Security Devices International Inc.: Exhibit 10.1- Filed by newsfilecorp.com






SECURITIES PURCHASE AGREEMENT 

This SECURITIES PURCHASE AGREEMENT (the “Agreement”),
dated as of July 22, 2019, is made by and among Security Devices International
Inc., a corporation organized under the laws of the State of Delaware (the
“Company”), each of the purchasers (individually, a “Purchaser”
and collectively the “Purchasers”) set forth on the execution pages
hereof (each, an “Execution Page” and collectively the “Execution
Pages”), and Northeast Industrial Partners, LLC, as collateral agent
pursuant to Section 8 (the “Collateral Agent”). 

BACKGROUND 

A.      The Company and each Purchaser are executing and delivering
this Agreement in reliance upon the exemption from securities registration
afforded by the provisions of Regulation D (“Regulation D”), as
promulgated by the United States Securities and Exchange Commission (the
“SEC”) under the Securities Act of 1933, as amended (the “Securities
Act”). 

B.      Upon the terms and conditions stated in this Agreement, the
Company proposes to raise up to USD $3,000,000 (the “Offering”) from the
sale of units (the “Units”) at a price of USD $1,000.00 per Unit (the
“Purchase Price”). All funds from Purchasers will be delivered directly
to the Company, without provision for escrow. Each Unit shall consist of (i) an
unsecured convertible promissory note, in the form attached hereto as Exhibit
A (each a “Note” and collectively the “Notes”) in the
principal face amount of $1,000, which Notes shall initially be convertible into
shares of the Company’s common stock, par value $0.001 per share (the “Common
Stock”) upon the terms set forth in the Notes, and (ii) four thousand
(4,000) warrants (the “Warrants”), in the form attached hereto as
Exhibit B, to purchase Common Stock, upon the terms set forth in the
Warrants. Each full Warrant is exercisable for one share of Common Stock (each,
a “Warrant Share”) for the 54-month period following the first closing of
the Offering at an exercise price of USD $0.25 per share. The shares of Common
Stock issuable upon conversion of or otherwise pursuant to the Notes are
referred to herein as the “Conversion Shares.” The Notes, Conversion
Shares, and Warrant Shares are collectively referenced herein as the
“Securities” and each of them may individually be referred to herein as a
“Security.”

C.      The Notes issued pursuant to this Agreement are pari
passu in right of payment with certain Convertible Secured Notes (the
“Senior Debt”) issued by the Company to certain holders pursuant Security
Purchase Agreements dated as of October 22, 2018 and April 15, 2019 entered into
between the Company, the purchasers party thereto, and Northeast Industrial
Partners LLC, as collateral agent, in the original principal amount of
$3,355,265. 

D.       Upon the Closing of this private placement (the
“Closing Date”), the Company shall be obligated to grant a security
interest in all of the Company’s properties and assets (the “Collateral”)
in order to secure the Company’s obligations under the Notes issue hereunder
(the “Lien”). Within five (5) days of the Closing Date, pursuant to this
Agreement, the Company will execute and deliver, in favor of the Collateral
Agent for the benefit of all of the Purchasers, an agreement to effectuate the
Lien (the “Security Documents”), in a form mutually acceptable to the
parties. 




E.       This Agreement,Notes, the Warrants, any Security
Documents, and all other agreements executed and delivered in connection
herewith and therewith are collectively referred to herein as the
“Transaction Documents.” 

NOW, THEREFORE, in consideration of the premises and mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Purchasers, intending to be legally bound, hereby agree as follows: 

	1. 	
      PURCHASE AND SALE OF
SECURITIES.



(a)       Purchase and Sale of Units. Subject to the terms and
conditions hereof, at the Closing (as defined in Section 1(b) below), the
Company shall issue and sell to each Purchaser, and each Purchaser, severally
and not jointly, shall purchase from the Company, the Units as is set forth on
such Purchaser’s Execution Page, for the Purchase Price. The Units will be
evidenced by the Notes and the Warrants. 

(b)       The Closing. Subject to the satisfaction (or waiver)
of the conditions set forth in Sections 6 and 7 below, the closing of the
transactions contemplated hereby (the “Closing”) shall take place at the
offices of Hinckley Allen & Snyder LLP, 100 Westminster Street, Suite 1500,
Providence, Rhode Island at 10:00 a.m, on the date on which all conditions set
forth in Sections 6 and 7 have been satisfied, or such other time or place as
the Company and the Purchasers may mutually agree (the “Closing Date”).


	2. 	
      PURCHASER’S REPRESENTATIONS AND
  WARRANTIES.



Each Purchaser severally, but not jointly, represents and
warrants to the Company follows: 

(a)       Purchase for Own Account, Etc. Such
Purchaser is purchasing the Securities for such Purchaser’s own account and not
with a present view towards the public sale or distribution thereof, except
pursuant to sales that are exempt from the registration requirements of the
Securities Act and/or sales registered under the Securities Act. Such Purchaser
understands that such Purchaser must bear the economic risk of this investment
indefinitely, unless the Securities are registered pursuant to the Securities
Act and any applicable state securities or blue sky laws or an exemption from
such registration is available, and that the Company has no present intention of
registering the resale of any of the Securities. Notwithstanding anything in
this Section 2(a) to the contrary, by making the representations herein, such
Purchaser does not agree to hold the Securities for any minimum or other
specific term and reserves the right to dispose of the Securities at any time in
accordance with or pursuant to a registration statement or an exemption from the
registration requirements under the Securities Act. 

(b)       Accredited Investor Status. Such Purchaser is an
“accredited investor” as that term is defined in Rule 501(a) of Regulation D.


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(c)       Reliance on Exemptions. Such Purchaser understands
that the Securities are being offered and sold to such Purchaser in reliance
upon specific exemptions from the registration requirements of United States
federal and state securities laws and that the Company is relying upon the truth
and accuracy of, and such Purchaser’s compliance with, the representations,
warranties, agreements, acknowledgments and understandings of such Purchaser set
forth herein in order to determine the availability of such exemptions and the
eligibility of such Purchaser to acquire the Securities. 

(d)      Information. Such Purchaser and its counsel, if any,
have been furnished all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Securities which have been specifically requested by such Purchaser or its
counsel. Neither such inquiries nor any other investigation conducted by such
Purchaser or its counsel or any of its representatives shall modify, amend or
affect such Purchaser’s right to rely on the Company’s representations and
warranties contained in Section 3 below. Such Purchaser understands that such
Purchaser’s investment in the Securities involves a high degree of risk. 

(e)      Governmental Review. Such Purchaser understands that
no United States federal or state agency or any other government or governmental
agency has passed upon or made any recommendation or endorsement of the
Securities. 

(f)      Authorization; Enforcement. This Agreement has been
duly and validly authorized, executed and delivered on behalf of such Purchaser
and is a valid and binding agreement of such Purchaser enforceable against such
Purchaser 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. 

(g)      Residency. Such Purchaser is a resident of the
jurisdiction set forth under such Purchaser’s name on the Execution Page hereto
executed by such Purchaser. 

(h)      Short Sales and Confidentiality Prior To The Date
Hereof. Other than the transactions contemplated hereunder, such Purchaser
has not directly or indirectly, nor has any person acting on behalf of or
pursuant to any understanding with such Purchaser, executed any transaction,
including short sales, in the securities of the Company during the period
commencing from the time that such Purchaser was first contacted by the Company
or any other person disclosing the material terms of the transactions
contemplated hereunder until the date hereof. Notwithstanding the foregoing, for
avoidance of doubt, nothing contained herein shall constitute a representation
or warranty, or preclude any actions, with respect to the identification of the
availability of, or securing of, available shares to borrow in order to effect
short sales or similar transactions in the future. 

Each Purchaser’s representations and warranties made in this
Article 2 are made solely for the purpose of permitting the Company to make a
determination that the offer and sale of the Securities pursuant to this
Agreement comply with applicable U.S. federal and state securities laws and not
for any other purpose. Accordingly, the Company may not rely on such
representations and warranties for any other purpose. No Purchaser has made or
hereby makes any other representations or warranties, express or implied, to the
Company in connection with the transactions contemplated hereby. 

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	3. 	
      REPRESENTATIONS AND WARRANTIES OF THE
    COMPANY.



Except as set forth on a Disclosure Schedule executed and
delivered by the Company each Purchaser (the “Disclosure Schedule”) or as
set forth in the Select SEC Documents (as defined in Section 3(g) below), other
than what is set forth in the Risk Factors of any such Select SEC Documents or
any other disclosure that is forward looking or prospective in nature in any
such Select SEC Documents, the Company represents and warrants to each Purchaser
as follows: 

(a)       Organization and Qualification. The Company is a
corporation duly organized and existing in good standing under the laws of the
jurisdiction in which it is incorporated or organized, and has the requisite
corporate power to own its properties and to carry on its business as now being
conducted. The Company is duly qualified as a foreign corporation to do business
and is in good standing in every jurisdiction in which the nature of the
business conducted by it makes such qualification necessary and where the
failure so to qualify or be in good standing would have a Material Adverse
Effect. For purposes of this Agreement, “Material Adverse Effect” means
any effect which, individually or in the aggregate with all other effects,
reasonably would be expected to be materially adverse to (i) the Securities,
(ii) the ability of the Company to perform its obligations under this Agreement
or the other Transaction Documents or (iii) the business, operations,
properties, prospects, financial condition or results of operations of the
Company taken as a whole.

