwise resident or doing business for tax purposes or any
jurisdiction from or through which such makes any payment under or with respect
to the Debentures or any Guarantee, and in each case any political subdivision
or taxing authority or agency thereof or therein.
Whenever this Indenture refers to, in any context, the payment of principal,
premium, if any, interest or any other amount payable under or with respect to
the Debentures (including payments thereof made pursuant to any Note Guarantee),
such reference includes the payment of Additional Amounts, if applicable.
The Trustee shall have no duty to determine whether Additional Amounts are
payable or to calculate or verify the Company's calculations of any Additional
Amounts.
ARTICLE 3
CONVERSION RIGHTS
3.1 Definitions
In this ARTICLE 3, the following terms shall have the following meanings:
(a)
 "Conversion Date" has the meaning specified in Section 3.4(2).

(b)
"Conversion Notice" has the meaning specified in Section 3.4(1).

(c)
"Conversion Price" means the price at which the principal amount of a Debenture
may be converted into Common Shares under this Article 3.

(d)
"Senior Note Conversion Price" means the Conversion Price as that term is
defined in the Senior Notes, initially being USD$0.24.

--------------------------------------------------------------------------------

3.2 Conversion Privilege
Subject to and upon compliance with the provisions of this Article, Section
2.23, and subject to the adjustments to the Conversion Price provided for below,
a Holder may at any time or times prior to the earlier of the Maturity Date and
the redemption of the Holder's Debentures convert the principal amount of that
Holder's Debentures, or any portion of the principal amount thereof which is
CAD$1,000 or an integral multiple of CAD$1,000, into Common Shares at a price
per Common Share equal to the Conversion Price in effect on the Conversion Date
(defined below). A Holder who converts a Debenture will receive a payment
representing any accrued but unpaid interest thereon up to the Conversion Date.
Promptly upon notice from the Trustee to the Company stating that (a) a Holder
has exercised the Holder's right to convert all or any part of that Holder's
Debentures into Common Shares, and (b) the Conversion Date applicable to that
conversion, the Company shall give written notice to the Trustee setting out the
Conversion Price on that Conversion Date in Canadian dollars.
3.3 Revival of Right to Convert
If payment of the amounts required to be paid in connection with a redemption of
a Debenture or the purchase of any Debenture which has been tendered in
acceptance of an offer by the Company to purchase Debentures for cancellation,
as the case may be, is not made (a) in the case of a redemption, upon due
surrender of such Debenture or (b) in the case of a purchase, on the date on
which such purchase is required to be made, as the case may be, then the right
to convert such Debenture shall revive and continue as if such Debenture had not
been called for redemption or tendered in acceptance of the Company's offer,
respectively.
3.4 Manner of Exercise of Right to Convert
(1) In order to convert a Debenture into Common Shares, a Holder must deliver to
the Trustee at its principal office in the City of Toronto and in such other
place or places as the Company with the approval of the Trustee (acting
reasonably) may designate, a conversion notice in the form attached at Appendix
1 to Schedule 2.2(b) or any other written notice in a form satisfactory to the
Trustee (each, as "Conversion Notice"), in either case duly executed by the
Holder or the Holder's executors or administrators or other legal
representatives or the Holder's attorney duly appointed by an instrument in
writing in form and executed in a manner satisfactory to the Trustee, exercising
the Holder's right to convert such Debenture in accordance with the provisions
of this Article. If the Debenture being converted is represented by a Debenture
Certificate, the Conversion Notice must also be accompanied by that Debenture
Certificate; provided that with respect to a Global Debenture, the obligation to
surrender a Debenture Certificate to the Trustee shall be satisfied if the
Trustee makes a notation on the Global Certificate of the principal amount
thereof so converted and the Debenture Trustee is provided with all other
documentation which it may reasonably request. Thereupon, subject to payment of
all applicable stamp or security transfer taxes or other governmental charges
and compliance with all reasonable requirements of the Trustee, such Holder
and/or his nominee(s) or assignee(s) shall be entitled to be entered in the
books of the Company as at the Conversion Date (or such later date as is
specified in Section 3.4(2)) as the holder of the whole number of Common Shares
into which such Debenture is convertible in accordance with the provisions of
this Article and, as soon as practicable thereafter, the Company shall deliver
to such Holder and/or, subject as aforesaid, the Holder's nominee(s) or
assignee(s), a certificate or certificates for such Common Shares and, if
applicable, a cheque for any amount payable under Section 3.5 and any interest
payable under Section 3.4(4).
(2) A Debenture shall be deemed to be surrendered for conversion on the date
(herein called the "Conversion Date") on which the Conversion Notice, and any
Debenture Certificate representing that Debenture, is surrendered in accordance
with the provisions of this Article 3 or, in the case of a Global Debenture, on
the date on which the Trustee receives the Conversion Notice and all necessary
documentation in respect of the exercise of the conversion rights and, in the
case of a Debenture so surrendered by post or other means of transmission, on
the date on which it is received by the Debenture Trustee at one of its offices
specified in Section 3.4(1); provided that if a Debenture Certificate is
surrendered for conversion on a day or at a time on which the register of Common
Shares is closed, the Conversion Date shall be the date on which such register
is next reopened.
(3) The Holder of any Debenture Certificate (other than a Global Certificate on
which a notation is made under Section 3.4(1)) of which part only is converted
shall, upon the exercise of the Holder's right of conversion, surrender the
Debenture Certificate to the Trustee and the Trustee shall cancel the same and
shall without charge certify and deliver to the Holder a new Debenture
Certificate in an aggregate principal amount equal to the unconverted part of
the principal amount of the Debenture Certificate surrendered.
(4) The Holder of a Debenture surrendered for conversion shall be entitled to
receive accrued and unpaid interest in respect the Debenture from the last
Interest Payment Date up to but excluding the Conversion Date. The Common Shares
issued upon such conversion shall for all purposes be deemed to be issued and
outstanding as fully paid and non-assessable Common Shares on the Conversion
Date and those Common Shares shall rank only in respect of dividends declared in
favour of shareholders of record on or after the Conversion Date.
(5) If the Conversion Date is a date that is prior to the expiration of the
distribution compliance period under Regulation S, the Holder, by delivering a
Conversion Notice shall be deemed to have represented and warranted to the
Trustee and the Company that such Holder is not a U.S. Person and that the
Holder is not converting the Debentures on behalf of a U.S. Person.

--------------------------------------------------------------------------------

3.5 No Fractional Shares
The Company will not issue fractional Common Shares upon the conversion of
Debentures. If any fractional interest in a Common Share would, except for the
provisions hereof, be deliverable upon the conversion of Debentures, the Company
shall adjust for such fractional interest by paying to the Holder an amount in
cash equal to the same fraction of the Conversion Price in effect on the
Conversion Date; provided that no such payment shall be required if the amount
of such payment is less than CAD$1.00.
3.6 Adjustment of Conversion Price
So long as there are any Senior Notes outstanding, the Conversion Price from
time to time shall be the same as the Senior Note Conversion Price from time to
time.  For certainty, any time that the Senior Note Conversion Price is changed,
the Conversion Price will change to the new Senior Note Conversion Price.
The Company shall provide written notice to the Trustee and the Holders of any
change to the Conversion Price.  The Company shall also give written notice to
the Trustee once all of the Senior Notes have been repaid in full.
Attached as Schedule 1.1(ccc) is a copy of the form of the Senior Notes.  If
there are no Senior Notes outstanding at any time when there are Debentures
outstanding:
(a)
sections (6) and (7) of the Senior Notes, together with all definitions of terms
used in those sections, shall be incorporated by reference into this Indenture
and form part of this Indenture, and

(b)
the Conversion Price, from time to time, shall be adjusted in accordance with
the provisions incorporated by reference under Section 3.6(a), as if the term
"Conversion Price" used in those sections was the Conversion Price in this
Indenture, except that any action which may be taken by the Required Holders
under the Senior Notes shall be considered to have been taken if taken by the
Required Holders for purposes of this Indenture; and

3.7 Rules Regarding Calculation of Adjustment of Conversion Price
The following rules apply to adjustments to the Conversion Price under this
Article 3:
(a)
The Trustee shall not at any time be under any duty or responsibility to
determine whether any facts exist which may require an adjustment contemplated
by this Article or to verify the nature and extent of any adjustment when made
or the method employed in making same.

(b)
The Trustee shall not be accountable with respect to the validity or value (or
the kind or amount) of any Common Shares or any other securities or property
which may at any time be issued or delivered upon the exercise of conversion
rights.

(c)
The Trustee shall not incur any liability or be in any way responsible for the
consequences of any breach on the part of the Company of any of the
representations, warranties or covenants herein contained or of any acts of the
directors, officers, employees or servants of the Company or be responsible for
any failure of the Company to make any cash payment or to issue, transfer or
deliver shares or share certificates upon the surrender of any Debenture for
conversion or to comply with any of the covenants contained in the Article.

--------------------------------------------------------------------------------

3.8 Reservation of Common Shares
The Company shall at all times reserve and keep available out of its authorized
but unissued Common Shares, and conditionally allot to Holders who may exercise
their conversion privilege hereunder, sufficient Common Shares to give effect to
the conversion privilege and cause the Common Shares to be issued as fully paid
and non-assessable.
3.9 Tax Reporting
At any time, the Trustee may request direction from the Company in writing as to
any tax reporting requirements associated with any conversion of Debentures
under this ARTICLE 3 and the Trustee may rely on the tax reporting requirements
provided by the Company.  The Trustee shall at all times be indemnified and held
harmless by the Company from and against any personal liabilities of the Trustee
incurred in connection with the failure of the Company or its agents, to report,
remit or withhold taxes associated with any conversion of Debentures.  This
indemnification shall survive the resignation or removal of the Trustee and the
termination of this Indenture solely to the extent that such liabilities have
been incurred in connection with taxation years occurring during the term of
this Indenture.
ARTICLE 4
SECURITY
4.1 General Security Agreement
As security for the payment and performance of the Secured Obligations, each
Obligor agrees to execute, deliver and perform a general security agreement in
the form attached as Schedule 4.1.
4.2 Intellectual Property Security Agreement
As security for the payment and performance of the Secured Obligations, the
Company agrees to execute, deliver and perform an intellectual property security
agreement in the form attached as Schedule 4.2.
4.3 Guarantee
As security for the payment and performance of the Secured Obligations, each
Obligor agrees to execute, deliver and perform a guarantee in the form attached
as Schedule 4.3.  If any other Person becomes a Subsidiary prior to the
discharge of the Security Interest under ARTICLE 10, the Company shall cause
that Subsidiary to sign, and the Company will sign, a guarantee in the form
attached as Schedule 4.3.
4.4 Pledge of Securities
As security for the payment and performance of the Secured Obligations, each
Obligor agrees to execute, deliver and perform a share pledge agreement in the
form attached as Schedule 4.4.
4.5 Protection of the Trustee
The Trustee will not be responsible for any failure to so register, file or
record, nor shall it be required to inquire as to the obligation for such
documents to be so registered, filed or recorded. The Trustee will not be
responsible for any obligation on the part of the Company to perfect, maintain,
preserve and protect the Security Interest in the Collateral created by the
Indenture and the Security Agreements.
Prior to the issuance of any Debentures hereunder, the Company shall deliver to
the Trustee, for the benefit of the Trustee and the Holders, all such financing
statements, registrations, filings, agreements, certificates and other documents
as the Trustee may request, on the advice of Counsel, acting reasonably.

--------------------------------------------------------------------------------

4.6 Additional Obligors
The Company shall cause each person that shall, after the date of this
Indenture, become a Subsidiary to immediately become a party to this Indenture
(an "Additional Obligor") by executing and delivering an Additional Obligor
Joinder in substantially the form of Schedule 4.6 to this Indenture and
complying with the provisions of this Indenture applicable to the Guarantor. 
Concurrent with the execution and delivery of the Additional Obligor Joinder,
the Additional Obligor shall deliver a supplement to Schedule 1.1(pp) setting
out the Liens to which the property and/or assets of the Additional Obligor are
then subject, which supplement shall modify Schedule 1.1(pp) then in effect. 
The Additional Obligor shall also deliver such authorizing resolutions, good
standing certificates, incumbency certificates, financing statements and other
information and documentation as the Trustee may reasonably request.  Upon
delivery of the Additional Obligor Joinder to the Trustee, the Additional
Obligor shall be and become a party to this Agreement with the same rights and
obligations as the Guarantor, for all purposes hereof as fully and to the same
extent as if it were an original signatory hereto and shall be deemed to have
made the representations, warranties and covenants set forth in this Indenture
on the part of the Guarantor as of the date of execution and delivery of such
Additional Obligor Joinder and thereafter at any time that such representations
and covenants must be restated pursuant to the terms of this Indenture, and all
references herein to the "Obligors" shall be deemed to include each Additional
Obligor.
ARTICLE 5
SUBORDINATION
5.1 Definitions
In this ARTICLE 5, the following terms shall have the following meanings:
(a)
"Collateral Agent" means the Northeast Industrial Partners LLC, as collateral
agent for the holders of the Senior Notes, or any successor or co-agent of the
Collateral Agent of which written notice is given to the Trustee.

(b)
"Intercreditor and Subordination Agreement" means the intercreditor and
subordination agreement to be entered into by the Trustee, on behalf of the
Holders, and the Collateral Agent, as agent for and on behalf of the holders of
the Senior Notes, in the form attached as Schedule 5.1(b), as the same may
hereafter be amended, renewed, extended, restated, supplemented or otherwise
modified from time to time.

(c)
"Senior Debt" means any and all amounts payable under or in respect of the
Senior Notes, including principal, premium (if any), interest (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company to the extent claims for post-filing
interest is allowed in such proceedings), fees, charges, expenses, reimbursement
obligations, guarantees and all other amounts payable or in respect thereof.

--------------------------------------------------------------------------------

5.2 Agreement To Subordinate.
The Company agrees, and each Holder by accepting a Debenture agrees, that the
indebtedness evidenced by the Debentures is subordinated in right of payment, to
the extent and in the manner provided in the Intercreditor and Subordination
Agreement, to the prior payment of all Senior Debt and that the subordination is
for the benefit of and enforceable by the holders of Senior Debt. Only
indebtedness of the Company which is Senior Debt shall rank senior to the
Debentures in accordance with the provisions set forth in the Intercreditor and
Subordination Agreement.
5.3 Trustee To Effectuate Subordination
Each Holder by accepting a Debenture authorizes and directs the Trustee on
behalf of the Trustee and such Holder, to enter into the Intercreditor and
Subordination Agreement and to take such action as may be necessary or
appropriate to acknowledge or effectuate the subordination between the Holders
and the holders of Senior Debt as provided in the Intercreditor and
Subordination Agreement and appoints the Trustee as attorney-in-fact for any and
all such purposes.  Notwithstanding any other provision of this Indenture, all
of the rights, obligations, powers and authorities granted to, or impose on, the
Trustee hereunder, including, without limitation, ARTICLE 8 hereof, are subject
to the provision of the Intercreditor and Subordination Agreement.
5.4 Trustee Not Fiduciary for Holders of Senior Debt
The Trustee shall not be deemed to owe any fiduciary duty to the holders of
Senior Debt and shall not be liable to any such holders if the Trustee shall
mistakenly pay over or distribute to Holders or the Company or any other person,
money or assets to which any holders of Senior Debt shall be entitled by virtue
of the Intercreditor and Subordination Agreement or otherwise.
5.5 Reliance by Holders of Senior Debt on Subordination Provisions
Each Holder by accepting a Debenture acknowledges and agrees that the provisions
in the Intercreditor and Subordination Agreement are, and are intended to be, an
inducement and a consideration to each holder of any Senior Debt, whether such
Senior Debt was created or acquired before or after the issuance of the
Debentures, to acquire and continue to hold, or to continue to hold, such Senior
Debt and such holder of Senior Debt shall be deemed conclusively to have relied
on such provisions in acquiring and continuing to hold, or in continuing to
hold, such Senior Debt.
5.6 Company to Request Subordination
As and when evidence of subordination is required, the Company will request that
the Trustee, on behalf of the Holders, subordinate the charges on any or all of
the Collateral of the Company created in this Indenture or the Security
Agreements in writing by appropriate instrument in favour of the Senior Debt, by
providing the Trustee with a written request of the Company stating the terms of
such subordination and enclosing a copy of the proposed subordination agreement.
5.7 The Toronto-Dominion Bank
The Company and the Subsidiary agrees, and each Holder by accepting a Debenture
agrees, that the security granted by the Subsidiary to the Trustee under this
Indenture or the Security Agreements is subordinate to the prior registration in
the Ontario Personal Property Security Register of security in favour of The
Toronto-Dominion Bank.  This registration is referred to in Schedule 1.1(pp).

--------------------------------------------------------------------------------

ARTICLE 6
CHANGE OF CONTROL
6.1 Definitions
In this ARTICLE 6, the following term shall have the following meanings
respectively:
(a)
"Change of Control" means any Fundamental Transaction other than (i) any
reorganization, recapitalization or reclassification of the Common Shares in
which holders of the Company's voting power immediately prior to such
reorganization, recapitalization or reclassification continue after such
reorganization, recapitalization or reclassification to hold publicly traded
securities and, directly or indirectly, the voting power of the surviving entity
or entities necessary to elect a majority of the members of the board of
directors (or their equivalent if other than a corporation) of such entity or
entities, or (ii) pursuant to a migratory merger effected solely for the purpose
of changing the jurisdiction of incorporation of the Company.

(b)
"Acceptance Notice" has the meaning given to that term in section 6.3.

(c)
"Change of Control Payment" has the meaning given to that term in section 6.2.

(d)
"Exchange Act" means the Securities Exchange Act of 1934, as amended, of the
United States.

(e)
"Fundamental Transaction" means

(i)
a transaction or series of related transactions pursuant to which the Company:
(A) sells, conveys or disposes of all or substantially all of its assets (or the
stock or assets of one or more of its Subsidiaries which, on a consolidated
basis, constitute all or substantially all of the Company's assets), determined
on either a quantitative or qualitative basis (the presentation of any such
transaction for stockholder approval being conclusive evidence that such
transaction involves the sale of all or substantially all of the assets of the
Company on a consolidated basis); (B) merges or consolidates with or into, or
engages in any other business combination with, any other person or entity, in
any case that results in the holders of the voting securities of the Company
immediately prior to such transaction holding or having the right to direct the
voting of 50% or less of the total outstanding voting securities of the Company
or such other surviving or acquiring person or entity immediately following such
transaction, as the case may be; or (C) sells or issues, or any of its
stockholders sells or transfers, any securities to any person or entity, or the
acquisition or right to acquire securities by any person or entity, in either
case acting individually or in concert with others, such that, following the
consummation of such transaction(s), such person(s) or entity(ies) (together
with their respective affiliates, as such term is used under Section 13(d) of
the Exchange Act) would own or have the right to acquire greater than 50% of the
outstanding Common Shares;

(ii)
any reclassification or change of the outstanding Common Shares (other than a
change in par value, or from par value to no par value, or from no par value to
par value, or as a result of a subdivision or combination); or

(iii)
any event, transaction or series of related transactions that results in
individuals serving on the Board on the date hereof (the "Incumbent Board")
ceasing for any reason to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to the date hereof
whose appointment, election, or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the directors then
comprising the Incumbent Board, after giving effect to this proviso (other than
an appointment, election, or nomination of an individual whose initial
assumption of office is in connection with an actual or threatened election
contest relating to the election of the directors of the Company), shall be
considered as though such person were a member of the Incumbent Board.

--------------------------------------------------------------------------------

(f)
"Offer to Redeem" has the meaning given to that term in section 6.2.

6.2 Offer to Redeem
Within 30 days after becoming aware of a Change of Control, the Company shall
give written notice (the "Offer to Redeem") to the Trustee and the Holders of
the Change of Control and offering to redeem the Debentures for an amount (the
"Change of Control Payment") equal to the greater of:
(a)
the sum of (i) the principal amount of the Debentures to be redeemed, plus
(ii) the interest which is accrued and unpaid on the Debentures being redeemed
up to but excluding the effective date of the Change of Control; plus (iii) an
amount equal to 100% of the interest which would have been earned on the
Debentures to be redeemed from the effective date of the Change of Control to
the Maturity Date; and

(b)
the sum of (i) the aggregate consideration that the Holders would be entitled to
receive in connection with a Change of Control if the Holders were to fully
convert into Common Shares the outstanding principal amount of the Debentures to
be redeemed immediately prior to the consummation of such Change of Control,
plus (ii) any accrued and unpaid Interest thereon up to but excluding the
effective date of the Change of Control.

6.3 Manner of Acceptance
In order to accept the Offer to Redeem, a Holder must deliver to the Trustee at
its principal office in the City of Toronto and in such other place or places as
the Company with the approval of the Trustee (acting reasonably) may designate,
an acceptance notice in a form satisfactory to the Trustee (each, an "Acceptance
Notice"), in either case duly executed by the Holder or the Holder's executors
or administrators or other legal representatives or the Holder's attorney duly
appointed by an instrument in writing in form and executed in a manner
satisfactory to the Trustee, accepting the  Offer to Redeem with respect to the
Debentures held by the Holder in accordance with the provisions of this
Article.  If the Debentures referred to in any Acceptance Notice are represented
by a Debenture Certificate, the Acceptance Notice must also be accompanied by
that Debenture Certificate; provided that with respect to a Global Debenture,
the obligation to surrender a Debenture Certificate to the Trustee shall be
satisfied if the Trustee makes a notation on the Global Certificate of the
principal amount thereof and the Debenture Trustee is provided with all other
documentation which it may reasonably request.
6.4 Payment of the Change of Control Payment
Upon an Acceptance Notice being given in accordance with Section 6.3, the Change
of Control Payment shall be and become due and payable 60 days following the
date of the Offer to Redeem (the "Change of Control Redemption Date") and with
the same effect as if that date was the Maturity Date of such Debentures. On the
Change of Control Redemption Date, interest shall cease on the Debentures so
redeemed, unless payment of the Change of Control Payment shall not be made.
The Company shall deposit with the Trustee, in accordance with Section 2.8(a),
such sums as are sufficient to pay the Change of Control Payment.  From the sums
so deposited, the Trustee shall pay or cause to be paid to the Holders who have
accepted the Offer to Redeem, the Change of Control Payment of the Debentures so
surrendered.  The Company shall provide such payment to the Trustee by wire
transfer to an account designated by the Trustee, at or before 10:00 a.m. on the
second Business Day preceding the date on which payment of the Change of Control
Payment is due, for all amounts due in respect of the Debentures to be redeemed
under this ARTICLE 6 to enable the Trustee to forward or cause to be forwarded
such funds to the Holders on the applicable date on which payment is due
All Debentures which are redeemed under this ARTICLE 6 shall be cancelled and
the Company shall not reissue any redeemed Debentures.

--------------------------------------------------------------------------------

ARTICLE 7
COVENANTS
7.1 Covenants of Each Obligor
Each Obligor hereby covenants that:
(a)
Owner of Collateral. The Obligor is the legal and beneficial owner of, and has
good and marketable title to, all existing Collateral and shall be the legal and
beneficial owner of, and have good and marketable title to, each item of after
acquired Collateral free and clear of any Liens, except Permitted Liens, ranking
on a parity with or in priority to the Security Interest.

(b)
To pay principal and interest. In the case of the Company, it will duly and
punctually pay the principal of and interest on, and all other amounts owing on,
the Debentures when, at the places and in the manner mentioned or provided for
herein or in the Debentures.

(c)
To reimburse Trustee. In the case of the Company, it will at all times indemnify
and save harmless the Trustee from all losses, costs, charges, damages and
expenses borne by the Trustee in performing its duties hereunder or which may be
claimed against the Trustee in relation thereto except such losses, costs,
charges, damages and expenses that are caused by the Trustee's gross negligence
and it will pay to the Trustee from time to time reasonable remuneration for its
services hereunder and will pay or reimburse the Trustee upon its request for
all reasonable expenses and disbursements made by the Trustee in the performance
of its duties hereunder (including the reasonable compensation and disbursements
of its counsel and all other assistants and advisors not regularly in its
employ), except any such expense or disbursement as may arise out of or result
from the Trustee's own grossly negligent action, grossly negligent failure to
act, wilful misconduct or bad faith.

(d)
Intellectual Property. The Obligor shall take all steps reasonably necessary to
protect, maintain, enforce and defend the validity and enforceability of the
Intellectual Property at all times, including pursuing to grant the currently
pending patent and trade-mark applications listed in the definition of
Collateral above, and preventing the infringement of the Intellectual Property
by any person, firm or corporation. At all times the Obligor shall use its best
efforts to detect infringements of the Intellectual Property and promptly notify
the Trustee in writing of all such infringements of which it becomes aware. The
Obligor shall not allow any of the Intellectual Property to be abandoned,
forfeited or dedicated to the public or to settle any allegation or claim 1) for
infringement against any person, firm or corporation or 2) of patent invalidity
by any person, firm or corporation without the prior written consent of the
Trustee, such consent not to be unreasonably withheld.

(e)
To pay taxes. The Obligor will pay all taxes, levies, assessments and government
fees or dues lawfully levied, assessed or imposed in respect of the Collateral
and the Security Interests or any part thereof as and when the same shall become
due and payable, save and except such taxes, rates, levies, assessments and
government fees or dues as are in good faith being disputed by the Obligor, and
shall exhibit to the Trustee, when required, the receipts and vouchers
establishing such payments.

--------------------------------------------------------------------------------

(f)
To maintain existence. The Obligor will at all times maintain its corporate
existence.

(g)
To carry on business. The Obligor will carry on its business in a proper and
efficient manner, and will keep or cause to be kept proper books of account and
make or cause to be made therein true and faithful entries of all material
dealings and transactions in relation to its business and will make such books
of account available for inspection by the Trustee and its representatives
during normal business hours.

(h)
To perform obligations. The Obligor will from time to time punctually observe
and perform all of its obligations and will pay and discharge all amounts
payable under or by virtue of any lease, license, concession, franchise or right
held by it so long as the same is of commercial value and beneficial to it, and
during such time will not suffer or permit any default for which any such lease,
licence, concession, franchise or right might be terminated so that its interest
therein may at all times be preserved unimpaired, provided, however, that
nothing herein contained shall require it to make any such payments or to
observe any such obligations so long as it shall in good faith contest its
liability therefor.

(i)
To repair. The Obligor will at all times repair and keep in repair and good
order and condition, or cause to be so repaired and kept in repair and good
order and condition, all buildings, erections, plant, machinery and equipment
used in or in connection with its business and which are necessary for efficient
operation up to a modern standard of usage, and renew and replace or cause to be
renewed and replaced all and any of the same which may become worn, dilapidated,
unserviceable, inconvenient or destroyed, even by a fortuitous event, fire or
other cause, and which are necessary for efficient operation, and, at all
reasonable times during the respective Obligor's normal business hours allow the
Trustee or its duly authorized agent access to the Collateral in order to view
the state and condition of the same.

(j)
To insure. The Obligor will insure, at its own expense, the Collateral at all
times during the term hereof to an amount equal to the full replacement cost of
the Collateral (including all leasehold improvements) against loss or damage by
theft, fire, lightning, explosion, windstorm, aircraft or vehicles or other
insurable hazards which are now or hereafter from time to time may be insured
against by the terms of a standard fire extended coverage insurance or
additional perils supplemental contract of insurance including, if applicable,
boiler and pressure vessel insurance against loss or damage to property of a
class or kind similar to the Collateral and insurance against such other risks
as the Trustee may reasonably require in writing. The Trustee shall be named as
a loss payee, as mortgagee, as its interest may appear, in all such insurance
contracts effected by the Obligor which shall have attached a mortgage clause in
a form approved by the Insurance Bureau of Canada. The said insurance contracts
shall not contain a co-insurance clause unless the Trustee shall give its prior
written consent to the inclusion of such a clause. The Obligor shall provide the
Trustee with certified copies of all such insurance contracts. It is
acknowledged by the Obligor that the Trustee will not maintain insurance on the
property, is not liable for the quality, sufficiency, or lack of insurance on
the property, is not required to pay premiums, and has no responsibility to
ascertain or verify that the insurance policies in place comply with the terms
of this Indenture.

(k)
To renew insurance. The Obligor shall, thirty days prior to the expiry of any
insurance policy required hereby, deliver to the Trustee a renewal receipt,
binder or new policy, or otherwise satisfy the Trustee that such insurance has
been renewed.

(l)
Application of proceeds. The Obligor shall cause the insurance money in respect
of loss of or damage to buildings, structures, plant, machinery and equipment
under all policies required hereunder to be made payable to the Trustee as
mortgagee, as its interest may appear, and shall otherwise deal with such
policies in such manner as to enable any insurance money payable thereunder to
be collected by the Trustee. Such moneys shall form part of the Collateral, and
shall be subject to the specific lien hereof. The Trustee shall set the amount
so collected aside in a special account and shall apply such amount, at the
written request of the Obligor, to the repair or replacement of buildings,
structures, plant, machinery and equipment which have been damaged or lost or
destroyed or the purchase or construction of replacement buildings, structures,
plant, machinery and equipment; such request shall:

(i)
set out that after giving effect to such repair or purchase or construction the
Obligor will not be in breach of any of the covenants contained herein;

(ii)
set out that no Event of Default or event which, with the giving of notice or
the passage of time or both, would be an Event of Default has occurred and is
continuing;

(iii)
be accompanied by:

--------------------------------------------------------------------------------

(A)
a description of the buildings, structures, plant, machinery and equipment
purchased or constructed, if any,

(B)
an invoice from the repairer or supplier of such equipment or the contractor in
respect of such buildings or structures; and

(C)
an opinion of Counsel with respect to the matters dealt with in Section
7.1(l)(vi);

(iv)
set out that any buildings and structures to which such request relates have
been fully completed and are ready for use in the business of the Obligor and
that the Obligor holds all governmental permits necessary to enable it to
lawfully use such buildings or structures for their intended purposes;

(v)
direct the Trustee to make payment of such invoice to the extent of the lesser
of the funds held by it or the purchase price or repair or construction cost of
such buildings, structures, plant, machinery or equipment, provided that such
payment shall be made to the Obligor if such invoice is accompanied by
satisfactory evidence of payment in full thereof; and

(vi)
state that such buildings, structures, plant, machinery and equipment will, upon
payment therefor being made by the Trustee, be owned by the Obligor and will be
subject to the Security Interest, free of all liens, charges, encumbrances and
security interests, other than Permitted Liens, ranking on a parity with or in
priority to the Security Interest.

Notwithstanding the foregoing, to the extent that proceeds of insurance payable
during any twelve-month period shall be less than CAD$100,000, such proceeds
shall be paid directly to the Obligor if at the date of payment there shall not
be any Event of Default hereunder or event which, with the giving of notice or
the passing of time or both, would be an Event of Default which is then
continuing.
The Obligor shall from time to time, do, sign, execute or endorse all transfers,
assignments, cheques, loss claims, receipts, writings and things necessary or
desirable for the purposes aforesaid; and for such purposes, the Obligor hereby
irrevocably appoints the Trustee as its attorney to do, sign, execute and
endorse such transfers, assignments cheques, loss claims, receipts, writings and
things in the name of the Obligor, and on its behalf as the Trustee may deem
necessary or advisable.
(m)
To renew leases, licences and franchises (including patent licences). If and
whenever the Obligor shall be able or entitled to obtain a renewal or extension
of any leases, licenses (including patent licences), concessions, registered
user agreements, franchises or rights, the Obligor shall from time to time duly
exercise, or cause to be exercised, such rights and powers of renewal and
extension if it is advantageous to the Obligor so to do.

(n)
Not to permit mechanics' liens or privileges. The Obligor shall not permit or
suffer any workmen's or other lien or privilege upon or in respect of any of its
property to exist (other than a Permitted Lien) excepting any such lien or
privilege:

(i)
which is being diligently disputed by the Obligor by proper legal proceedings in
that behalf, and

(ii)
in respect of which either:

(A)
security which is adequate in the opinion of the Trustee, relying on the opinion
of Counsel, has been posted with the Trustee or with a court of competent
jurisdiction, or

(B)
the Trustee is of the opinion relying on the opinion of Counsel, that such liens
are not in the aggregate materially prejudicial to the Security Interest.

--------------------------------------------------------------------------------

(o)
Not to commit waste. Except as herein authorized, the Obligor shall not, without
the previous consent in writing of the Trustee, remove or destroy any of its
buildings, machinery or any structure whatsoever comprised in the Collateral or
the plant, machinery or fixtures attached or appertaining thereto, or otherwise
forming part of the Collateral unless such removal be from one part of the
Collateral to another.

(p)
Compliance with laws. The Obligor shall carry on its business in compliance with
all applicable laws, regulations, by-laws and orders including, without
limitation, all such laws, regulations, by-laws and orders relating to
environmental protection, the maintenance and disposal of hazardous materials
and substances, land use and occupational health and safety. The Obligor shall
give notice to the Trustee of any notice received by it of any violation of any
such laws, regulations, by-laws or orders, of any impending or threatened
investigations or proceedings by governmental authorities in connection
therewith or of any proceedings commenced or threatened by any other person in
connection with environmental, health or safety matters.

(q)
No Sale: Except as herein expressly provided, the Obligor shall not, without the
prior written consent of the Trustee,

(i)
create, allow to be created, assume or suffer to exist any Lien upon the
Collateral ranking or purporting to rank in priority to or on a parity with the
Security Interest, other than Permitted Liens;

(ii)
sell, lease, assign or otherwise dispose of the Collateral; or

(iii)
release, surrender or abandon possession of the Collateral;

provided that until an Event of Default has occurred and the Security Interest
shall have become enforceable, the Obligor shall be entitled to sell, lease,
license, consign or otherwise dispose of inventory in the ordinary course of the
Obligor's business and for the purpose of carrying on the same or sell, lease,
license, consign or otherwise dispose of any obsolete, worn out, damaged or
otherwise unsuitable Collateral or any Collateral which has become surplus to
the needs of the Company.
(r)
To maintain security. The Obligor will do, observe and perform or cause to be
done, observed and performed all of its obligations and all matters and things
necessary or expedient to be done, observed or performed by virtue of any
applicable law or regulation for the purpose of creating, updating or
maintaining the Security Interest in the Collateral, including the execution,
filing, and delivery to the Trustee by the Obligor, as soon as possible, of
certificates, acknowledgements, notices and other ancillary documents as are
customary for transactions of this nature or as may be required by the Trustee
(acting reasonably).

(s)
To register security. The Obligor will at its expense register the Security
Interest without delay at every office where the registration or recording
thereof may, in the opinion of Counsel, be of material advantage in perfecting,
preserving and protecting the Security Interest, and to register any renewals
thereof and to make any such registrations as may be required with respect to
property or assets acquired after the date hereof (if required for the purpose
of perfecting the Security Interest therein).

(t)
Trustee entitled to perform covenants. If the Obligor fails to perform any
covenant on its part herein contained the Trustee may, in its discretion,
perform any of the covenants capable of being performed by it and, if any such
covenant requires the payment or expenditure of money, the Trustee may make
payments or expenditures with its own funds, or with money borrowed by or
advanced to it for such purposes, but shall be under no obligation so to do; and
all sums so expended or advanced shall be at once payable by the Obligor on
demand and shall bear interest at the rate payable on the Debentures until paid,
and shall be payable out of any funds coming into the possession of the Trustee
in priority to the Debentures but no such performance or payment shall be deemed
to relieve the Obligor from any default hereunder.

--------------------------------------------------------------------------------

(u)
Not to change name. The Obligor shall not change its name except to a name of
which the Trustee has been given written notice not less than thirty days prior
to the date upon which its name is to be changed.

(v)
To give notice of default. The Obligor will give notice to the Trustee of an
Event of Default under this Indenture.

(w)
Right to Inspect. The Obligor shall permit a representative of the Trustee to
inspect the Collateral and the operations of the Obligor and for that purpose to
enter the premises of each Obligor and any other location where the Collateral
may be situated during reasonable business hours and upon reasonable notice.

(x)
Information Regarding Collateral. The Obligor shall:

(i)
keep proper books of account and records covering all its business and affairs
on a current basis as well as accurate and complete records concerning the
Collateral;

(ii)
furnish the Trustee with such information regarding the Collateral and its
location as the Trustee may from time to time reasonably request;

(iii)
permit a representative of the Trustee, during reasonable business hours and
upon reasonable notice, to inspect the Obligor's books of account, records and
documents and to make copies, extracts and summaries therefrom; and

(iv)
permit the Trustee or its representative to make inquiries of third parties for
the purpose of verification of any of the foregoing.

(y)
Reporting Issuer Status. In the case of the Company, it will maintain its status
as a reporting issuer in those jurisdictions in which it is a reporting issuer
on the date hereof.

(z)
Listing. The Company will use reasonable efforts to ensure that all Common
Shares outstanding or issuable from time to time (including, any Common Shares
issuable upon the exercise of the conversion privilege in Article 3) continue to
be or are listed for trading on the Stock Exchange or another recognized stock
exchange.

--------------------------------------------------------------------------------

7.2 Compliance Certificates
The Company shall deliver to the Trustee, within 140 days after the end of each
calendar year (and at any reasonable time upon demand by the Trustee), an
Officers' Certificate as to the knowledge of such officers of the Company who
execute the Officers' Certificate of the Company's compliance with all
conditions and covenants in this Indenture certifying that after reasonable
investigation and inquiry, the Company and each Obligor has complied with all
covenants, conditions or other requirements contained in this Indenture, the
non-compliance with which could, with the giving of notice, lapse of time or
otherwise, constitute an Event of Default hereunder, or if such is not the case,
setting forth with reasonable particulars the circumstances of any failure to
comply and steps taken or proposed to be taken to eliminate such circumstances
and remedy such Event of Default, as the case may be.
ARTICLE 8
DEFAULT AND ENFORCEMENT
8.1 Events of Default
The following shall constitute events of default (an "Event of Default")
hereunder:
(a)
if the Company fails to pay the principal of or any interest due on any
Debenture secured hereby when the same becomes due under any provision hereof
and the same is not remedied by the Company within five days; or

(b)
if an order is made or an effective resolution is passed for the winding‑up or
liquidation of any Obligor; or

(c)
if any Obligor makes a general assignment for the benefit of its creditors, or a
notice of intention to make a proposal, or a proposal under the Bankruptcy and
Insolvency Act (Canada) or any similar law of any jurisdiction, or becomes
insolvent or is declared or adjudged bankrupt, or commits any act of bankruptcy,
or if a receiving order is made against any Obligor, or if a liquidator, trustee
in bankruptcy, receiver, receiver and manager, interim receiver, or any other
officer with similar powers is appointed to any Obligor or over the Collateral
or any part thereof which is, in the opinion of the Trustee, relying on the
opinion of Counsel, a substantial part thereof, or if the Company shall propose
a compromise, arrangement or reorganization under the Companies' Creditors
Arrangement Act (Canada) or any similar legislation of any jurisdiction
providing for the reorganization or winding‑up of the companies or business
entities or providing for an agreement, composition, extension or adjustment
with its creditors, or if any Obligor makes a bulk sale of its assets; or

(d)
if a writ of execution, or distress or similar judicial or other legal process
is levied or enforced against the Collateral, or any part thereof, save and
except when and so long as the amounts, validity or enforceability of any such
executions, distraints or other processes is in good faith being contested,
provided the Company shall promptly advise the Trustee in writing upon becoming
aware of any such execution, distress or other process; or

(e)
if any Obligor ceases to carry on business; or

(f)
if a secured creditor, mortgagee or other encumbrancer shall take possession of
the Collateral or any part thereof which is, in the opinion of the Trustee
relying on the opinion of Counsel, a substantial part thereof; or

(g)
if there is a default under the provisions of any instrument creating a security
interest in the Collateral (including this Indenture and the Security
Agreements), or any part thereof which is, in the opinion of the Trustee relying
on the opinion of Counsel, a substantial part thereof, unless, within such time
as will prevent the exercise under such instrument of the remedies provided
therein or available thereunder in case of default and, in any event, within 30
days from receipt of notice to that effect from the Trustee, the Obligor
remedies such default so that the rights of the Holders, in the opinion of the
Trustee relying on the opinion of Counsel, have not been prejudicially affected;
or

--------------------------------------------------------------------------------

(h)
if any Obligor fails to protect, enforce, defend and maintain the ownership,
validity and enforceability of the Intellectual Property including failure to
undertake reasonable commercial efforts to detect any actions which may be or
are infringements, violations, passing off, dilution or other claims of or
against the Obligor and promptly advise the Trustee in writing of any potential
claims or litigation relating thereto, failure to commence, defend and
diligently prosecute in its own name, as the real party in interest, for its own
benefit and at its own expense, such suits, administrative proceedings, or other
actions for infringement, damages or to confirm the validity of the Intellectual
Property as are, in its reasonable business judgment, necessary to protect the
Intellectual Property, and if any Obligor allows any of the Intellectual
Property to be abandoned, forfeited, cancelled, expunged and/or dedicated to the
public without the written consent of the Trustee; or

(i)
if an Obligor (i) fails to make any payment when due (whether by scheduled
maturity, required prepayment, acceleration, demand, or otherwise, and after
passage of any grace period) on the Senior Notes or in respect of any
indebtedness or guarantee in an aggregate principal amount of more than
USD$250,000 or the equivalent amount in Canadian dollars thereof or (ii) fails
to observe or perform any other agreement or condition relating to such
indebtedness or any guarantee or any other event occurs, and such event
continues for more than the grace period, if any, therein specified, the effect
of which is to cause, or to permit the holder or holders of such indebtedness or
the beneficiary or beneficiaries of such guarantee (or a trustee or agent on
behalf of such holder or holders or beneficiary or beneficiaries) to cause, with
the giving of notice if required, such Indebtedness to be demanded or to become
due or to be repurchased, prepaid, defeased or redeemed (automatically or
otherwise), prior to its stated maturity, or such guarantee to become payable or
cash collateral in respect thereof to be demanded; or

(j)
if an Obligor shall fail or neglect to carry out, perform or observe any other
covenant or condition contained herein on its part to be observed and performed
and, after notice in writing has been given by the Trustee to the Obligor
specifying such default and requiring the Obligor to put or cause to be put an
end to the same, the Obligor shall fail to make good such default within a
period of thirty (30) days or within such longer period as may be specified in
such notice given by the Trustee; or

(k)
if the Company fails to make an Offer to Redeem or fails to take up and pay for
any Debentures under an Offer to Redeem, as required under Section 6.2; or

(l)
if the Company gives notice under the Senior Notes that an Event of Default (as
that term is defined in the Senior Notes) has occurred or a holder of a Senior
Secured Convertible Note gives the Company notice requiring the redemption of
all or any portion of that Senior Secured Convertible Note after becoming aware
of such an Event of Default.  Promptly upon receipt, the Company shall deliver
to the Trustee a copy of any notice referred to in this Section 8.1(l) and
received by the Company.

The Trustee shall give to the Holders, within 30 days after the Trustee becomes
aware of the occurrence thereof, notice of every Event of Default which is
continuing at the time the notice is given, unless the Trustee reasonably
believes that it is in the best interest of the Holders to withhold such notice
and so informs the Company in writing.
8.2 Remedies in Event of Default
Upon the occurrence of an Event of Default, the Trustee may, subject to the
provision of the Intercreditor and Subordination Agreement and when directed to
do so by a Holders' Request supported by (i) a Resolution of the Holders and
(ii) a Holders' Indemnity, and upon being adequately funded by the Holders, all
as contemplated by Section 8.3 hereof, shall:
(a)
declare the principal and interest of all Debentures and other moneys secured
hereby to be due and payable and the same shall forthwith become immediately due
and payable to the Trustee, and the Company shall forthwith pay to the Trustee
for the benefit of the Holders the principal of and accrued and unpaid interest
on such Debentures and all other moneys secured hereby. Such payments when made
shall be deemed to have been made in discharge of the Company's obligations
hereunder and any moneys so received by the Trustee shall be applied in the same
manner as if they were proceeds of realization of the Collateral as contemplated
in Section 8.8 hereof; and/or

(b)
take proceedings to enforce the Security Interest, and for that purpose the
Trustee may exercise any of the rights contemplated by Sections 8.3 through 8.7
inclusive, and/or may proceed to realize on the Security Interest and to enforce
the rights of the Trustee and of the Holders by entry as provided in Section
8.4, or by the appointment of a receiver or receiver and manager under the
provisions of Section 8.5, or by sale under the provisions of Section 8.6, or by
exercising any of its rights under this Indenture or the Security Agreements, or
by proceedings in any court of competent jurisdiction for the appointment of a
receiver or receiver and manager, or for the sale of the Collateral or any part
thereof, or for foreclosure, or by any other action, suit, remedy or proceedings
authorized or permitted by this Indenture, the Security Agreements, the Act, or
by law or by equity and/or may additionally or alternatively file such proofs of
claim and other papers or documents as may be necessary or advisable in order to
have the claims of the Trustee and of the Holders lodged in any bankruptcy,
insolvency, winding up or other judicial proceedings relative to the Company and
no such remedy for the realization of the security hereof or for the enforcement
of the rights of the Trustee or of the Holders shall be exclusive of or
dependent on any such other remedy but any one or more of such remedies may from
time to time be exercised independently or in combination. All rights of action
hereunder may be enforced by the Trustee without the possession of any of the
Debentures or the production thereof at the trial or other proceedings relative
thereto.

--------------------------------------------------------------------------------

8.3 Enforcement and Waiver by or at the Direction of Holders
No Holder, as such, shall have the right to institute any action or proceeding
or to exercise any other remedy authorized by this Indenture, or by the Security
Agreements, or by law or by equity for the purpose of enforcing payment of
principal or interest on the Debentures or of realizing the Security Interest,
or by reason of jeopardy of security, or for the execution of any trust or power
hereunder except as expressly provided in this Section 8.3, and further provided
that the Holders may as a group in accordance with the provisions of this
Section 8.3 and in accordance with the provisions of Article 11 hereof, direct
the Trustee in enforcing this Indenture, the Security Agreements, the Debentures
or the Security Interest, or may direct the Trustee to waive any Event of
Default or waive any of its rights hereunder upon the occurrence of an Event of
Default as follows:
(a)
where an Event of Default has occurred, the Holders may, by Resolution, elect to
deliver a Holders' Request to the Trustee directing the Trustee to declare the
principal and interest of all Debentures and other monies secured hereby to be
due and payable and/or directing the Trustee to enforce the Security Interest in
accordance with the remedies provided herein, or in accordance with such of the
remedies as are provided herein as the Holders may direct in such Holders'
Request. Where such Holders' Request is received by the Trustee, the Trustee
shall act in accordance with the instructions of the Holders as set forth in
such Holders' Request, provided that the Trustee shall not be obligated to take
any actions or proceedings unless and until the Holders have provided to the
Trustee sufficient funds and indemnity satisfactory to the Trustee for the
purposes of prosecuting any actions or proceedings to be taken in accordance
with the Holders' Request (such funds and indemnity being sometimes referred to
herein as a "Holders' Indemnity");

(b)
where an Event of Default has occurred, and whether or not the Trustee of its
own volition or at the direction of the Holders pursuant to a Holders' Request
has declared the principal and interest on the Debentures due or has elected to
take any proceedings to enforce the Security Interest, the Holders may, by
Resolution elect to deliver a Holders' Request to the Trustee directing the
Trustee to waive the default complained of and/or not to take any proceedings or
to discontinue or settle any proceedings already initiated by the Trustee in
respect of the default complained of. Where a Holders' Request is received by
the Trustee pursuant to this Section 8.3(b) the Trustee shall act in accordance
with the instructions set forth in the Holders' Request; and

(c)
where a Holders' Request and Holders' Indemnity have been tendered to the
Trustee in accordance with the foregoing provisions of this Section 8.3 and the
Trustee shall have failed to act within a reasonable time thereafter on such
Holders' Request, any Holder acting on behalf of that Holder and all other
Holders shall be entitled to take proceedings in any court of competent
jurisdiction such as the Trustee might have taken under Section 8.2(b) hereof,
but in no event shall any Holder or combination of Holders have any right to
exercise the power of sale conferred hereby on the Trustee or to appoint a
receiver or receiver and manager or to exercise or take any other remedy or
proceedings out of court, it being understood and intended that no one or more
Holders shall have any right whatsoever to affect, disturb or prejudice the
Security Interest by their action, or to enforce any right hereunder or under
any Debenture except subject to the conditions and in the manner herein
provided, and that all powers and trusts hereunder shall be exercised and all
proceedings at law shall be instituted, had and maintained by the Trustee,
except only as herein provided, and in any event for the equal benefit of all
Holders of the outstanding Debentures. Further, where the Event of Default
consists of the failure by the Company to pay any monies due on a Debenture and
the Holders have neglected or refused to deliver a Holders' Request requiring
the Trustee to enforce payment of such Debenture and/or to enforce the Security
Interest in respect of such default, and/or where the Trustee, whether or not
the Holders' Request has been delivered, has failed to take reasonable steps
hereunder to enforce the payment of such Debenture, a Holder may bring an action
to obtain judgment against the Company for payment of such monies as are then,
or are from time to time owing, on the Debenture.