(b)      Authorization; Enforcement. (i) The Company has the
requisite corporate power and authority to enter into and perform its
obligations under this Agreement and the other Transaction Documents, to issue
and sell the Units in accordance with the terms hereof and to issue the
Conversion Shares upon conversion of the Notes and to issue the Warrant Shares
in accordance with the terms hereof; (ii) the execution, delivery and
performance of this Agreement and the other Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated hereby and
thereby (including, without limitation, the issuance of the Units by the Company
and the issuance and reservation for issuance of the Conversion Shares and
Warrant Shares) have been duly authorized by the Company’s Board of Directors
and no further consent or authorization of the Company, its Boards of Directors,
or any committee of their Boards of Directors is required, and (iii) this
Agreement constitutes, and, upon execution and delivery by the Company of the
other Transaction Documents, such Transaction Documents will constitute, valid
and binding obligations of the Company enforceable against the Company in
accordance with their terms. Neither the execution, delivery or performance by
the Company of its obligations under this Agreement or the other Transaction
Documents, nor the consummation by them of the transactions contemplated hereby
or thereby (including, without limitation, the issuance of the Units by the
Company) requires any consent or authorization of the Company’s stockholders.


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(c)      Capitalization. The capitalization of the Company as
of the date hereof, including the authorized capital stock, the number of shares
issued and outstanding, the number of shares issuable and reserved for issuance
pursuant to the Company’s stock option plans, the number of shares issuable and
reserved for issuance pursuant to securities (other than the Notes and the
Warrants) exercisable or exchangeable for, or convertible into, any shares of
capital stock and the number of shares to be reserved for issuance upon
conversion of the Notes and exercise of the Warrants is set forth in Section
3(c) of the Disclosure Schedule. All of such outstanding shares of capital
stock have been, or upon issuance in accordance with the terms of any such
exercisable, exchangeable or convertible securities will be, validly issued,
fully paid and non-assessable. No issuances of shares of capital stock of the
Company (including the Conversion Shares and Warrant Shares) are subject to
preemptive rights or any other similar rights of the stockholders of the
Company. Except for the Securities, the Senior Debt and as set forth in
Section 3(c) of the Disclosure Schedule, (i) there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into or
exercisable or exchangeable for, any shares of capital stock of the Company or
contracts, commitments, understandings or arrangements by which the Company is
or may become bound to issue additional shares of capital stock of the Company,
nor are any such issuances, contracts, commitments, understandings or
arrangements contemplated, (ii) there are no contracts, commitments,
understandings or arrangements under which the Company is obligated to register
the sale of any of its or their securities under the Securities Act; (iii) there
are no outstanding securities or instruments of the Company which contain any
redemption or similar provisions, and there are no contracts, commitments,
understandings or arrangements by which the Company is or may become bound to
redeem or otherwise acquire any security of the Company; and (iv) the Company
does not have any shareholder rights plan, “poison pill” or other anti-takeover
plans or similar arrangements. Section 3(c) of the Disclosure Schedule
sets forth all of the securities or instruments issued by the Company that
contain anti-dilution or similar provisions, and, except as and to the extent
set forth thereon, the sale and issuance of the Securities will not trigger any
anti-dilution adjustments to any such securities or instruments. The Company’s
Certificate of Incorporation as in effect on the date hereof (“Certificate of
Incorporation”) may be amended by the vote of the holders of the majority of
the outstanding equity securities of the Company entitled to vote thereon. The
Company has the unrestricted right to vote, and (subject to limitations imposed
by applicable law) to receive dividends and distributions on, all capital
securities as owned by the Company.

(d)      Issuance of Securities. The Notes and the Warrants
are duly authorized and, upon issuance in accordance with the terms of this
Agreement, (i) will be validly issued, fully paid and non-assessable and free
from all taxes, liens, claims and encumbrances, (ii) will not be subject to
preemptive rights, rights of first refusal or other similar rights of
stockholders of the Company or any other person and (iii) will not impose
personal liability on the holder thereof. The Conversion Shares are duly
authorized and, upon conversion of the Notes and the Warrant Shares are duly
authorized upon exercise of the Warrants, in accordance with their terms, will
be validly issued, fully paid and non-assessable, and free from all taxes,
liens, claims and encumbrances. Upon conversion of the Notes and exercise of the
Warrants respectively, in accordance with their terms, such Conversion Shares
and Warrant Shares (x) will not be subject to preemptive rights, rights of first
refusal or other similar rights of stockholders of the Company or any other
person (except as contemplated by the Transaction Documents) and (y) will not
impose personal liability upon the holder thereof. The issuance by the Company
of the Securities is exempt from registration under the Securities Act. 

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(e)      No Conflicts; Consents. The execution, delivery and
performance of this Agreement and the other Transaction Documents by the Company
and the consummation by the Company of the transactions contemplated hereby and
thereby will not (i) result in a violation of the Certificate of Incorporation
or the Company’s Bylaws as in effect on the date hereof (the “Bylaws”) ,
(ii) conflict with, or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment (including, without limitation, the triggering
of any anti-dilution provisions), acceleration or cancellation of, any
agreement, indenture or instrument to which the Company is a party, or (iii)
result in a violation of any law, rule, regulation, order, judgment or decree
(including United States federal and state securities laws, rules and
regulations and rules and regulations of any self-regulatory organizations to
which either the Company or its securities are subject) applicable to the
Company or by which any property or asset of the Company is bound or affected
(except, with respect to clauses (ii) and (iii), for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations that would
not, individually or in the aggregate, have a Material Adverse Effect). Except
(x) for the filing of a Form D with the SEC, (y) as may be required for
compliance with applicable state securities or “blue sky” laws and the rules and
regulations of the Principal Market, or (z) as otherwise set forth in Section
3(e) of the Disclosure Schedule, the Company is not required to obtain any
consent, approval, authorization or order of, or make any filing or registration
with, any court or governmental agency or any regulatory or self-regulatory
agency or other third party) in order for it to execute, deliver or perform any
of its obligations under this Agreement or any of the other Transaction
Documents. 

(f)      Compliance. The Company is not in violation of its
Certificate of Incorporation, Bylaws or other organizational documents and is
not in violation of any of its organizational documents. Except as set forth in
Section 3(f) of the Disclosure Schedule, the Company is not in default
(and no event has occurred that with notice or lapse of time or both would put
the Company in default) under, nor has there occurred any event giving others
(with notice or lapse of time or both) any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company is a party, except for actual or possible violations, defaults or
rights that would not, individually or in the aggregate, have a Material Adverse
Effect. The businesses of the Company are not being conducted, and shall not be
conducted so long as any Purchaser owns any of the Securities, in violation of
any law, ordinance or regulation of any governmental entity, except for possible
violations the sanctions for which either individually or in the aggregate have
not had and would not have a Material Adverse Effect. Neither the Company, nor
any director, officer, agent, employee or other person acting on behalf of the
Company has, in the course of his actions for, or on behalf of, the Company,
used any corporate funds for any unlawful contribution, gift, entertainment or
other unlawful expenses relating to political activity, made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds, violated or is in violation of any provision of
the U.S. Foreign Corrupt Practices Act of 1977, or made any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee. The Company possesses all
certificates, authorizations and permits issued by the appropriate federal,
state, provincial or foreign regulatory authorities that are material to the
conduct of its business, and the Company has not received any notice of
proceeding relating to the revocation or modification of any such certificate,
authorization or permit.

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(g)      SEC Documents, Financial Statements. Except as
otherwise set out in Section 3(g) of the Disclosure Schedule, since
October 22, 2018, the Company has timely filed (within applicable extension
periods) all reports, schedules, forms, statements and other documents required
to be filed by it with the SEC pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”) (all of
the foregoing filed prior to the date hereof and all exhibits included therein
and financial statements and schedules thereto and documents incorporated by
reference therein, the “SEC Documents”). As of their respective dates,
the SEC Documents complied in all material respects with the requirements of the
Exchange Act or the Securities Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC applicable with respect thereto. Such financial
statements have been prepared in accordance with U.S. generally accepted
accounting principles (“GAAP”), consistently applied, during the periods
involved (except as may be otherwise indicated in such financial statements or
the notes thereto or, in the case of unaudited interim statements, to the extent
they may not include footnotes or may be condensed or summary statements) and
fairly present in all material respects the consolidated financial position of
the Company as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal, immaterial year-end audit adjustments). Except
as set forth in the financial statements of the Company included in the Select
SEC Documents (as defined below), the Company has no liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to the date of such financial statements and (ii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under GAAP to be reflected in such financial
statements, which liabilities and obligations referred to in clauses (i) and
(ii), individually or in the aggregate, are not material to the financial
condition or operating results of the Company. No other information provided by
or on behalf of the Company to the Purchasers that is not included in the Select
SEC Documents contains any untrue statement of a material fact or omits to state
any material fact necessary in order to make the statements therein, in the
light of the circumstance under which they are or were made, not misleading.


(h)      Intellectual Property. The Company owns or is duly
licensed (and, in such event, has sufficient rights to grant sublicenses) to use
all patents, patent applications, trademarks, trademark applications, trade
names, service marks, copyrights, copyright applications, licenses, permits,
inventions, discoveries, processes, scientific, technical, engineering and
marketing data, object and source codes, know-how (including trade secrets and
other unpatented and/or unpatentable proprietary or confidential information,
systems or procedures) and other similar rights and proprietary knowledge
(collectively, “Intangibles”) necessary for the conduct of its business
as now being conducted and as presently contemplated to be conducted in the
future, provided that the Company has granted a security interest in the
Intangibles in relation to issuance of the Senior Debt. Section 3(h) of
the Disclosure Schedule sets forth a list of all patents, patent applications,
trademarks, service marks, trademark and service mark applications, trade names,
registered copyrights, copyright applications, licenses and permits material to
the Company and owned and/or used by the Company in its business. To the
knowledge of the Company, the Company is not infringing or is not in conflict
with any right of any other person with respect to any third party Intangibles.
The Company has not received written notice of any pending conflict with or
infringement upon such third party Intangibles. The Company has not entered into
any consent agreement, indemnification agreement, forbearance to sue or
settlement agreement with respect to the validity of the Company’s ownership of
or right to use its Intangibles and there is no reasonable basis for any such
claim to be successful. The Intangibles are valid and enforceable and no
registration relating thereto has lapsed, expired or been abandoned or canceled
or is the subject of cancellation or other adversarial proceedings, and all
applications therefor are pending and in good standing. The Company has
complied, in all material respects, with their respective contractual
obligations relating to the protection of the Intangibles used pursuant to
licenses. To the knowledge of the Company, no person is infringing on or
violating the Intangibles owned or used by the
Company.      

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(i)      Title. The Company has good and marketable title in
fee simple to all real property and good and merchantable title to all personal
property owned by them that is material to the business of the Company, in each
case free and clear of all liens, encumbrances and defects except for liens
securing the Senior Debt and otherwise such as do not materially affect the
value of such property and do not materially interfere with the use made and
proposed to be made of such property by the Company. Any real property and
facilities held under lease by the Company is held by the Company under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not materially interfere with the use made and proposed to be made of such
property and buildings by the Company. 

(j)      Listing. The Common Stock currently is listed for
trading on the Canadian Securities Exchange (CNSX Market Inc.) (the
“Principal Market”). The Company is not in violation of the listing
requirements of the Principal Market, does not reasonably anticipate that the
Common Stock will be delisted by the Principal Market for the foreseeable
future, and has not received any notice regarding the possible delisting of the
Common Stock from the Principal Market. 

(k)      Anti-Takeover Provisions. The Company and its board
of directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under its Certificate of Incorporation or the laws of
the state of its incorporation (including, without limitation, Section 203 of
the Delaware General Corporation Law, as amended) which is or could become
applicable to any Purchaser as a result of the transactions contemplated by this
Agreement, including, without limitation, the Company’s issuance of the
Securities and any and all Purchaser’s ownership of the Securities. 

(l)      No General Solicitation or Integrated Offering.
Neither the Company nor any distributor, agent or affiliate participating on the
Company’s behalf in the transactions contemplated hereby (if any) nor any person
acting for the Company, or any such distributor, agent or affiliate has
conducted any “general solicitation” (as such term is defined in Regulation D)
with respect to the Securities being offered hereby. Neither the Company nor any
of its affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would require registration of the
Securities being offered hereby under the Securities Act or cause this offering
of the Securities to be integrated with any prior offering of securities of the
Company for purposes of the Securities Act, which result of such integration
would require registration under the Securities Act, or any applicable
stockholder approval provisions. 

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(m)      Indebtedness and Other Contracts. Except as
disclosed in Section 3(m) of the Disclosure Schedule, the Company (i)
does not have any outstanding Indebtedness (as defined below), (ii) is not a
party to any contract, agreement or instrument, the violation of which, or
default under which, by the other party(ies) to such contract, agreement or
instrument would result in a Material Adverse Effect, (iii) is not in violation
of any term of or in default under any contract, agreement or instrument
relating to any Indebtedness, except where such violations and defaults would
not result, individually or in the aggregate, in a Material Adverse Effect, or
(iv) is a party to any contract, agreement or instrument relating to any
Indebtedness, the performance of which, in the judgment of the Company’s
officers, has or is expected to have a Material Adverse Effect. For purposes of
this Agreement: (x) “Indebtedness” of any Person means, without
duplication (A) all indebtedness for borrowed money, (B) all obligations issued,
undertaken or assumed as the deferred purchase price of property or services
(other than trade payables entered into in the ordinary course of business), (C)
all reimbursement or payment obligations with respect to letters of credit,
surety bonds and other similar instruments, (D) 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, (E) 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), (F) 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, (G) all indebtedness referred to in clauses (A) through (F) 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 which owns such assets or property has not assumed or become liable for
the payment of such indebtedness; and (y) “Person” means an individual, a
limited liability company, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization and a government or any department or
agency thereof. 

(n)      Transfer Taxes. On the Closing Date, all stock
transfer or other taxes (other than income or similar taxes) which are required
to be paid in connection with the sale and transfer of the Securities to be sold
to each Purchaser hereunder will be, or will have been, fully paid or provided
for by the Company, and all laws imposing such taxes will be or will have been
complied with. 

(o)      Disclosure. All information relating to or
concerning the Company set forth in this Agreement or provided to the Purchasers
pursuant to Section 2(d) hereof or otherwise in connection with the transactions
contemplated hereby is true and correct in all material respects and the Company
has not omitted to state any material fact necessary in order to make the
statements made herein or therein, in light of the circumstances under which
they were made, not misleading.

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	4. 	
      COVENANTS.



(a)      Best Efforts. The Company and the Purchasers shall
use their respective best efforts timely to satisfy each of the conditions
described in Sections 5, 6 and 7 of this Agreement. 

(b)      Form D; Blue Sky Laws. The Company shall file with
the SEC a Form D with respect to the Securities as required under Regulation D.
The Company shall, on or before the Closing Date, take such action as the
Company shall reasonably determine is necessary to qualify the Securities for
sale to each Purchaser pursuant to this Agreement under applicable securities or
“blue sky” laws of the states of the United States or obtain exemption
therefrom.

(c)      Listing. So long as any Purchasers (or any of their
respective affiliates) beneficially own any of the Notes or Warrants, the
Company shall maintain the listing of all Conversion Shares and Warrant Shares
from time to time issuable upon conversion of the Notes or exercise of Warrants
respectively on each securities exchange, automated quotation system or
electronic bulletin board on which shares of Common Stock are currently listed.
The Company shall comply in all respects with the reporting, filing and other
obligations under the bylaws or rules of such exchanges, or such electronic
system, as applicable. The Company shall promptly provide to each Purchaser
copies of any written notices it receives regarding the continued eligibility of
the Common Stock for trading on any securities exchange or automated quotation
system on which securities of the same class or series issued by the Company are
then listed or quoted, if any. 

(d)      Corporate Existence. So long as any Purchasers (or
any of their respective affiliates) beneficially own any of the Notes or
Warrants, the Company shall maintain its corporate existence, and in the event
of a merger, consolidation or sale of all or substantially all of the Company’s
assets, the Company shall ensure that the surviving or successor entity in such
transaction assumes the Company’s obligations under this Agreement and the other
Transaction Documents and the agreements and instruments entered into in
connection herewith and therewith. 

(e)      No Integrated Offerings. The Company shall not make
any offers or sales of any security under circumstances that would require
registration of the Securities being offered or sold hereunder under the
Securities Act or cause this offering of the Securities to be integrated with
any other offering of securities by the Company for purposes of any stockholder
approval provision applicable to the Company or its securities. 

(f)      Legal Compliance. The Company shall conduct its
business in compliance with all laws, ordinances or regulations of governmental
entities applicable to such businesses, except where the failure to do so would
not have a Material Adverse Effect. 

(g)      Redemptions, Dividends and Repayments of
Indebtedness. So long as any Purchasers (or any of their respective
affiliates) beneficially own any of the Notes or Warrants, the Company shall
not, without first obtaining the written approval of the holders of at least a
majority of the aggregate principal amount of the Notes then outstanding (which
approval may be given or withheld by such holders in their sole and absolute
discretion), repurchase, redeem or declare or pay any cash dividend or
distribution on any shares of capital stock of the Company or repay or prepay
any Indebtedness (except for any capital leases) other than (i) trade payables
in the ordinary course of business of the Company, (ii) the Notes, (iii) the
Senior Debt, and (iv) as expressly required pursuant to the terms of such
Indebtedness as in effect on the date hereof (other than as modified pursuant to
the express terms of this Agreement or the Transaction Documents). 

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(h)      Shareholders Rights Plan. No claim shall be made or
enforced by the Company or any other person that any Purchaser is an “Acquiring
Person” under any shareholders rights plan or similar plan or arrangement in
effect or hereafter adopted by the Company, or that any Purchaser could be
deemed to trigger the provisions of any such plan or arrangement, by virtue of
receiving Securities under this Agreement or any other Transaction Documents or
under any other agreement between the Company and the Purchasers. 

(i)      Pledge of Securities. The Company acknowledges and
agrees that the Securities may be pledged by any Purchaser in connection with a
bona fide margin agreement or other loan or financing arrangement that is
secured by the Securities. The pledge of Securities shall not be deemed to be a
transfer, sale or assignment of the Securities hereunder, and no Purchaser
effecting a pledge of Securities shall be required to provide the Company with
any notice thereof or otherwise make any delivery to the Company pursuant to
this Agreement or any other Transaction Document. The Company shall execute and
deliver such documentation as a pledgee of the Securities may reasonably request
in connection with a pledge of the Securities to such pledgee by a
Purchaser.

	5. 	
      SECURITIES TRANSFER
MATTERS.



(a)      Transfer or Resale. Each Purchaser understands that
(i) the sale or resale of the Securities have not been and are not being
registered under the Securities Act or any state securities laws, and the
Securities may not be transferred unless (A) the transfer is made pursuant to
and as set forth in an effective registration statement under the Securities Act
covering the Securities (including in conformity with applicable prospectus
delivery requirements, if any); or (B) such Purchaser shall have delivered to
the Company an opinion of counsel (which opinion shall be in form, substance and
scope customary for opinions of counsel in comparable transactions) to the
effect that the Securities to be sold or transferred may be sold or transferred
pursuant to an exemption from such registration; or (C) sold under and in
compliance with Rule 144; or (D) sold or transferred to an affiliate of such
Purchaser that agrees to sell or otherwise transfer the Securities only in
accordance with the provisions of this Section 5(b); and (ii) neither the
Company nor any other person is under any obligation to register such Securities
under the Securities Act or any state securities laws. Notwithstanding the
foregoing or anything else contained herein to the contrary, the Securities may
be pledged as collateral in connection with a bona fide margin account or other
lending arrangement, provided such pledge is consistent with applicable laws,
rules and regulations.

(b)      Legends. Each Purchaser understands that the Notes
and Warrants and the certificates for the Conversion Shares and Warrant Shares
respectively may bear a restrictive legend in substantially the following form:


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Legend A 

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY
  THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE
  HAVE BEEN][THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT 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
  OF COUNSEL SELECTED BY THE HOLDER AND REASONABLY ACCEPTABLE TO THE ISSUER, IN A
  GENERALLY ACCEPTABLE FORM, 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. 