8.4 Entry by the Trustee
If the Security Interest shall have become enforceable as herein provided, the
Trustee shall have the right by its officers, agents or attorneys to enter into
and upon and to take possession of all or any part of the Collateral and
thenceforth to possess and use the same subject to the Security Interest, with
full power to carry on and manage the business and operations of the Company and
to receive the rents, incomes and profits of the Collateral so taken possession
of and of the said business, and to pay therefrom all expenses of operating the
Collateral and of carrying on the said business and all charges against the
Collateral and business ranking in priority to the Debentures or payment of
which may be necessary to preserve or protect the property. The remainder of the
moneys so received and not required for any of the above purposes shall be
applied by the Trustee in the manner provided in Section 8.8.
The foregoing is, however, subject to the condition that the Trustee shall, if
all defaults existing to the knowledge of the Trustee shall have been made good,
restore the Collateral and business to the Company, and pay to it any of the
monies so received then remaining in its hands. In the case of any such return
of the Collateral to the Company, the Security Interest shall no longer be
enforceable by reason of the default whereby the right of entry became vested in
the Trustee, and any declaration that may have been made by the Trustee pursuant
to Section 8.2 as a result of such default shall be and be deemed to be
annulled.
8.5 Appointment of Receiver
Whenever the Trustee shall determine under the provisions of Section 8.2, or be
directed pursuant to the provisions of Section 8.3, to appoint a receiver (which
term used herein includes a receiver and manager) the following provisions shall
apply:
(a)
the Trustee may apply to any court of competent jurisdiction for the appointment
of a receiver or may make such appointment by an instrument in writing signed by
an officer of the Trustee, which instrument shall be evidence for all purposes
of such appointment. The Trustee may from time to time in the same manner remove
or replace any receiver so appointed and appoint another in his stead. In making
any such appointment the Trustee shall be deemed to be acting as the attorney of
the Company;

--------------------------------------------------------------------------------

(b)
such receiver may in the discretion of the Trustee be vested with all or any of
the powers and discretions of the Trustee;

(c)
the Trustee may from time to time fix the remuneration of such receiver and
direct the payment thereof out of the Collateral, the income therefrom or the
proceeds thereof;

(d)
the Trustee may from time to time require such receiver to give security for the
performance of his duties and may fix the nature and amount thereof, but shall
not be bound to require such security;

(e)
such receiver may, with the consent in writing of the Trustee, borrow money for
the purposes of operating the Collateral including, but not limited to, carrying
on any business of the Company, or for the maintenance, protection or
preservation of the Collateral or any part thereof, and the receiver may issue
certificates (herein called "receiver's certificates") for such sums as will, in
the opinion of the Trustee, relying on the opinion of Counsel, be sufficient for
obtaining upon the security of the Collateral or any part thereof the amounts
from time to time required, and such receiver's certificates may be payable
either to order or to bearer and may be payable at such time or times as to the
Trustee may appear expedient, and shall bear interest as shall therein be
declared, and the receiver may sell, pledge or otherwise dispose of the same in
such manner as to the Trustee may seem advisable, and may pay such commission on
the sale thereof as to the Trustee may appear reasonable, and the amounts from
time to time payable by virtue of such receiver's certificates shall form a
charge upon the Collateral in priority to the Debentures;

(f)
such receiver shall, so far as concerns responsibility for his acts or
omissions, be deemed the agent of the Company, and in no event the agent of the
Trustee, and the Trustee shall not, in making or consenting to such appointment,
incur any liability to the receiver for his remuneration or otherwise howsoever;

(g)
except as may be otherwise directed by the Trustee, all moneys from time to time
received by such receiver shall be paid over to the Trustee to be held by it on
the trusts of these presents;

(h)
the Trustee may pay over to such receiver any moneys constituting part of the
Collateral to the intent that the same may be applied for the purposes hereof by
such receiver, and the Trustee may from time to time determine what funds the
receiver shall be at liberty to keep in hand with a view to the performance of
his duty as receiver; and

(i)
for greater certainty, the Trustee may appoint or cause to be appointed a
receiver, with or without otherwise enforcing the security of this Indenture or
the Security Agreements.

8.6 Sale by Trustee
In case the Trustee shall have determined under the provisions of Section 8.2,
or shall have been directed pursuant to the provisions of Section 8.3, to
realize the Security Interest by sale, the Trustee shall have the right with or
without entry to sell and dispose of all or any part of the Collateral en bloc
or in parcels, at public auction or by tender or by private contract and at such
time or times and on such terms and conditions as the Trustee shall determine.
It shall be lawful for the Trustee to make any such sale, whether by auction,
tender or private contract, either for cash or upon credit or partly for one and
partly for the other, upon such reasonable conditions as to terms of payment as
it may deem proper; to rescind or vary any contract of sale that may have been
entered into and resell with or under any of the powers conferred herein; to
stop, suspend or adjourn any sale from time to time and hold the sale as
adjourned without further notice; and to deliver to the purchaser or purchasers
of the Collateral or any part thereof good and sufficient bills or sale or deeds
for the same.
8.7 Purchaser of the Collateral
Upon any sale of the Collateral or any part thereof, whether made under the
power of sale herein contained or pursuant to foreclosure or judicial
proceedings, the Trustee or any one or more of the Holders or any agent or
representative thereof may become purchasers.
8.8 Application of Proceeds of Sale or Realization
Except as otherwise herein provided, the moneys arising from any sale or other
realization of the whole or any part of the Collateral, whether under any sale
by the Trustee or by judicial process or otherwise, shall be held by the Trustee
and by it applied, together with any other moneys then or thereafter in the
hands of the Trustee available for the purpose, as follows:
(a)
first, in payment of all charges on the Collateral necessary to be made as a
result of such charges ranking in priority to the Debentures;

(b)
next, in payment or in reimbursement to the Trustee of its compensation, costs,
charges, expenses, borrowings, advances or other monies furnished or provided by
or at the instance of the Trustee in or about the execution of its trusts under,
or otherwise in relation to, or otherwise in relation to, this Indenture or the
Security Agreements;

--------------------------------------------------------------------------------

(c)
next, in payment rateably and proportionately to the Holders of the amounts due
on the Debentures, first for interest, including interest on amounts overdue,
and then for principal; and

(d)
the surplus (if any) of such moneys shall be paid to the Company or its assigns.

8.9 Distribution of Proceeds
Payments to Holders pursuant to Section 8.8(c) shall be made in the following
manner:
(a)
at least 15 days' notice of every such payment shall be given in the manner
provided in Article 14 specifying the time when and the place or places where
the Debentures are to be presented and the amount of the payment and application
thereof as between interest and principal;

(b)
payment of the principal amount of any Certificated Debenture shall be made upon
surrender of the Debenture Certificate at any one of the places specified in
such notice; provided that if the principal amount is paid in part only, upon
surrender of such Debenture Certificate for payment, the Holder shall be
entitled to receive a new Debenture Certificate for the unpaid principal amount
of the Debenture so surrendered and further provided that such new Debenture
Certificate may be in the principal amount of CAD$1.00 or an integral multiple
of CAD$1.00;

(c)
from and after the day of payment specified in the notice, interest shall accrue
only on the amount owing on each Debenture after giving credit for the amount of
the payment specified in such notice unless the Debenture is duly presented on
or after the date so specified and payment of such amount be not made; and

(d)
the Trustee shall not be required to make any interim payments to the Holders
unless the money in its hands, after reserving therefrom such amount as the
Trustee may think necessary to provide for the payments mentioned in Sections
8.8(a) and 8.8(b), exceed 2% of the principal amount of the outstanding
Debentures.

8.10 Persons Dealing with Trustee
No person dealing with the Trustee or its agent shall be concerned to enquire
whether the Security Interest has become enforceable, or whether the powers
which the Trustee is purporting to exercise have become exercisable, or whether
any money remains due upon the security of these presents or the Debentures, or
as to the necessity or expediency of the stipulations and conditions subject to
which any sale shall be made, or otherwise as to the propriety or regularity of
any sale or of any other dealing by the Trustee with the Collateral, or to see
to the application of any money paid to the Trustee.
8.11 Surrender by the Company
The Company binds and obliges itself to yield up possession of the Collateral
and the conduct of its business and undertaking therein to the Trustee or to any
receiver or receiver and manager appointed by the Trustee on demand by the
Trustee whenever the Trustee shall have a right of entry under the foregoing
provisions and agrees to put no obstacle in the way of, but to facilitate by all
legal means, the actions of the Trustee hereunder and not to interfere with the
carrying out of the powers hereby granted to it, and in the event of the
Security Interest becoming enforceable, as herein provided, the Company shall
and hereby does consent to the appointment in such case of a receiver or
receiver and manager with all such powers as the Trustee is hereby vested with,
if so required by the Trustee. The Company hereby binds itself in the said event
to consent to any petition or application presented to the Court by the Trustee
in order to effect the intent of this Indenture, and the Company shall not,
after receiving due notice from the Trustee that it has taken possession of the
Collateral by virtue hereof, continue in possession of the Collateral unless
with the express written consent and authority of the Trustee and shall
forthwith, by and through its officers and directors, execute such documents and
transfers as may be necessary to place the Trustee in legal possession of the
Collateral. After receipt of such notice, all the powers, functions, rights and
privileges of each and every one of the directors and officers of the Company
shall cease and determine with respect to the Collateral unless specifically
contained in writing by the Trustee or unless the property shall have been
restored to the Company as herein provided.

--------------------------------------------------------------------------------

8.12 Trustee Appointed Attorney
Each Obligor hereby irrevocably appoints the Trustee to be the attorney of the
Obligor in the name and on behalf of the Obligor to execute and do any deeds,
transfers, conveyances, assignments, assurances and things which the Obligor
ought to execute and do, and has not executed or done, under the covenants and
provisions contained in this Indenture or the Security Agreements and generally
to use the name of the Obligor in the exercise of all or any of the powers
hereby conferred on the Trustee.
8.13 Rights Cumulative
No power, right or discretion conferred by this Article upon the Trustee is
intended to be exclusive of any other power, right or discretion, but each and
every such power, right and discretion shall be cumulative and the Trustee shall
be entitled at any time and from time to time to exercise any one or more of
such powers, rights or discretions or any combination of them, and the exercise
of any one or more of such powers, rights or discretions, or combination of
them, from time to time shall not be deemed to exhaust the right of the Trustee
to exercise such powers, rights or discretions, or combination of them,
thereafter from time to time.
ARTICLE 9
TRUSTEE
9.1 Trust Indenture Legislation
The expression "indenture legislation" means the provisions, if any, of the
Business Corporations Act (Ontario) as amended or re‑enacted and any other
statute of Canada or any province thereof, and of any regulations under any such
statute, relating to trust indentures and to the rights, duties and obligations
of trustees under trust indentures and of corporations issuing debt obligations
under trust indentures, to the extent that such provisions are at the time in
force and applicable to this Indenture, the Security Agreements or the Company.
Each Obligor and the Trustee agree that each will at all times in relation to
this Indenture, the Security Agreements and any action to be taken hereunder or
thereunder, observe and comply with and be entitled to the benefits of indenture
legislation.
If and to the extent that any provision of this Indenture or the Security
Agreements limits, qualifies or conflicts with any mandatory requirement of
indenture legislation, such mandatory requirement shall prevail.
9.2 Conditions Precedent to Trustee's Obligation to Act
The obligation of the Trustee to commence or continue any act, action or
proceeding for the purpose of enforcing any rights of the Trustee or the Holders
hereunder shall be conditional upon the Holders furnishing, when required by
notice in writing by the Trustee, sufficient funds to commence or continue such
act, action or proceeding and indemnity reasonably satisfactory to the Trustee
to protect and hold harmless the Trustee against the costs, charges and expenses
and liabilities to be incurred thereby and any loss and damage it may suffer by
reason thereof.
None of the provisions contained in this Indenture or the Security Agreements
shall require the Trustee to expend or risk its own funds or otherwise incur
financial liability in the performance of any of its duties or obligations or in
the exercise of any of its rights or powers unless funded and indemnified as
aforesaid.
The Trustee may, before commencing or at any time during the continuance of any
such act, action or proceeding, require the Holders at whose instance it is
acting to deposit with the Trustee the Debentures held by them, for which
Debentures the Trustee shall issue receipts.

--------------------------------------------------------------------------------

9.3 Evidence
In addition to the reports, certificates, opinions and other evidence required
by this Indenture or the Security Agreements, the Company shall furnish to the
Trustee such additional evidence of compliance with any provision hereof or
thereof, and in such form (including by way of one or more statutory
declarations made by any one or officers of the Company acceptable to the
Trustee), as may be prescribed by indenture legislation or as the Trustee may
reasonably require by written notice to the Company.
Proof of the execution of an instrument in writing, including a Holders'
Request, by Holders may be made by the certificate of a notary public,
commissioner for oaths or other officer with similar powers, that the person
signing such instrument acknowledged to him the execution thereof, or by an
affidavit of a witness to such execution or in any other manner which the
Trustee may consider adequate, and in respect of a corporate Holder, shall
include a certificate of incumbency of such Holder together with a certified
resolution authorizing the person who signs such instrument to sign such
instrument, provided that the Trustee and/or Company, unless it has actual
knowledge to the contrary, may rely (but shall not be obliged to rely) upon and
assume, without certification, that the person purporting to execute any
document is the person named therein as signatory and/or has the authority to
sign on behalf of the signatory named therein.
9.4 Delegation; Experts and Advisers
The Trustee may delegate to any company or person the performance of any of the
trusts and powers vested in it by this Indenture or the Security Agreements and
any such delegation may be made upon such terms and conditions and subject to
such regulations, not including, however, any power to sub‑delegate, as the
Trustee may think to be in the interest of the Holders.
The Trustee may employ such agents, counsel, accountants, engineers, appraisers
or other assistants as it may reasonably require for the proper discharge and
determination of its rights and duties hereunder and under documents associated
with this Indenture or the Security Agreements, and may pay reasonable
remuneration for all services performed for it in the discharge of the trusts
hereof and thereof (including the reasonable disbursements and expenses of any
such agents, counsel, accountants, engineers, appraisers or assistants) and the
Trustee shall not be responsible for the negligent actions or misconduct of such
parties. All such payments shall be expenses of the Company and reimbursed to
the Trustee within thirty (30) days after demand therefor.
9.5 Documents, Money, Etc. Held by the Trustee
Any money, securities, documents of title or other instruments and other assets
that may at any time be deposited with or held by the Trustee in accordance with
and subject to the trusts hereof, may be placed in the deposit vaults of any
Canadian Schedule 1 chartered bank or deposited for safekeeping with any such
bank.
Unless herein otherwise expressly provided, pending the application or
withdrawal thereof under any of the provisions of this Indenture or the Security
Agreements, any money, securities and other assets that may at any time be
deposited with or held by the Trustee in accordance with the provisions hereof
(including, without limiting the generality of the foregoing any moneys set
aside hereunder pursuant to Section 2.18) shall be held by the Trustee for the
exclusive benefit of the Holders, and the Trustee:
(a)
may deposit the same in the name of the Trustee in any Canadian chartered bank
at the rate of interest (if any) from time to time current on similar deposits;
or

(b)
may, with the approval of the Company, and shall, if so directed by it invest
and reinvest the same or any part thereof in any bonds or other indebtedness of
or fully guaranteed by the Government of Canada or obligations of any Canadian
chartered bank maturing not more than one year from the date of investment.

9.6 Environmental Indemnity
(1) Subject to Section 9.6(3), each Obligor hereby indemnifies and holds
harmless the Trustee, its directors, officers, employees, and agents, and all of
their respective representatives, heirs, successors and assigns (collectively
the "Indemnified Parties") against any loss, expenses, claim, proceedings,
judgement, liability or asserted liability (including strict liability and
including costs and expenses of abatement and remediation of spills or releases
of contaminants and including liabilities of the Indemnified Parties to third
parties (including governmental agencies) in respect of bodily injuries,
property damage, damage to or impairment of the environment or any other injury
or damage and including liabilities of the Indemnified Parties to third parties
for the third parties' foreseeable and unforeseeable consequential damages)
incurred as a result of:
(a)
the administration of the trust created hereby; or

--------------------------------------------------------------------------------

(b)
the exercise by the Trustee of any rights hereunder or under the Security
Interest;

and which result from or relate, directly or indirectly, to:
(c)
the presence or release of any contaminants, by any means or for any reason, on
the Collateral, whether or not release or presence of the contaminants was under
the control, care or management of the Obligor or of a previous owner, or of a
tenant;

(d)
any contaminant present on or released from any contiguous property to the
Collateral; or

(e)
the breach or alleged breach of any environmental laws by an Obligor.

(2) For purposes of this Section, "liability" shall include (i) liability of an
Indemnified Party for costs and expenses of abatement and remediation of spills
and releases of contaminants, (ii) liability of an Indemnified Party to a third
party to reimburse the third party for bodily injuries, property damages and
other injuries or damages which the third party suffers, including (to the
extent, if any, that the Indemnified Party is liable therefor) foreseeable and
unforeseeable consequential damages suffered by the third party, (iii) liability
of the Indemnified Party for damage suffered by the third party, (iv) liability
of an Indemnified Party for damage to or impairment of the environment, and
(v) liability of an Indemnified Party for court costs, expenses of alternative
dispute resolution proceedings, and fees and disbursements of expert consultants
and legal counsel on a solicitor and client basis.
(3) It is understood and agreed that obligations of each Obligor to the
Indemnified Parties under Section 9.6(1) shall survive the resignation or
removal of the Trustee or the termination or discharge of this Indenture.
9.7 Action by Trustee to Protect Security
Subject to the terms of this Indenture (including Section 9.2) and the Security
Agreements, the Trustee shall have the power to institute and to maintain such
actions and proceedings as it may consider necessary or expedient to prevent any
impairment of the Security Interest by any acts of any Obligor or of others or
to preserve or protect its interests and the security and interests of the
Holders in respect of the Collateral, or in respect of the income, earnings,
rents, issues and profits thereof.
9.8 Trustee Not Required to Give Security
The Trustee shall not be required to give any bond or security in respect of the
execution of the trusts and powers of this Indenture or otherwise in respect of
the premises.
9.9 Protection of the Trustee
By way of supplement to the provisions of any law for the time being relating to
trustees, it is expressly declared and agreed as follows:
(a)
The Trustee shall not be liable for or by reason of:

(i)
any failure or defect of title to, or encumbrance upon, the Collateral; or

(ii)
any failure of or defect in the registration or filing of or renewal of the
Security Interest.

--------------------------------------------------------------------------------

(b)
The Trustee shall not be liable for or by reason of any statements of fact or
recitals in this Indenture, the Security Agreements or in the Debentures (except
in the certificate of the Trustee thereon) or required to verify the same, but
all such statements or recitals are and shall be deemed to be made by the
Obligor to whom those statements of fact or recitals are attributed.

(c)
Nothing herein contained shall impose any obligation on the Trustee to see or to
require evidence of the registration or filing of the Indenture, the Security
Interest, or to procure any further, other or additional instrument of further
assurance, or to do any other act for the continuance of the Security Interest
or for giving notice of the existence of the Security Interest for extending or
supplementing the same.

(d)
In the exercise of its rights and duties hereunder:

(i)
the Trustee may permit and suffer and shall be protected in permitting and
suffering in good faith any Obligor, its successors or assigns, to retain or be
in possession of any part of the Collateral and to use and enjoy the same unless
otherwise expressly provided herein, provided that the Trustee, when so acting,
shall not be or become responsible or liable for any destruction, deterioration,
loss, injury or damage which may be done or occur to the Collateral by any
Obligor, their servants or by any other person; and

(ii)
the Trustee shall not incur any liability or be in any way responsible for the
consequence of any breach on the part of any Obligor of any of the Obligor's
covenants herein contained or of any acts of the directors, officers, employees,
agents or servants of either Obligor.

(e)
The Trustee shall not be bound to give notice to any person or persons of the
execution hereof or of the Security Interest or in any way to interfere with the
conduct of the Company's business, unless and until the Security Interest shall
have become enforceable and the Trustee shall have determined or become bound to
enforce the same.

(f)
The Trustee shall not be, nor shall its agents or attorneys be, liable by reason
of an entry into possession of the Collateral or any part thereof to account as
mortgagee in possession or be liable for any loss on realization or for any
default or omission for which a mortgagee in possession might be liable save
such as may be caused by its own gross negligence or wilful misconduct.

(g)
Each Obligor hereby agrees to indemnify and hold harmless the Trustee and its
officers, directors, employees, trustees agents, representatives, successors and
assigns from and against any liability, loss, claim, action, demand, cost and
expense, including legal fees and disbursements of whatever kind or nature
(collectively "Liabilities"), which may be asserted against the Trustee or which
it may suffer or incur as a result of or arising from or out of the performance
of its duties and obligations under this Indenture or the Security Agreements,
whether groundless or otherwise, howsoever arising from or out of any act,
omission or error of the Trustee; provided that the Obligor shall not be
required to indemnify the Trustee in the event that such liabilities are a
result of the gross negligence or wilful misconduct of the Trustee. Without
limiting the generality of the foregoing, the obligation to indemnify, defend
and save harmless in accordance herewith shall apply in respect of Liabilities
suffered by, imposed upon, incurred in any way connected with or arising from,
directly or indirectly, any environmental laws. It is understood and agreed that
this provision shall survive the resignation or removal of the Trustee or the
termination or discharge of this Indenture or the Security Agreements.

9.10 Replacement of the Trustee
The Trustee may resign its trust and be discharged from all further duties and
liabilities hereunder by giving to the Company at least 90 days' notice in
writing or such shorter notice as the Company may accept as sufficient. The
Holders by Resolution shall have power at any time to remove the Trustee and to
appoint a new Trustee. In the event of the Trustee resigning or being removed as
aforesaid or being dissolved, becoming bankrupt, going into liquidation or
otherwise becoming incapable of acting hereunder, the Company shall forthwith
appoint a new Trustee unless a new Trustee has already been appointed by the
Holders, and failing such appointment by the Company the retiring Trustee or any
Holder may apply to a Judge of the Superior Court of Ontario, on such notice as
such Judge may direct, for the appointment of a new Trustee but any new Trustee
so appointed by the Company or by the Court shall be subject to removal as
aforesaid by the Holders. Any new Trustee appointed under any provision of this
Section shall be a Company authorized and qualified to carry on the business of
a trust company in the Province of Ontario and in every other jurisdiction where
such authorization or qualification is necessary to enable it to act as Trustee
hereunder. On any new appointment the new Trustee shall be vested with the same
powers, rights, duties and obligations as if it had been originally named herein
as Trustee, without any further assurance, conveyance, act or deed but there
shall be immediately executed, at the expense of the Company, all such
conveyances or other instruments as may, in the opinion of Counsel, be necessary
or advisable for the purpose of assuring to the new Trustee a full estate in the
premises.

--------------------------------------------------------------------------------

In case at any time the name of the Trustee is changed and at such time any of
the Debentures have been Authenticated but not delivered, the Trustee may adopt
the Authentication under its prior name and deliver Debentures so Authenticated;
and in case at that time any of the Debentures have not been Authenticated, the
Trustee may Authenticate such Debentures either in its prior name or in its
changed name; and in all such cases such Debentures will have the full force
provided in the Debentures and in this Indenture.
9.11 Conflict of Interest
The Trustee represents to the Company that, at the time of execution and
delivery hereof, no material conflict of interest exists in the Trustee's role
hereunder and agrees that, in the event of a material conflict of interest
arising hereafter, it will, within 90 days after ascertaining that it has such
material conflict of interest, either eliminate the same or assign its duties
and obligations hereunder to a successor Trustee approved by the Company and
meeting the requirements set forth in Subsection
9.12 Acceptance of Trust
The Trustee hereby accepts the trusts in this Indenture declared and provided
for and agrees to perform the same upon the terms and conditions herein set
forth and to hold the Security Interest and all the rights, privileges and
benefits conferred hereby and by law in trust for the various persons who shall
from time to time be Holders, subject to all the terms and conditions herein set
forth.
9.13 Rights and Duties of Trustee
The Trustee shall exercise that degree of care, diligence and skill that a
reasonably prudent trustee would in comparable circumstances. No provision of
this Indenture or the Security Agreements shall be construed to relieve the
Trustee from liability for its own gross negligence, willful misconduct or bad
faith.
The Trustee shall not be bound to do or give any notice or take any act, action,
proceeding for the enforcement of any of the obligations of any Obligor under
this Indenture or the Security Agreements unless and until it shall have
received a Holders' Request specifying the act, action or proceeding which the
Trustee is requested to take, nor shall the Trustee be required to take notice
of any default hereunder, unless and until notified in writing of such default,
which notice shall specify the default desired to be brought to the attention of
the Trustee and, in the absence of any such notice, the Trustee may for all
purposes of this Indenture and the Security Agreements conclusively assume that
no default has been made in the observance or performance of any of the
representations, debentures, covenants, agreements, or conditions contained
herein.
No duty shall rest with the Trustee to determine compliance of the transferor or
transferee with applicable securities laws. The Trustee shall be entitled to
assume that all transfers are legal and proper.
The Trustee shall be protected in acting and relying upon any written notice,
opinions, reports, certificates, direction, instruction, order, certificate,
confirmation, request, waiver, consent, receipt, statutory declaration or other
paper or document (collectively referred to as "Documents") furnished to it and
signed by any person required to or entitled to execute and deliver to the
Trustee any such Documents in connection with this Indenture or the Security
Agreements, not only as to its due execution and the validity and effectiveness
of its provisions, but also as to the truth and accuracy of any information
therein contained, which it in good faith believes to be genuine.
The Trustee is not to be appointed receiver or receiver manager of the assets of
any Obligor.
Any corporation into which the Trustee is amalgamated or with which it is
consolidated or to which all or substantially all of its corporate trust
business is sold or is otherwise transferred or any corporation resulting from
any consolidation or amalgamation to which the Trustee is a party shall become
the successor Trustee under this Indenture and the Security Agreements, without
the execution of any document or any further act; provided that such successor
Trustee is a corporation qualified to carry on the business of a trust
corporation in Canada or the province of Ontario and shall not have a material
conflict of interest in its role as a fiduciary under this Indenture.
The Trustee, in its personal or any other capacity, may buy, lend upon, and deal
in securities of the Company and generally make contracts and enter into
financial transactions with the Company or any subsidiary of the Company without
being liable to account for any profit made thereby.

--------------------------------------------------------------------------------

9.14 Force Majeure
The Trustee shall not be liable to the Company, or held in breach of this
Indenture or the Security Agreements, if prevented, hindered, or delayed in the
performance or observation of any provision contained herein by reason of act of
God, riots, terrorism, acts of war, epidemics, governmental action or judicial
order, earthquakes, or any other similar causes (including, but not limited to,
mechanical, electronic or communication interruptions, disruptions or failures).
9.15 Not Bound to Act
The Trustee shall retain the right not to act and shall not be liable for
refusing to act if, due to a lack of information or for any other reason
whatsoever, the Trustee, in its sole judgment, determines that such act might
cause it to be in non-compliance with any applicable anti-money laundering or
anti-terrorist legislation, regulation or guideline. Further, should the
Trustee, in its sole judgment, determine at any time that its acting under this
Indenture or the Security Agreements has resulted in its being in non-compliance
with any applicable anti-money laundering or anti-terrorist legislation,
regulation or guideline, then it shall have the right to resign on 10 days
written notice to the Company, provided (i) that the Trustee's written notice
shall describe the circumstances of such non-compliance; and (ii) that if such
circumstances are rectified to the Trustee's satisfaction within such 10 day
period, then such resignation shall not be effective.
ARTICLE 10
DISCHARGE
10.1 Discharge
If the Company pays the principal and interest owing on the Debentures
(including interest on amounts in default) and also pays all other sums payable
hereunder by the Company or, all the outstanding Debentures having matured,
payment of the principal of and interest (including interest on amounts in
default, if any) on such Debentures and of all other moneys payable hereunder
has been duly and effectually provided for in accordance with the provisions
hereof and under the Debentures, then:
(a)
the Security Interest shall cease and become utterly null and void and the
Collateral shall revert to and revest in the Obligor without any release,
acquittance, reconveyance, re-entry or other act or formality whatsoever
provided, however, that the Trustee shall, upon payment of its outstanding fees
and expenses, execute all such documents and instruments as the Obligor may
reasonably require in order to evidence the release; and

(b)
upon proof being given to the reasonable satisfaction of the Trustee that the
principal, interest and other moneys referred to above have been paid or
satisfied, and upon payment of all costs, charges and expenses properly incurred
by the Trustee in relation to this Indenture or the Security Agreements and all
interest thereon and the remuneration of the Trustee, the Trustee shall, at the
request of any Obligor, release and discharge this Indenture and the Security
Agreements and execute and deliver such instruments as it shall be advised by
Counsel are requisite for that purpose and to release the Obligor from its
covenants herein (other than the provisions relating to the indemnification of
the Trustee).

ARTICLE 11
MEETINGS OF DEBENTURE HOLDERS
11.1 Right to Convene Meeting
The Trustee may at any time and from time to time, and shall on receipt of a
written request of the Company or a Holders' Request, and upon being indemnified
and funded by the Holders or the Company as applicable (or provision having been
made for such funding which is satisfactory to the Trustee) to its reasonable
satisfaction by the Company or by the Holders signing such Holders' Request
against the costs which may be incurred in connection with the calling and
holding of such meeting, convene a meeting of the Holders. If the Trustee fails
within ten days after receipt of any such request, indemnity and funding to give
notice convening a meeting, the Company or the Holders named in the Holders'
Request, as the case may be, may convene such meeting. Every such meeting shall
be held in the Province of Ontario at such place as selected by the Trustee or
as designated by the Company or the Holders requesting the meeting if the
Trustee fails to give notice as aforesaid.
11.2 Notice of Meetings
At least 21 days' notice of any meeting shall be given to the Holders in the
manner provided in Article 14 a copy thereof shall be sent to the Trustee unless
the meeting has been called by it and to the Company unless the meeting has been
called by it, and the notice shall state briefly the general nature of the
business to be transacted thereat but it shall not be necessary for any such
notice to set out the terms of any resolution to be proposed or any of the
provisions of this Article. Notwithstanding the foregoing, the requirement for
the giving of notice may be waived and/or the time period for notice of a
meeting may be abridged to not less than ten days with the consent of Holders
representing more than 50% of the principal amount of all Debentures. Further,
so long as a quorum is present, no meeting of Holders shall be considered
invalid or improperly constituted and no business conducted or Resolution
approved at any such meeting shall be invalid by reason only of the inadvertent
failure to give notice in accordance with this Section or by reason that the
notice given may have been deficient or improper, and the attendance of a Holder
or his proxy at a meeting shall be deemed to be consent to the holding of the
meeting and the transaction of all business conducted at such meeting, unless
such appearance at the meeting is for the purpose of objecting to the
sufficiency of notice thereof.

--------------------------------------------------------------------------------

11.3 Chairman
Any person, who need not be a Holder, as selected by the Trustee shall be chair
of the meeting, unless the Holders at the meeting select from amongst themselves
by Resolution an alternative chair, in which case the person elected by such
Resolution shall be chair of the meeting.
11.4 Quorum
At any meeting of the Holders and subject to Section 11.13, a quorum shall
consist of Holders present in person or by proxy and representing at least
25% in principal amount of the outstanding Debentures. If a quorum of the
Holders shall not be present within 30 minutes from the time fixed for holding
any meeting, the meeting, if summoned by the Holders or pursuant to a Holders'
Request, shall be dissolved but in any other case the meeting shall be adjourned
to be held not earlier than seven days and not later than 21 days thereafter. An
adjourned meeting shall, subject to the foregoing, be held at such time and
place in the Province of Ontario at the same place and time, and no further
notice shall be required to be given in respect of such adjourned meeting. At
the adjourned meeting the Holders present in person or by proxy shall form a
quorum and may transact the business for which the meeting was originally
convened notwithstanding that they may not represent 10% of the principal amount
of the outstanding Debentures.
11.5 Power to Adjourn
The chair of any meeting at which a quorum of the Holders is present may, with
the consent of the Holders of a majority in principal amount of the Debentures
represented thereat, adjourn any such meeting and no notice of such adjournment
need be given except such notice, if any, as the meeting may prescribe.
11.6 Show of Hands
Every question or resolution submitted to a meeting shall be decided in the
first place by a majority of the votes given on a show of hands. At any such
meeting, unless a poll is duly demanded as herein provided, a declaration by the
chair that a question or Resolution has been carried or carried unanimously or
by a particular majority or lost or not carried by a particular majority shall
be conclusive evidence of the fact.
11.7 Poll
On every resolution and on any other question submitted to a meeting after a
vote by show of hands, when demanded by the chair or by any one or more Holders
and/or proxies for Holders a poll shall be taken in such manner and either at
once or after an adjournment as the chair shall direct. If a poll is taken on
any resolution or question such resolution or question shall be decided by the
votes of a majority in principal amount of the Debentures represented at the
meeting and voted on the poll.
11.8 Voting
On a show of hands every person who is present and entitled to vote, whether as
a Holder or as proxy for one or more Holders, or both, shall have one vote. On a
poll each Holder present in person or represented by proxy duly appointed by an
instrument in writing shall be entitled to one vote in respect of each CAD$1,000
principal amount of Debentures of which he shall then be the Holder (or proxy
for the Holder) and which is then outstanding. In the case of joint registered
Holders of a Debenture, any one of them present in person or by proxy at the
meeting may vote in the absence of the other or others but in case more than one
of them be present in person or by proxy, they shall vote together in respect of
the Debentures of which they are joint registered Holders.

--------------------------------------------------------------------------------

11.9 Proxies
A Holder may attend any meeting personally or may be represented by proxy. The
instrument appointing a proxy shall be signed by the Holder or his duly
authorized attorney in writing, or, if the Holder is a company, under its seal
or by an officer or attorney thereof duly authorized. Unless otherwise indicated
in the form of proxy, any such proxy shall cease to be valid one year from its
date. A proxy need not be a Holder.
The Company with the approval of the Trustee may, from time to time, make and
vary regulations as it shall think fit providing for and governing any or all
the following matters for the purpose of enabling the Holders to vote at any
such meeting by proxy:
(a)
the form of the instrument appointing a proxy, which shall be in writing, and
the manner in which the same shall be executed and the production of the
authority of any person signing on behalf of a Holder;

(b)
the deposit of instruments appointing proxies at such place as the Trustee, the
Company or the Holder convening the meeting, as the case may be, may in the
notice convening the meeting, direct and the time, if before the holding of the
meeting or any adjournment thereof by which the same must be deposited; and

(c)
the deposit of instruments appointing proxies at some approved place or places
other than the place at which the meeting is to be held and enabling particulars
of such instruments appointing proxies to be mailed, faxed, or sent by other
electronic communication before the meeting to the Company or to the Trustee at
the place where the same is to be held and for the voting of proxies so
deposited as though the instruments themselves were produced at the meeting.

11.10 Holdings by the Company Disregarded
In determining whether Holders holding Debentures evidencing the required number
of Debentures are present at a meeting of Holders for the purpose of determining
a quorum or for the purpose of determining whether Holders have concurred in any
consent, waiver, resolution or other action under this Indenture, the Debentures
owned legally or beneficially by the Company shall be disregarded.
11.11 Company and Trustee May be Represented
The Company and the Trustee, by their respective officers, directors and
employees and the legal advisers of the Company and the Trustee may attend any
meeting of the Holders, but shall have no vote as such.
11.12 Regulation of Meetings
Notwithstanding any other provisions of this Indenture, the Trustee or the
Company, with the approval of the Trustee, may make and from time to time may
vary such reasonable regulations as it may deem advisable for any meeting of
Holders in regard to proof of the holding of Debentures and the appointment of
proxies and in regard to the appointment and duties of scrutineers of votes, the
submission and examination of proxies, certificates and other evidence of the
right to vote, and such other matters concerning the conduct of the meeting as
it shall deem appropriate.
11.13 Powers Exercisable by Extraordinary Resolution
In addition to the powers conferred upon them by any other provisions of this
Indenture or by law, the Holders shall have the following powers exercisable
from time to time by Extraordinary Resolution:
(a)
power to sanction and agree to any modification, abrogation, alteration,
compromise or arrangement of the rights of the Holders and/or the Trustee (with
the prior consent of the Trustee) against the Company or against the Collateral;

(b)
power to direct or authorize the Trustee to exercise any power, right, remedy or
authority given to it by this Indenture or the Security Agreements, in any
manner specified in such Extraordinary Resolution or to refrain from exercising
any such power, right, remedy or authority;

(c)
power to waive and direct the Trustee to waive any default on the part of the
Company under any provision of this Indenture or the Security Agreements either
unconditionally or upon any conditions specified in such Extraordinary
Resolution, whether or not the Security Interest shall have become enforceable
by reason of such default;

--------------------------------------------------------------------------------

(d)
power to restrain any Holder from taking or instituting any suit, action or
proceeding for the purpose of enforcing payment of the principal of or interest
on the Debentures, or for the execution of any trust or power hereunder;

(e)
power to direct any Holder who, as such, has brought any action, suit or
proceeding to stay or discontinue or otherwise deal with the same, provided that
no Holder who has taken any suit, action or proceeding when permitted by Section
8.3(c) hereof shall be required to stay or discontinue or otherwise deal with
such proceeding until it has received payment of the costs, charges and expenses
reasonably and properly incurred by such Holder in connection therewith;

(f)
power to assent to any modification of or change in or omission from the
provisions contained herein or any deed or instrument supplemental hereto which
shall be agreed to by the Company and to authorize the Trustee to concur in and
execute any deed or instrument supplemental hereto or thereto embodying such
modification, change or omission;

(g)
power to assent to any scheme for the reorganization of the Company or for the
consolidation, amalgamation or merger of the Company with any other Company and
for the selling or leasing of the undertaking, property and assets of the
Company or any part thereof, if such reorganization, consolidation, amalgamation
or merger otherwise would or might be prohibited hereby;

(h)
power to require the Trustee on having entered into and taken possession of the
Collateral or any part thereof, or to authorize any receiver or receiver and
manager in possession of the Collateral or any part thereof, to restore the same
to the Company upon such conditions as such Extraordinary Resolution may
specify;

(i)
power to authorize the Trustee (subject to the Trustee's consent and approval)
or any other person to do all or any of the following, namely:

(i)
to bid or tender at any sale of the Collateral or any part thereof;

(ii)
to borrow the moneys required to make any deposit at said sale or to pay the
balance of the purchase price and to grant, mortgage, pledge, charge and
transfer the property so purchased or any part or parts of such property as
security for the repayment of the moneys so borrowed and interest thereon, or to
advance such moneys in which event the Trustee or person advancing such moneys
shall have a lien, charge or privilege upon or a right of retention of the
property so purchased for the amount so advanced and interest thereon;

(iii)
to hold any property so purchased (subject to any mortgage, charge, lien or
transfer or to such right of retention to secure any moneys so borrowed or
advanced) in trust for all the Holders at the time of such tender pro rata in
proportion to the amounts due to them thereon respectively for principal and
interest before the making of such tender;

(iv)
to sell, transfer and convey the whole or any part or parts of the property so
purchased for such consideration and upon such terms and conditions as may be
determined by such Extraordinary Resolution; and

(v)
until the sale, transfer and conveyance of the whole of such property so
purchased, to maintain and operate such part of said property as has not been
disposed of and for such purposes to borrow moneys and to grant, mortgage,
pledge, charge and transfer the property so purchased, or any part or parts
thereof, as security for the repayment of the moneys so borrowed, with interest
thereon, or itself, himself or themselves, as the case may be, to advance such
moneys, in which event it, he or they shall have a lien or charge or privilege
upon or right of retention of the property so purchased for the amounts so
advanced and interest thereon and otherwise to deal with such property and the
proceeds of any sale, transfer or conveyance thereof as such Extraordinary
Resolution may direct;

--------------------------------------------------------------------------------

(j)
power to appoint and remove a committee (herein sometimes called a "Holders'
Committee") to consult with the Trustee and to delegate to such Holders'
Committee (subject to such limitations, if any, as may be prescribed in such
Extraordinary Resolution) all or any of the powers which the Holders could
exercise by Resolution or Extraordinary Resolution under the provisions hereof.
The Extraordinary Resolution making such appointment may provide for payment of
the expenses and disbursements of and compensation to such Holders' Committee.
Such Holders' Committee shall consist of such number of persons as shall be
prescribed in the Extraordinary Resolution appointing it and the members need
not be themselves Holders. Subject to the Extraordinary Resolution appointing
it, every such Holders' Committee may elect its chair and may make regulations
respecting its quorum, the calling of meetings, the filling of vacancies
occurring in its number, the manner in which it may act and its procedure
generally and such regulations may provide that the Holders' Committee may act
at a meeting at which a quorum is present or may act by minutes signed by a
majority of the members thereof or the number of members thereof necessary to
constitute a quorum, whichever is the greater. All acts of any such Holders'
Committee within the authority delegated to it shall be binding upon all
Holders; and

(k)
power to amend, alter or repeal any Extraordinary Resolution previously passed
or sanctioned by the Holders;

provided that no Extraordinary Resolution shall be approved, or if approved
valid, where or to the extent that such Extraordinary Resolution creates or
purports to create different rights or obligations for different Holders
(considered rateably) except with the express consent of all Holders.
11.14 Powers Cumulative
It is hereby declared and agreed that any one or more of the powers and/or any
combination of the powers in this Indenture or the Security Agreements stated to
be exercisable by the Holders by Resolution or otherwise may be exercised from
time to time and the exercise of any one or more of such powers or any
combination of powers from time to time shall not be deemed to exhaust the
rights of the Holders to exercise the same or any other such power or powers or
combination of powers thereafter from time to time.
11.15 Minutes
Minutes of all resolutions and proceedings at every meeting as aforesaid shall
be made and duly entered in books to be from time to time provided for that
purpose by the Company or by the Trustee at the expense of the Company or by
such person as the Holders by resolution may appoint, and any such minutes as
aforesaid, if signed by the chair of the meeting at which such Resolutions were
passed or proceedings had, or by the chair of the next succeeding meeting of the
Holders, shall be prima facie evidence of the matters therein stated and, until
the contrary is proved, every such meeting in respect of the proceedings of
which minutes shall have been made, shall be deemed to have been duly held and
convened, and all resolutions passed thereat or proceedings had, to have been
duly passed and had.
11.16 Instruments in Writing
All actions which may be taken and all powers that may be exercised by
Resolution by the Holders at a meeting as provided for in this Article 11, may
also be taken and exercised by an instrument in writing signed in one or more
counterparts by the Holders of more than 50% or more of the principal amount of
all of the outstanding Debentures and the expression "Resolution" when used in
this Indenture shall include an instrument so signed.
11.17 Binding Effect of Resolutions
Every resolution passed in accordance with the provisions of this Article shall
be binding upon all the Holders, whether present at or absent from the meeting,
if any, at which such resolution was approved, and every instrument in writing
signed by Holders in accordance with Section 11.16 shall be binding upon all the
Holders, whether signatories thereto or not, and each and every Holder and the
Trustee (subject to the provisions for its indemnity herein contained) shall be
bound to give effect accordingly to every such resolution and instrument in
writing.
ARTICLE 12
CONSOLIDATION, MERGER, SALE, CONVEYANCE OR TRANSFER OF ASSETS
12.1 Merger, etc. of the Company
The Company may consolidate with or merge into any other company, or sell,
convey or transfer all or substantially all of its assets to any person, or any
other person may otherwise assume the obligations of the Company in respect of
the Debentures (any of the foregoing being referred to as a "Successor Person
Transaction") without the consent of the Holders, provided that the successor
continuing Company, or the purchasing or assuming person (the "Successor
Person") assumes the Security Interest and all the obligations of the Company
under this Indenture and the Security Agreements (as amended or supplemented)
and the Debentures, and complies with the following conditions:
(a)
the Successor Person expressly assumes by supplemental indenture the Company's
obligations thereunder and under the Debentures and confirms by deed the
continuing validity of the Guarantee;

(b)
the Successor Person provides a certificate to the Trustee stating that
immediately after such transaction there will not be any default by the
Successor Person under this Indenture, the Security Agreements or the
Debentures;

--------------------------------------------------------------------------------

(c)
the Successor Person agrees to indemnify each Holder against any tax, assessment
or governmental charge imposed on such Holder solely as a consequence of such
transaction with respect to the payment of principal and interest on the
Debentures and to pay any additional amounts which may be necessary in order
that the net amounts received by the Holders after any withholding or deduction
of such tax, assessment or governmental charge shall equal the respective
amounts of principal and interest which would have been received in respect of
the Debentures in the absence of such transaction;

(d)
the Successor Person provides to the Trustee an opinion of counsel (who may be
counsel to such Successor Person, acceptable to the Trustee) stating that the
transaction complies with the relevant provisions of this Indenture, the
Security Agreements and the Debentures; and

(e)
the Successor Person shall assume and confirm the Security Interest and shall
provide the Trustee with such assurances as the Trustee may require to confirm
that the Security Interest and the Collateral will not be materially impaired or
diminished as a result of the Successor Person Transaction.