Legend B 

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 NOVEMBER 23, 2019.


and in the case of Notes or Conversion Shares held by an
Insider (as that term is defined by the Principal Market): 

Legend C 

WITHOUT PRIOR WRITTEN APPROVAL OF THE CANADIAN SECURITIES
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 THE CANADIAN SECURITIES
EXCHANGE OR OTHERWISE IN CANADA OR TO OR FOR THE BENEFIT OF A CANADIAN RESIDENT
UNTIL NOVEMBER 23, 2019. 

And in the case of Warrants or Warrant Shares: 

- 12 -






Legend D 

THE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE
  HEREOF REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
  SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES
  LAWS OF ANY STATE. THESE SECURITIES HAVE BEEN ACQUIRED BY THE HOLDER THEREOF FOR
  INVESTMENT AND MAY NOT BE SOLD, OFFERED FOR SALE PLEDGED OR OTHERWISE
  TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION UNDER THE SECURITIES
  ACT, AND COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
  COUNSEL SATISFACTORY IN FORM AND SUBSTANCE TO COUNSEL FOR THE CORPORATION THAT
  THE TRANSACTION WILL NOT RESULT IN A VIOLATION OF UNITED STATES FEDERAL OR STATE
SECURITIES LAWS. 


Legend A set forth above shall be removed and the Company shall
issue a certificate without such legend to the holder of any Security upon which
it is stamped, if, unless otherwise required by state securities laws, (i) the
sale of such Security is registered under the Securities Act (including
registration pursuant to Rule 416 thereunder); (ii) such holder provides the
Company with an opinion of counsel, in form, substance and scope customary for
opinions of counsel in comparable transactions, to the effect that a public sale
or transfer of such Security may be made without registration under the
Securities Act; or (iii) such holder provides the Company with reasonable
assurances that such Security can be can be sold under Rule 144(k) or has been,
or is to be otherwise, sold under Rule 144. In the event Legend A is removed
from any Security and thereafter the effectiveness of a registration statement
covering such Security is suspended or the Company determines that a supplement
or amendment thereto is required by applicable securities laws, then upon
reasonable advance written notice to such Purchaser the Company may require that
the above legend be placed on any such Security that cannot then be sold
pursuant to an effective registration statement or under Rule 144 and such
Purchaser shall cooperate in the replacement of such legend. Such legend shall
thereafter be removed when such Security may again be sold pursuant to an
effective registration statement or under Rule 144. 

(c)      Transferees Bound by Transaction Documents.
Notwithstanding the provisions of this Section 5, no Purchaser may transfer the
Notes or Warrants 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 this 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.

	6. 	
      CONDITIONS TO THE COMPANY’S OBLIGATION TO
    SELL.



The obligation of the Company hereunder to issue andUnits to
sell the each Purchaser hereunder is subject to the satisfaction, at or
before the Closing Date, of each of the following conditions as to such
Purchaser, provided that such conditions are for the Company’s sole benefit and
may be waived by the Company at any time in its sole discretion: 

(a)     
Execution of Transaction Documents. Each Purchaser shall have executed
such Purchaser’s Execution Page to this Agreement and each other Transaction
Document to which such Purchaser is a party and delivered the same to the
Company. 

- 13 -




(b)      Payment of Purchase Price. Each Purchaser shall have
delivered the full amount of such Purchaser’s Purchase Price to the Company by
wire transfer in accordance with the Company’s written wiring instructions. 

(c)      Representations and Warranties True; Covenants
Performed. The representations and warranties of each Purchaser shall be
true and correct as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as of a
specific date, which representations and warranties shall be true and correct as
of such date), and such Purchaser shall have performed, satisfied and complied
in all material respects with the covenants, agreements and conditions required
by this Agreement to be performed, satisfied or complied with by such Purchaser
at or prior to the Closing Date. 

(d)      No Legal Prohibition. No statute, rule, regulation,
executive order, decree, ruling, injunction, action or proceeding shall have
been enacted, entered, promulgated or endorsed by any court or governmental
authority of competent jurisdiction or any self-regulatory organization having
authority over the matters contemplated hereby which restricts or prohibits the
consummation of any of the transactions contemplated by this Agreement. 

	7. 	
      CONDITIONS TO EACH PURCHASER’S OBLIGATION TO
      PURCHASE.



The obligation of each Purchaser hereunder to purchase Unitsthe
for which it is subscribing from the Company hereunder is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that such conditions are for each Purchaser’s individual
and sole benefit and may be waived by any Purchaser as to such Purchaser at any
time in such Purchaser’s sole discretion: 

 (a)      Execution of Transaction
Documents. The Company shall have executed such Purchaser’s Execution Page
to this Agreement and each other Transaction Document to which the Company is a
party and delivered executed originals of the same to such Purchaser. 

(b)      Delivery of Notes and Warrants. The Company shall
have delivered to such Purchaser duly executed Notes and Warrants for the
principal amount of Notes and Warrants being purchased by such Purchaser (each
in such denominations as such Purchaser shall request), registered in such
Purchaser’s name. 

(c)      Listing. The Common Stock shall be authorized for
quotation and listed on the Principal Market and trading in the Common Stock (or
on the Principal Market generally) shall not have been suspended by the SEC or
the Principal Market. 

(d)      Representations and Warranties True; Covenants
Performed. The representations and warranties of the Company shall be true
and correct as of the date when made and as of the Closing Date as though made
at that time (except for representations and warranties that speak as of a
specific date, which representations and warranties shall be true and correct as
of such date) and the Company shall have performed, satisfied and complied with
the covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the Closing
Date. Such Purchaser shall have received a certificate, executed by the Chief
Executive Officer of the Company after reasonable investigation, dated as of the
Closing Date to the foregoing effect and as to such other matters as may
reasonably be requested by such Purchaser. 

- 14 -




(e)      No Legal Prohibition; Government Approval. No
statute, rule, regulation, executive order, decree, ruling, injunction, action
or proceeding shall have been enacted, entered, promulgated or endorsed by any
court or governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which
restricts or prohibits the consummation of, any of the transactions contemplated
by this Agreement. The Company shall have obtained all governmental, regulatory
or third party consents and approvals, if any, necessary for the sale of the
Units. 

(f)      No Material Adverse Change. There shall have been no
material adverse changes and no material adverse developments in the business,
properties, operations, prospects, financial condition or results of operations
of the Company, taken as a whole, since the date hereof, and no information that
is materially adverse to the Company and of which such Purchaser is not
currently aware shall come to the attention of such Purchaser. 

(g)      Corporate Approvals. Such Purchaser shall have
received a copy of resolutions, duly adopted by the Board of Directors of the
Company, which shall be in full force and effect at the time of the Closing,
authorizing the execution, delivery and performance by the Company of this
Agreement and the other Transaction Documents and the consummation by the
Company of the transactions contemplated hereby and thereby, certified as such
by the Secretary or Assistant Secretary of the Company, and such other documents
they reasonably request in connection with the Closing. 

(h)      Good Standing Certificates. The Company shall have
delivered to such Purchaser a true copy of a certificate evidencing the
formation and good standing of the Company in such entity’s jurisdiction of
formation issued by the Secretary of State (or comparable office) of such
jurisdiction, as of a date within 10 days of the Closing Date. 

(i)      Transfer Agent Certification. The Company shall have
delivered to such Purchaser a letter from the Company’s transfer agent
certifying the number of shares of Common Stock outstanding as of a date within
five days of the Closing Date. 

	8. 	
      COLLATERAL AGENCY
PROVISIONS.



(a)      Appointment of Collateral Agent. Effective upon the
Closing Date, the Purchasers hereby appoint the Collateral Agent to act as
collateral agent and the Collateral Agent agrees to act as collateral agent for
the Purchasers, as contemplated herein and in the Security Documents. 

(b)      Collateral Agent Authorized to Enter into Security
Documents. Each of the Purchasers authorizes and directs the Collateral
Agent to enter into the Security Documents on its behalf, upon the Closing Date.


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(c)      Amendment to Security Documents. On and after the
Closing Date, the Purchasers holding at least a majority of the total
outstanding principal balance of the Notes (the “Required Holders”) shall
have the right to direct the Collateral Agent in writing, from time to time, to
consent to any amendment, modification or supplement to or waiver of any
provision of any Security Document and to release any Collateral (as defined in
the Security Documents) from any lien or security interest held by the
Collateral Agent; provided, however, that (i) no such direction
shall require the Collateral Agent to consent to the modification of any
provision or portion thereof which (in the sole judgment of the Collateral
Agent) is intended to benefit the Collateral Agent, (ii) the Collateral Agent
shall have the right to decline to follow any such direction if the Collateral
Agent shall determine in good faith that the directed action is not permitted by
the terms of any Security Document or may not lawfully be taken and (iii) no
such direction shall waive or modify any provision of any Security Document the
waiver or modification of which requires the consent of all Purchasers unless
all Purchasers consent thereto. The Collateral Agent may rely on any such
written 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 Collateral Agent’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 Notes or any other person
or entity for taking or refraining from taking action in accordance with any
direction or otherwise in accordance with any of the Security Documents. 

(d)                        Duties of Collateral Agent.

(i)      Powers. The Collateral Agent shall have and may
exercise such powers under the Security Documents as are specifically delegated
to the Collateral Agent by the terms hereof and thereof. The Collateral Agent
shall not have any implied duties or any obligations to take any action under
this Agreement or the Security Documents. 

(ii)      No Obligation to Act. The Collateral Agent 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 Purchasers,
including, without limitation, the instructions set forth in Section 8(c)
hereof; provided, however, that the Collateral Agent 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 Collateral Agent, it shall have been provided indemnity from
the Company 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 Collateral Agent 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. No
provision of this Agreement or of any Security Document shall be deemed to
impose any duty or obligation on the Collateral Agent 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 Collateral Agent
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 Collateral Agent in such
jurisdiction or impose a tax on the Collateral Agent by reason thereof. 

- 16 -




(iii)      Action by Collateral Agent. Absent written
instructions from the Required Holders at a time when an Event of Default shall
have occurred and be continuing, the Collateral Agent shall have no obligation
to take any actions under the Security Documents. 

(iv)      Independent Right of Each Purchaser to Instruct
Collateral Agent. The right of each Purchaser to instruct the Collateral
Agent is the separate and individual property of such Purchaser and may be
exercised as such Purchaser sees fit in its sole discretion and with no
liability to any other such Purchaser for the exercise or non-exercise thereof.
Without limiting the foregoing, the Required Holders shall not be liable under
any circumstances to any other Purchaser for any action taken or omitted to be
taken hereunder by the Collateral Agent upon written instructions from the
Required Holders. 

(v)      Relationship Between Collateral Agent and
Purchasers. The relationship between the Collateral Agent and the Purchasers
is and shall be only to the extent explicitly provided for herein that of agent
and principal and nothing herein contained shall be construed to constitute the
Collateral Agent a trustee for any Purchaser or to impose on the Collateral
Agent duties and obligations other than those expressly provided for herein.
Without limiting the generality of the foregoing, neither the Collateral Agent
nor any of its directors, officers, employees, partners or agents shall: 

(A)     be responsible to the Purchasers for any recitals,
representations or warranties contained in, or for the execution, validity,
genuineness, perfection, effectiveness or enforceability of, the Security
Documents (it being expressly understood that any determination of the foregoing
is the responsibility of each Purchaser), 

(B)     be responsible to the Purchasers for the validity,
genuineness, perfection, effectiveness, enforceability, existence, value or
enforcement of any security interest in the Collateral (it being expressly
understood that any determination of the foregoing is the responsibility of each
Purchaser), 

(C)     be under any duty to inquire into or pass upon any of the
foregoing matters, or to make any inquiry concerning the performance by any
person or entity of its or their obligations under any Security Document (it
being expressly understood that any determination of the foregoing is the
responsibility of each Purchaser), 

(D)     be deemed to have knowledge of the occurrence of an Event
of Default (as defined in the Notes), or any event, condition or circumstance
the occurrence of which would, with the giving of notice or the passage of time
or both, constitute an Event of Default, 

(E)     be responsible or liable to the Purchasers for any
shortage, discrepancy, damage, loss or destruction of any part of the Collateral
wherever the same may be located regardless of the cause thereof unless the same
shall happen solely through the gross negligence or willful misconduct of the
Collateral Agent as shall have been determined in a final nonappealable judgment
of a court of competent jurisdiction, 

- 17 -




(F)      have any liability to the Purchasers for any error or
omission or action or failure to act of any kind made in the settlement,
collection or payment in connection with any of the Security Documents or any of
the Collateral or any instrument received in payment therefor or for any damage
resulting therefrom other than as a sole result of its own gross negligence or
willful misconduct as shall have been determined in a final nonappealable
judgment of a court of competent jurisdiction, 

(G)      in any event, be liable to the Purchasers as such for any
action taken or omitted by it, absent, in each case described in this
subsection, its gross negligence or willful misconduct as shall have been
determined in a final nonappealable judgment of a court of competent
jurisdiction, or 

(H)      be responsible or liable for any failure or delay in the
performance of its obligations hereunder arising out of or caused by, directly
or indirectly, forces beyond its control, including without limitation strikes,
work stoppages, accidents, acts of war or terrorism, civil or military
disturbances, nuclear or natural catastrophes or acts of god, and interruptions,
loss or malfunctions of utilities, communications or computer (software or
hardware) services; it being understood that the Collateral Agent shall use
reasonable efforts which are consistent with accepted practices in the banking
industry to resume performance as soon as practicable under the circumstances.


(e)      Standard of Care. Each Purchaser agrees with all
other Purchasers and the Collateral Agent that nothing contained in this
Agreement shall be construed to give rise to, nor shall such Purchaser have, any
claims whatsoever against the Collateral Agent on account of any act or omission
to act in connection with the exercise of any right or remedy of the Collateral
Agent with respect to the Security Documents or the Collateral in the absence of
gross negligence or willful misconduct of the Collateral Agent as shall have
been determined in a final nonappealable judgment of a court of competent
jurisdiction. In no event shall the Collateral Agent be liable under or in
connection with this Agreement or any Security Documents for indirect, special,
incidental, punitive or consequential losses or damages of any kind whatsoever,
including but not limited to lost profits, whether or not foreseeable, even if
the Collateral Agent has been advised of the possibility thereof and regardless
of the form of action in which such damages are sought. 

(f)      Collateral In Possession of Collateral Agent.
Following the grant of the Lien, the Collateral Agent shall be at liberty to
place any of the Collateral, this Agreement, the Security Documents and any
other instruments, documents or deeds delivered to it pursuant to or in
connection with any of such documents in any safe deposit box, safe or
receptacle selected by it or with any bank, any company whose business includes
undertaking the safe custody of documents or any firm of lawyers of good repute
and the Collateral Agent shall not be responsible for any loss thereby incurred
unless such loss is solely the result of the Collateral Agent’s gross negligence
or willful misconduct as shall have been determined in a final nonappealable
judgment of a court of competent jurisdiction. Following the grant of the Lien,
the Collateral Agent’s books and records shall at all times show that the
Collateral is held by the Collateral Agent subject to the pledge and lien of the
Security Documents. 

- 18 -




(g)      Agents, Officers and Employees of Collateral Agent.
The Collateral Agent may execute any of its duties under the Security Documents
by or through its agents, officers or employees. Neither the Collateral Agent
nor any of its agents, officers or employees shall be liable for any action
taken or omitted to be taken by it or them in good faith, be responsible for the
consequence of any oversight or error of judgment or answerable for any loss
unless any of the foregoing shall happen through its or their gross negligence
or willful misconduct as shall have been determined in a final nonappealable
judgment of a court of competent jurisdiction. 

(h)      Appointment of Co-Agent. Whenever the Collateral
Agent shall deem it necessary or prudent in order either to conform to any law
of any jurisdiction in which all or any part of the Collateral shall be situated
or to make any claim or bring any suit with respect to the Collateral or the
Security Documents, or in the event that the Collateral Agent shall have been
requested to do so by or on behalf of the Required Holders, the Collateral Agent
shall execute and deliver a supplemental agreement and all other instruments and
agreements necessary or proper to constitute a bank or trust company, or one or
more other persons or entities approved by the Collateral Agent, either to act
as co-agent or co-agents with respect to all or any part of the Collateral or
with respect to the Security Documents, jointly with the Collateral Agent or any
successor or successors, or to act as separate agent or agents of any such
property, in any such case with such powers as may be provided in such
supplemental agreement, and to vest in such bank, trust company or other persons
or entities as such co-agent or separate agent, as the case may be, any
property, title, right or power of the Collateral Agent deemed necessary or
advisable by the Required Holders or the Collateral Agent. 

(i)      Reliance on Certain Documents. The Collateral Agent
shall be entitled to rely on any communication, instrument or document believed
by it to be genuine and correct and to have been signed or sent by the proper
person or entity, and with respect to all legal matters shall be entitled to
rely on the advice of legal advisors selected by it concerning all matters
relating to the Security Documents and its duties hereunder and thereunder and
otherwise shall rely on such experts as it deems necessary or desirable, and
shall not be liable to any Purchaser or any other person or entity for the
consequences of such reliance in the absence of gross negligence or willful
misconduct as shall have been determined in a final nonappealable judgment of a
court of competent jurisdiction. 

(j)      Collateral Agent May Have Separate Relationship with
Parties. The Collateral Agent (or any affiliate of the Collateral Agent)
may, notwithstanding the fact that it is the Collateral Agent, act as a lender
to the Company and lend money to, and generally engage in any kind of business
with such party in the same manner and to the same effect as though it were not
the Collateral Agent; and such business shall not constitute a breach of any
obligation of the Collateral Agent to the other Purchasers. 

(k)      Indemnification of Collateral Agent. The Company
hereby agrees to indemnify and hold harmless the Collateral Agent (and its
directors, officers and employees) for any and all liabilities, losses, damages,
penalties, actions, judgments, suits, costs, expenses (including the fees and
other charges of counsel) or disbursements of any kind and nature whatsoever
that may be imposed on, incurred by or asserted against the Collateral Agent in
its capacity as the Collateral Agent, in any way relating to or arising out of
the Security Documents or the transactions contemplated hereby or thereby or the
enforcement of any of the terms hereof or thereof, provided that the Company
shall not be liable for any of the foregoing to the extent they arise from gross
negligence or willful misconduct on the part of the Collateral Agent as shall
have been determined in a final nonappealable judgment of a court of competent
jurisdiction. This Section 8(k) shall survive the termination of this Agreement.
Prior to taking any action hereunder as Collateral Agent, the Collateral Agent
may require the Company to deposit, and the Company shall deposit, with the
Collateral Agent sufficient sums as it determines in good faith is necessary to
protect the Collateral Agent for costs and expenses associated with taking such
action, and the Collateral Agent shall have no liability hereunder for failure
to take such action unless the Company promptly deposits such sums; provided,
however, that if the Company fails to deposit such amounts within 3 business
days of the Collateral Agent’s request therefore, the Collateral Agent shall
notify the Purchasers of such failure. 