12.2 Successor Substituted
Upon any consolidation, amalgamation, merger or disposition described in, and
complying with the provisions of Section 12.1, in which the Company is not the
continuing Company, the Successor Person shall succeed to all of the rights and
obligations of the Company under this Indenture, the Security Agreements and the
Debentures, and from time to time may exercise every right and power of the
Company under this Indenture, the Security Agreements and the Debentures.
ARTICLE 13
SUPPLEMENTAL DEEDS
13.1 Provision for Supplemental Deeds
From time to time each Obligor (when authorized by a resolutions of their
directors) and the Trustee may, subject to the provisions of this Indenture and
the Security Agreements, and they shall, when so directed by this Indenture,
execute and deliver by their proper officers, deeds or instruments supplemental
or ancillary hereto, which thereafter shall form part hereof, for any one or
more or all of the following purposes:
(a)
giving effect to any Resolution passed as provided in ARTICLE 11;

(b)
making any addition to, deletion from or alteration of the provisions of this
Indenture or the Security Agreements which the Company may deem necessary or
advisable and which, in the opinion of the Trustee, relying on the opinion of
Counsel, does not materially and adversely affect the interest of the Holders;

(c)
adding to the limitations or restrictions herein specified further limitations
or restrictions, thereafter to be observed, upon the dealing with the Collateral
and adding to the covenants of the Company herein contained for the protection
of the Holders or adding to the Events of Default herein specified provided that
such further limitations, restrictions, covenants or Events of Default are not,
in the opinion of the Trustee relying on the opinion of Counsel, prejudicial to
the interests of the Holders;

--------------------------------------------------------------------------------

(d)
amending Article 9 in such manner as the Company and the Trustee (relying upon
the opinion of Counsel) may deem necessary or advisable in order to avoid
conflict between such ARTICLE 9 and indenture legislation; and

(e)
for any other purpose required by or not inconsistent with the terms of this
Indenture or the Security Agreements, which have been advised by Counsel to the
Trustee are required for the purpose of curing or correcting any ambiguity or
defective or inconsistent provision or clerical omission or mistake or manifest
error contained herein or in any deed or indenture supplemental or ancillary
hereto, provided that in the opinion of the Trustee, relying on the opinion of
Counsel, the rights of the Trustee or of the Holders are in no way prejudiced
thereby.

ARTICLE 14
NOTICES
14.1 Notice to Company
Any notice to the Company under the provisions of this Indenture shall be valid
and effective (a) if delivered in person to the Chief Executive Officer or
Secretary of the Company, or (b) if sent by facsimile to (905) 269-1000 to the
attention of the Chief Executive Officer or Secretary of the Company, or (c) if
given by registered letter, postage prepaid, addressed to SECURITY DEVICES
INTERNATIONAL INC., 125 Lakeshore Road East, Suite 300, Oakville, Ontario L6J
1H3, to the attention of the Chief Executive Officer or Secretary.
Notice by electronic transmission, if sent prior to, in the case of the Company,
4:00 p.m. (Eastern Time), on a Business Day, shall be deemed to have been given
on such Business Day and in all other cases shall be deemed to have been given
on the next following Business Day. Notice by mail, subject as provided in
Section 14.4, shall be deemed to have been given on the fifth Business Day
following the date of mailing thereof. The Company may from time to time notify
the Trustee in writing of a change of address or electronic transmission number
or the person to whose attention any notice is to be addressed which thereafter,
until changed by like notice, shall be the address or electronic transmission
number of the Company or the person to whose attention any notice is to be
addressed for all purposes of this Indenture.
14.2 Notice to Holders
Any notice to the Holders shall be valid and effective if, in the case of
Holders of registered Debentures, it is delivered or mailed postage prepaid,
addressed to such Holders, at their addresses appearing in the Register
maintained by the Trustee and, subject as provided in this Section 14.2, shall
be deemed to have been given on the fifth Business Day after mailing. All
notices to joint Holders will be addressed to both Holders and will be sent to
the address appearing on the Register, and any notice so given shall be
sufficient notice to all Holders of such Debenture. In the event of a postal
disruption, notices to Holders shall be sent by other appropriate means.
Accidental error or omission in giving notice or accidental failure to mail
notice to any Holder will not invalidate any action or proceeding founded
thereon.
If regular mail service is suspended or for any other reason that shall be
impracticable to give notice to Holders by mail, then such notification to the
Holders may be given by the publication of the notice once in a daily newspaper
with national circulation in Canada or in any other manner approved by the
Trustee, and it shall constitute sufficient notice to such Holders for every
purpose hereunder.
14.3 Notice to Trustee
Any notice to the Trustee under the provisions of this Indenture shall be valid
and effective (a) if delivered to the office of the Trustee, or (b) if sent by
facsimile to TSX TRUST COMPANY at 416-361-0470, to the attention of Vice
President, Trust Services, or (c) if given by registered letter, postage
prepaid, addressed to the Trustee at 200 University Avenue, Suite 300, Toronto,
Ontario M5H 4H1, to the attention of Vice President, Trust Services. Notice by
electronic transmission, if sent prior to 3:00 p.m. (Toronto time) on a Business
Day, shall be deemed to have been effectively given on such Business Day and in
all other cases shall be deemed effectively to have been given on the next
following Business Day. Notice by mail, subject as provided in Section 14.4,
shall be deemed to have been given on the fifth Business Day following date of
mailing thereof. The Trustee may from time to time notify the Company of a
change in address or electronic transmission number or the person to whose
attention any notice is to be addressed which thereafter, until changed by like
notice, shall be the address or electronic transmission number of the Trustee or
the person to whose attention any notice is to be addressed for all purposes of
this Indenture.
14.4 Postal Service Interruption
In the case of disruption in postal services in Canada, any notice given under
Section 14.1 or Section 14.3, if mailed, shall be deemed not to have been given
until it is actually delivered.

--------------------------------------------------------------------------------

ARTICLE 15
GOVERNING LAW
15.1 Governing Law and Submission to Jurisdiction
The Indenture and the Debentures are governed by, and shall be construed in
accordance with, the laws of the Province of Ontario and the federal laws of
Canada applicable therein.
The Company submits, for the exclusive benefit of the Trustee and the Holders,
to the exclusive jurisdiction of the courts of the Province of Ontario for all
purposes in connection with the Indenture and the Debentures.
(intentionally left blank)

--------------------------------------------------------------------------------

ARTICLE 16
EXECUTION
This Indenture may be executed (by facsimile or otherwise) in any number of
counterparts, each of which so executed shall be deemed to be an original, but
all such counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF the parties have executed this Indenture.

   
SECURITY DEVICES INTERNATIONAL INC.
 
             /s/ Dean Thrasher
By: __________________________________
Dean Thrasher Authorized Signing Officer
 
 
By: __________________________________
Authorized Signing Officer
 
   
SECURITY DEVICES INTERNATIONAL CANADA CORP
 
              /s/ Dean Thrasher
By: __________________________________
Dean Thrasher, Authorized Signing Officer
 
 
By: __________________________________
Authorized Signing Officer
 
 
 
   
TSX TRUST COMPANY
 
              /s/ Donald Crawford
By: __________________________________
Donald Crawford,Authorized Signing Officer
 
              /s/ Kathy Thorpe
By: __________________________________
Kathy Thorpe, Authorized Signing Officer

--------------------------------------------------------------------------------

Schedule 1.1(pp)
Permitted Liens
Corporation Name
Secured Party
File Number
Expiry Date
(YYYY/MM/DD)
Collateral Classification
Security Devices International Canada Corp.
The Toronto-Dominion Bank - 22052
712995201
30 December 2020
Accounts
Other
Security Devices International Canada Corp.
Northeast Industrial Partners, LLC
723157083
06 December 2021
Inventory, Equipment
Accounts
Other
Security Devices International Inc.
Northeast Industrial Partners, LLC
723157083
06 December 2021
Inventory, Equipment
Accounts
Other

--------------------------------------------------------------------------------

Schedule 1.1(ccc)
[FORM OF SENIOR SECURED CONVERTIBLE NOTE]
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
IN A GENERALLY ACCEPTABLE FORM OF COUNSEL, WHICH COUNSEL SHALL BE SELECTED BY
THE HOLDER AND BE REASONABLY ACCEPTABLE TO THE ISSUER, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID
ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED
BY THE SECURITIES.  ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE
TERMS OF THIS NOTE, INCLUDING SECTIONS 3(c)(v) AND 18(a) HEREOF.  THE PRINCIPAL
AMOUNT REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE SECURITIES ISSUABLE UPON
CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF
PURSUANT TO SECTION 3(c)(v) OF THIS NOTE.   THIS NOTE IS SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER SET FORTH IN SECTION 5 OF THE SECURITIES PURCHASE
AGREEMENT DATED AS OF DECEMBER 7, 2016.
UNLESS PERMITTED UNDER NATIONAL INSTRUMENT 45-102 (RESALE OF SECURITIES), THE
HOLDER OF THIS SECURITY (AND ANY SECURITY INTO WHICH THIS SECURITY MAY BE
CONVERTED) MUST NOT TRADE THE SECURITY BEFORE APRIL 8, 2017.
[WITHOUT PRIOR WRITTEN APPROVAL OF TSX VENTURE EXCHANGE AND COMPLIANCE WITH
NATIONAL INSTRUMENT 45-102 (RESALE OF SECURITIES), THE SECURITIES REPRESENTED BY
THIS CERTIFICATE (AND ANY SECURITY INTO WHICH THIS SECURITY MAY BE CONVERTED)
MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE TRADED ON OR THROUGH THE
FACILITIES OF TSX VENTURE EXCHANGE OR OTHERWISE IN CANADA OR TO OR FOR THE
BENEFIT OF A CANADIAN RESIDENT UNTIL APRIL 8, 2017.]
SECURITY DEVICES INTERNATIONAL INC.
Senior Secured Convertible Note
Issuance Date:  December 7, 2016
Principal:  U.S. $[___________]

FOR VALUE RECEIVED, Security Devices International Inc., a Delaware corporation
(the "Company"), hereby promises to pay to [Insert Name] or registered assigns
("Holder") the amount set out above as the Principal (as reduced pursuant to the
terms hereof pursuant to redemption, conversion or otherwise, the "Principal")
when due, whether upon the Maturity Date (as defined below), acceleration,
redemption or otherwise (in each case in accordance with the terms hereof) and
to pay interest ("Interest") on any outstanding Principal at the rate equal to
the then applicable Interest Rate (as defined below), from the date set out
above as the Issuance Date (the "Issuance Date") until the same becomes due and
payable, whether upon an Interest Date (as defined below), the Maturity Date,
acceleration, conversion, redemption or otherwise (in each case, in accordance
with the terms hereof).  This Senior Secured Convertible Note (including all
Senior Secured Convertible Notes issued in exchange, transfer or replacement
hereof, this "Note") is one of an issue of Senior Secured Convertible Notes
issued pursuant to the Securities Purchase Agreement (as defined below) on the
Closing Date (as defined in the Securities Purchase Agreement) (collectively,
the "Notes" and such other Senior Secured Convertible Notes, the
"Other Notes").  Certain capitalized terms used herein are defined in Section
28.  Capitalized terms not otherwise defined herein have the meanings set forth
in the Securities Purchase Agreement.
       (1)  MATURITY. On the Maturity Date, the Holder shall surrender this Note
to the Company and the Company shall pay to the Holder an amount in cash
representing all outstanding Principal, accrued and unpaid Interest and accrued
and unpaid Late Charges, if any. The "Maturity Date" shall be June 6, 2019, but
may be extended at the option of the Holder through the date that is 10 days
after the consummation of a Change of Control in the event that a Change of
Control is publicly announced or a Change of Control Notice (as defined in
Section 5(b)) is delivered prior to the Maturity Date. Except as specifically
set forth herein, this Note is not prepayable.
      (2) INTEREST; INTEREST RATE

--------------------------------------------------------------------------------

      (a) Interest.  Interest on this Note shall commence accruing on the
Issuance Date and shall be computed on the basis of a 365-day year and shall be
payable in arrears on the last day of each May and November during the period
beginning on the Issuance Date and ending on, and including, the Maturity Date
(each, an "Interest Date") with the first Interest Date being May 31, 2017. 
Interest shall be payable on each Interest Date in cash.  Prior to the payment
of Interest on an Interest Date, Interest on this Note shall accrue at the rate
of 10% per annum (the "Interest Rate").
      (b) Default Rate. From and after the occurrence of an Event of Default and
notwithstanding the provisions of Section 2(b) hereof, the Interest Rate shall
be increased to 15.0% (the “Default Rate”). In the event that such Event of
Default is subsequently cured, the adjustment referred to in the preceding
sentence shall cease to be effective as of the date of such cure; provided that
the Interest calculated at the Default Rate during the continuance of such Event
of Default shall continue to apply to the extent it relates to the days after
the occurrence of such Event of Default through and including the date of cure
of such Event of Default.
     (c) Maximum Effective Interest Rate: Notwithstanding any other provision of
the Securities Purchase Agreement or this Note (including, for certainty,
Section 4(b) (Redemption Right) and Section 5 (Rights Upon Fundamental
Transaction And Change Of Control)), the effective rate of interest per annum
may not exceed 25% and any payments otherwise required to be made to the Holder
will be reduced as necessary for that purpose.
    (3) CONVERSION OF NOTES. This Note shall be convertible into shares of the
Company's common stock, par value $0.001 per share (the “Common Stock”), on the
terms and conditions set forth in this Section 3.
    (a) Conversion Right. Subject to the provisions of Section 3(d), at any time
or times on or after the Issuance Date, the Holder shall be entitled to convert
any portion of the outstanding and unpaid Conversion Amount (as defined below)
into fully paid and nonassessable shares of Common Stock in accordance with
Section 3(c), at the Conversion Rate (as defined below). The Company shall not
issue any fraction of a share of Common Stock upon any conversion. If the
issuance would result in the issuance of a fraction of a share of Common Stock,
the Company shall round such fraction of a share of Common Stock up to the
nearest whole share. The Company shall pay any and all taxes that may be payable
with respect to the issuance and delivery of Common Stock upon conversion of any
Conversion Amount.
  (b) Conversion Rate. The number of shares of Common Stock issuable upon
conversion of any Conversion Amount pursuant to Section 3(a) shall be determined
by dividing (x) such Conversion Amount by (y) the Conversion Price (such number
of shares, the “Conversion Rate”). For the purposes of this Note:
 
  (i) “Conversion Amount” means the portion of the Principal to be converted,
redeemed or otherwise with respect to which this determination is being made.
 
  (ii) “Conversion Price” means, as of any Conversion Date (as defined below) or
other date of determination a price equal to USD$0.24, subject to adjustment as
provided herein.
 
    (c) Mechanics of Conversion.

--------------------------------------------------------------------------------

 
   (i) Optional Conversion. To convert any Conversion Amount into shares of
Common Stock on any date (a “Conversion Date”), the Holder shall (A) transmit by
facsimile (or otherwise deliver), for receipt on or prior to 5:00 p.m., New York
City time, on such date, a copy of an executed notice of conversion in the form
attached hereto as Exhibit I (the “Conversion Notice”) to the Company and (B) if
required by Section 3(c)(v), surrender this Note to a common carrier for
delivery to the Company as soon as practicable on or following such date (or an
indemnification undertaking with respect to this Note in the case of its loss,
theft or destruction). Promptly following the date of receipt of a Conversion
Notice, the Company shall transmit by facsimile a confirmation of receipt of
such Conversion Notice to the Holder and the Company's transfer agent (the
“Transfer Agent”). On or before the fifth Business Day following the date of
receipt of a Conversion Notice (the “Share Delivery Date”), the Company shall
(1) (X) provided that the Transfer Agent is participating in the Depository
Trust Company (“DTC”) Fast Automated Securities Transfer Program and so long as
the certificates therefor are not required to bear a legend pursuant to Section
5(c) of the Securities Purchase Agreement, credit such aggregate number of
shares of Common Stock to which the Holder shall be entitled to the Holder's or
its designee's balance account with DTC through its Deposit Withdrawal Agent
Commission system or (Y) if the Transfer Agent is not participating in the DTC
Fast Automated Securities Transfer Program, issue and deliver to the address as
specified in the Conversion Notice, a certificate, registered in the name of the
Holder or its designee, for the number of shares of Common Stock to which the
Holder shall be entitled, which certificate shall not bear any restrictive
legend unless the certificate is required to bear such a legend pursuant to
Section 5(c) of the Securities Purchase Agreement, and (2) pay to the Holder in
cash an amount equal to the sum of (A) the amount of any accrued and unpaid
Interest on the applicable Conversion Amount being converted through the
Conversion Date and (B) any accrued and unpaid Late Charges on such Conversion
Amount and Interest. Delivery of physical certificates shall be deemed to have
been made if delivered personally or when delivered to a nationally recognized
overnight carrier. If this Note is physically surrendered for conversion as
required by Section 3(c)(iii) and the outstanding Principal of this Note is
greater than the Conversion Amount, then the Company shall as soon as
practicable and in no event later than three Business Days after receipt of this
Note and at its own expense, issue and deliver to the holder a new Note (in
accordance with Section 18(d)) representing the outstanding Principal not
converted. The Person or Persons entitled to receive the shares of Common Stock
issuable upon a conversion of this Note shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on the Conversion Date.
 
  (ii) Company's Failure to Timely Convert. If the Company shall fail to issue a
certificate to the Holder or credit the Holder's balance account with DTC for
the number of shares of Common Stock to which the Holder is entitled upon
conversion of any Conversion Amount on or prior to the date which is five
Business Days after the Conversion Date (a “Conversion Failure”), then the
Company shall pay to the Holder payments (“Conversion Default Payments”) for a
Conversion Failure in the amount of (i) (N/365), multiplied by (ii) an amount
equal to the amount by which (x) the highest Closing Sale Price of the Common
Stock during the period beginning on the date the Conversion Notice giving rise
to the Conversion Failure in accordance with this Section 3(c)(ii) is
transmitted (the “Conversion Failure Date”) and ending on the date immediately
preceding the date on which the applicable Conversion Default Payment is made
exceeds (y) the Conversion Price in respect of such Conversion Amount,
multiplied by (iii) the number of shares of Common Stock the Company failed to
so deliver in such Conversion Failure, multiplied by (iv) .18, where N equals
the number of days from the Conversion Failure Date to the date that the Company
effects the full conversion of the Conversion Amount which gave rise to the
Conversion Failure. The accrued Conversion Default Payments for each calendar
month shall be paid in cash to the Holder by the fifth day of the month
following the month in which it has accrued. In addition to the foregoing, if
within five Trading Days after the Company's receipt of the facsimile copy of a
Conversion Notice the Company shall fail to issue and deliver a certificate to
the Holder or credit the Holder's balance account with DTC for the number of
shares of Common Stock to which the Holder is entitled upon such Holder's
conversion of any Conversion Amount, and if on or after such Trading Day the
Holder purchases (in an open market transaction or otherwise) Common Stock to
deliver in satisfaction of a sale by the Holder of Common Stock issuable upon
such conversion that the Holder anticipated receiving from the Company (a
“Buy-In”), then the Company shall, within three Business Days after the Holder's
request and in the Holder's discretion, either (i) pay cash to the Holder in an
amount equal to the Holder's total purchase price (including brokerage
commissions and other out-of-pocket expenses, if any) for the shares of Common
Stock so purchased (the “Buy-In Price”), at which point the Company's obligation
to deliver such certificate (and to issue such Common Stock) shall terminate, or
(ii) promptly honor its obligation to deliver to the Holder a certificate or
certificates representing such Common Stock and pay cash to the Holder in an
amount equal to the excess (if any) of the Buy-In Price over the product of (A)
such number of shares of Common Stock times (B) the Closing Sale Price on the
Conversion Date. Nothing herein shall limit the Holder’s right to pursue actual
damages for the Company’s failure to maintain a sufficient number of authorized
shares of Common Stock or to otherwise issue shares of Common Stock upon
conversion of this Note in accordance with the terms hereof, and the Holder
shall have the right to pursue all remedies available at law or in equity
(including a decree of specific performance and/or injunctive relief).
 
 (iii) Book-Entry. Notwithstanding anything to the contrary set forth herein,
upon conversion of any portion of this Note in accordance with the terms hereof,
the Holder shall not be required to physically surrender this Note to the
Company unless (A) the full Principal amount of this Note is being converted or
(B) the Holder has provided the Company with prior written notice (which notice
may be included in a Conversion Notice) requesting physical surrender and
reissue of this Note. The Holder and the Company shall maintain records showing
the Principal converted and the dates of such conversions (and the Interest and
Late Charges paid with respect thereto) or shall use such other method,
reasonably satisfactory to the Holder and the Company, so as not to require
physical surrender of this Note upon conversion.

--------------------------------------------------------------------------------

 
 (iv) Pro Rata Conversion; Disputes. In the event that the Company receives a
Conversion Notice from more than one holder of Notes for the same Conversion
Date and the Company can convert some, but not all, of such portions of the
Notes submitted for conversion, the Company, subject to Section 3(d), shall
convert from each holder of Notes electing to have Notes converted on such date
a pro rata amount of such holder's portion of its Notes submitted for conversion
based on the principal amount of Notes submitted for conversion on such date by
such holder relative to the aggregate principal amount of all Notes submitted
for conversion on such date. In the event of a dispute as to the number of
shares of Common Stock issuable to the Holder in connection with a conversion of
this Note, the Company shall issue to the Holder the number of shares of Common
Stock not in dispute and resolve such dispute in accordance with Section 23.
 
   (d) Limitations on Conversions and Payments in Shares of Common Stock;
Beneficial Ownership. The Company shall not be obligated to effect any
conversion of this Note or pay any amounts due hereunder in Common Stock, and
the Holder of this Note shall not have the right to convert any portion of this
Note pursuant to Section 3(a) or to require the Company to pay any amounts due
hereunder in Common Stock, in each case to the extent that after giving effect
to such conversion or payment, the Holder (together with the Holder's
affiliates) would beneficially own in excess of 4.99% (the “Maximum Percentage”)
of the number of shares of Common Stock outstanding immediately after giving
effect to such conversion or payment. For purposes of the foregoing sentence,
the number of shares of Common Stock beneficially owned by the Holder and its
affiliates shall include the number of shares of Common Stock issuable upon the
conversion or payment of or in connection with this Note with respect to which
the determination of such sentence is being made, but shall exclude the number
of shares of Common Stock which would be issuable upon (A) conversion of the
remaining, unconverted portion of this Note beneficially owned by the Holder or
any of its affiliates and (B) exercise or conversion of the unexercised or
unconverted portion of any other securities of the Company (including, without
limitation, any Other Notes or Warrants) subject to a limitation on conversion
or exercise analogous to the limitation contained herein beneficially owned by
the Holder or any of its affiliates. Except as set forth in the preceding
sentence, for purposes of this Section 3(d), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”). For purposes of this Section 3(d), in
determining the number of outstanding shares of Common Stock, the Holder may
rely on the number of outstanding shares of Common Stock as reflected in (x) the
Company's most recent Form 10-K, Form 10-Q or Form 8-K, as the case may be, (y)
a more recent public announcement by the Company or (z) any other notice by the
Company or the Transfer Agent setting forth the number of shares of Common Stock
outstanding. For any reason at any time, upon the written or oral request of the
Holder, the Company shall within one Trading Day confirm orally and in writing
to the Holder the number of shares of Common Stock then outstanding. In any
case, the number of outstanding shares of Common Stock shall be determined after
giving effect to the conversion or exercise of securities of the Company,
including this Note, by the Holder or its affiliates since the date as of which
such number of outstanding shares of Common Stock was reported. By written
notice to the Company, the Holder may increase or decrease the Maximum
Percentage to any other percentage not in excess of 19.99% specified in such
notice; provided that (i) any such increase will not be effective until the
sixty-first (61st) day after such notice is delivered to the Company, and (ii)
any such increase or decrease will apply only to the Holder and not to any other
holder of Notes.
 
    (4) RIGHTS UPON EVENT OF DEFAULT.
 
    (a) Event of Default. Each of the following events shall constitute an
“Event of Default”:
 
    (i) the suspension from trading or failure of the Common Stock to be listed
on an Eligible Market for a period of five consecutive days or for more than an
aggregate of 10 days in any 365-day period;
 
    (ii) the Company's (A) failure to cure a Conversion Failure by delivery of
the required number of shares of Common Stock within ten Trading Days after the
applicable Conversion Date or (B) notice, written or oral, to any holder of the
Notes, including by way of public announcement or through any of its agents, at
any time, of its intention not to comply with a request for conversion of any
Notes into shares of Common Stock that is tendered in accordance with the
provisions of the Notes;

    (iii) the Holder's Authorized Share Allocation is less than the number of
shares of Common Stock that the Holder would be entitled to receive upon a full
conversion of this Note (without regard to any limitations on conversion set
forth in Section 3(d) or otherwise) for 10 consecutive Business Days;

--------------------------------------------------------------------------------

 
    (iv) the Company's failure to pay to the Holder any amount of Principal,
Interest, Late Charges or other amounts when and as due under this Note
(including, without limitation, the Company's failure to pay any redemption
payments, premiums or other amounts hereunder) or any other Transaction Document
(as defined in the Securities Purchase Agreement) except in the case of a
failure to pay Interest and Late Charges when and as due, in which case only if
such failure continues for a period of at least five Trading Days;
 
    (v) the Company shall either (i) fail to pay, when due, or within any
applicable grace period, any payment with respect to any Indebtedness in excess
of $250,000 due to any third party, other than, with respect to unsecured
Indebtedness only, payments contested by the Company in good faith by proper
proceedings and with respect to which adequate reserves have been set aside for
the payment thereof in accordance with GAAP, or otherwise be in breach or
violation of any agreement for monies owed or owing in an amount in excess of
$250,000, which breach or violation permits the other party thereto to declare a
default or otherwise accelerate amounts due thereunder, or (ii) suffer to exist
any other circumstance or event that would, with or without the passage of time
or the giving of notice, result in a default or event of default under any
agreement binding the Company, which default or event of default would or is
likely to have a material adverse effect on the business, operations,
properties, prospects or financial condition of the Company or any of its
Subsidiaries, individually or in the aggregate;
 
   (vi) the Company or any of its Subsidiaries, pursuant to or within the
meaning of Title 11, U.S. Code, or the Bankruptcy and Insolvency Act (Canada),
or any similar Federal, foreign or state law for the relief of debtors
(collectively, “Bankruptcy Law”), (A) commences a voluntary case, (B) consents
to the entry of an order for relief against it in an involuntary case, (C)
consents to the appointment of a receiver, trustee, assignee, liquidator or
similar official (a “Custodian”), (D) makes a general assignment for the benefit
of its creditors or (E) admits in writing that it is generally unable to pay its
debts as they become due;
 
   (vii) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that (A) is for relief against the Company or any of its
Subsidiaries in an involuntary case, (B) appoints a Custodian of the Company or
any of its Subsidiaries or (C) orders the liquidation of the Company or any of
its Subsidiaries;
 
   (viii) bankruptcy, insolvency, reorganization or liquidation proceedings or
other proceedings for the relief of debtors shall be instituted by or against
the Company or any of its Subsidiaries and, if instituted against the Company or
any of its Subsidiaries by a third party, shall not be dismissed within 60 days
of their initiation;
 
   (ix) a final judgment or judgments for the payment of money aggregating in
excess of $500,000 are rendered against the Company or any of its Subsidiaries,
which judgments are not, within 60 days after the entry thereof, bonded,
discharged or stayed pending appeal, or are not discharged within 60 days after
the expiration of such stay; provided, however, that any judgment that is
covered by insurance or an indemnity from a credit worthy party shall not be
included in calculating the $500,000 amount set forth above;
 
   (x) the Company breaches any representation, warranty, covenant (other than
the covenants set forth in Section 14 of this Note) or other term or condition
of any Transaction Document, except, in the case of a breach of a covenant which
is curable, only if such breach continues for a period of at least 10
consecutive days after written notice thereof to the Company by the Holder;
 
   (xi) any breach or failure to comply with Section 14 of this Note;

--------------------------------------------------------------------------------

 
   (xii) the Company fails to remove any restrictive legend on any certificate
or any shares of Common Stock issued to the holders of Notes upon conversion of
the Notes as and when required by the Notes or the Securities Purchase Agreement
(a “Legend Removal Failure”), and any such failure continues uncured for five
Business Days after the Company has been notified thereof in writing by the
holder; or
 
   (xiii) any Event of Default (as defined in the Other Notes) occurs with
respect to any Other Notes.
 
   (b) Redemption Right. Upon the occurrence of an Event of Default with respect
to this Note or any Other Note, the Company shall within one Business Day
deliver written notice thereof via confirmed facsimile and overnight courier (an
“Event of Default Notice”) to the Holder. At any time after the earlier of the
Holder's receipt of an Event of Default Notice and the Holder becoming aware of
an Event of Default, the Holder may require the Company to redeem all or any
portion of this Note by delivering written notice thereof (the “Event of Default
Redemption Notice”) to the Company, which Event of Default Redemption Notice
shall indicate the amount of Principal of this Note the Holder is electing to
redeem. Each portion of the Principal amount of this Note subject to redemption
by the Company pursuant to this Section 4(b) shall be redeemed by the Company at
a price (the “Event of Default Redemption Price”) equal to 110% of the sum of
(i) any accrued and unpaid Interest on the Conversion Amount being redeemed,
plus (ii) any accrued and unpaid Late Charges on such Conversion Amount and
Interest, plus (iii) the greater of (A) the sum of (1) the Conversion Amount to
be redeemed and (2) an amount equal to 100% of the Interest that would have been
earned on the Conversion Amount from the Conversion Date through the Maturity
Date., and (B) the product of (1) the Conversion Rate with respect to such
Conversion Amount in effect at such time as the Holder delivers an Event of
Default Redemption Notice, and (2) the highest Closing Sale Price of the Common
Stock during the period beginning on the date immediately preceding such Event
of Default and ending on the date immediately preceding the payment of the Event
of Default Redemption Price. Redemptions required by this Section 4(b) shall be
made in accordance with the provisions of Section 12, to the extent applicable.
To the extent redemptions required by this Section 4(b) are deemed or determined
by a court of competent jurisdiction to be prepayments of this Note by the
Company, such redemptions shall be deemed to be voluntary prepayments.
Notwithstanding anything to the contrary in this Section 4, until the Event of
Default Redemption Price (together with any interest thereon) is paid in full,
the Conversion Amount submitted for redemption under this Section 4(b) may be
converted, in whole or in part, by the Holder into Common Stock pursuant to
Section 3 hereof. The parties hereto agree that in the event of the Company's
redemption of any portion of this Note under this Section 4(b), the Holder's
damages would be uncertain and difficult to estimate because of the parties'
inability to predict future interest rates and the uncertainty of the
availability of a suitable substitute investment opportunity for the Holder.
Accordingly, any premium due under this Section 4(b) is intended by the parties
to be, and shall be deemed, a reasonable estimate of the Holder's actual loss of
its investment opportunity and not as a penalty.
 
   (5) RIGHTS UPON FUNDAMENTAL TRANSACTION AND CHANGE OF CONTROL.
 
    (a) Assumption. The Company shall not enter into or be party to a
Fundamental Transaction unless (i) the Successor Entity and, if an entity other
than the Successor Entity is the entity whose capital stock or assets the
holders of the Common Stock are entitled to receive as a result of such
Fundamental Transaction, such other entity (the “Other Entity”), assumes in
writing all of the obligations of the Company under this Note and the other
Transaction Documents in accordance with the provisions of this Section 5(a)
pursuant to written agreements in form and substance satisfactory to the
Required Holders and approved by the Required Holders prior to such Fundamental
Transaction (which approval shall not be unreasonably withheld), including
agreements to deliver to each holder of Notes in exchange for such Notes a
security of the Successor Entity or Other Entity, as applicable, evidenced by a
written instrument substantially similar in form and substance to the Notes and
with appropriate provisions such that the rights and interests of the Holder and
the economic value of this Note are in no way diminished by such Fundamental
Transaction, including, without limitation, having a principal amount and
interest rate equal to the principal amounts and the interest rates of the Notes
held by such holder and having similar ranking to the Notes and reasonably
satisfactory to the Required Holders, and (ii) the Successor Entity or the Other
Entity, as applicable (including its Parent Entity), is a publicly traded
corporation whose common stock is quoted on or listed for trading on an Eligible
Market. Upon the occurrence of any Fundamental Transaction, the Successor Entity
or the Other Entity, as applicable, shall succeed to, and be substituted for (so
that from and after the date of such Fundamental Transaction, the provisions of
this Note referring to the “Company” shall refer instead to the Successor Entity
or the Other Entity, as applicable), and may exercise every right and power of
the Company and shall assume all of the obligations of the Company under this
Note with the same effect as if such Successor Entity or such Other Entity, as
applicable, had been named as the Company herein. Upon consummation of the
Fundamental Transaction, the Successor Entity or the Other Entity, as
applicable, shall deliver to the Holder confirmation that there shall be issued
upon conversion or redemption of this Note at any time after the consummation of
the Fundamental Transaction, in lieu of the shares of the Company's Common Stock
(or other securities, cash, assets or other property) issuable upon the
conversion or redemption of the Notes prior to such Fundamental Transaction,
such shares of publicly traded common stock (or its equivalent) of the Successor
Entity or the Other Entity, as applicable, as adjusted in accordance with the
provisions of this Note. The provisions of this Section shall apply similarly
and equally to successive Fundamental Transactions and shall be applied without
regard to any limitations on the conversion or redemption of this Note.

--------------------------------------------------------------------------------

 
    (b) Redemption Right.
 
    At least 45 days before the consummation of a Change of Control, but in no
event later than 15 days prior to the record date for the determination of
stockholders entitled to vote with respect thereto (or, with respect to a tender
offer, or a change in the Board of Directors, if the Company is unable to comply
with this time requirement because of the nature of the Change of Control, as
soon as the Company reasonably believes that the Change of Control is to be
consummated), but not prior to the public announcement of such Change of
Control, the Company shall deliver written notice thereof via facsimile and
overnight courier to the Holder (a “Change of Control Notice”). If the terms of
a Change of Control change materially from those set forth in a Change of
Control Notice, the Company shall deliver a new Change of Control Notice and the
time periods in this clause (b) shall be calculated based upon the Holder's
receipt of the later Change of Control Notice. At any time during the period
(the “Change of Control Period”) beginning after the Holder's receipt of a
Change of Control Notice and ending on the date that is thirty (30) days after
delivery of the Change of Control Notice, the Holder may require the Company to
redeem all or any portion of the outstanding Principal of this Note by
delivering written notice thereof (“Change of Control Redemption Notice”) to the
Company, which Change of Control Redemption Notice shall indicate the portion of
this Note that the Holder is electing to redeem. The portion of this Note
subject to redemption pursuant to this Section 5 (the “Redemption Portion”)
shall be redeemed by the Company for the Change of Control Redemption Price (as
defined in Section 5(b)(ii)), which shall be payable in cash.
 
   As used in this Section 5, the “Change of Control Redemption Price” shall
mean the greater of:
 
   (A) the sum of (x) the aggregate consideration that the Holder would be
entitled to receive in connection with a Change of Control if the Holder were to
fully convert (without giving effect to any limitations on conversion set forth
herein) the outstanding Principal of this Note into Common Stock pursuant to
Section 3(a) hereof immediately prior to the consummation of such Change of
Control, plus (y) any accrued and unpaid Interest thereon through but excluding
the effective date of the Change of Control and any accrued and unpaid Late
Charges on such Principal and Interest; or
 
   (B) an amount equal to the sum of (x) the outstanding Principal of this Note
plus (y) any accrued and unpaid Interest thereon through but excluding the
effective date of the Change of Control and any accrued and unpaid Late Charges
on such Principal and Interest plus (z) an amount equal to 100% of the Interest
that would have been earned on this Note from the effective date of the Change
of Control through the Maturity Date.
 
   (i) Redemptions required by this Section 5 shall be made in accordance with
the provisions of Section 12 to the extent applicable and shall have priority
over payments to stockholders in connection with a Change of Control. To the
extent redemptions required by this Section 5(b) are deemed or determined by a
court of competent jurisdiction to be prepayments of this Note by the Company,
such redemptions shall be deemed to be voluntary prepayments. Notwithstanding
anything to the contrary in this Section 5, until the Change of Control
Redemption Price (together with any interest thereon) is paid in full, the
Conversion Amount submitted for redemption under this Section 5(b) (together
with any interest thereon) may be converted, in whole or in part, subject to
Section 3(d), by the Holder into Common Stock, or in the event the Conversion
Date is after the consummation of the Change of Control, shares of stock or
equity interests of the Successor Entity or Other Entity, as applicable,
substantially equivalent to the Company's Common Stock pursuant to Section 3.
The parties hereto agree that in the event of the Company's redemption of any
portion of this Note under this Section 5(b), the Holder's damages would be
uncertain and difficult to estimate because of the parties' inability to predict
future interest rates and the uncertainty of the availability of a suitable
substitute investment opportunity for the Holder. Accordingly, any redemption
premium due under this Section 5(b) is intended by the parties to be, and shall
be deemed, a reasonable estimate of the Holder's actual loss of its investment
opportunity and not as a penalty.
 
   (6) RIGHTS UPON CERTAIN CORPORATE EVENTS.
 
   In addition to and not in substitution for any other rights hereunder, prior
to the consummation of any Fundamental Transaction pursuant to which holders of
shares of Common Stock are entitled to receive securities or other assets with
respect to or in exchange for shares of Common Stock (a “Corporate Event”), the
Company shall make appropriate provision to insure that the Holder will
thereafter have the right to receive upon a conversion of this Note at any time
after the consummation of the Fundamental Transaction but prior to the Maturity
Date, in lieu of the shares of the Common Stock (or other securities, cash,
assets or other property) purchasable upon the conversion of this Note prior to
such Fundamental Transaction, such shares of stock, securities, cash, assets or
any other property whatsoever (including warrants or other purchase or
subscription rights) which the Holder would have been entitled to receive upon
the happening of such Fundamental Transaction had this Note been converted
immediately prior to the consummation of such Fundamental Transaction (without
taking into account any limitations or restrictions on the convertibility of
this Note, but after the calculation of such number of shares, the provisions of
Section 3(d) shall continue to apply). Any provision made pursuant to the
preceding sentence shall be in a form and substance reasonably satisfactory to
the Required Holders. The provisions of this Section shall apply similarly and
equally to successive Corporate Events and shall be applied without regard to
any limitations on the conversion or redemption of this Note.

--------------------------------------------------------------------------------

 
    (7) RIGHTS UPON ISSUANCE OF OTHER SECURITIES.
 
   (a) Adjustment of Conversion Price upon Issuance of Common Stock. If and
whenever after the Issuance Date, the Company issues or sells, or in accordance
with this Section 7(a) is deemed to have issued or sold, any shares of Common
Stock (including, without limitation, the issuance or sale of shares of Common
Stock owned or held by or for the account of the Company and the issuance of any
shares of Common Stock, Options or Convertible Securities in exchange for any
security such as a non-convertible note, but excluding shares of Common Stock
issued or deemed to have been issued or sold by the Company in connection with
any Excluded Security) for a consideration per share (the “New Issuance Price”)
less than a price (the “Applicable Price”) equal to the Conversion Price in
effect immediately prior to such issue or sale (the foregoing a “Dilutive
Issuance”), then immediately after such Dilutive Issuance, the Conversion Price
then in effect shall be reduced to an amount equal to the product of (A) the
Conversion Price in effect immediately prior to such Dilutive Issuance and (B)
the quotient determined by dividing (1) the sum of (I) the product derived by
multiplying the Conversion Price in effect immediately prior to such Dilutive
Issuance and the number of shares of Common Stock Deemed Outstanding immediately
prior to such Dilutive Issuance plus (II) the consideration, if any, received by
the Company upon such Dilutive Issuance, by (2) the product derived by
multiplying (I) the Conversion Price in effect immediately prior to such
Dilutive Issuance by (II) the number of shares of Common Stock Deemed
Outstanding immediately after such Dilutive Issuance, provided that in no event
shall the Conversion Price be reduced below the Minimum Conversion Price (as
defined in Section 28 hereof). For purposes of determining the adjusted
Conversion Price under this Section 7(a), the following shall be applicable:
 
   (i) Issuance of Options. If the Company in any manner grants or sells any
Options, whether or not immediately exercisable, in one transaction or in a
series of related transactions, and the lowest price per share for which one
share of Common Stock is issuable upon the exercise of any such Option or upon
conversion or exchange or exercise of any Convertible Securities issuable upon
exercise of such Option is less than the Applicable Price, then such share of
Common Stock shall be deemed to be outstanding and to have been issued and sold
by the Company at the time of the granting or sale of such Option for such price
per share. For purposes of this Section 7(a)(i), the “lowest price per share for
which one share of Common Stock is issuable upon the exercise of any such Option
or upon conversion or exchange or exercise of any Convertible Securities
issuable upon exercise of such Option” shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable (but excluding any
contingent amounts) by the Company with respect to any one share of Common Stock
upon the granting or sale of the Option, upon exercise of the Option and upon
conversion, exercise or exchange of any Convertible Security issuable upon
exercise of such Option. No further adjustment of the Conversion Price shall be
made upon the actual issuance of such share of Common Stock or of such
Convertible Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion or exchange or exercise of such
Convertible Securities.
 
   (ii) Issuance of Convertible Securities. If the Company in any manner issues
or sells any Convertible Securities, whether or not immediately convertible, in
one transaction or a series of related transactions, and the lowest price per
share for which one share of Common Stock is issuable upon such conversion or
exchange or exercise thereof is less than the Applicable Price, then such shares
of Common Stock shall be deemed to be outstanding and to have been issued and
sold by the Company at the time of the issuance or sale of such Convertible
Securities for such price per share. For the purposes of this Section 7(a)(ii),
the “lowest price per share for which one share of Common Stock is issuable upon
such conversion or exchange or exercise” shall be equal to the sum of the lowest
amounts of consideration (if any) received or receivable (but excluding any
contingent amounts) by the Company with respect to one share of Common Stock
upon the issuance or sale of the Convertible Security and upon conversion,
exercise or exchange of such Convertible Security. No further adjustment of the
Conversion Price shall be made upon the actual issuance of such share of Common
Stock upon conversion or exchange or exercise of such Convertible Securities,
and if any such issue or sale of such Convertible Securities is made upon
exercise of any Options for which adjustment of the Conversion Price had been or
are to be made pursuant to other provisions of this Section 7(a), no further
adjustment of the Conversion Price shall be made by reason of such issue or
sale.
 
   (iii) Change in Option Price or Rate of Conversion. If the purchase price
provided for in any Options, the additional consideration, if any, payable upon
the issue, conversion, exchange or exercise of any Convertible Securities, or
the rate at which any Convertible Securities are convertible into or
exchangeable or exercisable for Common Stock changes at any time, the Conversion
Price in effect at the time of such change shall be adjusted to the Conversion
Price that would have been in effect at such time had such Options or
Convertible Securities provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold. For purposes of this Section 7(a)(iii), if
the terms of any Option or Convertible Security that was outstanding as of the
Subscription Date are changed in the manner described in the immediately
preceding sentence, then such Option or Convertible Security and the shares of
Common Stock deemed issuable upon exercise, conversion or exchange thereof shall
be deemed to have been issued as of the date of such change. No adjustment shall
be made if such adjustment would result in an increase of the Conversion Price
then in effect.

--------------------------------------------------------------------------------

 
   (iv) Calculation of Consideration Received. In case any Option is issued in
connection with the issue or sale of other securities of the Company, together
comprising one integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the Options therefor will be
deemed to have been issued for no consideration. If any shares of Common Stock,
Options or Convertible Securities are issued or sold or deemed to have been
issued or sold for cash, the consideration received therefor will be deemed to
be the net amount received by the Company therefor, after deduction of all
underwriting discounts or allowances in connection with such issuance or sale.
If any shares of Common Stock, Options or Convertible Securities are issued or
sold for a consideration other than cash, the amount of the consideration
received therefor will be deemed to be the fair value of such consideration,
except where such consideration consists of securities, in which case the amount
of consideration received by the Company will be the Closing Sale Price of such
securities on the date of receipt. If any Common Stock, Options or Convertible
Securities are issued to the owners of the non-surviving entity in connection
with any merger in which the Company is the surviving entity, the amount of
consideration therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is attributable to
such Common Stock, Options or Convertible Securities, as the case may be. The
fair value of any consideration other than cash or securities will be determined
in good faith by the Board of Directors of the Company (subject to the right of
the Required Holders to dispute such valuation as described below). If the
Required Holders disagree with the Board of Directors’ determination of fair
value, the Required Holders may submit a notice of disagreement to the Company.
During the 10 days immediately following the Company’s receipt of such notice
(the “Notice Date”), the Required Holders and the Company shall negotiate in
good faith to determine a mutually agreeable fair value. If the parties are
unable to reach agreement within such 10-day period, the fair value of such
consideration will be determined within five Business Days after the 10th day
following the Notice Date by an independent, reputable appraiser jointly
selected by the Company and the Required Holders. The determination of such
appraiser shall be deemed binding upon all parties absent manifest error and the
fees and expenses of such appraiser shall be borne by the Company. If the
Company issues (or becomes obligated to issue) shares of Common Stock pursuant
to any antidilution or similar adjustments (other than as a result of stock
splits, stock dividends and the like) contained in any Convertible Securities or
Options outstanding as of the Subscription Date, but not included in Schedule
3(c) to the Securities Purchase Agreement, then all shares of Common Stock so
issued shall be deemed to have been issued for no consideration. If the Company
issues (or becomes obligated to issue) shares of Common Stock pursuant to any
antidilution or similar adjustments contained in any Convertible Securities or
Options included in Schedule 3(c) to the Securities Purchase Agreement as a
result of the issuance of the Notes and the number of shares that the Company
issues (or is obligated to issue) as a result of such issuance exceeds the
amount specified in Schedule 3(c) to the Securities Purchase Agreement, such
excess shares shall be deemed to have been issued for no consideration.
Notwithstanding anything else herein to the contrary, if Common Stock, Options
or Convertible Securities are issued or sold in conjunction with each other as
part of a single transaction or in a series of related transactions, the holder
hereof may elect to determine the amount of consideration deemed to be received
by the Company therefor by deducting the fair value of any type of securities
(the “Disregarded Securities”) issued or sold in such transaction or series of
transactions. If the holder makes an election pursuant to the immediately
preceding sentence, no adjustment to the Conversion Price shall be made pursuant
to this Section 7(a) for the issuance of the Disregarded Securities or upon any
conversion, exercise or exchange thereof.
 
   (v) Record Date. If the Company takes a record of the holders of Common Stock
for the purpose of entitling them (A) to receive a dividend or other
distribution payable in Common Stock, Options or in Convertible Securities or
(B) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date will be deemed to be the date of the issue or
sale of the Common Stock deemed to have been issued or sold upon the declaration
of such dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may be.
 
   (b) Adjustment of Conversion Price upon Subdivision or Combination of Common
Stock. If the Company at any time on or after the Issuance Date subdivides (by
any stock split, stock dividend, recapitalization or otherwise) one or more
classes of its outstanding shares of Common Stock into a greater number of
shares, the Conversion Price and the Minimum Conversion Price in effect
immediately prior to such subdivision will be proportionately reduced. If the
Company at any time on or after the Issuance Date combines (by combination,
reverse stock split or otherwise) one or more classes of its outstanding shares
of Common Stock into a smaller number of shares, the Conversion Price and the
Minimum Conversion Price in effect immediately prior to such combination will be
proportionately increased. Any adjustment under this Section 7(b) shall become
effective at the close of business on the date the subdivision or combination
becomes effective.
 