- 19 -




(l)      Resignation and Removal. The Collateral Agent at any
time may resign, upon 30 days’ prior written notice, by an instrument addressed
and delivered to the Purchasers and the Company and may be removed at any time
with or without cause upon 30 days’ prior written notice, by an instrument in
writing duly executed by duly authorized signatories of the Required Holders.
The Required Holders shall have the right to appoint a successor to the
Collateral Agent upon any such resignation or removal, by instrument of
substitution complying with the requirements of applicable law, or, in the
absence of any such requirement, without any formality other than appointment
and designation in writing, a copy of which instrument or writing shall be sent
to each Purchaser. Upon the making of such appointment and delivery to such
successor Collateral Agent of the Collateral then held by the retiring
Collateral Agent, such successor Collateral Agent shall thereupon succeed to and
become vested with all the rights, powers, privileges and duties conferred
hereby and by the Security Documents upon the Collateral Agent named herein, and
one or more such appointments and designations shall not exhaust the right to
appoint and designate further successor Collateral Agents hereunder. The
retiring Collateral Agent shall not be discharged from its duties and
obligations hereunder until, and the retiring Collateral Agent shall be so
discharged when, all the Collateral held by the retiring Collateral Agent has
been delivered to the successor Collateral Agent and such successor Collateral
Agent shall execute, acknowledge and deliver to each holder of the Notes and to
the Company an instrument accepting such appointment. If no successor shall be
appointed and approved on or prior to the date of any such resignation, the
resigning Collateral Agent may apply to any court of competent jurisdiction to
appoint a successor to act until a successor shall have been appointed by the
Required Holders as above provided. 

(m)                        Rights with Respect to Collateral. Following the
grant of the Lien:

(i)      Each Purchaser agrees with all other Purchasers (A) that it
shall not, and shall not attempt to, exercise any rights with respect to its
security interest in the Collateral, whether pursuant to any other agreement or
otherwise (other than pursuant to this Agreement), or take or institute any
action against the Collateral Agent or any of the other Purchasers in respect of
the Collateral or its rights hereunder (other than any such action arising from
the breach of this Agreement) and (B) that such Purchaser has no other rights
with respect to the Collateral other than as set forth in this Agreement and the
Security Documents. 

(ii)      Each Purchaser agrees with all other Purchasers and the
Collateral Agent that nothing contained in this Section 8 shall be construed to
give rise to, nor shall such Purchaser have, any claims whatsoever against the
Collateral Agent on account of any act or omission to act in connection with the
exercise of any right or remedy of the Collateral Agent with respect to the
Collateral in the absence of gross negligence or willful misconduct of the
Collateral Agent, as shall have been determined in a final nonappealable
judgment of a court of competent jurisdiction. 

- 20 -




(n)                Fees, Costs and Expenses of Collateral Agent.
Without limiting any other cost reimbursement provisions in this Agreement or
the Security Documents, upon demand, the Company shall pay to the Collateral
Agent the amount of any and all fees and reasonable expenses incurred by the
Collateral Agent under this Agreement or the Security Documents or in connection
herewith or therewith, including, without limitation, reasonable fees of counsel
to the Collateral Agent and those other expenses that may be incurred in
connection with (i) the execution and delivery of this Agreement and the
Security Documents and any amendments, waivers and supplements hereto or
thereto, (ii) the administration of this Agreement and the Security Documents,
(iii) the custody or preservation of, or the sale of, collection from, or other
realization upon, any of the collateral of the Company, (iv) the exercise or
enforcement of any of the rights of the Collateral Agent under this Agreement or
the Security Documents, and (v) the failure of any the Company to perform or
observe any of the provisions of this Agreement or the Security Documents. Upon
the occurrence of an Event of Default (as defined in the Notes), the Purchasers
collectively shall pay the Collateral Agent the sum of $10,000 on account, to
apply against an hourly fee of $350 to be paid to the Collateral Agent by the
Purchasers for services rendered pursuant to this Agreement. All payments due to
the Collateral Agent under this Agreement including reimbursements must be paid
when billed. The Collateral Agent may refuse to act on behalf of or make a
distribution to any Purchaser who is not current in payments to the Collateral
Agent. Payments required pursuant to this Agreement shall be pari passu
to the Purchasers’ interests in the Notes. The Collateral Agent is hereby
authorized to deduct any sums due the Collateral Agent from Collateral in the
Collateral Agent’s possession.] 

(o)                Representation at Closing: The
Purchasers irrevocably authorize the Collateral Agent to act as the
Purchasers’ representative at the Closing, to take delivery of all
Notes, Warrants and other deliveries to be made to the Purchasers under Section
7 of this Agreement and to execute receipts evidencing
the delivery of those documents. 

	9. 	
      GOVERNING LAW;
MISCELLANEOUS.



(a)      Governing Law; Jurisdiction; Jury Trial. This
Agreement shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts applicable to contracts made and to be performed
in the Commonwealth of Massachusetts. The Company, each Purchaser and the
Collateral Agent irrevocably consent to the 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 Agreement and
irrevocably agree that all claims in respect of such suit or proceeding may be
determined in such courts. The Company, each Purchaser and the Collateral Agent
each irrevocably waives the defense of an inconvenient forum to the maintenance
of such suit or proceeding in such forum. The Company, each Purchaser and the
Collateral Agent each further agrees that service of process upon such party
mailed by first class mail shall be deemed in every respect effective service of
process upon such party in any such suit or proceeding. Nothing herein shall
affect the right of any party hereto to serve process in any other manner
permitted by law. The Company, each Purchaser and the Collateral Agent each
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
ANY TRANSACTION DOCUMENT OR ANY TRANSACTION CONTEMPLATED HEREBY OR
THEREBY.      

- 21 -




(b)      Counterparts. This Agreement may be executed in two
or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party. This Agreement, once executed by a
party, may be delivered to the other parties hereto by facsimile transmission of
a copy of this Agreement bearing the signature of the party so delivering this
Agreement. In the event any signature is delivered by facsimile transmission,
the party using such means of delivery shall cause the manually executed
execution page(s) hereof to be physically delivered to the other party within
five days of the execution hereof, provided that the failure to so deliver any
manually executed execution page shall not affect the validity or enforceability
of this Agreement. 

(c)      Construction. Whenever the context requires, the
gender of any word used in this Agreement includes the masculine, feminine or
neuter, and the number of any word includes the singular or plural. Unless the
context otherwise requires, all references to articles and sections refer to
articles and sections of this Agreement, and all references to schedules are to
schedules attached hereto, each of which is made a part hereof for all purposes.
The descriptive headings of the several articles and sections of this Agreement
are inserted for purposes of reference only, and shall not affect the meaning or
construction of any of the provisions hereof. 

(d)      Severability. If any provision of this Agreement
shall be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction. 

(e)      Entire Agreement; Amendments. This Agreement and the
other Transaction Documents (including any schedules and exhibits hereto and
thereto) contain the entire understanding of the Purchasers, the Company, the
Collateral Agent, their affiliates and persons acting on their behalf with
respect to the matters covered herein and therein and, except as specifically
set forth herein or therein, neither the Company, the Purchasers nor the
Collateral Agent make any representation, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement may be waived other than
by an instrument in writing signed by the party to be charged with enforcement,
and, except as otherwise provided herein, no provision of this Agreement may be
amended other than by an instrument in writing signed by the Company and each
Purchaser; provided, that no amendment or waiver of any provision of
Section 8 hereof shall be effective unless it is set forth in a written
instrument signed by the Company, each Purchaser and the Collateral Agent. No
consideration shall be offered or paid to any Person to amend or consent to a
waiver or modification of any provision of any of the Transaction Documents
unless the same consideration also is offered to all of the parties to the
Transaction Documents or holders of Notes, as the case may be. The Company has
not, directly or indirectly, made any agreements with any Purchasers relating to
the terms or conditions of the transactions contemplated by the Transaction
Documents except as set forth in the Transaction Documents. 

- 22 -




(f)      Notices. Any notices required or permitted to be
given under the terms of this Agreement shall be in writing and sent by
certified or registered mail (return receipt requested) or delivered personally,
by nationally recognized overnight carrier or by confirmed facsimile
transmission, and shall be effective five days after being placed in the mail,
if mailed, or upon receipt or refusal of receipt, if delivered personally or by
nationally recognized overnight carrier or confirmed facsimile transmission, in
each case addressed to a party as provided herein. The initial addresses for
such communications shall be as follows, and each party shall provide notice to
the other parties of any change in such party’s address: 

(i)     If to the Co:  

	 	Security Devices International Inc.
    
	 	107 Audubon Road 
	 	Bldg 2, Suite 201 
	 	Wakefield, MA 01880 USA 
	 	Telephone: (978) 665-2721 
	 	Attention: Lisa Wager



with a copy simultaneously transmitted by like means (which
transmittal shall not constitute notice hereunder) to: 

	 	Hinckley, Allen & Snyder LLP 
	 	100 Westminster Street, Suite 1500 
	 	Providence, Rhode Island 02903 
	 	Telephone: (401) 274-2000 
	 	Facsimile: (401) 277-9600 
	 	Attention: David S. Hirsch, Esq.



(ii)      If to any Purchaser, to the
address set forth under such Purchaser’s name on the Execution Page hereto
executed by such Purchaser. 

(iii)     If to the Collateral Agent:  


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


- 23 -




(g)      Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
assigns. Except as provided herein, the Company shall not assign this Agreement
or any rights or obligations hereunder. Any Purchaser may assign or transfer the
Securities pursuant to the terms of this Agreement and of such Securities, or
assign such Purchaser’s rights hereunder to any other person or entity, which
assignee shall be considered a Purchaser for purposes of this Agreement. 

(h)      Third Party Beneficiaries. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any provision
hereof be enforced by, any other person. 

(i)      Survival. The representations and warranties of the
Company and the agreements and covenants set forth in Sections 3, 4, 5 and 8
hereof shall survive the Closing notwithstanding any due diligence investigation
conducted by or on behalf of any Purchaser. Moreover, none of the
representations and warranties made by the Company herein shall act as a waiver
of any rights or remedies any Purchaser may have under applicable U.S. federal
or state securities laws. 

(j)      Further Assurances. Each party shall do and perform,
or cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby. 