 

--------------------------------------------------------------------------------

   (c) Other Events. If any event occurs of the type contemplated by the
provisions of this Section 7 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features, other than Excluded
Securities), then the Company's Board of Directors will make an appropriate
adjustment in the Conversion Price and the Minimum Conversion Price so as to
protect the rights of the Holder under this Note; provided that no such
adjustment will increase the Conversion Price as otherwise determined pursuant
to this Section 7.
 
   (d) De Minimis Adjustments. No adjustment in the Conversion Price shall be
required unless such adjustment would require an increase or decrease of at
least USD$0.01 in such price; provided, however, that any adjustment which by
reason of this Section 7(d) is not required to be made shall be carried forward
and taken into account in any subsequent adjustments under this Section 7. All
calculations under this Section 7 shall be made by the Company in good faith and
shall be made to the nearest cent or to the nearest one hundredth of a share, as
applicable. No adjustment need be made for a change in the par value or no par
value of the Company’s Common Stock.
 
   (e) Notice of Adjustments. Upon the occurrence of any event which requires
any adjustment or readjustment of the Conversion Price pursuant to this Section
7 or any change in the number or type of stock, securities and/or other property
issuable upon conversion of the Notes, the Company, at its expense, shall
promptly make a public announcement of such adjustment or readjustment and shall
give notice thereof to the Holder, which notice shall state the Conversion Price
resulting from such adjustment or readjustment and any change in the number or
type of stock, securities and/or other property issuable upon conversion of this
Note, setting forth in reasonable detail the method of calculation and the facts
upon which such calculation is based. Such calculation shall be certified by the
chief financial officer of the Company. The Company shall, upon the written
request at any time of the Holder, furnish a like certificate setting forth (i)
the Conversion Price at the time in effect and (ii) the number of shares of
Common Stock and the amount, if any, of other securities or property which at
the time would be received upon conversion of this Note.
 
   (8) COMPANY’S RIGHT OF OPTIONAL REDEMPTION.
 
   (a) Redemption Right. At any time and from time to time following the
Issuance Date, the Company may elect, at its option, to redeem all or any
portion of the outstanding Principal of the Notes, on a pro rata basis, by
delivering written notice thereof (the “ Optional Redemption Notice”) at least
thirty (30) days in advance of the date scheduled for redemption (the “ Optional
Redemption Date”) to the holders of the Notes, which Optional Redemption Notice
shall indicate the portion of the Notes that the Company is electing to redeem.
The portion of this Note subject to redemption pursuant to this Section 8 (the
“Optional Redemption Portion”) shall be redeemed by the Company for the Option
Redemption Price (as defined in Section 8(b)), which shall be paid to the Holder
in cash on the Optional Redemption Date.
 
   (b) As used in this Section 8, the “Optional Redemption Price” shall mean:
 
   (i) With respect to any Optional Redemption Notice delivered on or before the
first anniversary of the Issuance Date, an amount equal to the sum of (A) the
outstanding Principal of the Optional Redemption Portion of this Note plus (B)
any accrued and unpaid Interest thereon through but excluding the Optional
Redemption Date and any accrued and unpaid Late Charges on such Principal and
Interest plus (C) an amount equal to 100% of the Interest that would have been
earned on the Optional Redemption Portion from the Optional Redemption Notice
through the Maturity Date.
 
   (ii) With respect to any Optional Redemption Notice delivered after the first
anniversary of the Issuance Date, an amount equal to the sum of (A) the
outstanding Principal of the Optional Redemption Portion of this Note plus (B)
any accrued and unpaid Interest thereon through but excluding the Optional
Redemption Date and any accrued and unpaid Late Charges on such Principal and
Interest plus (C) an amount equal to 50% of the Interest that would have been
earned on the Optional Redemption Portion from the Optional Redemption Notice
through the Maturity Date.
 
Notwithstanding anything to the contrary in this Section 8, until the Optional
Redemption Price is paid, in full, the portion of the Principal of this Note to
be redeemed may be converted, in whole or in part, by the Holder into shares of
Common Stock pursuant to Section 3. All Principal converted by the Holder after
the date of the Optional Redemption Notice shall reduce the Principal of this
Note required to be redeemed on the Optional Redemption Date.
 
   (c) Redemptions made pursuant to this Section 8 shall be made in accordance
with Section 12 to the extent applicable.
 
 
   (9) SECURITY. This Note and the Other Notes are secured to the extent and in
the manner set forth in the Security Documents (as defined in the Securities
Purchase Agreement).
 
   (10) NONCIRCUMVENTION. The Company hereby covenants and agrees that the
Company will not, by amendment of its Certificate of Incorporation, Bylaws or
through any reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Note, and will at all times in good faith carry out all of the
provisions of this Note and take all action as may be required to protect the
rights of the Holder of this Note.

--------------------------------------------------------------------------------

 
   (11) RESERVATION OF AUTHORIZED SHARES.
 
    (a) Reservation. The Company shall reserve out of its authorized and
unissued Common Stock a number of shares of Common Stock for each of the Notes
equal to 120% of the Conversion Rate with respect to the Conversion Amount of
each such Note as of the Issuance Date. For so long as any of the Notes are
outstanding, the Company shall take all action necessary to reserve and keep
available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Notes, 120% of the number of shares
of Common Stock as shall from time to time be necessary to effect the conversion
of all of the Notes then outstanding; provided that at no time shall the number
of shares of Common Stock so reserved be less than the number of shares required
to be reserved by the previous sentence (without regard to any limitations on
conversions) (the “Required Reserve Amount”). The initial number of shares of
Common Stock reserved for conversions of the Notes and each increase in the
number of shares so reserved shall be allocated pro rata among the holders of
the Notes based on the principal amount of the Notes held by each holder at the
Closing or increase in the number of reserved shares, as the case may be (the
“Authorized Share Allocation”). In the event that a holder shall sell or
otherwise transfer any of such holder's Notes, each transferee shall be
allocated a pro rata portion of such holder's Authorized Share Allocation. Any
shares of Common Stock reserved and allocated to any Person that ceases to hold
any Notes shall be allocated to the remaining holders of Notes, pro rata based
on the principal amount of the Notes then held by such holders.
 
    (b) Insufficient Authorized Shares. If at any time while any of the Notes
remain outstanding the Company does not have a sufficient number of authorized
and unreserved shares of Common Stock to satisfy its obligation to reserve for
issuance upon conversion of the Notes at least a number of shares of Common
Stock equal to the Required Reserve Amount (an “Authorized Share Failure”), then
the Company shall immediately take all action necessary to increase the
Company's authorized shares of Common Stock to an amount sufficient to allow the
Company to reserve the Required Reserve Amount for the Notes then outstanding.
Without limiting the generality of the foregoing sentence, as soon as
practicable after the date of the occurrence of an Authorized Share Failure, but
in no event later than 60 days after the occurrence of such Authorized Share
Failure, the Company shall hold a meeting of its stockholders for the approval
of an increase in the number of authorized shares of Common Stock. In connection
with such meeting, the Company shall provide each stockholder with a proxy
statement and shall use its best efforts to solicit its stockholders' approval
of such increase in authorized shares of Common Stock and to cause its board of
directors to recommend to the stockholders that they approve such proposal. In
lieu of holding a meeting of its stockholders, the Company may obtain
stockholder approval of the increase in the number of authorized shares of
Common Stock by written consent in lieu of meeting to the extent permitted by
law and the rules of any Eligible Market upon which the Common Stock is then
traded.
 
    (12) REDEMPTIONS.
 
    (a) Mechanics. The Company shall deliver the applicable Event of Default
Redemption Price to the Holder within five Business Days after the Company's
receipt of the Holder's Event of Default Redemption Notice. If the Holder has
submitted a Change of Control Redemption Notice in accordance with Section 5(b),
the Company shall deliver the applicable Change of Control Redemption Price to
the Holder concurrently with the consummation of such Change of Control if such
notice is received prior to the consummation of such Change of Control and
within five Business Days after the Company's receipt of such notice otherwise.
The Company shall deliver the Optional Redemption Price to the Holder on the
Optional Redemption Date specified in the Optional Redemption Notice as
specified in Section 8. In the event of a redemption of less than all of the
Principal of this Note and provided that the Holder has delivered this Note to
the Company, the Company shall promptly cause to be issued and delivered to the
Holder a new Note (in accordance with Section 18(d)) representing the
outstanding Principal which has not been redeemed. If the Company fails to pay
the Holder the applicable Redemption Price to the Holder within the time period
required, at any time thereafter and until the Company pays such unpaid
Redemption Price in full, the Holder shall have the option, by written notice to
the Company, in lieu of redemption, to require the Company to promptly return to
the Holder all or any portion of this Note representing the Conversion Amount
that was submitted or called for redemption and for which the applicable
Redemption Price (together with any Late Charges thereon) has not been paid.
Upon the Company's receipt of such notice, (x) the Redemption Notice shall be
null and void with respect to such Conversion Amount, (y) the Company shall
immediately return this Note, or issue a new Note (in accordance with Section
18(d)) to the Holder representing the sum of such Conversion Amount to be
redeemed together with accrued and unpaid Interest with respect to such
Conversion Amount and accrued and unpaid Late Charges with respect to such
Conversion Amount and Interest and (z) the Conversion Price of this Note or such
new Notes shall be adjusted to the lesser of (A) the Conversion Price as in
effect on the date on which the Redemption Notice is voided and (B) the lowest
Closing Sale Price of the Common Stock during the period beginning on and
including the date on which the Redemption Notice is delivered to the Company
and ending on and including the date on which the Redemption Notice is voided.
The Holder's delivery of a notice voiding a Redemption Notice and exercise of
its rights following such notice shall not affect the Company's obligations to
make any payments of Late Charges which have accrued prior to the date of such
notice with respect to the Conversion Amount subject to such notice.
 
    (b) Redemption by Other Holders. Upon the Company's receipt of notice from
any of the holders of the Other Notes for redemption or repayment as a result of
an event or occurrence substantially similar to the events or occurrences
described in Section 4(a), Section 5(b) or Section 8 (each, an “Other Redemption
Notice”), the Company shall immediately, but no later than one Business Day of
its receipt thereof, forward to the Holder by facsimile a copy of such notice
and make a prompt public announcement thereof. If the Company receives a
Redemption Notice and one or more Other Redemption Notices during the seven
Business Day period beginning on and including the date which is three Business
Days prior to the Company's receipt of the Holder's Redemption Notice and ending
on and including the date which is three Business Days after the Company's
receipt of the Holder's Redemption Notice and the Company is unable to redeem
all principal, interest and other amounts designated in such Redemption Notice
and such Other Redemption Notices received during such seven Business Day
period, then the Company shall redeem a pro rata amount from each holder of the
Notes (including the Holder) based on the principal amount of the Notes
submitted for redemption pursuant to such Redemption Notice and such Other
Redemption Notices received by the Company during such seven Business Day
period.

--------------------------------------------------------------------------------

 
    (13) VOTING RIGHTS. The Holder shall have no voting rights as the holder of
this Note, except as required by law, including, but not limited to, the
Delaware General Corporation Law, and as expressly provided in this Note.
 
    (14) COVENANTS.
 
    (a) Rank. All payments due under this Note (i) shall rank pari passu with
all Other Notes and (ii) shall be senior to all other Indebtedness of the
Company and its Subsidiaries other than the obligations of the Company or its
Subsidiaries under any lease of real or personal property by such Person as
lessee which is required under GAAP to be capitalized on such Person's balance
sheet and Indebtedness permitted by clause (iv) of the definition of “Permitted
Lien.”
 
    (b) Incurrence of Indebtedness. So long as this Note is outstanding, the
Company shall not, and the Company shall not permit any of its Subsidiaries to,
directly or indirectly, incur or guarantee, assume or suffer to exist any
Indebtedness, other than (i) the Indebtedness evidenced by the Notes, (ii)
Permitted Indebtedness and (iii) Indebtedness incurred solely to repay the Notes
at Maturity and which has a maturity later than and is pari passu or junior in
right of payment to the Notes.
 
    (c) Existence of Liens. So long as this Note is outstanding, the Company
shall not, and the Company shall not permit any of its Subsidiaries to, directly
or indirectly, allow or suffer to exist any mortgage, lien, pledge, charge,
security interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by the Company or any of its
Subsidiaries (collectively, “Liens”) other than Permitted Liens.
 
    (d) Restricted Payments. The Company shall not, and the Company shall not
permit any of its Subsidiaries to, directly or indirectly, (i) redeem, defease,
repurchase, repay or make any payments in respect of, by the payment of cash or
cash equivalents (in whole or in part, whether by way of open market purchases,
tender offers, private transactions or otherwise), all or any portion of any
Permitted Indebtedness, whether by way of payment in respect of principal of (or
premium, if any) or interest on, such Indebtedness if at the time such payment
is due or is otherwise made or, after giving effect to such payment, an event
constituting, or that with the passage of time and without being cured would
constitute, an Event of Default has occurred and is continuing, (ii) declare or
pay any cash dividend or distribution on the Common Stock or (iii) redeem,
repurchase or otherwise acquire or retire for value any shares of Common Stock.
 
    (e) Use of Proceeds. The Company shall use the proceeds from the sale and
issuance of the Notes for general corporate purposes and working capital. Such
proceeds shall not be used to (i) pay dividends; (ii) pay for any increase in
executive compensation or make any loan or other advance to any officer,
employee, shareholder, director or other affiliate of the Company, without the
express approval of the Board of Directors acting in accordance with past
practice; (iii) purchase debt or equity securities of any entity (including
redeeming the Company’s own securities) other than scheduled principal payments
and repayments or redemption of the Unsecured Debentures at maturity, except for
(A) evidences of indebtedness issued or fully guaranteed by the United States of
America or the Government of Canada and having a maturity of not more than one
year from the date of acquisition, (B) certificates of deposit, notes,
acceptances and repurchase agreements having a maturity of not more than one
year from the date of acquisition issued by a bank organized in the United
States or Canada having capital, surplus and undivided profits of at least
$500,000,000, (C) the highest-rated commercial paper having a maturity of not
more than one year from the date of acquisition, and (D) “Money Market” fund
shares, or money market accounts fully insured by the Federal Deposit Insurance
Corporation or the Canada Deposit Insurance Corporation and sponsored by banks
and other financial institutions, provided that the investments consist
principally of the types of investments described in clauses (A), (B), or (C)
above; or (iv) make any investment not directly related to the current business
of the Company.
 
    (f) Par Value. So long as any Notes are outstanding, the Company shall not
change the par value of the Common Stock without the written consent of the
Required Holders.
 
    (15) PARTICIPATION. The Holder, as the holder of this Note, shall be
entitled to receive such dividends paid and distributions made to the holders of
Common Stock to the same extent as if the Holder had converted this Note into
Common Stock (without regard to any limitations on conversion herein or
elsewhere) and had held such shares of Common Stock on the record date for such
dividends and distributions. Payments under the preceding sentence shall be made
concurrently with the dividend or distribution to the holders of Common Stock.
 

--------------------------------------------------------------------------------

 
    (16) VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES. This Note and the Other
Notes shall be amended in accordance with the terms of any resolution approved
by the affirmative vote at a meeting duly called for such purpose or the written
consent without a meeting of the Required Holders; provided that the Company
approves any such amendment in writing and, further provided that, without the
consent of each Holder so affected, no amendment shall (a) reduce the Principal
of or Interest Rate on this Note, (b) postpone the Maturity Date or any date
fixed for the payment of any Interest on this Note, (c) increase the percentage
specified in the definition of “Required Holders,” (d) amend Section 3(d) or the
application of Section 3(d) to any other provision of this Note or (e) have the
effect of creating different provisions in different Notes, provided that
nothing contained herein shall prohibit the Holder from waiving any of the
Holder’s rights hereunder or under any of the other Transaction Documents.
 
    (17) TRANSFER. This Note is subject to certain restrictions on transfer set
forth in Section 5 of the Securities Purchase Agreement; provided, however, that
this Note and any shares of Common Stock issued upon conversion of this Note may
be offered for sale, sold, assigned or transferred by the Holder without the
consent of the Company, subject to applicable securities law restrictions.
Notwithstanding the foregoing or any other provisions hereof, the Holder may not
transfer this Note unless the transferee agrees in writing to be bound by all of
the provisions of the Transaction Documents (including, but not limited to,
Section 8 of the Security Purchase Agreement), and it shall be a condition to
any such transfer that any such transferee execute and deliver appropriate
documentation, in form and substance reasonably satisfactory to the Company and
the Collateral Agent, to such effect.
 
    (18) REISSUANCE OF THIS NOTE.
 
    (a) Transfer. If this Note is to be transferred, the Holder shall surrender
this Note to the Company, whereupon the Company will forthwith issue and deliver
upon the order of the Holder a new Note (in accordance with Section 18(d)),
registered as the Holder may request, representing the outstanding Principal
being transferred by the Holder and, if less than the entire outstanding
Principal is being transferred, a new Note (in accordance with Section 18(d)) to
the Holder representing the outstanding Principal not being transferred. The
Holder and any assignee, by acceptance of this Note, acknowledge and agree that,
by reason of the provisions of Section 3(c)(v) following conversion or
redemption of any portion of this Note, the outstanding Principal represented by
this Note may be less than the Principal amount stated on the face of this Note.
 
    (b) Lost, Stolen or Mutilated Note. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Note, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the Holder to the Company in customary form and,
in the case of mutilation, upon surrender and cancellation of this Note, the
Company shall execute and deliver to the Holder a new Note (in accordance with
Section 18(d)) representing the outstanding Principal.
 
    (c) Note Exchangeable for Different Denominations. This Note is
exchangeable, upon the surrender hereof by the Holder at the principal office of
the Company, for a new Note or Notes (in accordance with Section 18(d) and in
principal amounts of at least $1,000) representing in the aggregate the
outstanding Principal of this Note, and each such new Note will represent such
portion of such outstanding Principal as is designated by the Holder at the time
of such surrender.
 
    (d) Issuance of New Notes. Whenever the Company is required to issue a new
Note pursuant to the terms of this Note, such new Note (i) shall be of like
tenor with this Note, (ii) shall represent, as indicated on the face of such new
Note, the Principal remaining outstanding (or in the case of a new Note being
issued pursuant to Section 18(a) or Section 18(c), the Principal designated by
the Holder which, when added to the principal represented by the other new Notes
issued in connection with such issuance, does not exceed the Principal remaining
outstanding under this Note immediately prior to such issuance of new Notes),
(iii) shall have an issuance date, as indicated on the face of such new Note,
which is the same as the Issuance Date of this Note, (iv) shall have the same
rights and conditions as this Note, and (v) shall represent accrued Interest and
Late Charges on the Principal and Interest of this Note, from the Issuance Date.
 
    (19) REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE
RELIEF. The remedies provided in this Note shall be cumulative and in addition
to all other remedies available under this Note and any of the other Transaction
Documents at law or in equity (including a decree of specific performance and/or
other injunctive relief), and nothing herein shall limit the Holder's right to
pursue actual and consequential damages for any failure by the Company to comply
with the terms of this Note. The Company covenants to the Holder that there
shall be no characterization concerning this instrument other than as expressly
provided herein. Amounts set forth or provided for herein with respect to
payments, conversion and the like (and the computation thereof) shall be the
amounts to be received by the Holder and shall not, except as expressly provided
herein, be subject to any other obligation of the Company (or the performance
thereof). The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder and that the remedy at law
for any such breach may be inadequate. The Company therefore agrees that, in the
event of any such breach or threatened breach, the Holder shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach, without the necessity of showing economic loss and without any bond or
other security being required.
 
    (20) PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note is
placed in the hands of an attorney for collection or enforcement or is collected
or enforced through any legal proceeding or the Holder otherwise takes action to
collect amounts due under this Note or to enforce the provisions of this Note or
(b) there occurs any bankruptcy, reorganization, receivership of the Company or
other proceedings affecting Company creditors' rights and involving a claim
under this Note, then the Company shall pay the costs incurred by the Holder for
such collection, enforcement or action or in connection with such bankruptcy,
reorganization, receivership or other proceeding, including, but not limited to,
attorneys' fees and disbursements.
 
    (21) CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly drafted
by the Company and the Holder and shall not be construed against any person as
the drafter hereof. The headings of this Note are for convenience of reference
and shall not form part of, or affect the interpretation of, this Note.

--------------------------------------------------------------------------------

 
    (22) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
the Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege.
 
    (23) DISPUTE RESOLUTION. In the case of a dispute as to the determination of
the Closing Bid Price, the Closing Sale Price or the Weighted Average Price or
the arithmetic calculation of the Conversion Rate, any Conversion Default
Payment or the Redemption Price, the Company shall submit the disputed
determinations or arithmetic calculations via facsimile within one Business Day
of receipt, or deemed receipt, of the Conversion Notice or Redemption Notice or
other event giving rise to such dispute, as the case may be, to the Holder. If
the Holder and the Company are unable to agree upon such determination or
calculation within one Business Day of such disputed determination or arithmetic
calculation being submitted to the Holder, then the Company shall, within one
Business Day submit via facsimile (a) the disputed determination of the Closing
Bid Price, the Closing Sale Price or the Weighted Average Price to an
independent, reputable investment bank selected by the Company and approved by
the Holder or (b) the disputed arithmetic calculation of the Conversion Rate,
the Conversion Default Payment or the Redemption Price to the Company's
independent, outside accountant. The Company, at the Company's expense, shall
cause the investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the Holder of the
results no later than five Business Days from the time it receives the disputed
determinations or calculations. Such investment bank's or accountant's
determination or calculation, as the case may be, shall be binding upon all
parties absent demonstrable error.
 
    (24) NOTICES; PAYMENTS; EXCHANGE RATE.
 
    (a) Notices. Whenever notice is required to be given under this Note, unless
otherwise provided herein, such notice shall be given in accordance with Section
9(f) of the Securities Purchase Agreement. The Company shall provide the Holder
with prompt written notice of all actions taken pursuant to this Note, including
in reasonable detail a description of such action and the reason therefor.
Without limiting the generality of the foregoing, the Company will give written
notice to the Holder (i) immediately upon any adjustment of the Conversion
Price, setting forth in reasonable detail, and certifying, the calculation of
such adjustment and (ii) at least 10 days prior to the date on which the Company
closes its books or takes a record (A) with respect to any dividend or
distribution upon the Common Stock, (B) with respect to any pro rata
subscription offer to holders of Common Stock or (C) for determining rights to
vote with respect to any Fundamental Transaction, dissolution or liquidation,
provided in each case that such information shall be made known to the public
prior to or in conjunction with such notice being provided to the Holder.
Notwithstanding anything herein to the contrary, the Company shall not provide
the Holder with any material non-public information without the Holder's prior
written consent.
 
 
    (b) Payments. Whenever any payment of cash is to be made by the Company to
any Person pursuant to this Note, such payment shall be made in lawful money of
the United States of America via wire transfer of immediately available funds in
accordance with the Holder's wire transfer instructions provided to the Company
by the Holder. Whenever any amount expressed to be due by the terms of this Note
is due on any day which is not a Business Day, the same shall instead be due on
the next succeeding day which is a Business Day and, in the case of any Interest
Date which is not the date on which this Note is paid in full, the extension of
the due date thereof shall not be taken into account for purposes of determining
the amount of Interest due on such date. Any amount of Principal or other
amounts due under the Transaction Documents, other than Interest, which is not
paid when due shall result in a late charge being incurred and payable by the
Company in an amount equal to interest on such amount at the rate of 15.0% per
annum from the date such amount was due until the same is paid in full (“Late
Charge”).
 
    (c) Exchange Rates. For purposes of determining compliance with any U.S.
Dollar denominated restriction set forth in this Note and any related
definitions containing any such restriction, to the extent an event is in a
currency other than U.S. Dollars, the equivalent amount denominated in such
other currency shall be calculated based on the relevant currency exchange rate
in effect on the date the event occurs. For purposes of calculating the
Conversion Price, Conversion Rate, any Conversion Default Payment or the
Redemption Price under this Note, to the extent the Closing Bid Price, Closing
Sale Price or the Weighted Average Price of the Common Stock is in a currency
other than U.S. Dollars, the equivalent amount denominated in U.S. Dollars shall
be calculated based on the relevant currency exchange rate as published by The
Wall Street Journal on the date the event requiring such calculation occurs.
 
    (25) CANCELLATION. After all Principal, accrued Interest and other amounts
at any time owed on this Note have been paid in full, this Note shall
automatically be deemed canceled, shall be surrendered to the Company for
cancellation and shall not be reissued.
 
    (26) WAIVER OF NOTICE. To the extent permitted by law, the Company hereby
waives demand, notice, protest and all other demands and notices in connection
with the delivery, acceptance, performance, default or enforcement of this Note
and the Securities Purchase Agreement.

--------------------------------------------------------------------------------

 
    (27) GOVERNING LAW; JURISDICTION; JURY TRIAL. This Note shall be construed
and enforced in accor¬dance with, and all questions concerning the construction,
validity, interpretation and performance of this Note shall be governed by, the
internal laws of the Commonwealth of Massachusetts, without giving effect to any
choice of law or conflict of law provision or rule (whether of the Commonwealth
of Massachusetts or any other jurisdictions) that would cause the application of
the laws of any jurisdictions other than the Commonwealth of Massachusetts. The
Company and the Holder irrevocably consent to the exclusive jurisdiction of the
United States federal courts and the state courts located in the City of Boston,
Suffolk County, in any suit or proceeding based on or arising under this Note
and irrevocably agree that all claims in respect of such suit or proceeding may
be determined in such courts. The Company irrevocably waives the defense of an
inconvenient forum to the maintenance of such suit or proceeding in such forum.
The Company further agrees that service of process upon the Company mailed by
first class mail shall be deemed in every respect effective service of process
upon the Company in any such suit or proceeding. Nothing herein shall affect the
right of the Holder to serve process in any other manner permitted by law. The
Company agrees that a final non-appealable judgment in any such suit or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner. EACH PARTY HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY
TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR
ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.
 
    (28) CERTAIN DEFINITIONS. For purposes of this Note, the following terms
shall have the following meanings:
 
    (a) “Bloomberg” means Bloomberg Financial Markets.
 
     (b) “Business Day” means any day other than Saturday, Sunday or other day
on which commercial banks in The City of New York or the City of Toronto, Canada
are authorized or required by law to remain closed.
 
    (c) “Capital Stock” of any person means any and all shares, interests,
participations or other equivalents (however designated) of capital stock of, or
other equity interests in, such Person and all warrants or options to acquire
such capital stock or equity interests.
 
    (d) “Change of Control” means any Fundamental Transaction other than (i) any
reorganization, recapitalization or reclassification of the Common Stock in
which holders of the Company's voting power immediately prior to such
reorganization, recapitalization or reclassification continue after such
reorganization, recapitalization or reclassification to hold publicly traded
securities and, directly or indirectly, the voting power of the surviving entity
or entities necessary to elect a majority of the members of the board of
directors (or their equivalent if other than a corporation) of such entity or
entities, or (ii) pursuant to a migratory merger effected solely for the purpose
of changing the jurisdiction of incorporation of the Company.
 
    (e) “Closing Bid Price” and “Closing Sale Price” means, for any security as
of any date, the last closing bid price and last closing trade price,
respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the Eligible Market that is the principal
securities exchange or trading market where such security is listed or traded as
reported by Bloomberg, or if the foregoing do not apply, the last closing bid
price or last trade price, respectively, of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no closing bid price or last trade price,
respectively, is reported for such security by Bloomberg, the average of the bid
prices, or the ask prices, respectively, of any market makers for such security
as reported in the “pink sheets” by Pink Sheets LLC (formerly the National
Quotation Bureau, Inc.). If the Closing Bid Price or the Closing Sale Price
cannot be calculated for a security on a particular date on any of the foregoing
bases, the Closing Bid Price or the Closing Sale Price, as the case may be, of
such security on such date shall be the fair market value as mutually determined
by the Company and the Holder. If the Company and the Holder are unable to agree
upon the fair market value of such security, then such dispute shall be resolved
pursuant to Section 23. All such determinations shall be appropriately adjusted
for any stock dividend, stock split, stock combination or other similar
transaction during the applicable calculation period.
 
    (f) “Common Stock Deemed Outstanding” means, at any given time, the number
of shares of Common Stock actually outstanding at such time, plus the number of
shares of Common Stock deemed to be outstanding pursuant to Sections 7(a)(i) and
7(a)(ii) hereof regardless of whether the Options or Convertible Securities are
actually exercisable at such time, but excluding any Common Stock owned or held
by or for the account of the Company or issuable upon conversion or exercise, as
applicable, of the Notes.

--------------------------------------------------------------------------------

 
    (g) “Contingent Obligation” means, as to any Person, any direct or indirect
liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto.
 
    (h) “Convertible Securities” means any stock or securities (other than
Options) directly or indirectly convertible into or exercisable or exchangeable
for shares of Common Stock.
 
    (i) Eligible Market” means the Principal Market, The Nasdaq Stock Market LLC
or The New York Stock Exchange, Inc.
 
    (j) “Excluded Securities” means any Common Stock issued or issuable: (i) in
connection with mergers, acquisitions, strategic business partnerships or joint
ventures, in each case with non-affiliated third parties and otherwise on an
arm’s length basis, the primary purpose of which, in the reasonable judgment of
the Company’s Board of Directors, is not to raise additional capital; (ii) in
connection with the grant of options to purchase Common Stock or other
stock-based awards or sales, with exercise or purchase prices not less than the
market price of the Common Stock on the date of grant or issuance of the option,
which are issued or sold to employees, officers, consultants or directors of the
Company for the primary purpose of soliciting or retaining their employment or
service pursuant to an equity compensation plan approved by the Company's Board
of Directors, and the Common Stock issued upon the exercise thereof; (iii) upon
conversion of the Notes; or (iv) upon conversion of any Options or Convertible
Securities which are disclosed in Schedule 3(c) of the Securities Purchase
Agreement, provided that the terms of such Options or Convertible Securities are
not amended, modified or changed on or after the Subscription Date without the
consent of the Required Holders.
 
    (k) “Fundamental Transaction” means: (i) a transaction or series of related
transactions pursuant to which the Company: (A) sells, conveys or disposes of
all or substantially all of its assets (or the stock or assets of one or more of
its Subsidiaries which, on a consolidated basis, constitute all or substantially
all of the Company’s assets), determined on either a quantitative or qualitative
basis (the presentation of any such transaction for stockholder approval being
conclusive evidence that such transaction involves the sale of all or
substantially all of the assets of the Company on a consolidated basis); (B)
merges or consolidates with or into, or engages in any other business
combination with, any other person or entity, in any case that results in the
holders of the voting securities of the Company immediately prior to such
transaction holding or having the right to direct the voting of 50% or less of
the total outstanding voting securities of the Company or such other surviving
or acquiring person or entity immediately following such transaction, as the
case may be; or (C) sells or issues, or any of its stockholders sells or
transfers, any securities to any person or entity, or the acquisition or right
to acquire securities by any person or entity, in either case acting
individually or in concert with others, such that, following the consummation of
such transaction(s), such person(s) or entity(ies) (together with their
respective affiliates, as such term is used under Section 13(d) of the Exchange
Act) would own or have the right to acquire greater than 50% of the outstanding
shares of Common Stock; (ii) any reclassification or change of the outstanding
shares of Common Stock (other than a change in par value, or from par value to
no par value, or from no par value to par value, or as a result of a subdivision
or combination); or (iii) any event, transaction or series of related
transactions that results in individuals serving on the Board of Directors on
the date hereof (the “Incumbent Board”) ceasing for any reason to constitute at
least a majority of the Board of Directors; provided, however, that any
individual becoming a director subsequent to the date hereof whose appointment,
election, or nomination for election by the Company's stockholders was approved
by a vote of at least a two-thirds of the directors then comprising the
Incumbent Board, after giving effect to this proviso (other than an appointment,
election, or nomination of an individual whose initial assumption of office is
in connection with an actual or threatened election contest relating to the
election of the directors of the Company), shall be considered as though such
person were a member of the Incumbent Board.
 
 
    (l) “GAAP” means United States generally accepted accounting principles,
consistently applied.
 
    (m) “Indebtedness” of any Person means, without duplication (i) all
indebtedness for borrowed money, (ii) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services, including
(without limitation) “capital leases” in accordance with generally accepted
accounting principles (other than trade payables entered into in the ordinary
course of business), (iii) all reimbursement or payment obligations with respect
to letters of credit, surety bonds and other similar instruments, (iv) all
obligations evidenced by notes, bonds, debentures or similar instruments,
including obligations so evidenced incurred in connection with the acquisition
of property, assets or businesses, (v) all indebtedness created or arising under
any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (vi) all monetary obligations under any
leasing or similar arrangement which, in connection with generally accepted
accounting principles, consistently applied for the periods covered thereby, is
classified as a capital lease, (vii) all indebtedness referred to in clauses (i)
through (vi) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any mortgage,
lien, pledge, charge, security interest or other encumbrance upon or in any
property or assets (including accounts and contract rights) owned by any Person,
even though the Person that owns such assets or property has not assumed or
become liable for the payment of such indebtedness, and (viii) all Contingent
Obligations in respect of indebtedness or obligations of others of the kinds
referred to in clauses (i) through (vii) above.
 
    (n) “Minimum Conversion Price” means USD$0.135, subject to adjustment as
provided in Section 6 hereof.

--------------------------------------------------------------------------------

 
    (o) “Options” means any rights, warrants or options to subscribe for or
purchase shares of Common Stock or Convertible Securities.
 
    (p) “Parent Entity” of a Person means an entity that, directly or
indirectly, controls the applicable Person and whose common stock or equivalent
equity security is quoted or listed on an Eligible Market, or, if there is more
than one such Person or Parent Entity, the Person or Parent Entity with the
largest public market capitalization as of the date of consummation of the
Fundamental Transaction.
 
    (q) “Permitted Indebtedness” means (A) the Unsecured Debentures, (B) the
Subordinate Debentures, (C) unsecured Indebtedness incurred by the Company that
is made expressly subordinate in right of payment to the Indebtedness evidenced
by this Note, as reflected in a written agreement acceptable to the Holder and
approved by the Holder in advance in writing, and which Indebtedness does not
provide at any time for (1) the payment, prepayment, repayment, repurchase or
defeasance, directly or indirectly, of any principal or premium, if any, thereon
until ninety-one (91) days after the Maturity Date or later and (2) total
interest and fees at a rate in excess of the Interest Rate hereunder, (D) the
obligations of the Company or its Subsidiaries under any lease of real or
personal property by such Person as lessee which is required under GAAP to be
capitalized on such Person's balance sheet and (E) Indebtedness permitted by
clause (iv) of the definition of “Permitted Lien”.
 
    (r) “Permitted Liens” means (i) any Lien for taxes not yet due or delinquent
or being contested in good faith by appropriate proceedings for which adequate
reserves have been established in accordance with GAAP, (ii) any statutory Lien
arising in the ordinary course of business by operation of law with respect to a
liability that is not yet due or delinquent, (iii) any Lien created by operation
of law, such as materialmen's liens, mechanics' liens and other similar liens,
arising in the ordinary course of business with respect to a liability that is
not yet due or delinquent or that are being contested in good faith by
appropriate proceedings, (iv) Liens securing the purchase price of assets
purchased or leased by the Company or Subsidiaries in the ordinary course of
business; provided that (A) such Liens shall not extend to or cover any other
property of the Company or its Subsidiaries, (B) the value of any such Lien
shall not, individually, exceed $50,000 and (C) the value of all Liens incurred
under this subsection (iv) while this Note is outstanding shall not exceed, in
the aggregate, $500,000, and (v) Liens securing the Company's obligations under
the Notes and the Subordinate Debentures.
 
    (s) “Person” means an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization, any other entity and a government or any department or agency
thereof.
 
    (t) “Principal Market” means the TSX Venture Exchange Inc..
 
    (u) “Redemption Notices” means, collectively, the Event of Default
Redemption Notices, Change of Control Redemption Notices, and the Optional
Redemption Notices and, each of the foregoing, individually, a Redemption
Notice.
 
    (v) “Required Holders” means the holders of Notes representing more than 50%
of the aggregate principal amount of the Notes then outstanding.
 
    (w) “SEC” means the United States Securities and Exchange Commission.
 
    (x) “Securities Purchase Agreement” means the Securities Purchase Agreement
dated as of the Subscription Date by and among the Company and the initial
holders of the Notes pursuant to which the Company issued the Notes.
 
    (y) “Subscription Date” means December 7, 2016.
 
    (z) “Subordinate Debentures” means the principal of (and premium, if any),
interest on, and all fees and other amounts (including, without limitation, any
reasonable out-of-pocket costs, enforcement expenses (including reasonable
out-of-pocket legal fees and disbursements and other reimbursement or indemnity
obligations relating thereto) payable by Company under or in connection with
those certain Series B Convertible Secured Debentures (as in effect on the date
hereof), in the aggregate original principal amount of up to CAD$1,549,000
issued by the Company in exchange for Unsecured Debentures in equal principal
amount, pursuant to the Trust Indenture dated as of December 7, 2016, executed
between the Company and TSX Trust Company, as Trustee.
 

--------------------------------------------------------------------------------

    (aa) “Successor Entity” means the Person, which may be the Company, formed
by, resulting from or surviving any Fundamental Transaction or the Person with
which such Fundamental Transaction shall have been made, provided that if such
Person is not a publicly traded entity whose common stock or equivalent equity
security is quoted or listed for trading on an Eligible Market, Successor Entity
shall mean such Person's Parent Entity.
 
    (bb) “Trading Day” means any day on which trading the Common Stock is
reported on the Principal Market, or, if the Principal Market is not the
principal trading market for the Common Stock, then on the Eligible Market that
is the principal securities exchange or securities market on which the Common
Stock is then traded; provided that “Trading Day” shall not include any day on
which the Common Stock is scheduled to trade on such exchange or market for less
than 4.5 hours or any day that the Common Stock is suspended from trading during
the final hour of trading on such exchange or market (or if such exchange or
market does not designate in advance the closing time of trading on such
exchange or market, then during the hour ending at 4:00:00 p.m., New York Time).
 
    (cc) “Unsecured Debentures” means the principal of (and premium, if any),
interest on, and all fees and other amounts (including, without limitation, any
reasonable out-of-pocket costs, enforcement expenses (including reasonable
out-of-pocket legal fees and disbursements and other reimbursement or indemnity
obligations relating thereto) payable by Company under or in connection with
those certain 12% Unsecured Convertible Debentures of the Company, due August 6,
2017, outstanding as of the Subscription Date (after giving effect to the
exchange of Unsecured Debentures for Subordinate Debentures) and upon the terms
and conditions of such debentures as in effect as of the Subscription Date.
 
    (dd) “Weighted Average Price” means, for any security as of any date, the
dollar volume-weighted average price for such security on the Principal Market
during the period beginning at 9:30:01 a.m., New York Time (or such other time
as the Principal Market publicly announces is the official open of trading), and
ending at 4:00:00 p.m., New York Time (or such other time as the Principal
Market publicly announces is the official close of trading) as reported by
Bloomberg or, if the foregoing does not apply, the dollar volume-weighted
average price of such security in the Eligible Market on which the Common Stock
is principally traded or the over-the-counter market on the electronic bulletin
board for such security during the period beginning at 9:30:01 a.m., New York
Time (or such other time as such market publicly announces is the official open
of trading), and ending at 4:00:00 p.m., New York Time (or such other time as
such market publicly announces is the official close of trading) as reported by
Bloomberg, or, if no dollar volume-weighted average price is reported for such
security by Bloomberg for such hours, the average of the highest closing bid
price and the lowest closing ask price of any of the market makers for such
security as reported in the “pink sheets” by Pink Sheets LLC (formerly the
National Quotation Bureau, Inc.). If the Weighted Average Price cannot be
calculated for a security on a particular date on any of the foregoing bases,
the Weighted Average Price of such security on such date shall be the fair
market value as mutually determined by the Company and the Holder. If the
Company and the Holder are unable to agree upon the fair market value of such
security, then such dispute shall be resolved pursuant to Section 23. All such
determinations shall be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.
 
[Signature Page Follows]

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of
the Issuance Date set out above.

SECURITY DEVICES INTERNATIONAL INC.
By: 
Name: Dean Thrasher
Title:  Chief Executive Officer

--------------------------------------------------------------------------------

EXHIBIT I

SECURITY DEVICES INTERNATIONAL INC.
CONVERSION NOTICE
Reference is made to the Senior Secured Convertible Note (the "Note") issued to
the undersigned by Security Devices International Inc. (the "Company").  In
accordance with and pursuant to the Note, the undersigned hereby elects to
convert the Conversion Amount (as defined in the Note) of the Note indicated
below into shares of Common Stock par value $.001 per share (the "Common Stock")
of the Company, as of the date specified below.
Date of Conversion:
Aggregate Conversion Amount to be converted: Please confirm the following
information:
Conversion Price:
Number of shares of Common Stock to be issued:
Please issue the Common Stock into which the Note is being converted in the
following name and to the following address:
Issue to:
Facsimile Number:
Authorization:
 By:
Title:
Dated:
Account Number: (if electronic book entry transfer)
 Transaction Code Number: (if electronic book entry transfer)

--------------------------------------------------------------------------------

ACKNOWLEDGMENT
The Company hereby acknowledges this Conversion Notice and hereby directs
[Insert name of transfer agent] to issue the above indicated number of shares of
Common Stock in accordance with the Transfer Agent Instructions dated
___________, 2016 from the Company and acknowledged and agreed to by [Insert
name of transfer agent].

SECURITY DEVICES INTERNATIONAL INC.
By: 
Name:
Title:

 

--------------------------------------------------------------------------------

--------------------------------------------------------------------------------

Schedule 2.2(b)
FORM OF DEBENTURE
No. SAMPLE ONLY
     

SECURITY DEVICES INTERNATIONAL INC.
(incorporated under the laws of the State of Delaware)
Series B Convertible Secured Debentures
Date of Initial Issue: ●, 2016
Registered Holder: <●>
UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY (AND
ANY SECURITY INTO WHICH THIS SECURITY MAY BE CONVERTED) MUST NOT TRADE THE
SECURITY BEFORE [THE DATE WHICH IS FOUR MONTHS AND ONE DAY AFTER THE CLOSING
DATE WILL BE INSERTED].
THE DEBENTURES (AND THE COMMON SHARES INTO WHICH THE DEBENTURES MAY BE
CONVERTED) HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "U.S. SECURITIES ACT") AND MAY NOT BE OFFERED OR SOLD IN THE UNITED
STATES OR TO U.S. PERSONS (AS DEFINED IN REGULATION S PROMULGATED UNDER THE U.S.
SECURITIES ACT). THE DEBENTURES ARE BEING OFFERED ONLY TO NON-U.S. PERSONS
OUTSIDE THE UNITED STATES IN TRANSACTIONS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE U.S. SECURITIES ACT IN RELIANCE ON REGULATION S, PURCHASERS
OF THE DEBENTURES MAY NOT OFFER TO SELL, SELL, PLEDGE OR OTHERWISE TRANSFER THE
DEBENTURES (OR ANY COMMON SHARES INTO WHICH THE DEBENTURES MAY BE CONVERTED) IN
THE UNITED STATES OR TO OR FOR THE ACCOUNT OR BENEFIT OF ANY U.S. PERSON UNLESS
SUCH OFFER, SALE, PLEDGE OR TRANSFER IS REGISTERED UNDER THE U.S. SECURITIES ACT
OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE AND THE DEBENTURES MAY NOT BE
CONVERTED INTO COMMON SHARES BY OR ON BEHALF OF ANY U.S. PERSON EXCEPT PURSUANT
TO SUCH REGISTRATION OR AN EXEMPTION THEREFROM. HEDGING TRANSACTIONS INVOLVING
THE DEBENTURES OR THE COMMON SHARES MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE
WITH THE U.S. SECURITIES ACT.
 [If required under Stock Exchange rules]
WITHOUT PRIOR WRITTEN APPROVAL OF TSX VENTURE EXCHANGE AND COMPLIANCE WITH ALL
APPLICABLE SECURITIES LEGISLATION, THE SECURITIES REPRESENTED BY THIS
CERTIFICATE (AND ANY SECURITY INTO WHICH THIS SECURITY MAY BE CONVERTED) MAY NOT
BE SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE TRADED ON OR THROUGH THE
FACILITIES OF TSX VENTURE EXCHANGE OR OTHERWISE IN CANADA OR TO OR FOR THE
BENEFIT OF A CANADIAN RESIDENT UNTIL [INSERT DATE].
[For the purposes of a Global Debenture only:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF CDS
CLEARING AND DEPOSITORY SERVICES INC. ("CDS") TO SECURITY DEVICES INTERNATIONAL
INC. OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IN RESPECT THEREOF IS REGISTERED IN THE NAME OF CDS & CO., OR
IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF CDS (AND
ANY PAYMENT IS MADE TO CDS & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF CDS), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED HOLDER
HEREOF, CDS & CO., HAS A PROPERTY INTEREST IN THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HEREIN AND IT IS A VIOLATION OF ITS RIGHTS FOR ANOTHER PERSON TO
HOLD, TRANSFER OR DEAL WITH THIS CERTIFICATE]
SECURITY DEVICES INTERNATIONAL INC. (the "Company") for value received hereby
promises to pay ________________ (the "Holder") in lawful money of Canada the
principal amount of __________________ in the manner provided in a trust
indenture (the "Indenture") dated as of December 7, 2016 among the Company,
Security Devices International Canada Corp. and TSX TRUST COMPANY (the
"Trustee"). The debentures represented by this certificate are part of a series
of debentures (the "Debentures") issued under the Indenture and designated as
Series B Convertible Secured Debentures.
Maturity
Each Debenture shall become due and payable on June 6, 2019 (the "Maturity
Date").
Interest
The principal amount of each Debenture shall bear interest calculated (i) from
and including the date of original issue of the Debenture, or (ii) from and
including the last Interest Payment Date (defined below), whichever shall be the
later, to but excluding the next Interest Payment Date on so much of the
principal as is outstanding from time to time at the rate of 12% per annum from
its issue date up until the Maturity Date and thereafter so long as any of the
principal amount is unpaid, calculated and paid semi-annually in arrears. The
first such payment of interest shall be made on May 31, 2017 and subsequent
payments of interest shall be made semi-annually thereafter on the last day of
May and November, with a final payment to be made on the Maturity Date or such
later date on which the principal amount is paid (each such date on which
interest is to be paid being an "Interest Payment Date"). Any interest not paid
on an Interest Payment Date shall be compounded on a semi-annual basis as and
from that Interest Payment Date and shall thereafter bear interest at the rate
of 12% per annum compounded as aforesaid until paid.