(k)      Payment Set Aside. To the extent that the Company
makes a payment or payments to any Purchaser hereunder or pursuant to any of the
other Transaction Documents or any Purchaser enforces or exercises its rights
hereunder or thereunder, and such payment or payments or the proceeds of such
enforcement or exercise or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, recovered from, disgorged
by or are required to be refunded, repaid or otherwise restored to the Company,
a trustee, receiver or any other person under any law (including, without
limitation, any bankruptcy law, state or federal law, common law or equitable
cause of action), then to the extent of any such restoration the obligation or
part thereof originally intended to be satisfied shall be revived and continued
in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.

(l)      No Strict Construction. The language used herein and
therein shall be deemed to be the language chosen by the parties hereto to
express their mutual intent, and no rule of strict construction will be applied
against any party to this Agreement. 

(m)      Remedies. No provision of this Agreement or any
other Transaction Document providing for any remedy to a Purchaser shall limit
any other remedy which would otherwise be available to such Purchaser at law, in
equity or otherwise. Nothing in this Agreement or any other Transaction Document
shall limit any rights any Purchaser may have under any applicable federal or
state securities laws with respect to the investment contemplated hereby. The
Company acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Purchasers by vitiating the intent and purpose of the
transactions contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations hereunder (including, but not
limited to, its obligations pursuant to Section 5 hereof) will be inadequate and
agrees, in the event of a breach or threatened breach by the Company of the
provisions of this Agreement (including, but not limited to, its obligations
pursua nt to Section 5 hereof), that each Purchaser shall be entitled, in
addition to all available remedies, to an injunction restraining any breach and
requiring immediate issuance and transfer of the Securities, without the
necessity of showing economic loss and without any bond or other security being
required. 

- 24 -




(n)      Knowledge. As used in this Agreement, the term
“knowledge” of any person or entity shall mean and include (i) actual knowledge
and (ii) that knowledge which a reasonably prudent business person could have
obtained in the management of his or her business affairs after making due
inquiry and exercising due diligence which a prudent business person should have
made or exercised, as applicable, with respect thereto and with respect to the
Company, shall mean the knowledge (as so defined) of the directors and officers
of the Company. 

(o)      Exculpation Among Purchasers; No “Group”. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance or non-performance of the obligations
of any other Purchaser under any Transaction Document. Nothing contained herein
or in any other Transaction Document, and no action taken by any Purchaser
pursuant thereto, shall be deemed to constitute the Purchasers as a partnership,
an association, a joint venture or any other kind of entity, or create a
presumption that the Purchasers are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by the
Transaction Documents. Each party to this Agreement confirms that it has
independently participated in the negotiation and drafting of this Agreement and
the other Transaction Documents with the advice of its own counsel and advisors,
that it has independently determined to enter into the transactions contemplated
hereby and thereby, that it is not relying on any advice from or evaluation by
any other Purchaser, and that it is not acting in concert with any other
Purchaser in making its purchase of Securities hereunder or in monitoring its
investment in the Company. The Purchasers and, to its knowledge, the Company
agree that no action taken by any Purchaser pursuant hereto or to the other
Transaction Documents, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity or
group, or create a presumption that the Purchasers are in any way acting in
concert or would deem such Purchasers to be members of a “group” for purposes of
Section 13(d) of the Exchange Act. The Purchasers have not agreed to act
together for the purpose of acquiring, holding, voting or disposing of equity
securities of the Company. Each Purchaser shall be entitled to independently
protect and enforce its rights, including without limitation the rights arising
out of this Agreement or out of the other Transaction Documents, and it shall
not be necessary for any other Purchaser to be joined as an additional party in
any proceeding for such purpose. The Company has elected to provide all
Purchasers with the same terms and Transaction Documents for the convenience of
the Company and not because it was required or requested to do so by the
Purchasers. The Company acknowledges that such procedure with respect to the
Transaction Documents in no way creates a presumption that the Purchasers are in
any way acting in concert or as a “group” for purposes of Section 13(d) of the
Exchange Act with respect to the Transaction Documents or the transactions
contemplated hereby or thereby. 

- 25 -




(p)      Consent to Collection and Use of Personal
Information. This Agreement requires each Purchaser to provide information
about the Purchaser (the “Personal Information”). Such information is
being collected by the Company for the purposes of completing the proposed
issuance of the Units, which includes, without limitation, determining the P
urchaser’s eligibility to purchase the Units under applicable securities laws,
preparing and registering certificates representing the Notes or Warrants and
completing filings required by the securities commissions, the Canadian
Securities Exchange and/or other regulatory authorities. Each Purchaser agrees
that the Purchaser’s Personal Information may be disclosed by the Company
(including the filing of copies or originals of any of the Purchaser’s
documents) to: (a) securities commissions and/or other regulatory authorities,
(b) the Canadian Securities Exchange and (c) any of the other parties involved
in this subscription, including legal counsel, and may be included in record
books in connection with this subscription. In the case of information provided
to the securities commissions, such information is being collected indirectly by
them for the purpose of the administration and enforcement of applicable
securities laws and each Purchaser authorizes the indirect collection of such
information by them. Each Purchaser consents to the foregoing collection, use
and disclosure of the Purchaser’s Personal Information and to the collection,
use and disclosure of Personal Information by the securities commissions and/or
other regulatory authorities. The title, business address and business telephone
number of the public official in Ontario who can answer questions about the
Ontario Securities Commission’s indirect collection of the information is the
Administrative Assistant to the Administrative Support Clerk, Ontario Securities
Commission, Suite 1903, Box 55, 20 Queen Street West, Toronto, Ontario M5H 3S8
(Telephone: 416-593-3684).

[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY] 

- 26 -




IN WITNESS WHEREOF, the undersigned Purchaser, the
Company and
the collateral Agent have caused this Agreement to be duly executed as of the
date first above written. 

SECURITY DEVICES INTERNATIONAL INC. 

	Signature: 	 	 
	 	 	 
	Name: 	 	 
	 	 	 
	Title: 	 	 


COLLATERAL AGENT: 

NORTHEAST INDUSTRIAL PARTNERS, LLC, as Collateral Agent 

	Signature:
      __________________________________________________________
	Name: Bryan S. Ganz 
	Title: Manager 


PURCHASER: 

	 	 
	(Print or Type Name of Purchaser) 	 
	  	  	 
	  	  	 
	Signature: 	 
    	 
	Name: 	 
    	 
	Title: 	 
    	 



	RESIDENCE: 		 	 
	 	 	 	 
	ADDRESS: 		 	 
	 	Telephone: 	 	 
	 	 Facsimile: 	 	 
	 	Attention: 	 	 
	 	 	 	 
	 	Attention: 	 	 



	AGGREGATE SUBSCRIPTION AMOUNT: 
	 
	Purchase Price for Units 
	and Principal Amount of Notes:
      _______________________________________________________________________________________________
	 
	Number of Warrants:
      _______________________________________________________________________________________________________


[Signature Page to Securities Purchase Agreement] 





EXHIBIT A 

 

FORM OF NOTE




FORM OF UNSECURED 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) 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) 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 JULY 22,
2019.

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 NOVEMBER
23, 2019. 

WITHOUT PRIOR WRITTEN APPROVAL OF THE CANADIAN SECURITIES
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 THE CANADIAN SECURITIES
EXCHANGE OR OTHERWISE IN CANADA OR TO OR FOR THE BENEFIT OF A CANADIAN RESIDENT
UNTIL NOVEMBER 23, 2019. 




SECURITY DEVICES
INTERNATIONAL INC. 

UNSECURED
CONVERTIBLE NOTE 



	Issuance Date: July 22, 2019 	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 Unsecured Convertible Note (including all Unsecured
Convertible Notes issues in exchange, transfer, or replacement hereof, this
“Note”) is one of an issue of Unsecured 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 Unsecured 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 30, 2021, 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 January and July
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 January 15, 2020. 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.

-2-





    (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$0.15,
subject to adjustment as provided herein. 

-3-




(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),
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).


-4-




(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. 


-5-




(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; 

-6-




(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; 

-7-




(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. 

-8-




 

	 	(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. 

-9-




(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.

-10-




	(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: 

-11-




(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. 


-12-




(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 

-13-




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. 

-14-





(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 an amount equal to the sum of
(I) the outstanding Principal of the Optional Redemption Portion of this Note,
plus (II) any accrued and unpaid Interest thereon through but excluding the
Optional Redemption Date, and any accrued and unpaid Late Charges thereon, plus
(III) 25% of the Interest that would have accrued thereon from the Optional
Redemption Date to 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. 

-15-




(9)      SECURITY.
This Note and the Other Notes are unsecured, provided that on the Closing Date
(as defined in the Securities Purchase Agreement), a security interest may be
filed, 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. 

-16-





	 	(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.


-17-




(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. This Note is
pari passu in right of payment to those certain Convertible Secured Notes
(the “Senior Debt”) issued by the Company to certain holders pursuant to
Security Purchase Agreements dated as of October 22, 2018 and April 15, 2019
entered into between the Company, the purchasers thereto, and Northeast
Industrial Partners, as collateral agent (the “Collateral Agent”), in the
aggregate original principal amount of $3,355,265. All payments due under this
Note shall rank pari passu with all Other Notes from this offering. Upon
the occurrence of the Closing Date (as defined in the Securities Purchase
Agreement), the Lien (as defined in the Securities Purchase Agreement) shall
take effect, granting the Collateral Agent (as defined in the Securities
Purchase Agreement) a security interest in the Company’s assets, subject to 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,
provided that a Permitted Lien shall be permitted hereunder and thereunder. 

(b)      Incurrence of
Indebtedness. On and after the Closing Date, 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. On
and after the Closing Date, 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. 

-18-




(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.
Notwithstanding the foregoing, the prohibitions and limitations on payment or
repayment shall not apply in any way to Permitted Indebtedness incurred pursuant
to provision 28(r)(E). 

(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 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.

-19-




(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) 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. 

-20-




(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. 

-21-




(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. 

-22-




(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 accordance 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. 

-23-





(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 Date” shall
have the meaning as set forth in the Securities Purchase Agreement. 