--------------------------------------------------------------------------------

Interest shall be calculated on the basis of actual days elapsed over a 365 day
year and shall be calculated from and including the date on which the Debenture
is issued or the last Interest Payment Date (as applicable) to and excluding the
following Interest Payment Date. Interest shall be calculated and paid both
before and after maturity, default and judgment.
All payments of interest to be made on an Interest Payment Date shall be made to
the Holders thereof in whose names the Debentures are registered at the close of
business on the seventh day prior to that Interest Payment Date, as recorded in
the register of Holders maintained under the Indenture.
Notwithstanding any other provision of the Debentures or the Indenture
(including, for certainty, Section 2.21 (Redemption of Debentures) and ARTICLE 6
(Change of Control) of the Indenture), the effective rate of interest per annum
may not exceed 25% and any payments otherwise required to be made to the Holders
will be reduced as necessary for that purpose.
Redemption
The Company shall have the right at its option to redeem the Debentures, in
whole or in part from time to time, on not less than 30 days prior notice (the
"Redemption Notice") to the Trustee and the Holders of Debentures to be
redeemed. Upon any such redemption, the Company shall pay to the Holders of
Debentures to be redeemed an amount (the "Redemption Price") equal to:
(a)
if the Redemption Notice is given on or before the first anniversary of the date
on which the Debentures were originally issued, a Redemption Price equal to
(i) the principal amount of the Debentures to be redeemed, plus (ii) an amount
equal to the interest which is accrued and unpaid on the principal amount of the
Debentures to be redeemed up to the date of prepayment, plus (iii) an interest
bonus equal to 100% of the interest which would have been earned on the
debentures to be redeemed until the Maturity Date; and

(b)
if the Redemption Notice is given after the first anniversary of the date on
which the Debentures were originally issued, a Redemption Price equal to (i) the
principal amount of the Debentures to be redeemed, plus (ii) an amount equal to
the interest which is accrued and unpaid on the principal amount of the
Debentures to be redeemed up to the date of prepayment, plus (iii) an interest
bonus equal to 50% of the interest which would have been earned on the
Debentures to be redeemed until the Maturity Date.

(2) At any time prior to redemption, the holders of Debentures to be redeemed
may exercise their right to convert the Debentures to be redeemed into shares of
common stock of the company (the "Common Shares") subject to the terms of the
Indenture.
Change of Control
Within 30 days after becoming aware of a Change of Control (as that term is
defined in the Indenture), the Company shall give written notice (the "Offer to
Redeem") to the Trustee and the Holders of the Change of Control and offering to
redeem the Debentures for an amount (the "Change of Control Payment") equal to
the greater of:
(a)
the sum of (i) the principal amount of the Debentures to be redeemed, plus
(ii) the interest which is accrued and unpaid on the Debentures to be redeemed
up to but excluding the effective date of the Change of Control; plus (iii) an
amount equal to 100% of the interest which would have been earned on the
Debentures to be redeemed from the effective date of the Change of Control to
the Maturity Date; and

(b)
the sum of (i) the aggregate consideration that the Holder would be entitled to
receive in connection with a Change of Control if the Holder were to fully
convert into Common Shares the outstanding principal amount of the Debentures to
be redeemed immediately prior to the consummation of such Change of Control,
plus (ii) any accrued and unpaid Interest thereon to but excluding the effective
date of the Change of Control.

--------------------------------------------------------------------------------

In order to accept the Offer to Redeem, a Holder must deliver to the Trustee at
its principal office in the City of Toronto and in such other place or places as
the Company with the approval of the Trustee (acting reasonably) may designate,
an acceptance notice in a form satisfactory to the Trustee (each, an "Acceptance
Notice"), in either case duly executed by the Holder or the Holder's executors
or administrators or other legal representatives or the Holder's attorney duly
appointed by an instrument in writing in form and executed in a manner
satisfactory to the Trustee, accepting the  Offer to Redeem with respect to the
Debentures held by the Holder.  If the Debentures referred to in any Acceptance
Notice are represented by a Debenture certificate, the Acceptance Notice must
also be accompanied by that Debenture certificate; provided that with respect to
a Global Debenture (defined in the Indenture), the obligation to surrender a
Debenture certificate to the Trustee shall be satisfied if the Trustee makes a
notation on the Global Certificate of the principal amount thereof and the
Trustee is provided with all other documentation which it may reasonably
request.
Conversion to Common Shares
Subject to Article 3 and Section 2.23 of the Indenture, the Holder may at any
time or times prior to the Maturity Date convert the principal amount of the
Debentures or any portion of the principal amount thereof which is CAD$1,000 or
an integral multiple of CAD$1,000 into Common Shares at a price per Common Share
of USD $0.24 (subject to adjustment as provided in Article 3 of the Indenture).
In order to convert a Debenture represented by this certificate into Common
Shares, the Holder must surrender this certificate to the Trustee at its
principal office in the City of Toronto or such other place or places as the
Company with the approval of the Trustee (acting reasonably) may designate,
together with the conversion form on the back of this certificate or any other
written notice in a form satisfactory to the Trustee, in either case duly
executed by the Holder or the Holder's executors or administrators or other
legal representatives or the Holder's attorney duly appointed by an instrument
in writing in form and executed in a manner satisfactory to the Trustee,
exercising the Holder's right to convert such Debenture into Common Shares.
Other
The principal and interest of the Debentures and all other sums which may be
payable thereon, whether at maturity or otherwise, shall be payable in lawful
money of Canada.
This Debenture is secured by the Indenture and is subject to all the terms and
conditions thereof, to all of which the holder of this Debenture by his
acceptance hereof assents.
This Debenture shall not become obligatory for any purpose until it shall have
been certified by the Trustee for the time being under the Indenture.
(execution page follows)

--------------------------------------------------------------------------------

IN WITNESS WHEREOF the Company has caused this Debenture to be signed by its
duly authorized representatives and to be dated the ____ day of December, 2016.
SECURITY DEVICES INTERNATIONAL INC.

By: ___________________________________
Authorized Signing Officer
 
Trustee's Certificate
This Debenture is one of the Debentures referred to in the Indenture within
mentioned.
Dated this ___ day of December, 2016.
TSX TRUST COMPANY
By: ___________________________________

--------------------------------------------------------------------------------

Appendix 1
CONVERSION NOTICE
TO: SECURITY DEVICES INTERNATIONAL INC. (the "Company")
c/o TSX TRUST COMPANY
200 University Avenue, Suite 300
Toronto, On M5H 4H1

Note:
All capitalized terms used herein have the meaning ascribed thereto in the Trust
Indenture among the Company and TSX TRUST COMPANY dated December 7, 2016 (the
"Indenture"), unless otherwise indicated.

The undersigned registered holder of Series B Convertible Secured Debentures
bearing Certificate No. __________________ irrevocably elects to convert such
Debentures (or CAD$_____________ principal amount thereof*) into common shares
in the capital of the Company ("Common Shares") in accordance with the terms of
the Indenture referred to in such Debentures and tenders herewith the
Debentures, and, if applicable, directs that the Common Shares of the Company
issuable upon a conversion (or such other securities or property required to be
delivered as provided by the terms of the Indenture) be issued and/or delivered
to the person indicated below. (If Common Shares or other securities are to be
issued in the name of a person other than the holder, all requisite transfer
taxes must be tendered by the undersigned).
If this Conversion Notice is dated prior to June 8, 2017, the undersigned
registered holder certifies that it is not a U.S. Person (as such term is
defined in Regulation S under the U.S. Securities Act of 1933) and that it is
not converting the Debentures on behalf of a U.S. Person.
Dated: _______________________________
 
____________________________________
(Signature of Registered Holder)

* If less than the full principal amount of the Debentures, indicate in the
space provided the principal amount (which must be CAD$1,000 or integral
multiples thereof).

NOTE:
If Common Shares are to be issued in the name of a person other than the holder,
the signature must be guaranteed by a chartered bank, a trust company or by a
member of an acceptable Medallion Guarantee Program. The Guarantor must affix a
stamp bearing the actual words: "SIGNATURE GUARANTEED".

(Print name in which Common Shares are to be issued, delivered and registered)
Name: ____________________________________
__________________________________________
(Address)
__________________________________________
(City, Province and Postal Code)

Name of guarantor: ________________________________________
Authorized signature: _______________________________________

--------------------------------------------------------------------------------

Appendix 2
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
_________________________________ whose address and social insurance number, if
applicable, are set forth below, this Debenture (or CAD$_______________________
principal amount hereof*) of SECURITY DEVICES INTERNATIONAL INC. (the "Company")
standing in the name(s) of the undersigned in the register maintained by the
registrar appointed by the Company with respect to such Debenture and does
hereby irrevocably authorize and direct the Trustee to transfer such Debenture
in such register, with full power of substitution in the premises.
Dated: ______________________
Name and Address of Transferee:
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
(Street Address, City, Province and Postal Code)
Social Insurance Number of Transferee, if applicable:
______________________________
*If less than the full principal amount of the within Debenture is to be
transferred, indicate in the space provided above the principal amount (which
must be CAD$1,000 or an integral multiple thereof) to be transferred.
If this assignment is dated prior to [the date that is six months and one day
after the closing date will be inserted], the undersigned registered holder
certifies that it is not a U.S. Person (as such term is defined in Regulation S
under the U.S. Securities Act of 1933) and that it is not transferring the
Debentures to or on behalf of a U.S. Person.
The signature(s) to this assignment must correspond with the name(s) as written
upon the face of this Debenture in every particular without alteration or any
change whatsoever. The signature(s) to this assignment must be guaranteed by a
chartered bank  or by a member of an acceptable Medallion Guarantee Program. The
Guarantor must affix a stamp bearing the actual words: "SIGNATURE GUARANTEED".
The registered Holder of this Debenture is responsible for the payment of any
documentary, stamp or other transfer taxes that may be payable in respect of the
transfer of this Debenture.

Dated: _______________________________
 
____________________________________
(Signature of Registered Holder)

Name of guarantor: ________________________________________
Authorized signature: _______________________________________

--------------------------------------------------------------------------------

[For the purposes of a Global Debenture only]
Exhibit "1"
TO CDS GLOBAL DEBENTURE
SECURITY DEVICES INTERNATIONAL INC.
SERIES B CONVERTIBLE SECURED DEBENTURES
DUE June 6, 2019
Initial Principal Amount: $•
     

Authorization:
ADJUSTMENTS
(no writing hereon except by the Indenture Trustee)
Date
Amount of Increase
Amount of Decrease
New Principal Amount
Authorization
                                                                               
                                                                               
                                       

--------------------------------------------------------------------------------

Schedule 2.21(2)
SECURITY DEVICES INTERNATIONAL INC.

SERIES B CONVERTIBLE SECURED DEBENTURES
REDEMPTION NOTICE

To:
Holders of Series B Convertible Secured Debentures Debentures (the "Debentures")
of SECURITY DEVICES INTERNATIONAL INC. (the "Corporation") to be redeemed

Note: All capitalized terms used herein have the same meaning in this redemption
notice as in the Indenture mentioned below, unless otherwise indicated.
Notice is hereby given pursuant to Section 2.21 of the trust indenture dated as
of December 7, 2016 (the "Indenture") made between the Corporation and TSX TRUST
COMPANY (the "Trustee"), that all or part of the principal amount of the
Debentures registered in your name will be redeemed as of l, (the "Redemption
Date"), upon payment of a redemption amount of CAD$l (the "Redemption Amount").
Accompanying this redemption notice is a statement setting out details of the
Debentures which are to be redeemed and the Redemption Amount in respect
thereof.
The Redemption Amount will be payable upon presentation and surrender of the
Debentures called for redemption at the following corporate trust office:
TSX TRUST COMPANY
200 University Avenue, Suite 300
Toronto, On M5H 4H1
The interest upon the principal amount of Debentures called for redemption shall
cease to be payable from and after the Redemption Date, unless payment of the
Redemption Amount shall not be made on presentation for surrender of such
Debentures at the above-mentioned corporate trust office on or after the
Redemption Date or prior to the setting aside of the Redemption Amount pursuant
to the Indenture.
DATED: _________________________
SECURITY DEVICES INTERNATIONAL INC.

By: ___________________________________
Authorized Signing Officer

--------------------------------------------------------------------------------

Redemption Details
Debenture Certificate Number
Principal amount to be Redeemed
Redemption Amount
                 

--------------------------------------------------------------------------------

Schedule 4.1
SECURITY AGREEMENT

THIS SECURITY AGREEMENT (this "Agreement") is made as of December 7, 2016, by
and among TSX Trust Company, as trustee under the Trust Indenture (defined
below) (together with its successors and assigns in such capacity, the
"Trustee"); Security Devices International Inc., a Delaware corporation
(together with its successors and permitted assigns, the "Borrower") and
Security Devices International Canada Corp., a Canadian corporation (together
with its successors and permitted assigns, "Subsidiary" and, together with the
Borrower, collectively and jointly and severally, the "Grantors").

Background

The Trustee, the Borrower and the Subsidiary entered into a trust indenture
dated as of the date hereof (as the same may be amended, restated, modified,
supplemented and/or replaced from time to time, the "Trust Indenture") providing
for the issuance of Debentures (as defined in the Trust Indenture) on the terms
and conditions described therein.

One of the conditions to the issuance of Debentures under the Trust Indenture is
that payment of the Secured Obligations (as defined below) shall be secured by,
among other things, a security interest in favor of the Trustee in the
Collateral (as defined below).  In order to induce subscribers to purchase
Debentures from the Borrower, the Grantors are willing to grant to the Trustee a
security interest in the Collateral.

Accordingly, each Grantor, intending to be legally bound, hereby agrees with the
Trustee as follows:

1. DEFINITIONS.  Capitalized terms used but not otherwise defined herein shall
have the meanings assigned to such terms in the Trust Indenture.  The following
terms, as used herein, shall have the following meanings:
"Account" shall be used herein as defined in the Uniform Commercial Code, but in
any event shall include, but not be limited to, credit card receivables, lottery
winnings, health-care-insurance receivables, any right to payment arising out of
goods or other property (including, without limitation, intellectual property)
sold or leased, licensed, assigned or disposed of or for services rendered which
is not evidenced by an instrument or chattel paper, whether or not it has been
earned by performance including all rights to payment of rents under a lease or
license and payment under a charter or other contract and all rights incident to
such lease, charter or contract.

"Additional Grantor" shall have the meaning ascribed to such term in Section
5(p).

"Chattel Paper" shall be used herein as defined in the Uniform Commercial Code,
but in any event shall include, but not be limited to, a writing or writings
which evidence both a
monetary obligation and a security interest in, or a lease of, specific goods.

"Collateral" shall have the meaning ascribed to such term in Section 2.

"Commercial Tort Claims" shall be used herein as defined in the Uniform
Commercial Code and shall include those claims listed (including plaintiff,
defendant and a description of the claim) on Schedule 10 attached hereto.

"Deposit Account" shall be used herein as defined in the Uniform Commercial
Code, but in any event shall include, but not be limited to, any demand, time,
savings, passbook or similar account.

"Document" shall be used herein as defined in the Uniform Commercial Code, but
in any event shall include, but not be limited to, a bill of lading, dock
warrant, dock receipt, warehouse receipt or order for the delivery of goods, and
also any other document which in the regular course of business or financing is
treated as adequately evidencing that the Person in possession of it is entitled
to receive, hold and dispose of the document and the goods it covers.

"Equipment" shall be used herein as defined in the Uniform Commercial Code, but
in any event shall include, but not be limited to, tangible personal property
held by any Grantor for use primarily in business and shall include equipment,
machinery, furniture, vehicles, fixtures, furnishings, dyes, tools, and all
accessories and parts now or hereafter affixed thereto as well as all
attachments, replacements, substitutes, accessories, additions and improvements
to any of the foregoing, but Equipment shall not include Inventory.

"Event of Default" shall be used herein as defined in the Trust Indenture.

--------------------------------------------------------------------------------

"Fixtures" shall be used herein as defined in the Uniform Commercial Code.

"General Intangibles" shall be used herein as defined in the Uniform Commercial
Code but in any event shall include, but not be limited to, all personal
property of every kind and description of any Grantor other than Goods,
Accounts, Fixtures, Documents, Letter-of-Credit Rights, Chattel Paper, Deposit
Accounts, Instruments, Investment Property, Commercial Tort Claims and
Supporting Obligations, and shall include, without limitation, payment
intangibles, contract rights (other than Accounts), franchises, licenses, choses
in action, books, records, customer lists, tax, insurance and other kinds of
refunds, patents, trademarks, trade names, service marks, slogans, trade dress,
copyrights, other intellectual property rights and applications for intellectual
property rights, goodwill, plans, licenses, software (to the extent it does not
constitute Goods) and other rights in personal property.

"Goods" shall be used herein as defined in the Uniform Commercial Code, but in
any event shall include, but not be limited to, all computer programs imbedded
in goods and any supporting information provided in connection with the
transaction relating to the program and all other things that are movable.

"Governmental Authority" means any nation, sovereign or government, any state,
province, territory or other political subdivision thereof, any agency,
authority, instrumentality, regulatory body, court, administrative tribunal,
central bank, stock exchange or other entity or authority exercising executive,
legislative, judicial, taxing, regulatory, self-regulatory or administrative
powers or functions of or pertaining to government.

"Instruments" shall be used herein as defined in the Uniform Commercial Code,
but in any event shall include, but not be limited to, promissory notes,
negotiable certificates of deposit, a negotiable instrument or a security or any
other writing which evidences a right to the payment of money and is not itself
a security agreement or lease and is of a type which is, in the ordinary course
of business, transferred by delivery with any necessary endorsement or
assignment.

"Inventory" shall be used herein as defined in the Uniform Commercial Code but
in any event shall include, but not be limited to, tangible personal property
held by or on behalf of any Grantor (or in which any Grantor has an interest in
mass or a joint or other interest) for sale or lease or to be furnished under
contracts of service, tangible personal property which any Grantor has so leased
or furnished, and raw materials, work in process and materials used, produced or
consumed in any Grantor's business, and shall include tangible personal property
returned to such Grantor by the purchaser following a sale thereof by such
Grantor and tangible personal property represented by Documents.  All equipment,
accessories and parts at any time attached or added to items of Inventory or
used in connection therewith shall be deemed to be part of the Inventory.

"Investment Property" shall be used herein as defined in the Uniform Commercial
Code but in any event shall include, but not be limited to, all securities,
whether certificated or uncertificated, all financial assets, all security
entitlements, all securities accounts, all commodity contracts and all commodity
accounts.

"Law" means any foreign or domestic constitution, treaty, law, statute,
regulation, code, ordinance, principle of common law or equity, rule, municipal
by-law or other requirement having the force of law.

"Letter-of-Credit Right" shall be used herein as defined in the Uniform
Commercial Code, but in any event shall include, but not be limited to, any
right to payment or performance under a letter of credit, whether or not the
beneficiary has demanded or is at the time entitled to demand payment or
performance.

"Organizational Documents" shall mean, with respect to any Person other than a
natural person, the documents by which such Person was organized (such as a
certificate of incorporation, certificate of limited partnership or articles of
organization, and including, without limitation, any certificates of designation
for preferred stock or other forms of preferred equity) and which relate to the
internal governance of such Person (such as bylaws, a partnership agreement or
an operating, limited liability or members agreement).

--------------------------------------------------------------------------------

"PPSA" shall mean the Personal Property Security Act in effect on the date
hereof and as amended from time to time, and as enacted in the Province of
Ontario, Canada or any similar legislation in any Canadian province or provinces
which has jurisdiction with respect to all, or any portion of, the Collateral or
this Agreement, from time to time.

"Proceeds" shall be used herein as defined in the Uniform Commercial Code but,
in any event, shall include, but not be limited to, (a) any and all proceeds of
any insurance (whether or not the Trustee is named as the loss payee thereof),
indemnity, warranty or guaranty payable to any Grantor or the Trustee from time
to time with respect to any of the Collateral, (b) any and all payments (in any
form whatsoever) made or due and payable to any Grantor from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Collateral by any Governmental Authority
(or any person acting under color of Governmental Authority), (c) any and all
amounts received when Collateral is sold, leased, licensed, exchanged, collected
or disposed of, (d) any rights arising out of Collateral, and (e) any and all
other amounts from time to time paid or payable under or in connection with any
of the Collateral.

"Software" shall be used herein as defined in the Uniform Commercial Code but in
any event, shall include, but not be limited to, any computer program or
supporting information provided in connection with the transaction relating to
the program.

"Subsidiary" means any entity that is controlled by (i) the Borrower, (ii) the
Borrower and one or more entities each of which is controlled by the Borrower,
and (iii) two or more entities, each of which is controlled by the Borrower . An
entity shall be deemed to "control" another entity if such entity possesses,
directly or indirectly, the power to direct or cause the direction of the
management and policies of such other entity, whether through the ownership of
voting securities, by contract or otherwise; and the term "controlled" shall
have a similar meaning.

"Supporting Obligations" shall be used herein as defined in the Uniform
Commercial Code but in any event shall include, but not be limited to,
guarantees and letters of credit that support payment of another obligation.

"Uniform Commercial Code" shall mean the Uniform Commercial Code in effect on
the date hereof and as amended from time to time, and as enacted in the
Commonwealth of Massachusetts or in any state or states which, pursuant to the
Uniform Commercial Code as enacted in the Commonwealth of Massachusetts, has
jurisdiction with respect to all, or any portion of, the Collateral or this
Agreement, from time to time.  It is the intent of the parties that the
definitions set forth above should be construed in their broadest sense so that
Collateral will be construed in its broadest sense.  Accordingly if there are,
from time to time, changes to defined terms in the Uniform Commercial Code that
broaden the definitions, they are incorporated herein and if existing
definitions in the Uniform Commercial Code are broader than the amended
definitions, the existing ones shall be controlling.  Similarly, where the
phrase "as defined in the Uniform Commercial Code, but in any event shall
include, but not be limited to . .  ." is used above, it means as defined in the
Uniform Commercial Code except that if any of the enumerated types of items
specified thereafter would not fall within the Uniform Commercial Code
definition, they shall nonetheless be included in the applicable definition for
purposes of this Agreement.

2. GRANT OF SECURITY INTEREST.  As security for the payment and performance of
the Secured Obligations, each Grantor hereby pledges, hypothecates, delivers and
assigns to the Trustee, and creates in favor of the Trustee, a security interest
in and to, all of such Grantor's right, title and interest in and to all the
following property, in all its forms, in each case whether now or hereafter
existing, whether now owned or hereafter acquired, created or arising, and
wherever located (collectively, but without duplication, the "Collateral"):
(a)  All Equipment;

(b)  All Inventory and other Goods;

(c)  All Accounts;

(d)  All General Intangibles, including, without limitation, the patents and
patent applications listed on Schedule 5 attached hereto, the trademarks and
trademark applications listed on Schedule 6 attached hereto, the registered
copyrights listed on Schedule 7 attached hereto, the domain names listed on
Schedule 8 attached hereto, the licenses for the use of any patents, trademarks,
copyrights and domain names listed on Schedule 9 attached hereto;

--------------------------------------------------------------------------------

(e)  All Fixtures;

(f)  All Documents, Letter-of-Credit Rights, and Chattel Paper;

(g)  All Deposit Accounts;

(h)  All Instruments and Investment Property;

(i)  All Commercial Tort Claims;

(j)  All Supporting Obligations; and

(k)  All Proceeds of any and all of the foregoing.

Notwithstanding the foregoing, nothing herein shall be deemed to constitute an
assignment of any asset which, in the event of an assignment, becomes void by
operation of applicable Law or the assignment of which (a) is otherwise
prohibited by applicable Law (in each case to the extent that such applicable
Law is not overridden by Sections 9-406, 9-407 and/or 9-408 of the Uniform
Commercial Code, the PPSA or other similar applicable Law) or (b) would result
in the abandonment, invalidation or unenforceability of any right, title or
interest of any Grantor therein; provided, however, that to the extent permitted
by applicable Law, this Agreement shall create a valid security interest in such
asset and, to the extent permitted by applicable Law, this Agreement shall
create a valid security interest in the Proceeds of such asset.

3. SECURITY FOR OBLIGATIONS.  The security interest created hereby in the
Collateral constitutes continuing collateral security for all of the following
obligations, whether now existing or hereafter incurred (collectively, the
"Secured Obligations"):
(a) (i) the payment by the Borrower, as and when due and payable (by scheduled
maturity, required prepayment, acceleration, demand or otherwise), of all
amounts from time to time owing by it in respect of the Trust Indenture, the
Debentures, this Agreement, and the other Security Agreements (as defined in the
Trust Indenture), including, without limitation, (A) all principal of and
interest on the Debentures (including, without limitation, all interest that
accrues after the commencement of any bankruptcy, reorganization or similar
proceeding (an "Insolvency Proceeding") involving any Grantor, whether or not
the payment of such interest is unenforceable or is not allowable due to the
existence of such Insolvency Proceeding), and (B) all fees, commissions, expense
reimbursements, indemnifications and all other amounts due or to become due
under the Trust Indenture or any of the Security Agreements; and
(b) the due performance and observance by each Grantor of all of its other
obligations from time to time existing in respect of  the Trust Indenture and
any of the Security Agreements, including without limitation, with respect to
any conversion or redemption rights of the Holders under the Debentures, for so
long as they are outstanding.
4. REPRESENTATIONS AND WARRANTIES OF THE GRANTORS.  Each Grantor represents and
warrants as follows.  The following representations and warranties shall survive
execution of this Agreement and shall not be affected or waived by any
examination or inspection made by the Trustee:
(a) Status.  The Borrower is a duly organized and validly existing Delaware
corporation.  Borrower's organizational number is 3933415. Subsidiary is a duly
organized and validly existing Canadian corporation.  Subsidiary's
organizational number is 877824-8.  Each Grantor has perpetual existence and the
power and authority to own its property and assets and to transact the business
in which it is engaged or presently proposes to engage.  The Subsidiary has
qualified to do business in each state or jurisdiction where its business or
operations so require.

--------------------------------------------------------------------------------

(b) Authority to Execute Agreement; Binding Agreement.  Each Grantor has the
corporate or other power to execute, deliver and perform its obligations under
this Agreement and each Security Agreement to which it is, or is to be, a party
(including, without limitation, the right and power to give the Trustee a
security interest in the Collateral) and has taken all necessary corporate and
other action to authorize the execution, delivery and performance of this
Agreement and each Security Agreement to which it is, or is to be, a party. 
This Agreement has been duly executed by each Grantor.  This Agreement
constitutes the valid and binding obligation of each Grantor, enforceable
against each Grantor in accordance with its terms except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization and similar
laws of general application relating to or affecting the rights and remedies of
creditors.
(c) Grantors' Title.  Except for the security interests granted hereunder, each
Grantor is, as to all Collateral presently owned, and shall be as to all
Collateral hereafter acquired, the owner or, in the case of leased or licensed
assets, the lessee or licensee, of said Collateral free from any Lien other than
Permitted Liens (as defined in the Trust Indenture).
(d) Taxes and Assessments.  All assessments and taxes, due or payable by, or
imposed, levied or assessed against each Grantor or any of its property, real or
personal, tangible or intangible, have been paid.
(e) Location of Collateral.  All Equipment, Inventory and other Goods are
located within the states and provinces specified on Schedule 1 hereto.
(f) Location of Grantors.  The location of the chief executive office of each
Grantor as well as its state of formation are specified on Schedule 2 attached
hereto.  Also listed on Schedule 2 is each other location where each Grantor
maintains a place of business.
(g) Instruments and Certificates.  All Instruments and all certificates
representing securities that are included in the Collateral, together with all
necessary endorsements, have been delivered to the Trustee.
(h) Names Used by Grantors.  (i) The actual corporate name of each Grantor is
the name set forth in the preamble above; (ii) no Grantor has any trade names
except as set forth on Schedule 3 attached hereto; (iii) no Grantor has used any
name other than that stated in the preamble hereto or as set forth on Schedule 3
for the preceding five years; and (iv) no entity has merged into any Grantor or
been acquired by any Grantor within the past five years except as set forth on
Schedule 3.
(i) Perfected Security Interest.  This Agreement creates a valid, first priority
security interest in the Collateral, subject only to Permitted Liens (as defined
in the Trust Indenture), securing payment of the Secured Obligations.  Upon the
filing of Uniform Commercial Code financing statements and PPSA financing
statements in the offices set forth on Schedule 4 hereto and the recordation of
this Agreement (or a short form hereof) at the United States Copyright Office
and the United States Patent and Trademark Office, all security interests which
may be perfected by filing shall have been duly perfected.  Except for the
filing of the Uniform Commercial Code financing statements and PPSA financing
statements referred to in the preceding sentence and the delivery of the
Instruments referred to in paragraph (g) above, no action is necessary to
create, perfect or protect such security interest.  Without limiting the
generality of the foregoing, except for the filing of said financing statements
and such recordation and except for customer contracts which may contain
limitations on assignment, no consent of any third parties and no authorization,
approval or other action by, and no notice to or filing with any Governmental
Authority or regulatory body is required for  (i) the execution, delivery and
performance of this Agreement, (ii) the creation or perfection of the security
interest in the Collateral or (iii) the enforcement of the Trustee's rights
hereunder.
(j) Absence of Conflicts with Other Agreements, Etc.  Neither the pledge of the
Collateral hereunder nor any of the provisions hereof (including, without
limitation, the remedies provided hereunder) violates any of the provisions of
any Organizational Documents of any Grantor, or any other agreement to which any
Grantor or any of its property is a party or is subject, or any judgment,
decree, order or award of any court, governmental body or arbitrator or any
applicable law, rule or regulation applicable to the same.

--------------------------------------------------------------------------------

(k) Account Debtors.  None of the account debtors or other Persons obligated on
any of the Collateral is a Governmental Authority covered by the Federal
Assignment of Claims Act or any similar federal, state or local statute or rule
in respect of such Collateral.
(l) Intellectual Property.  Schedules 5, 6, 7 and 8 list all of the patents,
patent applications, trademarks, trademark applications, registered copyrights,
and domain names owned by any of the Grantor as of the date hereof.  Schedule 9
lists all licenses in favor of any Grantor for the use of any patents,
trademarks, copyrights and domain names as of the date hereof other than
commercial off-the-shelf software.  All material patents and trademarks of the
Grantors have been duly recorded at the United States Patent and Trademark
Office.  The Grantors have no material copyrights, whether or not recorded at
the United States Copyright Office.
5. COVENANTS OF GRANTORS.  Each Grantor covenants that:
(a) Filing of Financing Statements and Preservation of Interests.  Immediately
upon execution hereof, each Grantor shall file (i) in each office set forth on
Schedule 4 Uniform Commercial Code financing statements and PPSA financing
statements and (ii) all filings with the United States Copyright Office, the
United States Patent and Trademark Office and Canadian Intellectual Property
Office, including an intellectual property collateral agreement in favor of the
Trustee, pursuant to which each Grantor shall grant to the Trustee for the
benefit of the Holders a security interest in all of its service marks,
trademarks and trade names and the goodwill associated therewith, and in all of
its patents, patent applications and patent license agreements, as therein
provided, in each case in form and substance satisfactory to the Trustee.  Each
Grantor will file in such office or offices as necessary or desirable such
financing and continuation statements and amendments and supplements thereto
(including, without limitation, an "all assets" filing), and such other
documents  required to perfect, preserve and protect the security interests
granted herein Delivery of Instruments, Etc.  At any time and from time to time
that any Collateral consists of Instruments, certificated securities or other
items that require or permit possession by the secured party to perfect the
security interest created hereby, the applicable Grantor shall deliver such
Collateral to the Trustee.
(b) Chattel Paper.  Each Grantor shall cause all Chattel Paper constituting
Collateral to be delivered to the Trustee, or, if such delivery is not possible,
then to cause such Chattel Paper to contain a legend noting that it is subject
to the security interest created by this Agreement.  To the extent that any
Collateral consists of electronic Chattel Paper, the applicable Grantor shall
cause the underlying Chattel Paper to be "marked" within the meaning of Section
9-105 of the Uniform Commercial Code (or successor section thereto).
(c) Investment Property and Deposit Accounts.  If there are any Investment
Property or Deposit Accounts included as Collateral that can be perfected by
"control" through an account control agreement, the applicable Grantor shall
cause such an account control agreement, in form and substance in each case
satisfactory to the Trustee, to be entered into and delivered to the Trustee.
(d) Letter-of-Credit Rights.  To the extent that any Collateral consists of
Letter-of-Credit Rights, the applicable Grantor shall cause the issuer of each
underlying letter of credit to consent to the assignment to the Trustee.
(e) Collateral In Possession of Third Parties.  To the extent that any
Collateral is in the possession of any third party other than agencies of state
and local governments or except in the ordinary course of business, the
applicable Grantor shall join with the Trustee in notifying such third party of
the Trustee's security interest and shall make commercially reasonable efforts
to obtain an acknowledgement from such third party that it is holding the
Collateral for the benefit of the Trustee.
(f) Commercial Tort Claims.  If any Grantor shall at any time hold or acquire a
Commercial Tort Claim, such Grantor shall promptly notify the Trustee in a
writing signed by such Grantor of the particulars thereof and grant to the
Trustee in such writing a security interest therein and in the proceeds thereof,
all upon the terms of this Agreement, with such writing to be in form and
substance satisfactory to the Trustee.
(g) Notice of Changes in Representations. Each Grantor shall notify the Trustee
in advance of any event or condition which could cause any representations set
forth in Section 4 above applicable to such Grantor to fail to be true, correct
and complete.  Without limiting the generality of the foregoing:

--------------------------------------------------------------------------------

(i) without providing at least thirty (30) days prior written notice to the
Trustee, no Grantor will change its name in any respect, its place of business
or, if more than one, chief executive office, or its mailing address or
organizational identification number (if it has one);
(ii) if any Grantor does not have an organizational identification number and
obtains one after the date of this Agreement, such Grantor will forthwith notify
the Trustee in writing of such organizational identification number; and
(iii) no Grantor will change its type of organization, jurisdiction of
organization or other legal structure without prior written notice to the
Trustee.
(h) Use and Condition of Equipment.  Each item of Equipment will be maintained
in good repair, working order and condition, ordinary wear and tear excepted,
and the applicable Grantor will provide all maintenance service and repairs
necessary for such purpose.  The Trustee may examine and inspect the Collateral
at any reasonable time or times wherever located.
(i) Insurance.  Each Grantor shall maintain with financially sound and reputable
insurers, insurance with respect to the Collateral against loss or damage of the
kinds and in the amounts customarily insured against by entities of established
reputation having similar properties similarly situated and in such amounts as
are customarily carried under similar circumstances by other such Persons and
otherwise as is prudent for Persons engaged in similar businesses.  Each Grantor
shall cause each insurance policy issued in connection herewith to provide, and
the insurer issuing such policy to certify to the Trustee that (a) the Trustee
will be named as lender loss payee and additional insured under each such
insurance policy; (b) if such insurance be proposed to be cancelled or
materially changed for any reason whatsoever, such insurer will promptly notify
the Trustee and such cancellation or change shall not be effective as to the
Trustee for at least thirty (30) days after receipt by the Trustee of such
notice, unless the effect of such change is to extend or increase coverage under
the policy; and (c) the Trustee will have the right (but no obligation) at its
election to remedy any default in the payment of premiums within thirty (30)
days of notice from the insurer of such default.  Unless the Trust Indenture
expressly provides otherwise, the following sentence will control application of
proceeds.  If no Event of Default exists, loss payments in each instance will be
applied by the applicable Grantor to the repair and/or replacement of property
with respect to which the loss was incurred to the extent reasonably feasible,
and any loss payments or the balance thereof remaining, to the extent not so
applied, shall be payable to the applicable Grantor, provided, however, that
payments received by any Grantor after an Event of Default occurs and is
continuing shall be paid to the Trustee and, if received by such Grantor, shall
be held in trust for and immediately paid over to the Trustee unless otherwise
directed in writing by the Trustee.  Copies of such policies or the related
certificates, in each case, naming the Trustee as lender loss payee shall be
delivered to the Trustee at least annually and at the time any new policy of
insurance is issued.
(j) Transfer of Collateral.  Other than the disposition of inventory and
licensing of Intellectual Property in the ordinary course of the applicable
Grantor's business as presently conducted or as otherwise permitted under the
terms of the Trust Indenture, no Grantor shall sell, assign, transfer, encumber
or otherwise dispose of any Collateral in excess of $25,000 per year without the
prior written consent of the Trustee.  For purposes of this provision, "dispose
of any Collateral" shall include, without limitation, the creation of a security
interest or other encumbrance (whether voluntary or involuntary) on such
Collateral, except for Permitted Liens (as defined in the Trust Indenture).
(k) Taxes and Assessments.  Each Grantor shall promptly pay when due and
payable, all taxes and assessments imposed upon the Collateral or operations or
business of such Grantor.
(l) Inventory.  No Grantor shall return any Inventory to the supplier thereof,
except for damaged or unsalable Inventory or otherwise in the ordinary course of
such Grantor's business.  Without limiting the generality of the foregoing, in
the event any Grantor becomes a "debtor in possession" as defined in 11 U.S.C.
§1101 (or any successor thereto), such Grantor agrees, to the extent permitted
by applicable Law, not to move pursuant to 11 U.S.C. §546 (or any successor
thereto) for permission to return goods to any creditor which shipped such goods
to such Grantor without the Trustee's written consent and each Grantor hereby
waives any rights to return such Inventory arising under 11 U.S.C. §546(h), or
any successor section thereto.
(m) Defense of Trustee's Rights.  Each Grantor warrants and will defend the
Trustee's right, title and security interest in and to the Collateral against
the claims of any Person.
(n) Cash Management.  At any time following an Event of Default that the Trustee
so requests, the Grantors will work with the Trustee to set up such lock boxes
and segregated accounts as the Trustee may request in order to better perfect
the security interest created hereunder in Proceeds.
(o) Additional Grantors.  Each Grantor shall cause each Subsidiary of such
Grantor, including any Person that shall at any time become a Subsidiary of such
Grantor, to immediately become a party hereto (an "Additional Grantor") or to a
similar security agreement, as appropriate, by executing and delivering an
Additional Grantor Joinder in substantially the form of Annex A attached hereto
and comply with the provisions hereof applicable to the Grantors or by signing a
similar security agreement.  If the Additional Grantor becomes a party hereto,
concurrent therewith, the Additional Grantor shall deliver replacement schedules
for, or supplements to all other Schedules to (or referred to in) this
Agreement, as applicable, which replacement schedules shall supersede, or
supplements shall modify, the Schedules then in effect.  The Additional Grantor
shall also deliver such opinions of counsel, authorizing resolutions, good
standing certificates, incumbency certificates, Organizational Documents,
financing statements and other information and documentation as the Trustee may
reasonably request.  Upon delivery of the foregoing to the Trustee, the
Additional Grantor shall be and become a party to this Agreement with the same
rights and obligations as the Grantors, for all purposes hereof as fully and to
the same extent as if it were an original signatory hereto and shall be deemed
to have made the representations, warranties and covenants set forth herein as
of the date of execution and delivery of such Additional Grantor Joinder and
thereafter at any time that such representations and covenants must be restated
pursuant to the terms of the Security Agreements, and all references herein to
the "Grantors" shall be deemed to include each Additional Grantor.

--------------------------------------------------------------------------------

(p) Inspections.  Upon reasonable notice to the Grantors (and for this purpose
no more than two business days' notice shall be required under any
circumstances) if no Event of Default shall exist, and at any time with or
without notice after the occurrence of an Event of Default, each Grantor will
permit the Trustee, or its designee, to inspect the Collateral, wherever
located, and to discuss the affairs, business, finances and accounts of the
Grantors with their personnel and accountants.  In the event that no Event of
Default exists and is continuing, such inspections shall not be held more than
twice in any six-month period.  For the sake of clarity, during any time when an
Event of Default shall exist and is continuing, the Trustee may conduct an
unlimited number of inspections, subject to the first sentence of this Section
5(q).  The Trustee acknowledges that such inspections and discussions may result
in the Trustee, or its designee, receiving material nonpublic information.  The
Trustee shall, and shall cause its designee, to keep confidential such
information as is specifically marked or otherwise identified as material
nonpublic information by the Grantors.
(q) Intellectual Property.  Without limiting the generality of the other
obligations of the Grantors hereunder, each Grantor shall promptly (i) cause to
be registered at the United States Copyright Office and Canadian Intellectual
Property Office all of its material copyrights and shall cause the security
interest contemplated hereby with respect to such copyrights to be duly recorded
at such office, (ii) cause the security interest contemplated hereby with
respect to all Intellectual Property registered at the United States Copyright
Office , United States Patent and Trademark Office or Canadian Intellectual
Property Office to be duly recorded at the applicable office, and (iii) give the
Trustee notice whenever it acquires (whether absolutely or by license) or
creates any additional material Intellectual Property.
(r) Power of Attorney.  Each Grantor has duly executed and delivered to the
Trustee a power of attorney (a "Power of Attorney") in substantially the form
attached hereto as Annex B.  The power of attorney granted pursuant to the Power
of Attorney is a power coupled with an interest and shall be irrevocable until
full and indefeasible payment of the Secured Obligations.  The powers conferred
on the Trustee (for the benefit of the Trustee and the Holders) under the Power
of Attorney are solely to protect the Trustee's interests (for the benefit of
the Trustee and the Holders) in the Collateral and shall not impose any duty
upon the Trustee or any Holder to exercise any such powers.  The Trustee agrees
that  it shall not exercise any power or authority granted under the Power of
Attorney unless an Event of Default has occurred and is continuing, and (ii) the
Trustee shall account for any moneys received by the Trustee in respect of any
foreclosure on or disposition of Collateral pursuant to the Power of Attorney
provided that none of the Trustee or any Holder shall have any duty as to any
Collateral, and the Trustee and the Holders shall be accountable only for
amounts that they actually receive as a result of the exercise of such powers. 
NONE OF THE TRUSTEE OR ITS AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR
REPRESENTATIVES SHALL BE RESPONSIBLE TO THE GRANTORS FOR ANY ACT OR FAILURE TO
ACT UNDER ANY POWER OF ATTORNEY OR OTHERWISE, EXCEPT IN RESPECT OF DAMAGES
ATTRIBUTABLE SOLELY TO THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT AS
FINALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION, NOR FOR ANY PUNITIVE,
EXEMPLARY, INDIRECT OR CONSEQUENTIAL DAMAGES.
(s) Other Assurances.  Each Grantor agrees that from time to time, at the joint
and several expense of the Grantors and any Additional Grantors, it will
promptly execute and deliver all such further instruments and documents, and
take all such further action as may be necessary or desirable, or as the Trustee
may reasonably request, in order to perfect and protect any security interest
granted or purported to be granted hereby or to enable the Trustee to exercise
and enforce its rights and remedies hereunder and with respect to any Collateral
or to otherwise carry out the purposes of this Agreement.
6. REMEDIES UPON EVENT OF DEFAULT.
(a) Upon the occurrence and during the continuation of an Event of Default, the
Trustee may exercise, in addition to any other rights and remedies provided
herein, under other contracts and under law, all the rights and remedies of a
secured party under the Uniform Commercial Code.  Without limiting the
generality of the foregoing, upon the occurrence and during the continuation of
an Event of Default, (i) at the request of the Trustee, each Grantor shall, at
its cost and expense, assemble the Collateral owned or used by it as directed by
the Trustee; (ii) the Trustee shall have the right (but not the obligation) to
notify any account debtors and any obligors under Instruments or Accounts to
make payments directly to the Trustee and to enforce the Grantors' rights
against account debtors and obligors; (iii) the Trustee may (but is not
obligated to), without notice except as provided below, sell the Collateral at
public or private sale, on such terms as the Trustee deems to be commercially
reasonable; (iv) the Trustee may (but is not obligated to) direct any financial
intermediary or any other Person holding Investment Property to transfer the
same to the Trustee or its designee; and (v) the Trustee may (but is not
obligated to) transfer any or all Intellectual Property registered in the name
of any Grantor at the United States Patent and Trademark Office and/or Copyright
Office and/or Canadian Intellectual Property Office into the name of the Trustee
or any designee or any purchaser of any Collateral.  Each Grantor agrees that
ten (10) days' notice of any sale referred to in clause (iii) above shall
constitute sufficient notice.  The Trustee or any Holder may purchase Collateral
at any such sale.  The Grantors shall be liable to the Trustee and the Holders
for any deficiency amount.
(b) The Trustee may comply with any applicable Law in connection with a
disposition of Collateral and compliance will not be considered adversely to
affect the commercial reasonableness of any sale of the Collateral.  The Trustee
may sell the Collateral without giving any warranties and may specifically
disclaim such warranties.  If the Trustee sells any of the Collateral on credit,
the Borrower will only be credited against the Secured Obligations with payments
actually made by the purchaser to the Trustee.  In addition, each Grantor waives
any and all rights that it may have to a judicial hearing in advance of the
enforcement of any of the Trustee's rights and remedies hereunder, including,
without limitation, its right following an Event of Default to take immediate
possession of the Collateral and to exercise its rights and remedies with
respect thereto.
(c) For the purpose of enabling the Trustee to further exercise rights and
remedies under this Section 6 or elsewhere provided by agreement or applicable
Law, each Grantor hereby grants to the Trustee, for the benefit of the Trustee
and the Holders, an irrevocable, nonexclusive license (exercisable without
payment of royalty or other compensation to such Grantor) to use, license or
sublicense following an Event of Default, any Intellectual Property now owned or
hereafter acquired by such Grantor, and wherever the same may be located, and
including in such license access to all media in which any of the licensed items
may be recorded or stored and to all computer software and programs used for the
compilation or printout thereof.

--------------------------------------------------------------------------------

7. OBLIGATIONS ABSOLUTE.
(a) Change of Circumstance.  THE RIGHTS OF THE TRUSTEE HEREUNDER AND THE
OBLIGATIONS OF THE GRANTORS HEREUNDER SHALL BE ABSOLUTE AND UNCONDITIONAL, SHALL
NOT BE SUBJECT TO ANY COUNTERCLAIM, SETOFF, RECOUPMENT OR DEFENSE BASED UPON ANY
CLAIM THAT ANY GRANTOR OR ANY OTHER PERSON MAY HAVE AGAINST THE TRUSTEE AND
SHALL REMAIN IN FULL FORCE AND EFFECT UNTIL FULL AND INDEFEASIBLE SATISFACTION
OF THE SECURED OBLIGATIONS.  Without limiting the generality of the foregoing,
the obligations of the Grantors shall not be released, discharged or in any way
affected by any circumstance or condition (whether or not the applicable Grantor
shall have any notice or knowledge thereof) including, without limitation, any
amendment or modification of or supplement to the Trust Indenture or any other
Security Agreement (including, without limitation, increasing the amount or
extending the maturity of the Secured Obligations); any waiver, consent,
extension, indulgence or other action or inaction under or in respect of any
such agreements or instruments, or any exercise or failure to exercise of any
right, remedy, power or privilege under or in respect of any such agreements or
instruments, or any exercise or failure to exercise of any right, remedy, power
or privilege under or in respect of any such agreements or instruments; any
invalidity or unenforceability, in whole or in part, of any term hereof or of
the Trust Indenture or any other Security Agreement; any failure on the part of
Borrower or any other Person for any reason to perform or comply with any term
of the Trust Indenture, any Note or any other Security Agreement; any furnishing
or acceptance of any additional security or guaranty; any release of any Grantor
or any other Person or any release of any or all security or any or all
guarantees for the Secured Obligations, whether any such release is granted in
connection with a bankruptcy or otherwise; any bankruptcy, insolvency,
reorganization, arrangement, readjustment, composition, liquidation or similar
proceeding with respect to any Grantor or any other Person or their respective
properties or creditors; the application of payments received by the Trustee or
any Holder from any source that were lawfully used for some other purpose, which
lawfully could have been applied to the payment, in full or in part, of the
Secured Obligations; or any other occurrence whatsoever, whether similar or
dissimilar to the foregoing.  Without limiting the generality of the foregoing,
at any time that the Trust Indenture or the Debentures are amended to increase
the amount of the obligations thereunder, the amount of the Secured Obligations
shall be accordingly increased.
(b) No Duty To Marshal Assets.  The Trustee shall have no obligation to marshal
any assets in favor of any Grantor or any other Person or against or in payment
of any or all of the Secured Obligations.
(c) Waiver of Right of Subrogation, Etc.  Each Grantor hereby waives any and all
rights of subrogation, reimbursement, or indemnity whatsoever in respect of such
Grantor arising out of remedies exercised by the Trustee hereunder until full
and indefeasible payment of the Secured Obligations.
(d) Other Waivers.  Each Grantor hereby waives promptness, diligence and notice
of acceptance of this Agreement.  In connection with any sale or other
disposition of Collateral, to the extent permitted by applicable Law, each
Grantor waives any right of redemption or equity of redemption in the
Collateral.  Each Grantor further waives presentment and demand for payment of
any of the Secured Obligations, protest and notice of protest, dishonor and
notice of dishonor or notice of default or any other similar notice with respect
to any of the Secured Obligations, and all other similar notices to which any
Grantor might otherwise be entitled, except as otherwise expressly provided in
the Security Agreements.  The Trustee is under no obligation to pursue any
rights against third parties with respect to the Secured Obligations and each
Grantor hereby waives any right it may have to require otherwise.  Each Grantor
(to the extent that it may lawfully do so) covenants that it shall not at any
time insist upon or plead, or in any manner claim or take the benefit of, any
stay, valuation, appraisal or redemption now or at any time hereafter in force
that, but for this waiver, might be applicable to any sale made under any
judgment, order or decree based on this Agreement; and each Grantor (to the
extent that it may lawfully do so) hereby expressly waives and relinquishes all
benefit of any and all such laws and hereby covenants that it will not hinder,
delay or impede the execution of any power in this Agreement delegated to the
Trustee, but that it will suffer and permit the execution of every such power as
though no such law or laws had been made or enacted.
(e) Each Grantor further waives to the fullest extent permitted by law any right
it may have under the constitution of the Commonwealth of Massachusetts (or
under the constitution of any other state or province in which any of the
Collateral or any Grantor may be located), or under the Constitution of the
United States of America, to notice (except for notice specifically required
hereby) or to a judicial hearing prior to the exercise of any right or remedy
provided by this Agreement to the Trustee, and waives its rights, if any, to set
aside or invalidate any sale duly consummated in accordance with the foregoing
provisions hereof on the grounds (if such be the case) that the sale was
consummated without a prior judicial hearing.
(f) EACH GRANTOR'S WAIVERS UNDER THIS SECTION 7 HAVE BEEN MADE VOLUNTARILY,
INTELLIGENTLY AND KNOWINGLY AND AFTER SUCH GRANTOR HAS BEEN APPRISED AND
COUNSELED BY ITS ATTORNEY AS TO THE NATURE THEREOF AND ITS POSSIBLE ALTERNATIVE
RIGHTS.
8. NO IMPLIED WAIVERS.  No failure or delay on the part of the Trustee in
exercising any right, power or privilege under this Agreement or the other
Security Agreements and no course of dealing between the Grantor, on the one
hand, and the Trustee or the Holders, on the other hand, shall operate as a
waiver of any such right, power or privilege.  No single or partial exercise of
any right, power or privilege under this Agreement or the other Security
Agreements precludes any other or further exercise of any such right, power or
privilege or the exercise of any other right, power or privilege.  The rights
and remedies expressly provided in this Agreement and the other Security
Agreements are cumulative and not exclusive of any rights or remedies which the
Trustee or the Holders would otherwise have.  No notice to or demand on any
Grantor in any case shall entitle the Grantors to any other or further notice or
demand in similar or other circumstances or shall constitute a waiver of the
right of the Trustee or the Holders to take any other or further action in any
circumstances without notice or demand.  Any waiver that is given shall be
effective only if in writing and only for the limited purposes expressly stated
in the applicable waiver.

--------------------------------------------------------------------------------

9. STANDARD OF CARE.
(a) In General.  No act or omission of the Trustee or any Holder (or agent or
employee of any of the foregoing) hereunder or related hereto or related to the
transactions contemplated by this Agreement or the other Security Agreements
shall give rise to any defense, counterclaim or offset in favor of any Grantor
or any claim or action against the Trustee or such Holder (or agent or employee
thereof), in the absence of gross negligence or willful misconduct of the
Trustee or such Holder (or agent or employee thereof) as determined  in a final,
nonappealable judgment of a court of competent jurisdiction.  The Trustee shall
be deemed to have exercised reasonable care in the custody and preservation of
the Collateral in its possession if the Collateral is accorded treatment
substantially equal to that which the Trustee accords to other Collateral it
holds, it being understood that it has no duty to take any action with respect
to calls, conversions, exchanges, maturities, tenders or other matters relative
to any Collateral or to preserve any rights of any parties and shall only be
liable for losses which are a result of it gross negligence or willful
misconduct as determined in a final, nonappealable judgment of a court of
competent jurisdiction.
(b) No Duty to Preserve Rights.  Without limiting the generality of the
foregoing, the Trustee has no duty (either before or after an Event of Default)
to collect any amounts in respect of the Collateral or to preserve any rights
relating to the Collateral.
(c) No Duty to Prepare for Sale.  Without limiting the generality of the
foregoing, the Trustee has no obligation to clean-up or otherwise prepare the
Collateral for sale.
(d) Duties Relative to Contracts.  Without limiting the generality of the
foregoing, each Grantor shall remain obligated and liable under each contract or
agreement included in the Collateral to be observed or performed by such Grantor
thereunder.  The Trustee shall not have any obligation or liability under any
such contract or agreement by reason of or arising out of this Agreement or the
receipt by the Trustee of any payment relating to any of the Collateral, nor
shall the Trustee be obligated in any manner to perform any of the obligations
of any Grantor under or pursuant to any such contract or agreement, to make
inquiry as to the nature or sufficiency of any payment received by the Trustee
in respect of the Collateral or as to the sufficiency of any performance by any
party under any such contract or agreement, to present or file any claim, to
take any action to enforce any performance or to collect the payment of any
amounts which may have been assigned to the Trustee or to which the Trustee may
be entitled at any time or times.
(e) Reliance on Advice of Counsel.  In taking any action under this Agreement or
any other Security Agreement, the Trustee shall be entitled to rely upon the
advice of counsel of Trustee's choice, at the expense of the Borrower, and shall
be fully protected in acting on such advice whether or not the advice rendered
is ultimately determined to have been accurate.
(f) No Obligation to Act.  The Trustee shall be entitled to act or to refrain
from acting (and shall be fully protected in so acting or refraining from
acting) upon the written instructions of the Required Holders (as defined below)
and such instructions shall be binding upon all the Holders; provided, however,
that the Trustee shall not be under any obligation to exercise any of the rights
or powers vested in it by this Agreement or any Security Document in the manner
so requested unless, if so requested by the Trustee, it shall have been provided
sufficient funding and an indemnity from the Borrower or Holders satisfactory to
it against the costs, expenses and liabilities which may be incurred by it in
compliance with or in performing such request or direction.  No provisions of
this Agreement or any Security Document shall otherwise be construed to require
the Trustee to expend or risk its own funds or take any action that could in its
judgment cause it to incur any cost, expenses or liability for which it is not
specifically indemnified hereunder or under the Trust Indenture.  No provision
of this Agreement or of any Security Document shall be deemed to impose any duty
or obligation on the Trustee to perform any act or acts or exercise any right,
power, duty or obligation conferred or imposed on it, in any jurisdiction in
which it shall be illegal, or in which the Trustee shall be unqualified or
incompetent, to perform any such act or acts or to exercise any such right,
power, duty or obligation or if such performance or exercise would constitute
doing business by the Trustee in such jurisdiction or impose a tax on the
Trustee by reason thereof.
(g) Action By Trustee.  Absent written instructions from the Required Holders at
a time when an Event of Default shall have occurred and be continuing, the
Trustee shall have no obligation to take any actions under the Security
Documents.
10. MISCELLANEOUS.
         (a) Assignment.  Except as otherwise provided in the Trust Indenture,
the Trustee and each Holder may assign or transfer this Agreement and any or all
rights or obligations hereunder without the consent of any Grantor and without
prior notice.  No Grantor shall assign or transfer this Agreement or any rights
or obligations hereunder without the prior written consent of the Trustee or as
expressly provided in the Trust Indenture.  Notwithstanding the foregoing, if
there should be any assignment of any rights or obligations by operation of law
or in contravention of the terms of this Agreement or otherwise, then all
covenants, agreements, representations and warranties made herein or pursuant
hereto by or on behalf of any Grantor shall bind the successors and assigns of
such Grantor, together with the preexisting Grantor, whether or not such new or
additional Persons execute a joinder hereto or assumption hereof (without the
same being deemed a waiver of any default caused thereby) which condition shall
not be deemed to be a waiver of any Event of Default arising out of such
assignment.  The rights and privileges of the Trustee under this Agreement shall
inure to the benefit of its successors and assigns. Any corporation into which
the Trustee is amalgamated or with which it is consolidated or to which all or
substantially all of its corporate trust business is sold or is otherwise
transferred or any corporation resulting from any consolidation or amalgamation
to which the Trustee is a party shall become the successor Trustee under this
Agreement, without the execution of any document or any further act; provided
that such successor Trustee is a corporation qualified to carry on the business
of a trust corporation in Canada or the province of Ontario.

--------------------------------------------------------------------------------

 

(b) Joint and Several Liability.  All Grantors shall jointly and severally be
liable for the obligations of each Grantor to the Trustee and the Holders
hereunder.
(c) Notices.  All notices, requests, demands, directions and other
communications provided for herein shall be in writing and shall be delivered or
mailed in the manner specified in the Trust Indenture addressed to a party at
its address set forth in or determined pursuant to the Trust Indenture, as the
case may be.
(d) Severability.  Every provision of this Agreement is intended to be
severable.  If any term or provision of this Agreement shall be invalid, illegal
or unenforceable for any reason, the validity, legality and enforceability of
the remaining provisions shall not be affected or impaired thereby. Any
invalidity, illegality or unenforceability in any jurisdiction shall not affect
the validity, legality or enforceability of any such term or provision in any
other jurisdiction.
(e) Costs and Expenses.  Without limiting any other cost reimbursement
provisions in the Security Agreements, upon demand, the Grantors shall pay to
the Trustee and the Holders, as applicable, the amount of any and all reasonable
expenses incurred by the Trustee and the Holders hereunder or in connection
herewith, including, without limitation, reasonable fees of counsel to the
Trustee and the Holders and those other expenses that may be incurred in
connection with (i) the execution and delivery of this Agreement and any
amendments, waivers and supplements hereto, (ii) the administration of this
Agreement, (iii) the custody or preservation of, or the sale of, collection
from, or other realization upon, any of the Collateral, (iv) the exercise or
enforcement of any of the rights of the Trustee or the Holders hereunder or (v)
the failure of any Grantor to perform or observe any of the provisions hereof.
(f) Indemnification by Grantors.  Each Grantor shall indemnify, reimburse and
hold harmless the Trustee from and against any and all losses, claims,
liabilities, damages, penalties, suits, costs and expenses, of any kind or
nature, (including fees relating to the cost of investigating and defending any
of the foregoing) imposed on, incurred by or asserted against the Trustee in any
way related to or arising from or alleged to arise from this Agreement or the
Collateral, except any such losses, claims, liabilities, damages, penalties,
suits, costs and expenses which result from the gross negligence or willful
misconduct of the Trustee as determined by a final nonappealable decision of a
court of competent jurisdiction.  This indemnification provision is in addition
to, and not in limitation of, any other indemnification provision in the Trust
Indenture or any other Security Agreement.
(g) Counterparts; Integration.  This Agreement may be executed in counterparts
(and by different parties hereto in different counterparts), each of which shall
constitute an original, but all of which when taken together shall constitute a
single contract.  This Agreement and the other Security Agreements constitute
the entire contract among the parties relating to the subject matter hereof and
supersede any and all previous agreements and understandings, oral or written,
relating to the subject matter hereof.  Delivery of an executed counterpart of a
signature page of this Agreement by telecopy shall be effective as delivery of a
manually executed counterpart of this Agreement.
(h) Amendments and Waivers.  The Holders holding more than 50% of the total
outstanding principal balance of the Debentures (the "Required Holders") shall
have the right to direct the Trustee, from time to time, to consent to any
amendment, modification or supplement to or waiver of any provision of this
Agreement and to release any Collateral from any lien or security interest held
by the Trustee; provided, however, that (i) no such direction shall require the
Trustee to consent to the modification of any provision or portion thereof which
(in the sole judgment of the Trustee) is intended to benefit the Trustee, (ii)
the Trustee shall have the right to decline to follow any such direction if the
Trustee shall determine in good faith that the directed action is not permitted
by the terms of this Agreement or may not lawfully be taken and (iii) no such
direction shall waive or modify any provision of this Agreement the waiver or
modification of which requires the consent of all Holders unless all Holders
consent thereto.  The Trustee may rely on any such direction given to it by the
Required Holders and shall be fully protected in relying thereon, and shall
under no circumstances be liable, except in circumstances involving the
Trustee's gross negligence or willful misconduct as shall have been determined
in a final nonappealable judgment of a court of competent jurisdiction, to any
holder of the Debentures or any other person or entity for taking or refraining
from taking action in accordance with any direction or otherwise in accordance
with this Agreement.
(i) Headings.  Headings to this Agreement are for purposes of reference only and
shall not limit or otherwise affect the meaning hereof
11. SPECIFIC PERFORMANCE.  Each Grantor hereby authorizes the Trustee to demand
specific performance of this Agreement at any time when any Grantor shall have
failed to comply with any provision hereof, and each Grantor hereby irrevocably
waives any defense based on the adequacy of a remedy at law which might be
asserted as a bar to the remedy of specific performance hereof in any action
brought therefor.  Each Grantor that is not a party to the Trust Indenture
hereby acknowledges receipt from the Borrower of a correct and complete copy of
the Trust Indenture and consents to all of the provisions of the Trust Indenture
as in effect on the date hereof and agrees that its consent is not required for
any amendments, modifications, restatements or waivers of it or any of the
provisions thereof.

--------------------------------------------------------------------------------

12. RELATIONSHIP WITH TRUST INDENTURE.  To the extent that any of the terms
hereof is inconsistent with any provision of the Trust Indenture, the provisions
of the Trust Indenture shall control.
13. TERMINATION; PARTIAL RELEASE.
(a) At such time as all the Secured Obligations in respect of the Debentures
have been indefeasibly paid and performed in full (including the conversion in
full of the Debentures) then the security provided for herein shall terminate,
provided, however, that all indemnities afforded to the Trustee by  the Borrower
and each other Grantor contained in this Agreement or any other Security
Agreement shall survive and remain operative and in full force and effect
regardless of the termination of this Agreement.
(b) Effective upon the closing of a disposition of any Collateral in conformity
with the provisions of the Trust Indenture, and receipt by the Trustee of a
certification to such effect from an authorized officer of the Borrower, the
security interest in the Collateral so disposed of shall terminate and the
Trustee shall deliver such releases as may be appropriate, provided, however,
the security interest in all remaining Collateral shall remain in full force and
effect.
14. GOVERNING LAW; JURISDICTION; WAIVER OF JURY TRIAL.
(a) Governing Law.  This Agreement and the rights and obligations of the parties
hereunder shall be construed and interpreted in accordance with the laws of the
Commonwealth of Massachusetts (excluding the laws applicable to conflicts or
choice of law).
(b) Submission to Jurisdiction.  Each Grantor irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive jurisdiction of the
courts of the Commonwealth of Massachusetts sitting in Suffolk County and of the
United States District Court of the District of Massachusetts, and any appellate
court from any thereof, in any action or proceeding arising out of or relating
to this Agreement or any other Security Agreement, or for recognition or
enforcement of any judgment, and each of the parties hereto irrevocably and
unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such Massachusetts state court or, to
the fullest extent permitted by applicable law, in such federal court.  Each of
the parties hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law.  Nothing in this Agreement or
in any other Security Agreement shall affect any right that the Trustee or any
Holder may otherwise have to bring any action or proceeding relating to this
Agreement or any other Security Agreement against any Grantor or its properties
in the courts of any jurisdiction.
(c) Waiver of Venue.  Each Grantor irrevocably and unconditionally waives, to
the fullest extent permitted by applicable law, any objection that it may now or
hereafter have to the laying of venue of any action or proceeding arising out of
or relating to this Agreement or any other Security Agreement in any court
referred to in paragraph (b) above.  Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by applicable law, the
defense of an inconvenient forum to the maintenance of such action or proceeding
in any such court.  Each Grantor irrevocably waives, to the fullest extent
permitted by applicable law, any right to bring any action or proceeding against
the Trustee in any court outside the Suffolk County, Massachusetts.
(d) Service of Process.  Each party hereto irrevocably consents to service of
process in the manner provided for notices in Section 10.  Nothing in this
Agreement will affect the right of any party hereto to serve process in any
other manner permitted by applicable law.
(e) Waiver of Jury Trial.  EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER
THEORY).  EACH PARTY HERETO (I) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER AND (II) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE
BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS
BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
(f) Subordinate Security.  The security granted under this Agreement is
subordinate to the security granted in favour of Northeast Industrial Partners,
LLC (the "Collateral Agent"), as collateral agent for the Holders of senior
secured notes issued on the date of this agreement.  Any obligation on the part
of the Grantors to deliver any certificates, documents or other property under
this Agreement is subordinate to the rights of the Collateral Agent and the
holders from time to time of the senior secured notes.  The Company shall not be
in default hereunder only by reason of its inability to deliver any such
certificates, documents or other property due to the prior rights of the
Collateral Agent to receive the same; provided that as soon as the Collateral
Agent ceases to have the right to hold any certificates, documents or other
property required to be delivered to the Trustee under this Agreement the
Company shall comply with its obligations under this Agreement in that regard.

[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in the name and on behalf of the parties hereto as of the date first above
written.

SECURITY DEVICES INTERNATIONAL INC.

By:____________________________
Name:
Title:

SECURITY DEVICES INTERNATIONAL CANADA CORP.

By:____________________________
Name:
Title:

TSX TRUST COMPANY
 in its capacity as Trustee

By:____________________________
Name:
Title:
                         By:____________________________
Name:
Title:

[Signature Page to Security Agreement]

--------------------------------------------------------------------------------

Annex A

FORM OF ADDITIONAL GRANTOR JOINDER

Security Agreement dated as of December 7, 2016 made by
Security Devices International Inc.
and its subsidiaries party thereto from time to time, as Grantors
to and in favor of
TSX Trust Company, as Trustee (the "Security Agreement")

Reference is made to the Security Agreement as defined above; capitalized terms
used herein and not otherwise defined herein shall have the meanings given to
such terms in, or by reference in, the Security Agreement.

The undersigned hereby agrees that upon delivery of this Additional Grantor
Joinder to the Trustee referred to above or its successor, the undersigned shall
(a) be an Additional Grantor under the Security Agreement, (b) have all the
rights and obligations of the Grantors under the Security Agreement as fully and
to the same extent as if the undersigned was an original signatory thereto and
(c) be deemed to have made the representations and warranties set forth in
Section 4 therein as of the date of execution and delivery of this Additional
Grantor Joinder and at any future dates that such representations must be
restated pursuant to the terms of the Security Agreements.  WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, THE UNDERSIGNED SPECIFICALLY GRANTS TO THE TRUSTEE,
AS TRUSTEE UNDER THE TRUST INDENTURE, A SECURITY INTEREST IN THE COLLATERAL AS
MORE FULLY SET FORTH IN THE SECURITY AGREEMENT AND ACKNOWLEDGES AND AGREES TO
THE WAIVER OF JURY TRIAL PROVISIONS SET FORTH THEREIN.

Attached hereto are supplemental and/or replacement Schedules to the Security
Agreement, as applicable.

Each Additional Grantor that is not a party to the Trust Indenture hereby
acknowledges receipt from the Borrower of a correct and complete copy of the
Trust Indenture and consents to all of the provisions of the Trust Indenture as
in effect on the date hereof and agrees that its consent is not required for any
amendments, modifications, restatements or waivers of it or any of the
provisions thereof.

An executed copy of this Additional Grantor Joinder shall be delivered to the
Trustee, and the Trustee and the Holders may rely on the matters set forth
herein on or after the date hereof.  This Additional Grantor Joinder shall not
be modified, amended or terminated without the prior written consent of the
Trustee.

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the undersigned has caused this Joinder to be executed in
the name and on behalf of the undersigned.

[Name of Additional Grantor]

By:

Name:
Title:

Address:

Dated:

--------------------------------------------------------------------------------

Annex B

FORM OF POWER OF ATTORNEY

This Power of Attorney is executed and delivered by ___________________, a
______________________ ("Grantor"), to TSX Trust Company as Trustee for itself
and Holders as such term is defined in the Trust Indenture referred to below
("Attorney").  This Power of Attorney is delivered in connection with and
pursuant to a certain Trust Indenture dated as of even date herewith (as the
same may be amended, modified, restated and/or supplemented from time to time,
the "Trust Indenture") and that certain Security Agreement delivered in
connection therewith (the "Security Agreement").  Capitalized terms used but not
otherwise defined herein shall have the meanings assigned to such terms in the
Security Agreement.  No person to whom this Power of Attorney is presented, as
authority for Attorney to take any action or actions contemplated hereby, shall
be required to inquire into or seek confirmation from Grantor as to the
authority of Attorney to take any action described below, or as to the existence
of or fulfillment of any condition to this Power of Attorney, which is intended
to grant to Attorney unconditionally the authority to take and perform the
actions contemplated herein, and Grantor irrevocably waives any right to
commence any suit or action, in law or equity, against any person or entity
which acts in reliance upon or acknowledges the authority granted under this
Power of Attorney.  The power of attorney granted hereby is coupled with an
interest, and may not be revoked or canceled by Grantor without Attorney's
written consent.

Grantor hereby irrevocably constitutes and appoints Attorney (and all officers,
employees or agents designated by Attorney), with full power of substitution, as
Grantor's true and lawful attorney-in-fact with full irrevocable power and
authority in the place and stead of Grantor and in the name of Grantor or in its
own name, from time to time in Attorney's discretion, to take any and all
appropriate action and to execute and deliver any and all documents and
instruments which may be necessary or desirable to accomplish the purposes of
the Trust Indenture, the Security Agreement and any and all agreements,
documents and instruments executed, delivered or filed in connection therewith
from time to time (collectively, the "Security Agreements") and, without
limiting the generality of the foregoing, Grantor hereby grants to Attorney the
power and right, on behalf of Grantor, without notice to or assent by Grantor,
and at any time, to do the following:

(a) change the mailing address of Grantor, open a post office box on behalf of
Grantor, open mail for Grantor, and ask, demand, collect, give acquittances and
receipts for, take possession of, endorse any invoices, freight or express
bills, bills of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications, and notices in connection with any property of
Grantor;
(b) receive, endorse Grantor's name on, and collect, any checks, notes,
acceptances, money orders, drafts and any other forms of payment or security
payable to Grantor, and hold all amounts or proceeds so received or collected as
cash collateral in a restricted account for the benefit of the Holders, or apply
such amounts or proceeds to the Secured Obligations in accordance with the terms
of the Trust Indenture;
(c) effect any repairs to any asset of Grantor, or continue or obtain any
insurance and pay all or any part of the premiums therefor and costs thereof,
and make, settle and adjust all claims under such policies of insurance, and
make all determinations and decisions with respect to such policies;
(d) pay or discharge any taxes, liens, security interests, or other encumbrances
levied or placed on or threatened against Grantor or its property;
(e) defend any suit, action or proceeding brought against Grantor if Grantor
does not defend such suit, action or proceeding or if Attorney believes that
Grantor is not pursuing such defense in a manner that will maximize the recovery
to Attorney, and settle, compromise or adjust any suit, action, or proceeding
described above and, in connection therewith, give such discharges or releases
as Attorney may deem appropriate;
(f) file or prosecute any claim, litigation, suit or proceeding in any court of
competent jurisdiction or before any arbitrator, or take any other action
otherwise deemed appropriate by Attorney for the purpose of collecting any and
all such moneys due to Grantor whenever payable and to enforce any other right
in respect of Grantor's property;
(g) cause the certified public accountants then engaged by Grantor to prepare
and deliver to Attorney at any time and from time to time, promptly upon
Attorney's request, the following reports:  (i) a reconciliation of all
accounts, (ii) an aging of all accounts, (iii) trial balances, (iv) test
verifications of such accounts as Attorney may request, and (v) the results of
each physical verification of inventory;
(h) communicate in its own name with any party to any contract with regard to
the assignment of the right, title and interest of Grantor in and under the
contracts and other matters relating thereto;
(i) to the extent that Grantor's authorization given in the Security Agreement
is not sufficient, to file such financing statements with respect to the
Security Agreement as Attorney may deem appropriate and to execute in Grantor's
name such financing statements and amendments thereto and continuation
statements which may require the Grantor's signature;
(j) to transfer any Intellectual Property or provide licenses respecting any
Intellectual Property; and
execute, deliver and/or record, as applicable, in connection with any sale or
other remedy provided for in any Security Agreement, any endorsements,
assignments or other applications for or instruments of conveyance or transfer
with respect to the Collateral and to otherwise direct such sale or resale, all
as though Attorney were the absolute owner of the property of Grantor for all
purposes, and to do, at Attorney's option and Grantor's expense, at any time or
from time to time, all acts and other things that Attorney reasonably deems
necessary to perfect, preserve, or realize upon Grantor's property or assets and
Attorney's liens thereon, all as fully and effectively as Grantor might do. 
Grantor hereby ratifies, to the extent permitted by law, all that Attorney shall
lawfully do or cause to be done by virtue hereof.  Without limiting the
generality of the foregoing, Attorney is specifically authorized to execute and
file any applications for or instruments of transfer and assignment of any
patents, trademarks, copyrights or other Intellectual Property with the United
States Patent and Trademark Office, the United States Copyright Office and
Canadian Intellectual Property Office.

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, this Power of Attorney is duly executed on behalf of Grantor
this ____ day of ____________, 20___.

[_______________________________]

By: 
Name:  
Title: 

NOTARY PUBLIC CERTIFICATE

On this _____ day of ____________, 20___, [officer's name] who is personally
known to me appeared before me in his/her capacity as the [title] of [name of
Grantor] ("Grantor") and executed on behalf of Grantor the Power of Attorney in
favor of _______________, as Trustee, to which this Certificate is attached.

Notary Public

--------------------------------------------------------------------------------

Schedule 1

LOCATIONS OF COLLATERAL

125 Lakeshore Road East, Suite 300
Oakville, ON L6J 1H3
Canada

25 Sawyer Passway
Fitchburg, Massachusetts 01420
United States of America

9325 Puckett Road
Perry, Florida 32348
United States of America

--------------------------------------------------------------------------------

Schedule 2

LOCATIONS OF GRANTORS

Chief Executive Offices:

The chief executive offices of each of the Grantors is

125 Lakeshore Road East, Suite 300
Oakville, ON L6J 1H3
Canada

The other locations at which the Borrower maintains a place of business are:

25 Sawyer Passway
Fitchburg, Massachusetts 01420
United States of America

and

9325 Puckett Road
Perry, Florida 32348
United States of America

There are no other locations at which the Subsidiary maintains a place of
business

--------------------------------------------------------------------------------

Schedule 3

NAMES USED BY GRANTORS

Not applicable

--------------------------------------------------------------------------------

Schedule 4

FILING OFFICES

UCC Filings

Security Devices International Inc.

Delaware Department of State: Division of Corporations
John G. Townsend Bldg.
401 Federal Street,  Suite 4
Dover, DE 19901

Security Devices International Canada Corp.

District of Columbia
Recorder of Deeds
1101 4th Street, SW, 5th Floor
Washington, DC 20024    

PPSA Filings

Security Devices International Inc.

Personal Property Security Registration System – Ontario

Security Devices International Canada Corp.

Personal Property Security Registration System – Ontario

--------------------------------------------------------------------------------

Schedule 5

PATENTS AND PATENT APPLICATIONS

Patents

US
 
Reg. No.
Description
A. US 2008/0236435
Non-lethal projectile
B. US 2010/0008012
Electronic circuitry for incapacitating a target
C. US 2011/0001619
Autonomous operation of a non-lethal projectile
D. US 2007/0101893
Non-lethal wireless stun projectile system for immobilizing a target by
neuromuscular disruption

Patent Applications

US
 
A. WO 2015/105526 A1
Payload carrying arrangement for a non-lethal projectile

--------------------------------------------------------------------------------

Schedule 6

TRADEMARKS AND TRADEMARK APPLICATIONS

Grantor
Mark or Application
Registration Number or Serial Number
Date of Registration
or Application
None
                                                                     

--------------------------------------------------------------------------------

Schedule 7

REGISTERED COPYRIGHTS

Grantor
Copyrighted Work
Author(s)
Title
Registration Number
None
                                                                               
                 

--------------------------------------------------------------------------------

Schedule 8

DOMAIN NAMES

securitydii.com/

--------------------------------------------------------------------------------

Schedule 9

INTELLECTUAL PROPERTY LICENSES

None

--------------------------------------------------------------------------------

Schedule 10

COMMERCIAL TORT CLAIMS

Plaintiff
Defendant
Description of the Claim
None
                           

--------------------------------------------------------------------------------

Schedule 4.2
SECURITY AGREEMENT -- TRADEMARKS,
PATENTS AND COPYRIGHTS

THIS SECURITY AGREEMENT -- TRADEMARKS, PATENTS AND COPYRIGHTS (this "IP Security
Agreement") is made as of December 7, 2016, between Security Devices
International Inc., a Delaware corporation, Security Devices International
Canada Corp., a Canadian corporation (collectively, the "Company"), and the
Secured Party (as defined below).  As used herein, "Secured Party" means TSX
Trust Company, in its capacity as trustee under the Trust Indenture dated the
date hereof among the Trustee, Security Devices International Inc. and Security
Devices International Canada Corp, (as the same may be amended, restated,
modified, supplemented and/or replaced from time to time, the "Trust Indenture")
together with its successors and assigns in such capacity.

WHEREAS, the Company has adopted and is using the trademarks, trade names and
designs listed in Schedule A annexed to this IP Security Agreement and made a
part hereof; and

WHEREAS, the Company has informed the Secured Party that it owns the patents,
patent applications and copyrights listed in Schedule A hereto; and

WHEREAS, one of the conditions to the issuance of debentures under the Trust
Indenture (the "Debentures") is the execution and delivery of this IP Security
Agreement by the Company.

Accordingly, the Company and the Secured Party, intending to be legally bound
hereby, agree that, as security for the full and timely payment of the Secured
Obligations (as defined in the Trust Agreement) and the performance of the
obligations of the Company under the Trust Indenture, the Security Agreements
(as defined in the Trust Indenture) and this IP Security Agreement
(collectively, the "Obligations"), the Company hereby mortgages  and pledges to
the Secured Party and assigns and grants to the Secured Party a lien and
security interest in, all its right, title and interest in and to all of the
following:

(A) (i) each of the trademarks, trade names and designs described in Schedule A
to this IP Security Agreement, and any other trademarks, trade names and designs
that the Company may adopt and use, in the United States or foreign countries,
in connection with its business after the date of this IP Security Agreement
(collectively, the "Trademarks"), together with the good will of the business
symbolized thereby; (ii) all registrations and pending trademark applications
owned presently or obtained or filed hereafter, both in the United States and in
foreign countries; (iii) all records of the Company relating to the distribution
of products bearing the Trademarks; and (iv) any and all proceeds of the
foregoing, including, without limitation, any royalties, claims for infringement
and proceeds of sale or other disposition (collectively, the "Trademarks
Collateral"); and

(B) (i) each of the patents and patent applications, including the inventions
disclosed or claimed therein, described in Schedule A to this IP Security
Agreement, and any other patents and patent applications and similar legal
protection, both domestic and foreign, including all continuations, extensions,
renewals, substitutes, divisions or reissues thereof, that the Company may
acquire after the date of this IP Security Agreement (collectively, the
"Patents"); and (ii) any and all proceeds of the Patents, including, without
limitation, any royalties, fees, claims for past, present and future
infringement and proceeds of sale or other disposition (the "Proceeds" and,
together with the Patents, the "Patents Collateral"); and

(C) (i) all United States original works or authorship fixed in any tangible
medium of expression, all right, title and interest therein and thereto, and all
United States registrations and recordings thereof, including without
limitation, applications, registrations, and recordings in the United States
Copyright Office or in any similar office or agency in the United States, or any
State thereof, all whether now owned or hereafter acquired by the Company,
including, but not limited to, those described on Schedule A annexed hereto and
made a part hereof; and (ii) all extensions and renewals thereof (collectively,
the "Copyrights Collateral"); and

--------------------------------------------------------------------------------

(D) certain other intellectual property, which shall include, without
limitation, all designs, concepts, discoveries, ideas, improvements, inventions,
formulae, processes, techniques, works of authorship, mask works, data (whether
or not patentable or registrable under copyright or similar statutes), object
code, algorithms, blueprints, layouts, integrated circuit die or wafers, marks,
microcode, programs, procedures, schematics, sketches, source code,
specifications, strategies, subroutines, research, test results, hardware,
software (as such term is defined in the Uniform Commercial Code as enacted in
the State of Delaware (the "UCC")), license rights, trade secrets and any
material constituting a trade secret, methods, know-how, specifications, and
customer lists, proprietary technology and any information relating thereto,
regardless of any contrary interpretation of such term as now or hereafter used
in the UCC; or which relates to or arises out of the use, function, development,
improvement or any additions or modifications to the Patents Collateral, the
Trademarks Collateral or the Copyrights Collateral (collectively, the "General
Intangibles Collateral") and pertains to the Company's business enterprise.

NOW, THEREFORE, the parties hereto, intending to be legally bound hereby, agree
as follows:

1. As security for the full and prompt payment and performance of all
Obligations, the Company does hereby pledge to the Secured Party and assign and
grant to the Secured Party a security interest in, all of the right, title and
interest of the Company in and to all of the following, now owned or hereafter
arising or acquired: (i) the Trademarks Collateral; (ii) the Patents Collateral;
(iii) the Copyrights Collateral; (iv) any claims by the Company against third
parties for infringement of the Trademarks, Patents or Copyrights; (v) the
General Intangibles Collateral; and (vi) any and all products and proceeds of
the foregoing (collectively, the "Intellectual Property Collateral").

2. The Company represents and warrants that it is the owner of its Intellectual
Property Collateral and has the right and power to make the pledge and grant the
security interest granted in this IP Security Agreement; and that the
Intellectual Property Collateral is free of all liens and encumbrances other
than Permitted Liens (as defined in the Trust Indenture).  Further, the Company
represents and warrants that the Intellectual Property Collateral constitutes
all of the intellectual property owned by the Company.  The Company shall retain
the full legal and equitable title to the Intellectual Property Collateral and,
provided there exists no Event of Default (as defined in the Trust Indenture),
the Company shall have the right to use and register the Intellectual Property
Collateral in the ordinary course of its business.  The Company agrees that it
will not sell, transfer, assign or grant a lien or security interest in any of
the Intellectual Property Collateral except as permitted hereunder.  At such
time as all Obligations have been indefeasibly paid and performed in full
(including the conversion in full of the Debentures), this IP Security Agreement
shall terminate and be of no further force and effect and the Secured Party
shall thereupon terminate its security interest in the Intellectual Property
Collateral.  Until such time, however, this IP Security Agreement shall be
binding upon and inure to the benefit of the parties, their successors and
assigns.

3. (a) The Company will take all reasonable steps required to maintain and
defend full effect, title and right in and to keep in force (i) the Trademarks
and registrations of the Trademarks in the United States Patent and Trademark
Office, or any similar office, including, without limitation, filing of
affidavits of use and incontestability and renewal applications, prosecution of
trademark applications, and taking part in opposition, interference and
cancellation proceedings; (ii) the Patents in the United States Patent and
Trademark Office and foreign patent offices, or any similar office, including
without limitation, prosecution of patent applications, payment of maintenance
fees and annuities; and (iii) the Copyrights in the United States Copyright
Office or any similar office.

(b) The Company will perform all acts and execute any documents, including
without limitation, assignments suitable for filing with the United States
Patent and Trademark Office or the United States Copyright Office, and Uniform
Commercial Code financing statements, required at any time to evidence, perfect
and maintain the rights in the Intellectual Property Collateral granted to the
Secured Party under this IP Security Agreement.  The Company will promptly
notify the Secured Party at the time the Company adopts for use in its business
any trademarks, patents or registered copyrights not described on Schedule A to
this IP Security Agreement and files any applications to register a trademark or
copyright, or files any patent applications.

4. Concurrently with the execution and delivery of this IP Security Agreement,
the Company is executing and delivering to the Secured Party two originals of a
Special Power of Attorney, each in the form of Exhibit 1 to this IP Security
Agreement, for the Secured Party's use following an Event of Default (as that
term is defined in the Trust Indenture), and so long as that Event of Default is
continuing, in executing on behalf of the Company an Assignment for Security in
the form of Exhibit 2 to this IP Security Agreement, which Assignment for
Security shall be suitable for recording in the United States Patent and
Trademark Office, the United States Copyright Office and the Canadian
Intellectual Property Office, to provide Secured Party with access to the
Patents or Trademarks (or any applications or registrations thereof), all in
accordance with paragraph 3(b) of this IP Security Agreement.  The Company
hereby releases the Secured Party from any claims, causes of action and demands
at any time arising out of or with respect to any actions taken or omitted to be
taken by the Secured Party under the powers of attorney granted therein other
than gross negligence or willful misconduct of the Secured Party.

--------------------------------------------------------------------------------

5. If an Event of Default (as defined in the Trust Indenture) has occurred,
then, in addition to all other rights and remedies of the Secured Party, whether
under law, the Trust Indenture or otherwise, the Secured Party may, without
notice to, or consent by, the Company, (a) grant itself a license to use the
Patents, Trademarks and Copyrights, or any of them, without payment of any kind,
until all inventories of finished goods produced for the Company are sold or
consumed; (b) assign, sell or otherwise dispose of or use the Intellectual
Property Collateral, or any of it, either with or without special or other
conditions or stipulations, with power to buy the Intellectual Property
Collateral or any part of it, and with power also to execute assurances, and to
do all other acts and things for completing the assignment, sale or disposition
which the Secured Party shall, in its sole discretion, deem appropriate or
proper; and (c) in order to implement any such assignment, sale or other
disposal of any of the Intellectual Property Collateral, pursuant to the
authority granted in the Power of Attorney described in paragraph 4 of this IP
Security Agreement (such authority becoming effective on the occurrence of an
Event of Default), execute and deliver on behalf of the Company, one or more
instruments of assignment of the Patents, Trademarks or Copyrights (or any
application or registration thereof), in a form suitable for filing, recording
or registration in the United States Patent and Trademark Office or the United
States Copyright Office and the Canadian Intellectual Property Office.

6. No failure or delay on the part of Secured Party in exercising any right,
remedy, power or privilege under this IP Security Agreement shall operate as a
waiver thereof or of any other right, remedy, power or privilege of Secured
Party under this IP Security Agreement or the Trust Indenture, nor shall any
single or partial exercise of any such right, remedy, power or privilege
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege.  The rights, remedies, powers and privileges
of the Secured Party under this IP Security Agreement are cumulative and not
exclusive of any rights or remedies which it may otherwise have.

7. The Trustee shall be entitled to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the written
instructions of the Holders; provided, however, that the Trustee shall not be
under any obligation to exercise any of the rights or powers vested in it by
this Agreement or any Security Document in the manner so requested unless, if so
requested by the Trustee, it shall have been provided sufficient funding and an
indemnity from the Borrower or Holders satisfactory to it against the costs,
expenses and liabilities which may be incurred by it in compliance with or in
performing such request or direction.  No provisions of this Agreement or any
Security Document shall otherwise be construed to require the Trustee to expend
or risk its own funds or take any action that could in its judgment cause it to
incur any cost, expenses or liability for which it is not specifically
indemnified hereunder or under the Trust Indenture.  No provision of this
Agreement or of any Security Document shall be deemed to impose any duty or
obligation on the Trustee to perform any act or acts or exercise any right,
power, duty or obligation conferred or imposed on it, in any jurisdiction in
which it shall be illegal, or in which the Trustee shall be unqualified or
incompetent, to perform any such act or acts or to exercise any such right,
power, duty or obligation or if such performance or exercise would constitute
doing business by the Trustee in such jurisdiction or impose a tax on the
Trustee by reason thereof.

8. The provisions of this IP Security Agreement are intended to be severable. 
If any provision of this IP Security Agreement shall for any reason be held
invalid or unenforceable in whole or in part in any jurisdiction, such provision
shall, as to such jurisdiction, be ineffective to the extent of such invalidity
or unenforceability without in any manner affecting the validity or
enforceability of such provision in any other jurisdiction or any other
provision of this IP Security Agreement in any jurisdiction.

9. All notices, statements, requests and demands given to or made upon either
party in accordance with the provisions of this IP Security Agreement shall be
deemed to have been given or made when given or made in accordance with the
terms of the Trust Indenture.

10. All rights of the Secured Party hereunder shall inure to the benefit of its
successors and assigns.  Any corporation into which the Trustee is amalgamated
or with which it is consolidated or to which all or substantially all of its
corporate trust business is sold or is otherwise transferred or any corporation
resulting from any consolidation or amalgamation to which the Trustee is a party
shall become the successor Trustee under this Agreement, without the execution
of any document or any further act; provided that such successor Trustee is a
corporation qualified to carry on the business of a trust corporation in Canada
or the province of Ontario.

This IP Security Agreement shall bind all persons who become bound as a debtor
to this IP Security Agreement.  The Company shall not assign any of its interest
under this IP Security Agreement without the prior written consent of the
Secured Party.  Any purported assignment inconsistent with this provision shall,
at the option of the Secured Party, be null and void.

--------------------------------------------------------------------------------

11. The parties hereto consent to the exclusive jurisdiction and venue of the
federal and state courts located in Suffolk County, Commonwealth of
Massachusetts in any action on, relating to or mentioning this IP Security
Agreement.

12. This IP Security Agreement shall be deemed to be a contract under the laws
of the Commonwealth of Massachusetts and the execution and delivery of this IP
Security Agreement and the terms and provisions of this IP Security Agreement
shall be governed by and construed in accordance with the laws of that State
(without regard to its conflict of laws rules) and, to the extent applicable or
governing, the laws of the United States of America; provided, however, that to
the extent the UCC provides for the application of the law of another State or
foreign jurisdiction for purposes of perfection and the effect of perfection of
the security interest granted to the Secured Party hereunder, then the IP
Agreement shall be governed by that State's or jurisdiction's law.

13. This IP Security Agreement may be executed in one or more counterparts, each
of which shall be deemed an original, but all of which shall together constitute
one agreement.

14. This IP Security Agreement or any provision hereof may be changed or
terminated only by a statement in writing signed by the Company and the Secured
Party.  No waiver of any provision of this Agreement shall be effective unless
that waiver is in writing

15. The Company requests that the Commissioner of Patents and Trademarks, and
the Register of Copyrights record this IP Security Agreement with respect to the
applicable Intellectual Property Collateral.

[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the parties have executed and delivered this Security
Agreement as of the day and year first above written.

The Company:

SECURITY DEVICES INTERNATIONAL INC.

By: 
Name:  Dean Thrasher 
Title:    Chief Execurive Officer

SECURITY DEVICES INTERNATIONAL CANADA CORP.

By: 
Name:  Dean Thrasher 
Title:    Chief Execurive Officer

Secured Party:

TSX TRUST COMPANY

By:___________________________________

Name:   _______________________________

Title:  _________________________________

By:___________________________________

Name:   _______________________________

Title:  _________________________________

[Signature Page to Security Agreement – Trademarks, Patents and Copyrights]

--------------------------------------------------------------------------------

Security Agreement – Trademarks,
Patents and Copyrights

Schedule A

Patents

US
 
Reg. No.
Description
A. US 2008/0236435
Non-lethal projectile
B. US 2010/0008012
Electronic circuitry for incapacitating a target
C. US 2011/0001619
Autonomous operation of a non-lethal projectile
D. US 2007/0101893
Non-lethal wireless stun projectile system for immobilizing a target by
neuromuscular disruption

Patent Applications

US
 
Application No.
Description
A.  WO 2015/105526 A1
Payload carrying arrangement for a non-lethal projectile

Trademarks

None

Trademark Applications

None

Copyrights Collateral

None

--------------------------------------------------------------------------------

Security Agreement – Trademarks,
Patents and Copyrights

Exhibit 1

Form of Special Power of Attorney

See attached.

--------------------------------------------------------------------------------

Security Agreement – Trademarks,
Patents and Copyrights

Exhibit 2

Form of Assignment for Security

See attached.

 

--------------------------------------------------------------------------------

Schedule 4.3
GUARANTY AND SURETYSHIP AGREEMENT

THIS GUARANTY AND SURETYSHIP AGREEMENT (this "Agreement") made as of the 7th day
of December, 2016, by and among Security Devices International Inc., a Delaware
corporation (together with its successors and permitted assigns, the "Borrower")
and the subsidiaries of the Borrower designated as "Guarantors" on the signature
lines hereto (together with their successors and permitted assigns and any other
person or entity that becomes a Guarantor hereunder pursuant to Section 5 below,
jointly and severally, the "Guarantors" or, individually, a "Guarantor"), in
favor of TSX Trust Company, as trustee under the Trust Indenture (as that term
is defined below) (together with its successors and assigns in such capacity,
the "Trustee").

Background

The Trustee, the Borrower and Security Devices International Canada Corp.
entered into a certain Trust Indenture, dated as of the date hereof (as the same
may be amended, restated, modified and/or supplemented from time to time, the
"Trust Indenture"; terms used herein and not otherwise defined herein are used
as defined in the Trust Indenture).  Security Devices International Canada Corp.
is a Subsidiary of the Borrower.  The execution of the Trust Indenture is
associated with the exchange of certain debentures for debentures issued under
the Trust Indenture and that exchange of debentures is a condition of a proposed
financing to raise additional funds for the Borrower.  The Borrower may, among
other things, use the additional funds to extend credit to, and make capital
contributions in, the Guarantors.  Therefore, as a result of the Trust
Indenture, the Guarantors can obtain capital on terms more favorable to them as
part of this borrowing group than they could acting alone.  One of the
conditions to the Trust Indenture is that the Guarantors guarantee payment of
and act as surety for the obligations of the Borrower arising out of the Trust
Indenture and related agreements and instruments.

Accordingly, each Guarantor and the Borrower, intending to be legally bound,
hereby agrees with the Trustee as follows.

NOW THEREFORE, in consideration of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:

1. Guaranty and Suretyship.

1.1 Guaranty of Payment.  The Guarantors hereby jointly and severally agree to
act as surety for the Guaranteed Obligations (as defined in Section 1.2 below),
and irrevocably and unconditionally guarantee to the Trustee that the Guaranteed
Obligations shall be paid in full when due and payable, whether at the stated or
accelerated maturity thereof or upon any mandatory or voluntary prepayment or
otherwise.

1.2 Definition of "Guaranteed Obligations".  For purposes of this Agreement, the
term "Guaranteed Obligations" shall mean (a) any obligations of the Borrower
pursuant to the Trust Indenture and the Security Agreements (as defined in the
Trust Indenture) including, without limitation, any amounts due from time to
time in respect of (i) principal and interest thereon under the Debentures (as
defined in the Trust Indenture), (ii) conversion, exercise or redemption of the
Debentures, (iii) fees payable under the Trust Indenture and (iv)
indemnifications provided for, and other amounts payable, under the Trust
Indenture or other Security Agreement.  Notwithstanding the definition of
"Guaranteed Obligations" herein, the liability of each Guarantor hereunder is
limited to an amount equal to (x) the amount that would render this guaranty
void, voidable or unenforceable against such Guarantor's creditors or creditors'
representatives under any applicable fraudulent conveyance, fraudulent transfer
or similar act or under Section 544 or 548 of the Bankruptcy Code of 1978, as
amended, minus (y) $1.00 (one U.S. Dollar).

1.3 Obligations of Guarantors Absolute, Etc.  The obligations of the Guarantors
hereunder shall be absolute and unconditional.  Each Guarantor, jointly and
severally, guarantees that the Guaranteed Obligations will be paid strictly in
accordance with the terms of the agreement, instrument or document giving rise
to such Guaranteed Obligations, regardless of any law, regulation or order now
or hereafter in effect in any jurisdiction affecting any such terms or the
rights of the Trustee with respect thereto.  The liability of the Guarantors
hereunder shall be absolute and unconditional irrespective of:

--------------------------------------------------------------------------------

(a) any lack of validity or enforceability of the Trust Indenture or any
Security Agreement;

(b) any change in the time, manner or place of payment of the Guaranteed
Obligations;

(c) any amendment or modification of or supplement to the Trust Indenture or the
Security Agreements (including, without limitation, any amendment which would
increase the amount of the Guaranteed Obligations), or any furnishing or
acceptance of any security, or any release of any security or the release of any
person's obligations (including without limitation, any Guarantor, the Borrower
or any pledgor), with respect to the Guaranteed Obligations;

(d) any waiver, consent, extension, indulgence or other action or inaction under
or in respect of any such instrument, document or agreement or any exercise or
nonexercise of any right, remedy, power or privilege under or in respect of any
such instrument;

(e) any counterclaim, setoff, recoupment or defense based upon any claim any
Guarantor, the Borrower or any pledgor may have against the Trustee;

(f) any bankruptcy, insolvency, reorganization, arrangement, readjustment,
composition, liquidation or similar proceeding with respect to the Borrower, any
Affiliate (defined below) of the Borrower or any Guarantor or their respective
properties or creditors;

(g) any invalidity or unenforceability, in whole or in part, of any term hereof
or of the Trust Indenture or the Security Agreements;

(h) any failure on the part of the Borrower or any Affiliate or any person that
may have been an Affiliate for any reason to perform or comply with any term of
the Trust Indenture or the Security Agreements; or

(i) any other occurrence whatsoever, whether similar or dissimilar to the
foregoing.

1.4 Continuing Guaranty.  This guaranty and suretyship is an absolute,
unconditional, present and continuing guaranty and suretyship of payment and is
in no way conditional or contingent; it shall remain in full force and effect
until terminated pursuant to Section 7 below.

1.5 Joint and Several Liability.  Each and every representation, warranty,
covenant and agreement made by the Guarantors, or any of them, under this
Agreement shall be and constitute joint and several obligations of all of the
Guarantors, whether or not so expressly stated herein.

--------------------------------------------------------------------------------

1.6 Waivers.  Each Guarantor hereby waives, to the fullest extent permitted by
applicable law, (a) all presentments, demands for performance, notice of
non‑performance, protests, notices of protests and notices of dishonor in
connection with the Guaranteed Obligations or any agreement relating thereto;
(b) notice of acceptance of this Agreement; (c) any requirement of diligence or
promptness on the part of the Trustee in the enforcement of its rights hereunder
or under the Trust Indenture or the Security Agreements; (d) any enforcement of
any present or future agreement or instrument relating directly or indirectly to
the Guaranteed Obligations; (e) notice of any of the matters referred to in
subsection 1.3 hereof; (f) notices of every kind and description which may be
required to be given by any statute or rule of law; and (g) any defense of any
kind which it may now or hereafter have with respect to its liability under this
Agreement to the fullest extent permitted by law.  Without limiting the
foregoing, the Trustee shall not be required to make any demand upon, or to
pursue or exhaust any rights or remedies against the Borrower, any other
Guarantor or any other person or entity, or against the collateral security, for
the Guaranteed Obligations.  No failure on the part of the Trustee to exercise,
and no delay in exercising, any right hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right.  The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.  Each Guarantor hereby agrees that it will not enforce
or otherwise exercise or claim or assert any rights of subrogation or
contribution against any person or entity with respect to the Guaranteed
Obligations or any security therefor unless and until all the Guaranteed
Obligations are paid in full.  EACH GUARANTOR'S WAIVERS UNDER THIS SECTION 1.6
HAVE BEEN MADE VOLUNTARILY, INTELLIGENTLY AND KNOWINGLY AND AFTER SUCH GUARANTOR
HAS BEEN APPRISED AND COUNSELED BY ITS ATTORNEY AS TO THE NATURE THEREOF AND ITS
POSSIBLE ALTERNATIVE RIGHTS.

2. Expenses.

Whether or not the transactions contemplated by this Agreement are fully
consummated, each Guarantor and the Borrower shall promptly pay (or reimburse,
as the Trustee may elect) all costs and expenses which the Trustee has incurred
or may incur in connection with the negotiation, preparation, reproduction,
interpretation, administration and enforcement of this Agreement and all
amendments, waivers, modifications and supplements hereto and the collection of
all amounts due hereunder, including, without limitation, reasonable fees of
counsel to the Trustee.

3. Representations and Warranties.

The Guarantors hereby jointly and severally represent and warrant that each of
the representations and warranties relating to them set forth in the Trust
Indenture or any Security Agreements is incorporated herein by reference and is
true and correct on and as of the date hereof.

4. Covenants.

Each of the covenants and agreements of the Borrower which are set forth or
incorporated in the Trust Indenture or any of the Security Agreements and which
are expressly applicable or refer to the "Subsidiaries" of Borrower or otherwise
refer to any Guarantors are hereby incorporated by reference as though set forth
herein in their entirety, and each Guarantor hereby agrees to perform and abide
by each such covenant and agreement which purports to be applicable to it.

5. Additional Parties.

Except as otherwise provided in the Trust Indenture or the Security Agreements,
the Guarantors shall at all times constitute all of the direct and indirect
Subsidiaries of Borrower.  If any entity becomes such a Subsidiary after the
date hereof, such entity shall become a Guarantor hereunder, and the Borrower
shall cause such entity to signify its acceptance of the terms hereof by
execution and delivery to the Trustee of one or more counterparts of the Joinder
hereto, appropriately dated.

6. Intentionally Deleted.

7. Termination of Guaranty.

7.1 Termination of Guaranty Obligations of All Guarantors.  At such time as all
the Guaranteed Obligations have been indefeasibly paid and/or performed in full
(including the conversion in full of the Debentures), then the guaranty provided
for herein and this Agreement shall terminate, provided, however, that (i) all
indemnities provided to the Trustee by the Guarantors or the Borrower under 
this Agreement, the Trust Indenture or any Security Agreement shall survive and
remain operative and in full force and effect regardless of the termination of
this Agreement, and (ii) the guaranty provided for herein shall be reinstated if
at any time any payment of any of the Guaranteed Obligations is rescinded or
must otherwise be returned by the Trustee upon the insolvency, bankruptcy or
reorganization of the Borrower or any Guarantor or otherwise, all as though such
payment had not been made.

7.2 Termination of Guaranty Obligations of Sold Guarantors.  Effective upon the
closing of a sale or other disposition by the Borrower or any Subsidiary of the
Borrower of all the outstanding capital stock of, or all partnership interests
or all other equity interests in, any of the Guarantors hereunder (any Guarantor
being so sold is hereinafter the "Sold Guarantor") in conformity with the
provisions of the Trust Indenture, and receipt by the Trustee of a certification
to such effect from the chief financial officer of the Borrower, the obligations
of that Sold Guarantor hereunder (including, without limitation, obligations
under Section 9 below) shall terminate.  However, all the obligations of the
other Guarantors hereunder shall remain in full force and effect.

--------------------------------------------------------------------------------

8. Miscellaneous.

8.1 Governing Law.  This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts (without giving
effect to the choice of law provisions thereof).

8.2 Specific Performance.  The Borrower and each Guarantor hereby authorizes the
Trustee to demand specific performance of this Agreement at any time when the
Borrower or such Guarantor shall have failed to comply with any provision
hereof, and the Borrower and each Guarantor hereby irrevocably waives any
defense based on the adequacy of a remedy at law which might be asserted as a
bar to the remedy of specific performance hereof in any action brought therefor.

8.3 Acknowledgement of Terms of Trust Indenture and the Debentures; Relationship
to Trust Indenture and the Debentures.  Each Guarantor hereby acknowledges
receipt from the Borrower of a correct and complete copy of the Trust Indenture
and the Debentures and consents to all of the provisions of the Trust Indenture
and the Debentures as in effect on the date of this Agreement and agrees that
its consent is not required for any amendments, modifications, restatements or
waivers of the Trust Indenture or the Debentures or any of the provisions
thereof.  If any of the terms hereof are inconsistent with those of the Trust
Indenture or the Debentures (including, without limitation, any amendments,
restatements, supplements and waivers that the Guarantors have been made aware
of), those of the Trust Indenture or the Debentures, as applicable, shall
control.

8.4 Non-Exclusive Remedies.  No remedy or right herein conferred upon, or
reserved to the Trustee is intended to be to the exclusion of any other remedy
or right, but each and every such remedy or right shall be cumulative and shall
be in addition to every other remedy or right given hereunder or under any other
contract or under law.

8.5 Delay and Non-Waiver.  No delay or omission by the Trustee to exercise any
remedy or right hereunder shall impair any such remedy or right or shall be
construed to be a waiver of any Event of Default, or an acquiescence therein,
nor shall it affect any subsequent Event of Default of the same or of a
different nature.

8.6 Successors and Assigns.  Except as otherwise provided in the Trust
Indenture, the Trustee may assign or transfer this Agreement and any or all
rights or obligations hereunder without the consent of the Borrower or any
Guarantor and without prior notice.  Neither the Borrower nor any Guarantor
shall assign or transfer this Agreement or any rights or obligations hereunder
without the prior written consent of the Trustee.  The rights and privileges of
the Trustee under this Agreement shall inure to the benefit of their respective
successors, assigns and participants.  All promises, covenants and agreements of
the Borrower and each Guarantor contained in this Agreement shall be binding
upon personal representatives, heirs, successors and assigns of such entity. 
Notwithstanding the foregoing, if there shall become additional "Guarantors" or
if there should be any assignment of any guaranty obligations by operation of
law or in contravention of the terms of this Agreement or otherwise, then all
covenants, agreements, representations and warranties made herein or pursuant
hereto by or on behalf of the Guarantors shall bind the successors and assigns
of the Guarantors and any such additional Guarantors, jointly and severally,
together with the preexisting Guarantors whether or not such new or additional
Guarantors execute the Joinder as set forth in Section 5.

Any corporation into which the Trustee is amalgamated or with which it is
consolidated or to which all or substantially all of its corporate trust
business is sold or is otherwise transferred or any corporation resulting from
any consolidation or amalgamation to which the Trustee is a party shall become
the successor Trustee under this Agreement, without the execution of any
document or any further act; provided that such successor Trustee is a
corporation qualified to carry on the business of a trust corporation in Canada
or the province of Ontario.

8.7 Amendments and Waivers.  This Agreement represents the entire agreement
between the parties with respect to the transactions contemplated herein and,
except as expressly provided herein, shall not be affected by reference to any
other documents.  The Holders (as defined in the Trust Indenture) holding more
than 50% of the total outstanding principal balance of the Debentures (the
"Required Holders") shall have the right to direct the Trustee, from time to
time, to consent to any amendment, modification or supplement to or waiver of
any provision of this Agreement and to release any Collateral from any lien or
security interest held by the Trustee; provided, however, that (i) no such
direction shall require the Trustee to consent to the modification of any
provision or portion thereof which (in the sole judgment of the Trustee) is
intended to benefit the Trustee, (ii) the Trustee shall have the right to
decline to follow any such direction if the Trustee shall determine in good
faith that the directed action is not permitted by the terms of this Agreement
or may not lawfully be taken and (iii) no such direction shall waive or modify
any provision of this Agreement the waiver or modification of which requires the
consent of all Holders unless all Holders consent thereto.  The Trustee may rely
on any such direction given to it by the Required Holders and shall be fully
protected in relying thereon, and shall under no circumstances be liable, except
in circumstances involving the Trustee's gross negligence or willful misconduct
as shall have been determined in a final nonappealable judgment of a court of
competent jurisdiction, to any holder of the Debentures or any other person or
entity for taking or refraining from taking action in accordance with any
direction or otherwise in accordance with this Agreement.

8.8 Notices and Communications.  Any notice contemplated herein or required or
permitted to be given hereunder shall be made in the manner set forth in the
Trust Indenture and delivered at the addresses set forth on the signature pages
to this Agreement, or to such other address as any party hereto may have last
specified by written notice to the other party or parties.

8.9 Headings; Counterparts.  Headings to this Agreement are for purposes of
reference only and shall not limit or otherwise affect the meaning hereof.  This
Agreement may be executed in any number of counterparts, each of which shall be
an original, and all of which, taken together, shall constitute one instrument. 
Delivery of a photocopy or telecopy of an executed counterpart of a signature
page to this Agreement shall be as effective as delivery of a manually executed
counterpart of such signature page.

--------------------------------------------------------------------------------

8.10 Severability.  If any of the provisions or terms of this Agreement shall
for any reason be held to be invalid or unenforceable such invalidity or
unenforceability shall not affect any of the other terms hereof, but this
Agreement shall be construed as if such invalid or unenforceable term had never
been contained herein.  Any such invalidity or unenforceability in a particular
jurisdiction shall not be deemed to render a provision invalid or unenforceable
in any other jurisdiction.  Without limiting the generality of the foregoing,
any invalidity, illegality or unenforceability of any term or provision of this
Agreement in any jurisdiction or as against any Guarantor shall not affect the
validity, legality or enforceability of any other terms hereof or in any other
jurisdiction or against any other Guarantor.

9. Indemnification.

Each Guarantor, jointly and severally, shall indemnify, reimburse and hold
harmless the Trustee from and against any and all losses, claims, liabilities,
damages, penalties, suits, costs and expenses, of any kind or nature, (including
fees relating to the cost of investigating and defending any of the foregoing)
imposed on, incurred by or asserted against the Trustee in any way related to or
arising from or alleged to arise from this Agreement or the guarantees provided
herein except any such losses, claims, liabilities, damages, penalties, suits,
costs and expenses which result from the gross negligence or willful misconduct
of the Trustee as determined by a final nonappealable decision of a court of
competent jurisdiction.  This indemnification provision is in addition to, and
not in limitation of, any other indemnification provision in the Trust Indenture
or any other Security Agreement.

10. Definition of Affiliate

In this agreement, the term Affiliate" means, with respect to any entity, any
other person or entity who directly or indirectly controls, is controlled by, or
is under direct or indirect common control with, such entity, and includes any
entity in like relation to an Affiliate. A person or entity shall be deemed to
"control" another entity if such person or entity possesses, directly or
indirectly, the power to direct or cause the direction of the management and
policies of such other entity, whether through the ownership of voting
securities, by contract or otherwise; and the term "controlled" shall have a
similar meaning.

11. Jurisdiction; Waiver of Jury Trial.

For the purpose of any action that may be brought in connection with this
Agreement, the Borrower and each Guarantor hereby consents to the jurisdiction
and venue of the courts of the Commonwealth of Massachusetts or of any federal
court located in such state and waives personal service of any and all process
upon it and consents that all such service of process be made by certified or
registered mail directed to the Borrower or Guarantor at the address provided
for in Section 8.8.  Service so made shall be deemed to be completed upon actual
receipt at the address specified in said section.  The Borrower and each
Guarantor waives the right to contest the jurisdiction and venue of the courts
located in Suffolk County, Commonwealth of Massachusetts on the ground of
inconvenience or otherwise and, further, waives any right to bring any action or
proceeding against the Trustee in any court outside Suffolk County, Commonwealth
of Massachusetts,.  The provisions of this Section shall not limit or otherwise
affect the right of the Trustee to institute and conduct an action in any other
appropriate manner, jurisdiction or court.

NO PARTY TO THIS AGREEMENT, NOR ANY ASSIGNEE, SUCCESSOR, HEIR OR PERSONAL
REPRESENTATIVE OF THE FOREGOING SHALL SEEK A JURY TRIAL IN ANY PROCEEDING BASED
UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT RELATING
TO SUCH INDEBTEDNESS OR THE RELATIONSHIP BETWEEN OR AMONG SUCH PERSONS OR ANY OF
THEM.  NO SUCH PERSON WILL SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER
ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED.

EXCEPT AS PROHIBITED BY LAW, EACH PARTY HERETO WAIVES ANY RIGHTS IT MAY HAVE TO
CLAIM OR RECOVER IN ANY LITIGATION REFERRED TO IN THIS SECTION, ANY SPECIAL,
EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES.  EACH PARTY TO THIS AGREEMENT (i)
CERTIFIES THAT NEITHER THE TRUSTEE, NOR ANY REPRESENTATIVE, OR ATTORNEY OF THE
TRUSTEE NOR ANY HOLDER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE TRUSTEE
OR SUCH HOLDER WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVERS AND (ii) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO
THIS AGREEMENT AND EACH OTHER TRANSACTION DOCUMENT BY, AMONG OTHER THINGS, THE
MUTUAL WAIVERS AND CERTIFICATIONS HEREIN.  THE PROVISIONS OF THIS SECTION HAVE
BEEN FULLY DISCLOSED TO THE PARTIES AND THE PROVISIONS SHALL BE SUBJECT TO NO
EXCEPTIONS.  NO PARTY HAS IN ANY WAY AGREED WITH OR REPRESENTED TO ANY OTHER
PARTY THAT THE PROVISIONS OF THIS SECTION WILL NOT BE FULLY ENFORCED IN ALL
INSTANCES.

[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the undersigned have executed this Guaranty and Suretyship
Agreement on the date and year first above written.

Borrower:

SECURITY DEVICES INTERNATIONAL INC.

By:____________________________
Name:
Title:

Notice Information
25 Sawyer Passway,
Fitchburg, MA 01420  USA
Phone No.: (978) 868-5011
Fax No. Attention: Dean Thrasher, President and CEO

Guarantors:

SECURITY DEVICES INTERNATIONAL CANADA CORP.

By:____________________________
Name:
Title:

Notice Information
#300-125 Lakeshore Road E.,
Oakville, ON  L6J 1H3  Canada Phone No.: (905) 582-6402 X 104
Fax No.401-274-5707
Attention: [Dean Thrasher, President & CEO]

[Signature Page to Guaranty and Suretyship Agreement]

--------------------------------------------------------------------------------

Trustee:

TSX TRUST COMPANY, in its capacity as Trustee

By:____________________________
Name:
Title:
Notice Information

200 University Avenue, Suite 300
 Toronto, Ontario M5H 4H1

Facsimile: 416-361-0470
Attention:  Vice President, Trust Services

[Signature Page to Guaranty and Suretyship Agreement]

--------------------------------------------------------------------------------

JOINDER

The undersigned acknowledges that it is a Guarantor under the Guaranty and
Suretyship Agreement, dated December 7, 2016 made by and among Security Devices
International Inc. (the "Borrower") and the subsidiaries of the Borrower
designated as "Guarantors" on the signature lines thereto in favor of TSX Trust
Company as trustee under the Trust Indenture referred to therein, and hereby
agrees to be bound by the foregoing Guaranty and Suretyship Agreement and to
perform the covenants applicable to Guarantors contained or incorporated
therein, and hereby confirms the accuracy of the representations and warranties
made or incorporated therein insofar as such representation and warranties
purportedly relate to the undersigned.

[_________________________________]

By: 
Name:
Title:
Address:

Phone No.:
Fax No.:
Attention:

 

--------------------------------------------------------------------------------

Schedule 4.4
BORROWER/SUBSIDIARY PLEDGE AGREEMENT

THIS BORROWER/SUBSIDIARY PLEDGE AGREEMENT (this "Agreement") is made as of the
7th day of December, 2016, by and among Security Devices International Inc., a
Delaware corporation (together with its successors and permitted assigns, the
"Borrower"), Security Devices International Canada Corp., a Canadian corporation
(together with its successors and permitted assigns, "SDIC"), and TSX TRUST
COMPANY, as trustee under the Trust Indenture referred to below (together with
its successors and assigns in such capacity, the "Trustee").  SDIC and the
Borrower are each referred to herein individually as a "Pledgor" and
collectively as the "Pledgors."

Background

On the date hereof the Trustee and the Pledgors have entered into a Trust
Indenture (as amended, extended, supplemented, restated, or otherwise modified
from time to time, the "Trust Indenture"), under which debentures are to be
issued on the terms and conditions described therein.

One of the requirements under the Trust Indenture is that the Pledgors shall
have entered into this Agreement and shall have granted to the Trustee as
trustee under the Trust Indenture a security interest in the Collateral (as
defined below) to secure its obligations under the Trust Indenture and certain
related documents and agreements as more fully set forth below.

NOW, THEREFORE, the parties hereto, intending to be legally bound hereby, and in
consideration of the mutual covenants herein contained and other good and
valuable consideration receipt of which is hereby acknowledged, agree as
follows:

1. DEFINITIONS.
Capitalized terms used but not otherwise defined herein shall have the meanings
assigned to such terms in, or by reference in, the Trust Indenture or the
Uniform Commercial Code, as applicable.  The following terms shall have the
following meanings:

"Collateral" shall mean:

(a) all Investment Property, Securities Entitlements and General Intangibles
respecting ownership and/or other equity interests in each Subsidiary of a
Pledgor, but in any event shall include, without limitation, the shares of
capital stock and other securities of, or issued by, any of the entities listed
on Schedule I hereto (as the same may be modified from time to time pursuant to
the terms hereof), and any other shares of capital stock of and/or other equity
interests of any Subsidiary of a Pledgor obtained in the future by a Pledgor or
in which a Pledgor shall have any rights, and, in each case, all certificates
representing such shares and/or equity interests and, in each case, all rights,
options, warrants, stock, other securities and/or equity interests that may
hereafter be received, receivable or distributed in respect of, or exchanged
for, any of the foregoing (all of the foregoing being referred to herein as the
"Pledged Securities") and all rights of a Pledgor to receive monies due and to
become due pursuant thereto and all other rights related to the Pledged
Securities (all the foregoing being referred to herein as "Pledged Interests");
(b) all rights under the Organizational Documents of any Subsidiary of a Pledgor
and all other agreements related to the Pledged Securities, as such documents
and agreements may be amended, modified, supplemented and/or restated from time
to time, and all rights of the Pledgors to receive monies due and to become due
pursuant thereto;
(c) all other property which may be delivered to and held by the Trustee
pursuant to the terms hereof of any character whatsoever into which any of the
foregoing may be converted or which may be substituted for any of the foregoing;
and
(d) all Proceeds of the Pledged Securities and Pledged Interests and of such
other property, including, without limitation, all dividends, interest, cash,
notes, securities, equity interests or other property at any time and from time
to time acquired, receivable or otherwise distributed in respect of, or in
exchange for, any of or all such Pledged Securities, Pledged Interests or other
property.
"Event of Default" has the meaning given to such term in the Trust Indenture.

--------------------------------------------------------------------------------

"Law" shall mean all common law and all applicable provisions of constitutions,
laws, statutes, ordinances, rules, treaties, regulations, permits, licenses,
approvals, interpretations and order of courts or governmental authorities and
all orders and decrees of all courts and arbitrators.

"Necessary Endorsement" shall mean undated stock powers endorsed in blank or
other proper instruments of assignment duly executed and such other instruments
or documents as the Trustee may reasonably request.

"Organizational Documents" shall mean, with respect to any person other than a
natural person, the documents by which such Person was organized (such as a
certificate of incorporation, certificate of limited partnership or articles of
organization, and including, without limitation, any certificates of designation
for preferred stock or other forms of preferred equity) and which relate to the
internal governance of such person (such as bylaws, a partnership agreement or
an operating, limited liability or members agreement).

"Proceeds" shall be used herein as defined in the Uniform Commercial Code but,
in any event, shall include, but not be limited to, (a) any and all proceeds of
any insurance (whether or not the Trustee is named as the loss payee thereof),
indemnity, warranty or guaranty payable to a Pledgor or the Trustee from time to
time with respect to any of the Collateral, (b) any and all payments (in any
form whatsoever, cash and non-cash) made or due and payable to a Pledgor from
time to time in connection with any requisition, confiscation, condemnation,
seizure or forfeiture of all or any part of the Collateral by any governmental
authority (or any person acting under color of governmental authority), (c) any
and all amounts received when Collateral is sold, leased, licensed, exchanged,
collected or disposed of, (d) any rights arising out of Collateral, (e) any
dividends or other distributions associated with the Collateral, and (f) any and
all other amounts from time to time paid or payable under or in connection with
any of the Collateral.

"Secured Obligations" shall mean, collectively, the following obligations of the
Pledgors, whether now existing or hereafter incurred:
(a) (i) the payment by the Borrower, as and when due and payable (by scheduled
maturity, required prepayment, acceleration, demand or otherwise), of all
amounts from time to time owing by it in respect of the Trust Indenture, and the
other Security Agreements, including, without limitation, (A) all principal of
and interest on the Debentures (including, without limitation, all interest that
accrues after the commencement of any bankruptcy, reorganization or similar
proceeding (an "Insolvency Proceeding") involving any Pledgor, whether or not
the payment of such interest is unenforceable or is not allowable due to the
existence of such Insolvency Proceeding), and (B) all fees, commissions, expense
reimbursements, indemnifications and all other amounts due or to become due
under the Trust Indenture or any of the Security Agreements; and
(b) the due performance and observance by each Pledgor of all of its other
obligations from time to time existing in respect of the Trust Indenture of any
of the Security Agreements, including without limitation, with respect to any
conversion or redemption rights of the Holders under the Trust Indenture, for so
long as they are outstanding.
"Uniform Commercial Code" shall mean the Uniform Commercial Code in effect on
the date hereof and as amended from time to time, and as enacted in the
Commonwealth of Massachusetts or in any state or states which, pursuant to the
Uniform Commercial Code as enacted in the Commonwealth of Massachusetts, has
jurisdiction with respect to all, or any portion of, the Collateral or this
Agreement, from time to time.  It is the intent of the parties that the
definitions set forth above should be construed in their broadest sense so that
Collateral will be construed in its broadest sense.  Accordingly if there are,
from time to time, proposed changes to defined terms in the Uniform Commercial
Code that broaden the definitions, they are incorporated herein and if existing
definitions in the Uniform Commercial Code are broader than the amended
definitions, the existing ones shall be controlling.  Similarly, the term "but
in any event shall include" shall be construed to mean that each specifically
enumerated item is included in the defined category whether or not it would
otherwise be so included.  For example, where the phrase "as defined in the
Uniform Commercial Code, but in any event shall include, but not be limited to .
. ." is used above, it means as defined in the Uniform Commercial Code except
that if any of the enumerated types of items specified thereafter would not fall
within the Uniform Commercial Code definition, they shall nonetheless be
included in the applicable definition for purposes of this Agreement.

--------------------------------------------------------------------------------

2. CREATION OF SECURITY INTEREST.
2.1 As security for the payment and performance in full of the Secured
Obligations, each Pledgor hereby hypothecates, pledges, assigns, sets over and
delivers unto the Trustee, and grants to the Trustee, for the benefit of the
Holders, a continuing first priority security interest in all its right, title
and interest in, to and under the Collateral, to have and to hold the
Collateral, together with all right, title, interest, powers, privileges and
preferences pertaining or incidental thereto; subject, however, to the terms,
covenants and conditions hereinafter set forth.

2.2 Each Pledgor shall file in such office or offices as necessary or desirable
such financing and continuation statements and amendments and supplements
thereto (or similar documents required by any laws of any applicable
jurisdiction), and such other documents as required to perfect, preserve and
protect the security interests granted herein.

3. DELIVERY OF COLLATERAL.
3.1 At Time of Execution of Agreement.  Contemporaneously with the execution of
this Agreement or, in any event, prior to the Closing Date, the Pledgors shall
deliver or cause to be delivered to the Trustee (a) any and all certificates and
other instruments representing or evidencing the Pledged Securities, (b) any and
all certificates and other instruments or documents representing any of the
other Collateral and (c) all other property comprising part of the Collateral,
in each case along with the Necessary Endorsements.  The Pledgors are,
contemporaneously with the execution hereof, delivering to the Trustee, or have
previously delivered to the Trustee, a true and correct copy of each
Organizational Document governing any of the Pledged Securities.
3.2 Subsequent Delivery of Collateral.  If any Pledgor shall become entitled to
receive or shall receive any securities or other property in respect of the
Pledged Securities (whether as an addition to, in substitution of, or in
exchange for, such Pledged Securities or otherwise), such Pledgor agrees to
deliver to the Trustee such securities or other property, including, without
limitation, shares of Pledged Securities or instruments representing Pledged
Interests acquired after the Closing Date, or any options, warrants, rights or
other similar property or certificates representing a stock dividend, or any
distribution in connection with any recapitalization, reclassification or
increase or reduction of capital, or issued in connection with any
reorganization of the Pledgor or any Subsidiary of the Pledgor but excluding
dividends and interest permitted to be retained by the Pledgor under Section 5
hereof:
(a) The Trustee shall accept the same as the agent of the Holders and hold the
same in trust on behalf of and for the benefit of the Holders.
(b) The Pledgors shall deliver any and all certificates or instruments
evidencing the same to the Trustee on or before the close of business on the
fifth (5th) Business Day following the receipt thereof by such Pledgor, in the
exact form received together with the Necessary Endorsements, to be held by the
Trustee subject to the terms of this Agreement, as additional Collateral.
4. REPRESENTATIONS AND WARRANTIES OF PLEDGOR.
4.1 Representations and Warranties.  Each Pledgor represents and warrants that
each representation and warranty set forth in the Trust Indenture and the
Security Agreements that relates to or refers to the Pledgor or the Collateral
(or, in either case, any other term that is used with the same or similar
meaning) is incorporated herein by reference and is true and correct on and as
of the date hereof.  Without limiting the generality of the foregoing, each
Pledgor further represents and warrants that:

--------------------------------------------------------------------------------

(a) The Pledged Securities are not subject to any Organizational Document,
statutory, contractual or other restriction governing their issuance, transfer,
ownership or control which restriction would limit the effectiveness or
enforceability of the pledge and security interest created under this Agreement.
(b) The capital stock and other equity interests listed on Schedule I hereto
represent all of the capital stock and other equity interests of the
Subsidiaries of the Pledgors held by the Pledgors in any Subsidiary of the
Pledgors.
(c) The jurisdiction of formation and the chief executive office of the Pledgors
and the other offices or places of business of the Pledgors or any offices where
records concerning the Collateral are kept are set forth on Schedule II hereto. 
No Pledgor is known by any other name except the name appearing on the signature
page hereof.
(d) Each Pledgor has the corporate power to execute, deliver and carry out the
terms and provisions of this Agreement and has taken all necessary corporate
action (including, without limitation, any consent of stockholders required by
Law or by its Organizational Documents) to authorize the execution, delivery and
performance of this Agreement. This Agreement constitutes the authorized, valid
and legally binding obligations of each Pledgor enforceable in accordance with
its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity.
(e) All of the Pledged Securities are validly issued, fully paid and
nonassessable, and the Pledgors are the legal and beneficial owners of the
Pledged Securities as reflected on Schedule I, free and clear of any Lien except
for the security interests created by this Agreement and except for Permitted
Liens (as defined in the Trust Indenture).
(f) The pledge of the Pledged Securities pursuant to this Agreement and the
filing of the necessary financing statements (which filings have been duly made
or will be made substantially simultaneously with the execution of this
Agreement) create a valid and perfected first priority security interest in the
Collateral securing payment of the Secured Obligations.
(g) The ownership and other equity interests in partnerships and limited
liability companies (if any) included in the Collateral by their express terms
do not provide that they are securities governed by Article 8 of the Uniform
Commercial Code and are not held in a securities account or by any financial
intermediary.
4.2 Survival of Representations and Warranties.  All the foregoing
representations and warranties (including, without limitation, those
incorporated by reference) shall survive the execution and delivery of this
Agreement and shall continue until this Agreement is terminated as provided
herein and shall not be affected or waived by any inspection or examination made
by or on behalf of the Trustee or any Holder.
5. VOTING; DIVIDENDS.
5.1 Rights Prior To Default.  Other than during the existence of an Event of
Default:
(a) each Pledgor shall be entitled to exercise any and all voting and other
consensual rights pertaining to the Collateral or any part thereof for any
purpose not inconsistent with the terms of the Trust Indenture or the Security
Agreements.
(b) Subject to and limited by the provisions set forth in the Trust Indenture
and the other Security Agreements, each Pledgor shall be entitled to receive and
retain any and all dividends, interest and other payments paid in respect of the
Collateral, provided, however, that any and all:
(i) dividends or other payments paid or payable other than in cash in respect
of, and instruments and other property received, receivable or otherwise
distributed in respect of, or in exchange for, any Collateral;
(ii) dividends and other distributions paid or payable in cash in respect of any
Collateral in connection with a partial or total liquidation or dissolution or
in connection with a reduction of capital, capital surplus or paid‑in‑surplus;
and
(iii) cash paid, payable or otherwise distributed in respect of principal of, or
in redemption of, or exchange for, any Collateral, except as specifically
permitted by the Trust Indenture, shall forthwith be delivered to the Trustee to
hold as Collateral and shall, if received by a Pledgor, be received in trust for
the benefit of the Trustee on behalf of the Holders, be segregated from the
other property or funds of such Pledgor, and be forthwith delivered to the
Trustee as Collateral in the same form as so received (with any Necessary
Endorsement).

--------------------------------------------------------------------------------

The Trustee shall execute and deliver to the Pledgors all such proxies and other
instruments as the Pledgors may reasonably request for the purpose of enabling
the Pledgors to exercise the voting and other rights which they are entitled to
exercise pursuant to paragraph (a) above and to receive the dividends or
interest payments which they are authorized to receive and retain pursuant to
paragraph (b) above.
5.2 Rights Upon Redemption Event.  Upon the occurrence of any event pursuant to
which the Pledgor may be entitled to receive payment in exchange for the Pledged
Securities pursuant to redemption rights, a put option or otherwise,
(a) Any funds payable to holders of the applicable Pledged Securities (a
"Redemption Payment") shall be paid over to the Trustee to be held as additional
Collateral and
(b) If a Pledgor for any reason receives all or any portion of a Redemption
Payment, such Pledgor shall receive it in trust for the benefit of the Holders,
shall segregate it from other funds of the holder, and shall pay it over to the
Trustee to be held as additional Collateral.
5.3 Rights After a Default.  Upon the occurrence and during the continuation of
an Event of Default and as more fully set forth in Section 10 below:
(a) Subject to Section 11 below, (i) upon notice to a Pledgor by the Trustee,
all rights of such Pledgor to exercise the voting and other consensual rights
which it would otherwise be entitled to exercise pursuant to subsection 5.1
above and (ii) all rights of such Pledgor to receive the dividends, interest and
other payments which it would otherwise be authorized to receive and retain
pursuant to subsection 5.1 above shall cease, and all such rights shall
thereupon become vested in the Trustee who shall have the sole right to exercise
such voting and other consensual rights and to receive and hold as Collateral
such dividends, interest and other payments.
(b) All dividends, interest and other payments which are received by a Pledgor
contrary to the provisions of paragraph (a) of this subsection 5.3 shall be
received in trust for the benefit of the Trustee, shall be segregated from other
funds of such Pledgor and shall forthwith be paid over to the Trustee as
Collateral in the same form as so received (with any Necessary Endorsement).
5.4 Liability of Trustee and of the Holders.  Nothing in this Agreement shall be
construed to subject the Trustee or any Holder to liability as a partner in any
Subsidiary of the Pledgor that is a partnership or as a member in any Subsidiary
of the Pledgor that is a limited liability company, nor shall the Trustee or any
Holder be deemed to have assumed any obligations under any partnership agreement
or limited liability company agreement, as applicable, of such a Subsidiary or
otherwise, unless and until the Trustee exercises its right to be substituted
for the Pledgor as a partner or member, as applicable, pursuant hereto.

--------------------------------------------------------------------------------

6. COVENANTS OF PLEDGOR.
6.1 Trust Indenture; Security Agreements; Voting; Sales.  Each of the covenants
and agreements which is set forth or incorporated in the Trust Indenture or the
Security Agreements and which is applicable to a Pledgor or the Collateral
subject hereto (or, in either case, any other term that is used with the same or
similar meaning) is incorporated herein by reference and each Pledgor agrees to
perform and abide by each such covenant and agreement.  Without limiting the
generality of the foregoing and in furtherance thereof, each Pledgor shall vote
the Pledged Securities to comply with the covenants and agreements set forth in
the Trust Indenture or the Security Agreements.  Without limiting the generality
of the foregoing, no Pledgor shall sell or otherwise dispose of, or grant any
option with respect to, any of the Collateral, except in connection with a sale
or other disposition permitted under the provisions of the Trust Indenture or
the other Security Agreements.
6.2 Proceeds of Collateral Disposition.  During the continuance of an Event of
Default, at the Trustee's request, each Pledgor having Pledged Securities shall
establish and maintain at all times a trust account with the Trustee, and all
Proceeds not required to pay down the Secured Obligations in accordance with the
Trust Indenture and the Security Agreements, before or after an Event of
Default, shall be deposited directly and immediately into such account.  The
Pledgors shall be responsible for all costs and fees arising with respect to
such account at the standard rates.  The Pledgors expressly and irrevocably
authorizes and consents to the ability of the Trustee to charge such trust
account, in its sole discretion, and recover from the funds on deposit therein,
from time to time and at any time, and apply those funds against any and all
Secured Obligations.
6.3 Notice of Changes in Representations.  A Pledgor shall notify the Trustee in
advance of any event or condition which would cause any representation and
warranty set forth in Section 4.1 above to fail to be true, correct and
complete.
6.4 Defense of Title.  Each Pledgor shall defend its and the Trustee's
respective title and interest in and to the Collateral against all Liens except
Permitted Liens.
7. FURTHER ASSURANCES.
Each Pledgor agrees that at any time and from time to time, at the expense of
the Pledgors and their Subsidiaries, the Pledgors will, and will cause their
Subsidiaries to, promptly execute and deliver all further instruments and
documents, and take all further action, that may be necessary or desirable, or
that the Trustee may request, in order to perfect and protect any security
interest granted or purported to be granted hereby or to enable the Trustee to
exercise and enforce its rights and remedies hereunder with respect to any
Collateral or to otherwise carry out the purposes of this Agreement.

8. AGENT APPOINTED ATTORNEY-IN-FACT; MAY PERFORM CERTAIN DUTIES.
8.1 Appointment as Attorney-in-fact.  Effective upon the occurrence of an Event
of Default, and so long as such Event of Default is continuing, each Pledgor
hereby appoints the Trustee as its true and lawful agent, proxy and
attorney-in-fact for the purpose of carrying out this Agreement and taking any
action and executing any instrument which the Trustee may deem necessary or
advisable  to accomplish the purposes hereof including, without limitation, the
execution on behalf of such Pledgor of any financing or continuation statement
with respect to the security interest created hereby and the endorsement of any
drafts or orders which may be payable to such Pledgor in respect of, arising out
of, or relating to any or all of the Collateral. This power shall be valid until
the termination of the security interests created hereunder, any limitation
under law as to the length or validity of a proxy to the contrary
notwithstanding.  This appointment is irrevocable and coupled with an interest
and any proxies heretofore given by a Pledgor to any other Person are revoked. 
The designation set forth herein shall be deemed to amend and supersede any
inconsistent provision in the Organizational Documents to which each Pledgor or
any Subsidiary of a Pledgor is subject or to which any is a party.

--------------------------------------------------------------------------------

8.2 .  Registration of Securities.  Each Pledgor and each Subsidiary of a
Pledgor shall register the pledge of the shares included in the Collateral in
the name of the Trustee on the books of such Pledgor or such Subsidiary.  Upon
the occurrence of an Event of Default, each Pledgor and each Subsidiary of a
Pledgor shall at the direction of the Trustee register the shares included in
the Collateral in the name of the Trustee on the books of such Pledgor and such
Pledgor's Subsidiaries.
8.3 Performance of Pledgor's Duties.  In furtherance, and not by way of
limitation, of the foregoing subsection 8.1, if (at any time either before or
after the occurrence of an Event of Default) a Pledgor fails to perform any
agreement contained herein, the Trustee may (but under no circumstance is
obligated to) perform such agreement and any expenses incurred shall be payable
by such Pledgor and its Subsidiaries; provided, however, that nothing herein
shall be deemed to relieve a Pledgor from fulfilling any of its obligations
hereunder.
8.4 Acts May Be Performed By Trustees and Employees.  Any act of the Trustee to
be performed pursuant to this Section 8 or elsewhere in this Agreement may be
performed by agents or employees of the Trustee.
9. STANDARD OF CARE.
9.1 In General.  No act or omission of any Holder (or agent or employee of any
of the foregoing) shall give rise to any defense, counterclaim or offset in
favor of the Pledgors or any claim or action against any such Holder(or agent or
employee thereof), in the absence of gross negligence or willful misconduct of
such Holder (or agent or employee thereof) as determined in a final,
nonappealable judgment of a court of competent jurisdiction.  The Trustee shall
be deemed to have exercised reasonable care in the custody and preservation of
the Collateral in its possession if the Collateral is accorded treatment
substantially equal to that which the Trustee accords to other collateral it
holds, it being understood that it has no duty to take any action with respect
to calls, conversions, exchanges, maturities, tenders or other matters relative
to any Collateral or to preserve any rights of any parties and shall only be
liable for losses which are a result of its gross negligence or willful
misconduct as determined in a final, nonappealable judgment of a court of
competent jurisdiction.
9.2 Reliance on Advice of Counsel.  In taking any action under this Agreement,
the Trustee shall be entitled to rely upon the advice of counsel of the
Trustee's choice and shall be fully protected in acting on such advice whether
or not the advice rendered is ultimately determined to have been accurate.
9.3 No Obligation To Act.  The Trustee shall be entitled to act or to refrain
from acting (and shall be fully protected in so acting or refraining from
acting) upon the written instructions of the Required Holders and such
instructions shall be binding upon all the Holders; provided, however, that the
Trustee shall not be under any obligation to exercise any of the rights or
powers vested in it by this Agreement or any Security Document in the manner so
requested unless, if so requested by the Trustee, it shall have been provided
funding and indemnity from the Borrower or Holders satisfactory to it against
the costs, expenses and liabilities which may be incurred by it in compliance
with or in performing such request or direction.  No provisions of this
Agreement or any Security Document shall otherwise be construed to require the
Trustee to expend or risk its own funds or take any action that could in its
judgment cause it to incur any cost, expenses or liability for which it is not
specifically indemnified hereunder or under the Trust Indenture.  No provision
of this Agreement or of any Security Document shall be deemed to impose any duty
or obligation on the Trustee to perform any act or acts or exercise any right,
power, duty or obligation conferred or imposed on it, in any jurisdiction in
which it shall be illegal, or in which the Trustee shall be unqualified or
incompetent, to perform any such act or acts or to exercise any such right,
power, duty or obligation or if such performance or exercise would constitute
doing business by the Trustee in such jurisdiction or impose a tax on the
Trustee by reason thereof.
9.4 Action by Trustee.  Absent written instructions and satisfactory funding and
indemnity from the Required Holders at a time when an Event of Default shall
have occurred and be continuing, the Trustee shall have no obligation to take
any actions under the Security Documents.

--------------------------------------------------------------------------------

10. DEFAULT.
10.1 Certain Rights Upon Default.  In addition to any other rights accorded to
the Trustee and the Holders hereunder, upon the occurrence and during the
continuation of an Event of Default:
(a) The Trustee shall be entitled to receive any interest, cash dividends or
other payments on the Collateral and, at the Trustee's option, to exercise in
the Trustee's discretion all voting rights pertaining thereto as more fully set
forth in Section 5 above.  Without limiting the generality of the foregoing, the
Trustee shall have the right (but not the obligation) to exercise all rights
with respect to the Collateral as if it were the sole and absolute owner
thereof, including, without limitation, to vote and/or to exchange, at its sole
discretion, any or all of the Collateral in connection with a merger,
reorganization, consolidation, recapitalization or other readjustment concerning
or involving the Collateral or the Pledgors or any Subsidiary of a Pledgor.
(b) Each Pledgor and each Subsidiary of a Pledgor shall take any action
necessary or required or requested by the Trustee in order to allow it fully to
enforce the security interest in the Collateral hereunder and to realize thereon
to the fullest extent possible, including, but not limited to, the filing of any
claims with any court, liquidator, trustee, guardian, receiver or other like
person or party.
(c) The Trustee shall have all of the rights of a Holder under the Uniform
Commercial Code and any other applicable law including the right to sell on such
terms as it may deem appropriate any or all of the Collateral at one or more
public or private sales upon at least five (5) Business Days written notice to
the Pledgors of the time and place of any public sale and of the date on which
the Collateral will first be offered for sale in the case of any private sale. 
The Trustee shall have the right to bid thereat or purchase any part or all the
Collateral in its own or a nominee's name.  The Trustee shall have the right to
apply the proceeds of the sale, after deduction for any costs and expenses of
sale (including any liabilities incurred in connection therewith including
reasonable attorneys' fees and allocated costs of attorneys who are employees of
the Trustee), to the payment of the Secured Obligations, and to pay any
remaining proceeds to the applicable Pledgor or its successors or assigns or to
whomsoever may lawfully be entitled to receive the same or as a court of
competent jurisdiction may direct, without further notice to or consent of such
Pledgor and without regard to any equitable principles of marshalling or other
like equitable doctrines.  Each Pledgor hereby acknowledges and agrees that the
notice provided for above is reasonable and expressly waives any rights it may
have of equity of redemption, stay or appraisal with respect to the Collateral.
(d) For purposes hereof, a written agreement to purchase the Collateral or any
portion thereof shall be treated as a sale thereof; the Trustee shall be free to
carry out such sale pursuant to such agreement, and the applicable Pledgor shall
not be entitled to the return of the Collateral or any portion thereof,
notwithstanding the fact that after the Trustee shall have entered into such an
agreement, any and all Events of Default shall have been remedied and the
Secured Obligations paid in full.
(e) The Trustee shall have the right, with full power of substitution either in
the Trustee's name or the name of any Pledgor, to ask for, demand, sue, collect
and receive any and all moneys due or to become due under and by virtue of the
Collateral and to settle, compromise, prosecute or defend any action, claim or
proceeding with respect thereto, provided, however, that nothing herein shall be
construed as requiring the Trustee to take any action, including, without
limitation, requiring or obligating the Trustee to make any inquiry as to the
nature or sufficiency of any payment received, or to present or file any claim
or notice, or to take any action with respect to the Collateral or any part
thereof or the moneys due or to become due in respect thereof or any property
covered thereby.
(f) The Trustee shall be entitled to the appointment of a receiver or trustee
for all or any part of the businesses of a Pledgor or a Subsidiary of a Pledgor,
which receiver shall have such powers as may be conferred by law or the
appointing authority.
10.2 Trustee May Exercise Less Than All Rights.  Each Pledgor hereby
acknowledges and agrees that the Trustee is not required to exercise all
remedies and rights available to it equally with respect to all of the
Collateral, and the Trustee may select less than all of the Collateral with
respect to which the remedies as determined by the Trustee may be exercised.
10.3 Duties of Pledgors and Subsidiaries of the Pledgors With Respect to
Transferee.  In the event that, upon an occurrence of an Event of Default, the
Trustee shall sell all or any of the Collateral to another party or parties
(herein called "Transferee") or shall purchase or retain all or any of the
Collateral, each Pledgor and each Subsidiary of such Pledgor shall:

--------------------------------------------------------------------------------

(a) Deliver to the Trustee or Transferee, as the case may be, the articles of
incorporation, bylaws, minute books, stock certificate books, corporate seals,
deeds, leases, indentures, agreements, evidences of indebtedness, books of
account, financial records and all other Organizational Documents and records of
such Pledgor and each Subsidiary of such Pledgor;
(b) Use its best efforts to obtain resignations of the persons then serving as
officers and directors of such Pledgor and each Subsidiary of such Pledgor, if
so requested; and
(c) Use its best efforts to obtain any approvals that are required by any
governmental or regulatory body in order to permit the sale of the Collateral to
the Transferee or the purchase or retention of the Collateral by the Trustee and
allow the Transferee or the Trustee to continue the business of the issuer.
11. SECURITIES LAW PROVISION.
Each Pledgor recognizes that the Trustee may be limited in its ability to effect
a sale to the public of all or part of the Collateral by reason of certain
prohibitions in the Securities Act of 1933, as amended, or other U.S. federal,
state or foreign securities laws (collectively, the "Securities Laws"), and may
be compelled to resort to one or more sales to a restricted group of Holders who
may be required to agree to acquire the Collateral for their own account, for
investment and not with a view to the distribution or resale thereof.  Each
Pledgor agrees that sales so made may be at prices and on terms less favorable
than if the Collateral were sold to the public, and that the Trustee has no
obligation to delay the sale of any Collateral for the period of time necessary
to register the Collateral for sale to the public under the Securities Laws. 
Each Pledgor and each Subsidiary thereof shall cooperate with the Trustee in its
attempts to satisfy any requirements under the Securities Laws (including
without limitation registration thereunder if requested by the Trustee)
applicable to the sale of the Collateral by the Trustee.

12. SECURITY INTEREST ABSOLUTE; WAIVERS BY PLEDGORS.
12.1 Absolute Nature of Security Interest.  All rights of the Trustee hereunder,
the grant of the security interest in the Collateral and all obligations of each
Pledgor hereunder, shall be absolute and unconditional irrespective of (a) any
lack of validity or enforceability of any of the terms of the Trust Indenture,
the Security Agreements or any other instrument or document relating hereto or
thereto, (b) any change in the amount, time, manner or place of payment of, or
in any other term of, all or any of the Secured Obligations, or any other
amendment or waiver of any terms related thereto, (c) any exchange, release or
nonperfection of any other collateral, or any release or amendment or waiver of
any guaranty, or (d) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, a Pledgor or any other Person in
respect of the Secured Obligations or in respect of this Agreement, the Trust
Indenture or any other Security Agreement or any obligations hereunder or
thereunder.
12.2 No Duty To Marshal Assets.  The Trustee shall have no obligation to marshal
any assets in favor of the Pledgors or any other Person or against or in payment
of any or all of the Secured Obligations.
12.3 Waiver with Right of Subrogation, Etc.  The Pledgors acknowledge that until
all the Secured Obligations shall have been indefeasibly paid in full, the
Pledgors shall have no right (and hereby waive any such right) of subrogation,
reimbursement, or indemnity whatsoever, in respect of any Pledgor and any
Subsidiary of a Pledgor, arising out of remedies exercised by the Trustee
hereunder.
12.4 Compliance with Organizational Documents.  To the extent that the grant of
the security interest in the Collateral and the enforcement of the terms hereof
require the consent, approval or action of any partner, member, shareholder or
other equity owner, as applicable, of any Subsidiary of a Pledgor or compliance
with any provisions of the Organizational Documents of any Subsidiary of such
Pledgor, such Pledgor hereby grants such consent and approval and waive any such
noncompliance with the terms of said documents.
12.5 Waivers.  Each Pledgor hereby waives notice of acceptance of this
Agreement.  Each Pledgor further waives presentment and demand for payment of
any of the Secured Obligations, protest and notice of dishonor or default with
respect to any of the Secured Obligations, and all other notices to which such
Pledgor might otherwise be entitled, except as otherwise expressly provided in
this Agreement or any of the other Security Agreements.  Each Pledgor (to the
extent that it may lawfully do so) covenants that it shall not at any time
insist upon or plead, or in any manner claim or take the benefit of, any stay,
valuation, appraisal or redemption now or at any time hereafter in force that,
but for this waiver, might be applicable to any sale made under any judgment,
order or decree based on this Agreement or any other Security Agreements; and
each Pledgor (to the extent that it may lawfully do so) hereby expressly waives
and relinquishes all benefit of any and all such laws and hereby covenants that
it will not hinder, delay or impede the execution of any power in this Agreement
or in any other Security Agreement delegated to the Trustee, but that it will
suffer and permit the execution of every such power as though no such law or
laws had been made or enacted.

--------------------------------------------------------------------------------

12.6 Acknowledgment Regarding Waivers.  EACH PLEDGOR'S WAIVERS UNDER THIS
SECTION 12 HAVE BEEN MADE VOLUNTARILY, INTELLIGENTLY AND KNOWINGLY AND AFTER
SUCH PLEDGOR HAS BEEN APPRISED AND COUNSELED BY ITS ATTORNEY AS TO THE NATURE
THEREOF AND ITS POSSIBLE ALTERNATIVE RIGHTS.
13. NON‑WAIVER AND NON‑EXCLUSIVE REMEDIES.
13.1 Non‑Exclusive Remedies.  No remedy or right herein conferred upon, or
reserved to the Trustee is intended to be to the exclusion of any other remedy
or right, but each and every such remedy or right shall be cumulative and shall
be in addition to every other remedy or right given hereunder or under the Trust
Indenture or any other Security Agreement or under law.
13.2 Delay and Non‑Waiver.  No delay or omission by the Trustee to exercise any
remedy or right hereunder shall impair any such remedy or right or shall be
construed to be a waiver of any Event of Default, or an acquiescence therein,
nor shall it affect any subsequent Event of Default of the same or of a
different nature.
14. NO IMPLIED WAIVERS.  No failure or delay on the part of the Trustee in
exercising any right, power or privilege under this Agreement or the other
Security Agreements and no course of dealing between a Pledgor, on the one hand,
and the Trustee or the Holders, on the other hand, shall operate as a waiver of
any such right, power or privilege.  No single or partial exercise of any right,
power or privilege under this Agreement or the other Security Agreements
precludes any other or further exercise of any such right, power or privilege or
the exercise of any other right, power or privilege.  The rights and remedies
expressly provided in this Agreement and the other Security Agreements are
cumulative and not exclusive of any rights or remedies which the Trustee or the
Holders would otherwise have.  No notice to or demand on the Pledgors in any
case shall entitle the Pledgors to any other or further notice or demand in
similar or other circumstances or shall constitute a waiver of the right of the
Trustee or the Holders to take any other or further action in any circumstances
without notice or demand.  Any waiver that is given shall be effective only if
in writing and only for the limited purposes expressly stated in the applicable
waiver.
15. EFFECT OF PLEDGE ON CERTAIN SHAREHOLDER RIGHTS.
If any of the Collateral subject to this Agreement consists of nonvoting equity
or ownership interests (regardless of their class, designation, preference or
rights) or other instruments that may be converted into voting equity ownership
interests upon the occurrence of certain events (including, without limitation,
upon the transfer of all or any of the other stock or assets of the issuer), it
is agreed that the pledge of such equity or ownership interests pursuant to this
Agreement or the enforcement of any of the Trustee's rights hereunder shall not
be deemed to be the type of event which would trigger such conversion rights
notwithstanding any provisions in the Organizational Documents or agreements of
the issuer or any Pledgor to the contrary.

16. CONTINUING SECURITY INTEREST; HEIRS AND ASSIGNS.
This Agreement shall create a continuing security interest in the Collateral and
shall (a) remain in full force and effect until terminated pursuant to Section
16 below, (b) be binding upon each Pledgor, its successors and assigns and (c)
inure to the benefit of the Trustee, the Holders and their respective
successors, transferees and assigns provided, however, that no Pledgor shall be
permitted to transfer any of its obligations hereunder except as otherwise
permitted by the Trust Indenture.

17. TERMINATION OF AGREEMENT; RELEASE OF COLLATERAL.
17.1 Termination of Agreement.  At such time as all the Secured Obligations (as
defined in the Trust Indenture) have been indefeasibly paid in full (including
the conversion in full of the Debentures), then this Agreement shall terminate
and the Collateral shall be released pursuant to subsection 17.2.

--------------------------------------------------------------------------------

17.2 Duties of Trustee With Respect To Release of Collateral.  When this
Agreement terminates pursuant to subsection 17.1 above, the Trustee shall
reassign and deliver to the Pledgors, or to such Person or Persons as the
Pledgors shall designate, against receipt, such of the Collateral (if any) as
shall not have been sold or otherwise applied by the Trustee pursuant to the
terms hereof and shall still be held by it hereunder, together with appropriate
instruments of reassignment and release, all without any recourse to, or
warranty whatsoever by, the Trustee, at the sole cost and expense of the
Pledgors.
17.3 Release of Certain Collateral.  Effective upon the closing of a sale or
other disposition of any Collateral and the application of proceeds in
conformity with the provisions of the Trust Indenture, and receipt by the
Trustee of a certification to such effect from an authorized officer of the
Borrower, the security interest in the assets which are the subject of the sale
or other disposition (the "Sold Collateral") shall terminate.  The Trustee shall
thereupon reassign and deliver to the applicable Pledgors, or to such Person as
such Pledgors shall designate, against receipt, the Sold Collateral, together
with appropriate instruments or reassignment and release, all without any
recourse to, or warranty whatsoever by, the Trustee, at the sole cost and
expense of such Pledgors.
18. PAYMENT OF COSTS AND EXPENSES; INDEMNITIES.  Without limiting any other cost
reimbursement or expense reimbursement provisions in the Trust Indenture or the
Security Agreements,
18.1 Payment of Costs and Expenses.  Upon demand, the Pledgors shall pay to the
Trustee the amount of any and all reasonable expenses incurred by the Trustee
and the Holders hereunder or in connection herewith, including, without
limitation, reasonable fees of counsel to the Trustee and the Holders and those
other expenses that may be incurred in connection with (a) the administration of
this Agreement (b) the custody or preservation of, or the sale of, collection
from, or other realization upon, any of the Collateral, (c) the exercise or
enforcement of any of the rights of the Trustee or the Holders hereunder or (d)
the failure of the Pledgors to perform or observe any of the provisions hereof.
18.2 Fees.  Each Pledgor shall, upon demand, pay to the Trustee such reasonable
fees (in addition to its expenses) for its services as the Trustee as may be
agreed upon from time to time between the Trustee and the Pledgors.
18.3 Indemnification.  Each Pledgor shall indemnify, reimburse and hold harmless
all Indemnitees from and against any and all losses, claims, liabilities,
damages, penalties, suits, costs and expenses, of any kind or nature, (including
fees relating to the cost of investigating and defending any of the foregoing)
imposed on, incurred by or asserted against such Indemnitee in any way related
to or arising from or alleged to arise from this Agreement or the Collateral
except any such losses, claims, liabilities, damages, penalties, suits, costs
and expenses which result from the gross negligence or willful misconduct of the
Indemnitee as determined by a final nonappealable decision of a court of
competent jurisdiction.
18.4 Taxes.  Each Pledgor shall pay to the Trustee, upon demand, the amount of
any taxes which the Trustee may have been required to pay by reason of the
security interests established pursuant to this Agreement (including any
applicable transfer taxes).
18.5 Additional Obligations.  Any amounts payable pursuant to this Section 18
shall be additional Secured Obligations secured hereby.
19. MISCELLANEOUS PROVISIONS.
19.1 Governing Law.  This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts (excluding the
laws applicable to conflicts or choice of law).
19.2 Specific Performance.  Each Pledgor hereby authorizes the Trustee and the
Holders to demand specific performance of this Agreement at any time when a
Pledgor shall have failed to comply with any provision hereof, and each Pledgor
hereby irrevocably waives any defense based on the adequacy of a remedy at law
which might be asserted as a bar to the remedy of specific performance hereof in
any action brought therefor.
19.3 Successors and Assigns.  Except as otherwise provided in the Trust
Indenture, the Trustee may assign or transfer this Agreement and any or all
rights or obligations hereunder without the consent of the Pledgors and without
prior notice.  No Pledgor shall assign or transfer this Agreement or any rights
or obligations hereunder without the prior written consent of the Trustee or as
expressly provided in the Trust Indenture.  The rights and privileges of the
Trustee and the Holders under this Agreement shall inure to the benefit of their
respective successors, assigns and participants.  All promises, covenants and
agreements of each Pledgor contained in this Agreement shall be binding upon
personal representatives, heirs, successors and assigns of such Person. 
Notwithstanding the foregoing, if there is any assignment of any obligations by
operation of law or in contravention of the terms of this Agreement or
otherwise, then all covenants, agreements, representations and warranties made
herein or pursuant hereto by or on behalf of a Pledgor shall bind the successors
and assigns of such Pledgor, jointly and severally (if applicable), together
with the pre-existing Pledgor whether or not such new Pledgor shall execute a
joinder to this Agreement. Any corporation into which the Trustee is amalgamated
or with which it is consolidated or to which all or substantially all of its
corporate trust business is sold or is otherwise transferred or any corporation
resulting from any consolidation or amalgamation to which the Trustee is a party
shall become the successor Trustee under this Agreement, without the execution
of any document or any further act; provided that such successor Trustee is a
corporation qualified to carry on the business of a trust corporation in Canada
or the province of Ontario.

--------------------------------------------------------------------------------

19.4 Amendments and Waivers.  This Agreement represents the entire agreement
between the parties with respect to the transactions contemplated herein and,
except as expressly provided herein, shall not be affected by reference to any
other documents.  The Holders holding more than 50% of the total outstanding
principal balance of the Trust Indenture (the "Required Holders") shall have the
right to direct the Trustee, from time to time, to consent to any amendment,
modification or supplement to or waiver of any provision of this Agreement and
to release any Collateral from any lien or security interest held by the
Trustee; provided, however, that (i) no such direction shall require the Trustee
to consent to the modification of any provision or portion thereof which (in the
sole judgment of the Trustee) is intended to benefit the Trustee, (ii) the
Trustee shall have the right to decline to follow any such direction if the
Trustee shall determine in good faith that the directed action is not permitted
by the terms of this Agreement or may not lawfully be taken and (iii) no such
direction shall waive or modify any provision of this Agreement the waiver or
modification of which requires the consent of all Holders unless all Holders
consent thereto.  The Trustee may rely on any such direction given to it by the
Required Holders and shall be fully protected in relying thereon, and shall
under no circumstances be liable, except in circumstances involving the
Trustee's gross negligence or willful misconduct as shall have been determined
in a final nonappealable judgment of a court of competent jurisdiction, to any
holder of Debentures or any other person or entity for taking or refraining from
taking action in accordance with any direction or otherwise in accordance with
this Agreement.
19.5 Notices and Communications.  Any notice contemplated herein or required or
permitted to be given hereunder shall be made in the manner set forth in the
Trust Indenture and delivered at the addresses set forth on the signature pages
to this Agreement, or to such other address as any party hereto may have last
specified by written notice to the other party or parties.
19.6 Headings; Counterparts.  Headings to this Agreement are for purposes of
reference only and shall not limit or otherwise affect the meaning hereof.  This
Agreement may be executed in any number of counterparts, each of which shall be
an original, and all of which, taken together, shall constitute one instrument. 
Delivery of a photocopy or telecopy of an executed counterpart of a signature
page to this Agreement shall be as effective as delivery of a manually executed
counterpart of such signature page.
19.7 Severability.  Every provision of this Agreement is intended to be
severable.  If any of the provisions or terms of this Agreement shall for any
reason be held to be invalid or unenforceable such invalidity or
unenforceability shall not affect any of the other terms hereof, but this
Agreement shall be construed as if such invalid or unenforceable term had never
been contained herein.  Any such invalidity or unenforceability of any term or
provision in this Agreement in a particular jurisdiction shall not be deemed to
render a provision invalid or unenforceable in any other jurisdiction.
19.8 Relationship with Trust Indenture.  To the extent that any provision of
this Agreement is inconsistent with any provision of the Trust Indenture, the
terms of the Trust Indenture shall control.
19.9 Consent to Jurisdiction, Service and Venue; Waiver of Jury Trial.  For the
purpose of any action that may be brought in connection with this Agreement,
each Pledgor hereby consents to the jurisdiction and venue of the courts of the
Commonwealth of Massachusetts or of any federal court located in such state and
waives personal service of any and all process upon it and consents that all
such service of process be made by certified or registered mail directed to such
Pledgor at the address provided for in Section 19.5 (Notices and
Communications).  Service so made shall be deemed to be completed upon actual
receipt at the address specified in said section.  Each Pledgor waives the right
to contest the jurisdiction and venue of the courts located in Suffolk County,
Commonwealth of Massachusetts on the ground of inconvenience or otherwise and,
further, waives any right to bring any action or proceeding against (a) the
Trustee in any court outside the Suffolk County, Commonwealth of Massachusetts,
or (b) any Holder other than in a state within the United States designated by
such Holder.  The provisions of this Section shall not limit or otherwise affect
the right of the Trustee or any Holder to institute and conduct an action in any
other appropriate manner, jurisdiction or court.
NO PARTY TO THIS AGREEMENT, NOR ANY ASSIGNEE, SUCCESSOR, HEIR OR PERSONAL
REPRESENTATIVE OF THE FOREGOING SHALL SEEK A JURY TRIAL IN ANY PROCEEDING BASED
UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OTHER SECURITY AGREEMENT RELATING
TO SUCH INDEBTEDNESS OR THE RELATIONSHIP BETWEEN OR AMONG SUCH PERSONS OR ANY OF
THEM.  NO SUCH PERSON WILL SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER
ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED.

EXCEPT AS PROHIBITED BY LAW, EACH PARTY HERETO WAIVES ANY RIGHTS IT MAY HAVE TO
CLAIM OR RECOVER IN ANY LITIGATION REFERRED TO IN THIS SECTION, ANY SPECIAL,
EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES.  EACH PARTY TO THIS AGREEMENT (a)
CERTIFIES THAT NEITHER THE TRUSTEE NOR ANY REPRESENTATIVE, OR ATTORNEY OF THE
TRUSTEE NOR ANY HOLDER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE TRUSTEE
OR SUCH HOLDER WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVERS AND (b) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO
THIS AGREEMENT AND EACH OTHER SECURITY AGREEMENT BY, AMONG OTHER THINGS, THE
MUTUAL WAIVERS AND CERTIFICATIONS HEREIN.  THE PROVISIONS OF THIS SECTION HAVE
BEEN FULLY DISCLOSED TO THE PARTIES AND THE PROVISIONS SHALL BE SUBJECT TO NO
EXCEPTIONS.  NO PARTY HAS IN ANY WAY AGREED WITH OR REPRESENTED TO ANY OTHER
PARTY THAT THE PROVISIONS OF THIS SECTION WILL NOT BE FULLY ENFORCED IN ALL
INSTANCES.

19.10 Subordinate Security.  The security granted under this Agreement is
subordinate to the security granted in favour of Northeast Industrial Partners,
LLC (the "Collateral Agent"), as collateral agent for the purchasers of senior
secured notes issued on the date of this agreement.  Any obligation on the part
of the Pledgors to deliver any certificates, documents or other property under
this Agreement, and any entitlement on the part of the Trustee to receive
dividends or other distributions or to exercise any voting rights attached to
the Pledged Securities, is subordinate to the rights of the Collateral Agent and
the holders from time to time of the senior secured notes.  The Company shall
not be in default hereunder only by reason of its inability to deliver any such
certificates, documents, dividends or other property, or to allow the Trustee to
exercise any voting rights, due to the prior rights of the Collateral Agent;
provided that as soon as the Collateral Agent ceases to have the right to hold
any certificates, documents or other property required to be delivered to the
Trustee under this Agreement or to exercise any such votes or to receive any
such dividends or other distributions, the Company shall comply with its
obligations under this Agreement in that regard.

[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed
and delivered by their respective authorized officers on the date first above
written.

PLEDGOR:
SECURITY DEVICES INTERNATIONAL INC.

By:____________________________
Name:
Title:

Notice Information
25 Sawyer Passway,
Fitchburg, MA 01420  USA
Phone No.: (978) 868-5011
Fax No. Attention: Dean Thrasher, President and CEO

PLEDGOR:
SECURITY DEVICES INTERNATIONAL CANADA CORP.

By:____________________________
Name:
Title:

Notice Information
#300-125 Lakeshore Road E.,
Oakville, ON  L6J 1H3  Canada Phone No.: (905) 582-6402 X 104
Fax No. 401-274-5707
Attention: [Dean Thrasher, President & CEO]

[Signature Page to Borrower/Subsidiary Pledge Agreement]

--------------------------------------------------------------------------------

TRUSTEE:

TSX TRUST COMPANY, in its capacity as Trustee

By:____________________________
Name:
Title:

By:____________________________
Name:
Title:

Notice Information

200 University Avenue, Suite 300
Toronto, Ontario M5H 4H1

Facsimile: 416-361-0470
Attention:  Vice President, Trust Services

[Signature Page to Borrower/Subsidiary Pledge Agreement]

--------------------------------------------------------------------------------

Schedule I

Pledged Securities

1.
100 common shares in the capital of Security Devices International Canada Corp.
issued to Security Devices International Inc. and being certificate no. 2

--------------------------------------------------------------------------------

Schedule II

Locations of Pledgors

Security Devices International Inc.

125 Lakeshore Road East, Suite 300
Oakville, ON L6J 1H3
Canada

State of Formation:  Delaware

Other places of business:

25 Sawyer Passway
Fitchburg, Massachusetts 01420
United States of America

and

9325 Puckett Road
Perry, Florida 32348
United States of America

Security Devices International Canada Corp.

Chief Executive Office:
#300-125 Lakeshore Road East,
Oakville, ON  L6J 1H3  Canada

State of Formation:  Canada

Other places of business:

None

 

--------------------------------------------------------------------------------

Schedule 4.6
FORM OF ADDITIONAL OBLIGOR JOINDER
Reference is made to the trust indenture (the "Trust Indenture") dated as of
December 7, 2016 made by Security Devices International Inc.(the "Company"),
Security Devices International Canada Corp. (the "Guarantor") and TSX Trust
Company (the "Trustee").  Capitalized terms used herein and not otherwise
defined herein shall have the meanings given to such terms in, or by reference
in, the Trust Indenture.
The undersigned hereby agrees that upon delivery of this Additional Obligor
Joinder to the Trustee or its successor, the undersigned shall (a) be an
Additional Obligor under the Trust Indenture, (b) have all the rights and
obligations of the Guarantor under the Trust Indenture as fully and to the same
extent as if the undersigned was an original signatory thereto and (c) be deemed
to have made the representations, warranties and covenants set forth in the
Trust Indenture on the part of the Guarantor as of the date of execution and
delivery of this Additional Obligor Joinder and at any future dates that such
representations must be restated pursuant to the terms of the Trust Indenture.
Attached hereto is a supplemental Schedule 1.1(pp) to the Trust Indenture
The undersigned acknowledges receipt from the Company of a correct and complete
copy of the Trust Indenture and consents to all of the provisions of the Trust
Indenture as in effect on the date hereof.
An executed copy of this Additional Obligor Joinder shall be delivered to the
Trustee, and the Trustee and the Holders may rely on the matters set forth
herein on or after the date hereof.  This Additional Obligor Joinder shall not
be modified, amended or terminated without the prior written consent of the
Trustee.
IN WITNESS WHEREOF, the undersigned has caused this Additional Obligor Joinder
to be executed in the name and on behalf of the undersigned.

Dated:

[Name of Additional Obligor]

By:

Name:
Title:

Address:

--------------------------------------------------------------------------------

Schedule 5.1(b)
INTERCREDITOR AND SUBORDINATION AGREEMENT
This Intercreditor and Subordination Agreement (this "Agreement") is made as of
December 7, 2016, by and among Northeast Industrial Partners, LLC, as Agent (the
"Agent") for the Noteholders (as hereinafter defined), TSX Trust Company, as
trustee (in such capacity, the "Trustee") under the Indenture (as hereinafter
defined) on behalf of the Debentureholders (as defined below), and solely for
purposes of acknowledging this Agreement, Security Devices International, Inc.,
a Delaware corporation (the "Company").

Recitals

A. The Company has obtained certain loans or other credit accommodations from
the Noteholders and the Debentureholders, which are or may be from time to time
secured by assets and property of the Company.
B. Pursuant to a Trust Indenture dated as of December 7, 2016 entered into
between the Company and Trustee (as the same may hereafter be amended, renewed,
extended, restated, supplemented or otherwise modified from time to time, the
"Indenture"), the Company has sold its 12% Secured, Subordinated Convertible
Debentures (as in effect on the date hereof (the "Subordinate Debentures") in
the aggregate original principal amount of CAD $1,549,000 to certain investors
(the "Debentureholders") in exchange for its 12% unsecured debentures dated
August 6, 2014 ("Unsecured Debentures") in equal principal amount previously
held by the Debentureholders.
C.  Pursuant to a Note Purchase Agreement dated as of December 7, 2016 (as the
same may hereafter be amended, renewed, extended, restated, supplemented or
otherwise modified from time to time, the "Note Purchase Agreement") among the
Company, the Agent, and the Noteholders who may from time to time become parties
thereto (the "Noteholders"), the Company has sold to the Noteholders its 10%
Senior Secured Convertible Notes (as in effect on the date hereof, the "Notes")
in the aggregate original principal amount of  USD$1,500,000.
D. Pursuant to the Note Purchase Agreement, the Company has executed and
delivered, and has caused each of its Subsidiaries (as defined in Section 3(a)
of the Note Purchase Agreement) to execute and deliver, as applicable, a
Security Agreement (the "Security Agreement"), a Security Agreement -
Trademarks, Patents and Copyrights (the "IP Security Agreement"), a Guaranty and
Suretyship Agreement (the "Guaranty") and a Borrower/Subsidiary Pledge Agreement
(the "Pledge Agreement"), in favor of the Agent for the benefit of all of the
Noteholders, pursuant to which the Company and its Subsidiaries have granted a
security interest in all of their respective properties and assets in order to
secure the Company's obligations under the Notes and the Subsidiaries'
obligations under the Guarantees.
E. Pursuant to the Indenture, the Company and its Subsidiaries have granted a
security interest in certain properties and assets of the Company and the
Subsidiaries in order to secure the Company's obligations under the Subordinate
Debentures, which security interest is subordinate to the security interest
granted to the Noteholders, and the Trustee is authorized to enter into a
subordination agreements to subordinate the security interest  in favor of the
Noteholders as contemplated by the Indenture .
F. To induce Noteholders to purchase the Notes and, at any time or from time to
time, at Noteholders' option, to grant such renewals or extension of the Notes,
any extension of credit, purchase, or other accommodation as the Noteholders may
deem advisable, the Debentureholders are willing to subordinate: (i) all of the
Company's and its Subsidiaries indebtedness and obligations to Debentureholders
(including, without limitation, principal, premium (if any), interest, fees,
charges, expenses, costs, professional fees and expenses, and reimbursement
obligations), whether presently existing or hereafter arising under the
Indenture and the Subordinate Debentures (the "Junior Debt") to all of the
Company's' and Guarantors' indebtedness and obligations to the Noteholders
presently existing or hereafter arising under the Senior Loan Documents (as
defined hereafter); and (ii) all of Debentureholders' lien, pledge, charge,
security interest or encumbrance of any kind ("Lien"), if any, to all of
Noteholders' Lien in the Company's  and each Guarantor's assets and property and
any other property given to Noteholders as collateral for the Senior Debt (as
defined hereafter).

--------------------------------------------------------------------------------

NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. Trustee, on behalf of the Debentureholders, subordinates to the Agent and the
Noteholders any Lien that the Debentureholders may have in any assets and/or
property of the Company and its Subsidiaries and any other property given to the
Noteholders as collateral for the Senior Debt.  Notwithstanding (i) anything to
the contrary contained in any loan document evidencing and executed in
connection with the Senior Debt including, without limitation, all security
agreements, pledge agreements, collateral assignments, mortgages, deeds of
trust, collateral agency agreements, control agreements or other grants or
transfers for security executed and delivered by the Company creating (or
purporting to create) a Lien upon in any property of the Company and all
proceeds thereof (the "Collateral") (as amended, modified, renewed, restated or
replaced, in whole or in part, from time to time, in accordance with its terms,
collectively, the "Senior Loan Documents"), (ii) time of incurrence of Senior
Debt or the Junior Debt, (iii) the respective dates or the method of attachment
or perfection of the Lien of the Debentureholders and the Lien of the Agent
and/or Noteholders or (iv) the rules for determining priority under any law
governing relative priorities of Liens, any and all Liens given pursuant to any
Senior Loan Document in any Collateral now held existing or hereafter held by
the Agent and/or Noteholders, regardless of how acquired, shall at all times be
senior, superior and prior to the Lien of the Debentureholders on the
Collateral.  Trustee, on behalf of the Debentureholders, hereby (a) acknowledges
and consents to (i) the Company granting to the Agent on behalf of the
Noteholders a Lien on the Collateral, (ii) the Agent and/or Noteholders filing
any and all financing statements and other documents and taking any other
action(s) as deemed necessary by the Agent and/or the Noteholders in order to
perfect the Agent's and/or Noteholders' Lien on the Collateral, and (iii) the
entering into of the Senior Loan Documents in connection therewith by the
Company, (b) acknowledges and agrees that the Senior Debt, the entering into of
the Senior Loan Documents in connection therewith by the Company, and the
security interest granted by the Company to Agent and/or the Noteholders in the
Collateral shall be permitted under the provisions of the Junior Debt documents
(notwithstanding any provision of the Junior Debt documents to the contrary),
(c) acknowledges, agrees and covenants that Trustee shall not (and hereby waives
any right to) contest, challenge or dispute the validity, attachment,
perfection, priority or enforceability of Agent's and/or Noteholders' Lien on
the Collateral, or the validity, priority or enforceability of the Senior Debt,
and (d) acknowledges and agrees that the provisions of this Agreement will apply
fully and unconditionally even in the event that the Agent's and/or Noteholders'
Lien on the Collateral (or any portion thereof) shall be unperfected.
2. Subject to Section 3 below, all Junior Debt is subordinated in right of
payment to all indebtedness and obligations of the Company and the Guarantors to
the Noteholders (including, without limitation, principal, premium (if any),
interest, fees, charges, expenses, costs, professional fees and expenses, and
reimbursement obligations), whether presently existing or arising in the future
under the Senior Loan Documents, including, without limitation, all costs of
collecting such obligations (including attorneys' fees), including, without
limitation, all interest accruing after the commencement by or against the
Company of any bankruptcy, reorganization or similar proceeding (such
indebtedness and obligations, collectively, the "Senior Debt").
3. Subject to Section 5 below, Trustee will not demand or receive from the
Company (and the Company shall not pay to Trustee or any Debentureholder) all or
any part of the Junior Debt, by way of payment, prepayment, setoff, lawsuit or
otherwise, nor will Trustee exercise any right or remedy with respect to any
assets or property of the Company, nor will Trustee accelerate the Junior Debt,
or commence, or cause to commence, prosecute or participate in any
administrative, legal or equitable action against the Company, until such time
as (a) the Senior Debt has been indefeasibly and fully paid in cash, (b) the
Noteholders have no commitment or obligation under the Note Purchase Agreement
to lend any further funds to the Company, and (c) all financing agreements
between the Agent and/or the Noteholders and the Company are terminated (upon
the occurrence of all of the above, a "Full Discharge of Senior Debt");
provided, however, that this Agreement shall automatically be reinstated in the
event that any Noteholder is ever required to return or restore the payment of
all any portion of the Senior Debt (all as though such payment had never been
made).  Notwithstanding the foregoing prohibition on Trustee receiving (and the
Company paying) any of the Junior Debt, provided that an Event of Default
pursuant to the Senior Loan Documents has not occurred and is not continuing and
would not exist immediately after such payment, Trustee shall be entitled to
receive (and the Company shall be entitled to pay) each regularly scheduled,
non-accelerated payment of non-default interest as and when due and payable in
accordance with the terms of the Indenture and the Subordinate Debentures and
the maximum principal amount of CAD $1,549,000 when payable under the terms of
the Indenture and the Subordinate Debentures.  Nothing in this Agreement shall
prohibit a Debentureholder from converting all or any part of the Junior Debt
into equity securities of the Company in accordance with the terms of the
Subordinated Debentures.
4. Trustee shall promptly deliver to Agent in the form received (except for
endorsement or assignment by Trustee where required by Agent) for application to
the Senior Debt any payment, distribution, security or proceeds received by
Trustee with respect to the Junior Debt other than in accordance with this
Agreement.
5. Notwithstanding Section 3, unless and until Trustee has received written
notice from the Agent that there has been a Full Discharge of Senior Debt,
Trustee may not take any enforcement or other remedial action (including the
exercise of any right of set-off) with respect to the Company or any collateral
given by the Company or any of the Guarantors and held on account of the Junior
Debt or institute any action or proceeding with respect to such rights or
remedies (including any action of foreclosure);  provided, however, that Trustee
may take such enforcement or remedial action after the date that is one hundred
eighty (180) days after the later (such later period, the "Standstill Period")
of:

--------------------------------------------------------------------------------

(i)
the date on which Trustee first declares the existence of event of default under
any document, instrument or agreement evidencing or relating to the Junior Debt;
and

(ii)
Trustee has given Agent written notice of its intention to take such enforcement
or remedial action in a letter that specifically references this section and
indicates what actions are contemplated (an "Enforcement Action Notice").

6. Agent may, but shall have no obligation to, cure all or any defaults set
forth in the Enforcement Action Notice.  Further, if, prior to the expiration of
the Standstill Period, Agent has commenced a judicial proceeding or non-judicial
actions to collect or enforce the Senior Debt or foreclose on any Collateral for
the Senior Debt, or a case or proceeding by or against the Company is commenced
under the federal Bankruptcy Code or any other insolvency law, then such period
shall be extended during the continuation of such proceedings and actions until
the Full Discharge of Senior Debt or the written consent of Agent to such
termination.  The Company also hereby expressly acknowledges and agrees that the
delivery of any Enforcement Action Notice by Trustee to Agent shall be an
immediate Event of Default under the Senior Loan Documents, for which there
shall be no grace or cure period.
7. In the event of the Company's insolvency, reorganization or any case or
proceeding under any bankruptcy or insolvency law or laws relating to the relief
of debtors, including, without limitation, any voluntary or involuntary
bankruptcy, insolvency, receivership or other similar statutory or common law
proceeding or arrangement involving the Company, the readjustment of its
liabilities, any assignment for the benefit of its creditors or any marshalling
of its assets or liabilities (each, an "Insolvency Proceeding"), (a) this
Agreement shall remain in full force and effect in accordance with Section
510(a) of the United States Bankruptcy Code, (b) the Collateral shall include,
without limitation, all Collateral arising during or after any such Insolvency
Proceeding, and (c) claims of Agent and Noteholders against the Company and the
estate of the Company shall be paid in full before any payment is made to
Trustee or Debentureholders.
8. Trustee shall give Agent prompt written notice of the occurrence of any
default or event of default under any document, instrument or agreement
evidencing or relating to the Junior Debt, and shall, simultaneously with giving
any notice of default to the Company, provide Agent with a copy of any notice of
default given to the Company.  Trustee and the Company acknowledge and agree
that any default or event of default under the Junior Debt documents shall be
deemed to be a default and an Event of Default under the Senior Loan Documents.
9. Trustee shall not accept or reject any plan of reorganization or arrangement
on behalf of Trustee and/or Debentureholders and shall not otherwise vote claims
of Trustee and/or Debentureholders in respect of the Junior Debt in a manner
that the Agent has notified Trustee in writing would be adverse to the rights of
Agent and/or Noteholders under this Agreement.  In addition to and without
limiting the foregoing: (x) until the Full Discharge of Senior Debt, Trustee
shall not commence or join in any involuntary bankruptcy petition or similar
judicial proceeding against the Company in its capacity as trustee under the
Indenture or on behalf of the Debentureholders, and (y) if an Insolvency
Proceeding occurs: (i) Trustee shall not assert, without the prior written
consent of Agent, any claim, motion, objection or argument in respect of the
Collateral in connection with any Insolvency Proceeding which could otherwise be
asserted or raised in connection with such Insolvency Proceeding, including,
without limitation, any claim, motion, objection or argument seeking adequate
protection or relief from the automatic stay in respect of the Collateral, (ii)
Agent may consent to the use of cash collateral on such terms and conditions and
in such amounts as Agent shall in good faith determine without seeking or
obtaining the consent of Trustee as (if applicable) holder of an interest in the
Collateral or to permit any of the Company to obtain financing, whether from
Agent or any other Person under Section 364 of the United States Bankruptcy Code
or any similar bankruptcy law that is secured by Liens that are senior to or on
a parity with all Liens on any or all of Collateral (the "DIP Financing"), (iii)
if use of cash collateral by the Company is consented to by Agent or such DIP
Financing is permitted by Agent, Trustee shall not oppose such use of cash
collateral or such DIP Financing on the basis that the interest of Trustee in
the Collateral (if any) is impaired by such sale or inadequately protected as a
result of such sale, or on any other ground, (iv) will agree and consent to the
subordination of all Liens held by Trustee to the Liens on the Collateral
securing such DIP Financing (and all obligations relating thereto) and (v)
Trustee shall not object to, or oppose, any sale or other disposition of any
assets comprising all or part of the Collateral, free and clear of security
interests, liens and claims of any party, including Trustee, under Section 363
of the United States Bankruptcy Code or otherwise, on the basis that the
interest of Trustee in the Collateral (if any) is impaired by such sale or
inadequately protected as a result of such sale, or on any other ground (and, if
directed by Agent, Trustee shall affirmatively and promptly consent to such sale
or disposition of such assets), if Agent has consented to, or supports, such
sale or disposition of such assets.
10. The Company has provided Agent with true and correct copies of all of the
documents evidencing or relating to the Junior Debt.

--------------------------------------------------------------------------------

11. No amendment or modification of the documents evidencing or relating to the
Junior Debt shall directly or indirectly amend or modify the provisions of this
Agreement in any manner without the prior written consent of the Agent.  Subject
to Section 5, Agent shall have the sole and exclusive right to restrict or
permit, or approve or disapprove, the sale, transfer or other disposition of the
assets or property of the Company or Guarantors except in accordance with the
terms of the Senior Debt. Upon written notice from Agent to Trustee of Agent's
agreement to release its lien on all or any portion of the Collateral in
connection with the sale, transfer or other disposition thereof by Agent (or by
the Company or a Guarantor with consent of Agent), Trustee shall be deemed to
have also, automatically and simultaneously, released its lien on the
Collateral, and Trustee shall upon written request by Agent, promptly take such
action as shall be necessary or appropriate to evidence and confirm such
release.  All proceeds resulting from any such sale, transfer or other
disposition shall be applied first to the Senior Debt until payment in full
thereof, with the balance, if any, to the Junior Debt, or to any other entitled
party.  If Trustee fails to release its lien as required hereunder, Trustee
hereby appoints Agent as attorney in fact for Trustee with full power of
substitution to release Trustee's liens as provided hereunder.  Such power of
attorney being coupled with an interest shall be irrevocable.
12. All necessary action on the part of Agent and Trustee, and their respective
officers, directors, managers, members and shareholders, as applicable,
necessary for the authorization of this Agreement and the performance of all
respective obligations of Agent and Trustee hereunder have been taken.  This
Agreement constitutes the legal, valid and binding obligation of Agent and
Trustee, enforceable against Agent and Trustee in accordance with its terms. 
The execution, delivery and performance of and compliance with this Agreement by
Agent and Trustee will not (a) result in any material violation or default of
any term of any of Agent's or Trustee's respective charter, formation or other
organizational documents (such as Articles or Certificate of Incorporation,
bylaws, partnership agreement, operating agreement, etc.) or (b) violate any
material applicable law, rule or regulation.
13. If, at any time after the Full Discharge of Senior Debt any payments of the
Senior Debt must be disgorged by Agent for any reason (including, without
limitation, any Insolvency Proceeding), this Agreement and the relative rights
and priorities set forth herein shall be reinstated as to all such disgorged
payments as though such payments had not been made and Trustee shall immediately
pay over to Agent all payments received with respect to the Junior Debt to the
extent that such payments would have been prohibited hereunder.  At any time and
from time to time, without notice to Trustee, Agent may take such actions with
respect to the Senior Debt as Agent, in its sole discretion, may deem
appropriate, including, without limitation, increasing the principal amount,
extending the time of payment, increasing applicable interest rates, renewing,
compromising or otherwise modifying or amending the terms of any documents
affecting the Senior Debt and any collateral securing the Senior Debt, and
enforcing or failing to enforce any rights and remedies against the Company or
any other person.  No such action or inaction shall impair or otherwise affect
Agent's rights hereunder.  Trustee waives the benefits, if any, of any statutory
or common law rule that may permit a subordinating creditor to assert any
defenses of a surety or guarantor, or that may give the subordinating creditor
the right to require a senior creditor to marshal assets, and Trustee agrees
that it shall not assert any such defenses or rights.
14. This Agreement shall bind any successors or assignees of Trustee and shall
benefit any successors or assigns of Agent, provided, however, Trustee agrees
that, prior and as conditions precedent to Trustee assigning all or any portion
of the Junior Debt: (a) Trustee shall give Agent prior written notice of such
assignment, and (b) such successor or assignee, as applicable, shall execute a
written agreement whereby such successor or assignee expressly agrees to assume
and be bound by all terms and conditions of this Agreement with respect to
Trustee.  Any corporation into which the Trustee is amalgamated or with which it
is consolidated or to which all or substantially all of its corporate trust
business is sold or is otherwise transferred or any corporation resulting from
any consolidation or amalgamation to which the Trustee is a party shall become
the successor Trustee under this Agreement, without the execution of any
document or any further act; provided that such successor Trustee is a
corporation qualified to carry on the business of a trust corporation in Canada
or the province of Ontario.
15. This Agreement shall remain effective until the earlier of (i) its
termination in writing by Agent, or (ii) indefeasible payment in full of the
Senior Debt. The Agent shall provide written notice to Trustee upon the
occurrence of the Full Discharge of Senior Debt, with a copy to the Company. 
This Agreement is solely for the benefit of the Agent, the Noteholders, the
Trustee and the Debentureholders and not for the benefit of the Company or any
other party.  Trustee further agrees that if the Company is in the process of
refinancing any portion of the Senior Debt with a new lender or lenders, and if
Agent makes a request of Trustee, Trustee shall agree to enter into a new
subordination agreement with the new lender on substantially the same terms and
conditions of this Agreement.
16. Trustee hereby agrees to execute such documents and/or take such further
action as Agent may at any time or times reasonably request in order to carry
out the provisions and intent of this Agreement, including, without limitation,
ratifications and confirmations of this Agreement from time to time hereafter,
as and when requested by Agent.  Notwithstanding the provisions of this
Agreement or any other provision of the Indenture, the  Trustee will not be
charged with knowledge of the existence of any default in the payment of Senior
Debt permitting the Agent to accelerate the maturity thereof, unless and until
the  Trustee has received written notice (the "Written Notice") thereof from the
Company or the Agent. Until such time as Written Notice has been given to the 
Trustee, the Trustee shall be entitled to apply any monies deposited with it
hereunder for the purpose of making payment of or on account of the principal of
or interest on the Subordinate Debentures.
17. This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original and all of which together shall constitute one
instrument.

--------------------------------------------------------------------------------

18. This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts, without giving effect to conflicts of
laws principles.  Trustee and Agent submit to the non-exclusive jurisdiction of
the state and federal courts located in the Commonwealth of Massachusetts in any
action, suit, or proceeding of any kind, against it which arises out of or by
reason of this Agreement.  TRUSTEE AND AGENT WAIVE THEIR RESPECTIVE RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN.
19. All notices, demands, requests, consents, approvals or other communications
required, permitted, or desired to be given hereunder shall be in writing sent
by registered or certified mail, postage prepaid, return receipt requested, or
delivered by hand or reputable overnight courier addressed to the party to be so
notified at its address hereinafter set forth, or to such other address as such
party may hereafter specify in accordance with the provisions of this Section
19. Any such notice, demand, request, consent, approval or other communication
shall be deemed to have been received: (a) three (3) business days after the
date mailed, (b) on the date of delivery by hand if delivered during business
hours on a business day (otherwise on the next business day) and (c) on the day
it is received (or the next business day if such day is not a business day)if
sent by an overnight commercial courier, in each case addressed to the parties
as follows:
To Agent:

Northeast Industrial Partners, LLC
107 Audubon Road, Suite 201
Wakefield, MA, USA 01880
Telephone: (339) 219-0302
Facsimile:
Attention:  Bryan S. Ganz, Manager

To Trustee:

TSX Trust Company
200 University Avenue, Suite 300
Toronto, Ontario M5H 4H, Canada
Facsimile:  (416) 361-0470
Attention:  Vice President, Trust Services

with a copy to:

Name
Address
Address
Attention:

To the Company:

Security Devices International, Inc.
#300-125 Lakeshore Road E.,
Oakville, ON  L6J 1H3  Canada
Attention:  Dean Thrasher, President & CEO                                  \

with copies to:

Hinckley, Allen & Snyder LLP
50 Kennedy Plaza, Suite 1500
Providence, RI 02903
Facsimile:  (401) 277-9600
Attention:  Margaret D. Farrell, Esq.

and

Beard Winter LLP
130 Adelaide St. W., Suite 701
Toronto, ON  M5H 2K4, Canada
Facsimile: (416) 593-7760
Attention: Erik J. Fish, Esq.

--------------------------------------------------------------------------------

20. This Agreement represents the entire agreement with respect to the subject
matter hereof, and supersedes all prior negotiations, agreements and
commitments.    This Agreement may be amended only by written instrument signed
by Trustee and Agent, and a copy will be provided to the Company.
[Signature page follows.]

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first above written.
"Trustee"
TSX TRUST COMPANY, as Trustee under the
Indenture (as defined herein)

By:____________________________________
Name:
Title:

By:____________________________________
Name:
Title:

"Agent"
NORTHEAST INDUSTRIAL PARTNERS, LLC, in
its capacity as Collateral Agent for the Noteholders (as
defined herein)

By:__________________________________
Name: _______________________________
Title: ________________________________

The undersigned approves the terms of this Agreement:
"Company"
SECURITY DEVICES INTERNATIONAL, INC.
 
By: __________________________________
Name:   Dean Thrasher
Title:     Chief Executive Officer