(f)      “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. 

-24-




(g)      “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. 

(h)      “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. 

(i)      “Convertible
Securities” means any stock or securities (other than Options) directly or
indirectly convertible into or exercisable or exchangeable for shares of Common
Stock. 

(j)      “Eligible Market”
means the Principal Market, The Nasdaq Stock Market LLC or The New York Stock
Exchange, Inc. 

(k)     “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. 

-25-




(l)      “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. 

(m)      “GAAP” means United
States generally accepted accounting principles, consistently applied. 

(n)      “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.

-26-




(o)      “Minimum Conversion
Price” means USD $0.15, subject to adjustment as provided in Section 6
hereof. 

(p)      “Options” means any
rights, warrants or options to subscribe for or purchase shares of Common Stock
or Convertible Securities. 

(q)      “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.


(r)      “Permitted
Indebtedness” means (A) 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, (B) 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, (C) the Senior Debt, (D)
Indebtedness permitted by clause (iv) of the definition of “Permitted Lien”, and
(E) additional indebtedness up to $7,000,000, which may be subordinate or
pari passu with these Notes. 

(s)      “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, (v) Liens
securing the Company's obligations under the Notes, and (vi) any Lien arising
with respect to Permitted Indebtedness incurred pursuant to provision 28(r)(E).


-27-




(t)      “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.

(u)      “Principal Market”
means the Canadian Securities Exchange (CNSX Market Inc.) 

 (v)      “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. 

(w)      “Required Holders”
means the holders of Notes representing more than 50% of the aggregate principal
amount of the Notes then outstanding. 

(x)      “SEC” means the United
States Securities and Exchange Commission. 

(y)      “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. 

(z)      “Lien” has the meaning
set forth in the Securities Purchase Agreement. 

(aa)      “Subscription Date” means July 22, 2019. 

(bb)      “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. 

(cc)      “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). 

-28-




(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] 

-29-




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. 
	 	  
	 	  
	 	Signature :
    ________________________________________________________________________________________
	 	Name:        
    ________________________________________________________________________________________
	 	Title:          
________________________________________________________________________________________



 


[Signature Page to Unsecured Convertible Note] 




EXHIBIT I 

SECURITY DEVICES
INTERNATIONAL INC. 
CONVERSION NOTICE 

Reference is made to the Unsecured 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
_________ __, 20__ from the Company and acknowledged and agreed to by [Insert
name of transfer agent]. 


	 	SECURITY 
      DEVICES INTERNATIONAL
    INC. 
	 	  
	 	  
	 	Signature :
    ________________________________________________________________________________________
	 	Name:        
    ________________________________________________________________________________________
	 	Title:          
________________________________________________________________________________________








EXHIBIT B 

FORM OF WARRANT 




Warrant Certificate 
No.: [###]       

THE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE
HEREOF REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES
LAWS OF ANY STATE. THESE SECURITIES HAVE BEEN ACQUIRED BY THE HOLDER THEREOF FOR
INVESTMENT AND MAY NOT BE SOLD, OFFERED FOR SALE PLEDGED OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION UNDER THE SECURITIES
ACT, AND COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL SATISFACTORY IN FORM AND SUBSTANCE TO COUNSEL FOR THE CORPORATION THAT
THE TRANSACTION WILL NOT RESULT IN A VIOLATION OF UNITED STATES FEDERAL OR STATE
SECURITIES LAWS. 

WITHOUT PRIOR WRITTEN APPROVAL OF THE EXCHANGE AND
COMPLIANCE WITH ALL APPLICABLE SECURITIES LEGISLATION, THE SECURITIES
REPRESENTED BY THIS CERTIFICATE AND ANY SECURITIES ISSUED UPON EXERCISE OF THOSE
SECURITIES MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE TRADED ON OR
THROUGH THE FACILITIES OF THE CANADIAN SECURITIES EXCHANGE OR OTHERWISE IN
CANADA OR TO OR FOR THE BENEFIT OF A CANADIAN RESIDENT UNTIL A DATE WHICH IS 4
MONTHS PLUS ONE DAY FROM THE ISSUANCE DATE. 

COMMON STOCK PURCHASE WARRANT 

SECURITY DEVICES INTERNATIONAL INC. 

	Warrant Shares: [###] 	Issuance Date: July 22, 2019



THIS COMMON STOCK PURCHASE
WARRANT (the “Warrant”) certifies that, for value received, [Holder
Name] or its assigns (the “Holder”) is entitled, upon the terms and
subject to the limitations on exercise and the conditions hereinafter set forth,
at any time on or after the date hereof (the “Issuance Date”) and, subject to
Section 2.d), on or prior to the close of business on January 22, 2024 (the
“Termination Date”) but not thereafter, to subscribe for and purchase from
Security Devices International Inc., a Delaware corporation (the “Company”), up
to [###] shares (as subject to adjustment hereunder, the
“Warrant Shares”) of common stock, par value $0.001 per share, of the Company
(the “Common Stock”). The purchase price of one share of Common Stock under this
Warrant shall be equal to the Exercise Price, as defined in Section 2.b).

Section 1. Definitions.
Capitalized terms used and not otherwise defined herein shall have the meanings
set forth in that certain Securities Purchase Agreement (the “Purchase
Agreement”), dated as of the date hereof by and among the Company and the
purchasers signatory thereto. 

2 






	Section 2. 	Exercise. 


a)     Exercise of the purchase
rights represented by this Warrant may be made, in whole or in part, at any time
or times on or after the Issuance Date and on or before the Termination Date by
delivery to the Company (or such other office or agency of the Company as it may
designate by notice in writing to the registered Holder at the address of the
Holder appearing on the books of the Company) of a duly executed facsimile copy
of the Notice of Exercise Form annexed hereto and the Exercise Price for such
portion of the Warrant being exercised. Within two (2) Trading Days following
the date of exercise as aforesaid, the Holder shall deliver to the Company (i)
the aggregate Exercise Price for the shares specified in the applicable Notice
of Exercise by wire transfer or cashier’s check drawn on a United States bank,
and (ii) this Warrant and/or any certificate or certificates representing this
Warrant. Partial exercises of this Warrant resulting in purchases of a portion
of the total number of Warrant Shares available hereunder shall have the effect
of lowering the outstanding number of Warrant Shares purchasable hereunder in an
amount equal to the applicable number of Warrant Shares purchased. The Holder
and the Company shall maintain records showing the number of Warrant Shares
purchased and the date of such purchases. The Company shall deliver any
objection to any Notice of Exercise Form within one (1) Business Day of receipt
of such notice (two (2) Business Days in the case of a Notice of Exercise Form
delivered after 5:30 p.m. (New York City Time) on a Thursday or at any time on a
Friday). “Trading Day” shall mean a day on which trading in the Common Stock
generally occurs on the New York Stock Exchange or, if the Common Stock is not
then listed on the New York Stock Exchange, on the principal other U.S. national
or regional securities exchange on which the Common Stock is then listed or, if
the Common Stock is not then listed on a U.S. national or regional securities
exchange, on the principal other market on which the Common Stock is then
traded. “Business Day” shall mean a day other than a Saturday or Sunday or any
other day on which commercial banks in New York are required or are authorized
to be closed for business. 

b)      Exercise Price. The
exercise price per share of the Common Stock under this Warrant shall be $0.25,
subject to adjustment hereunder (the “Exercise Price”). 


 c)
     Mechanics of Exercise.

     i.      Delivery of Certificates
Upon Exercise. Subject to the receipt by the Company of a completed Notice
of Exercise, the aggregate Exercise Price in cash in accordance with Section
2.a) and the Warrant and/or any certificate or certificates representing
this Warrant, and assuming the Company has not objected to the Notice of
Exercise in accordance with Section 2.a), certificates for shares
purchased hereunder shall be transmitted by the transfer agent of the Company’s
Common Stock (the “Transfer Agent”) to the Holder by crediting the account of
the Holder’s prime broker with The Depository Trust Company through its Deposit
or Withdrawal at Custodian system (“DWAC”), if the Company is then a
participant in such system and there is an effective registration statement
permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder, and otherwise by physical
delivery to the address specified by the Holder in the Notice of Exercise by the
date that is two (2) Trading Days after the latest of (1) the delivery to the
Company of the Notice of Exercise, (2) surrender of this Warrant and/or any
certificate or certificates representing this Warrant (if required) and (3)
payment of the aggregate Exercise Price as set forth above. The Warrant Shares
shall be deemed to have been issued, and Holder or any other person designated
as the recipient thereof in the Notice of Exercise shall be deemed to have
become a holder of record of such shares for all purposes, as of the date the
Warrant has been exercised, with payment to the Company of the Exercise Price
and all taxes required to be paid by the Holder, if any, pursuant to Section
2.d)vi prior to the issuance of such shares, having been paid. 

3 




     ii.      Delivery of New Warrants
Upon Exercise. If this Warrant shall have been exercised in part, the
Company shall, at the time of delivery of the certificate or certificates
representing Warrant Shares, deliver to the Holder a new Warrant evidencing the
rights of the Holder to purchase the unpurchased Warrant Shares called for by
this Warrant, which new Warrant shall in all other respects be identical with
this Warrant and, if such Warrants are certificated, a new certificate or
certificates representing the new Warrant. 

     iii.      No Fractional Shares or
Scrip. No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of this Warrant. As to any fraction of a share which
the Holder would otherwise be entitled to purchase upon such exercise, the
Company shall, at its election, either pay a cash adjustment in respect of such
final fraction in an amount equal to such fraction multiplied by the Exercise
Price or round up to the next whole share. 

     iv.      Charges, Taxes and
Expenses. Issuance of certificates for Warrant Shares shall be made without
charge to the Holder for any issue tax or other incidental expense in respect of
the issuance of such certificate, all of which taxes and expenses shall be paid
by the Company, and such certificates shall be issued in the name of the Holder
or in such name or names as may be directed by the Holder; provided,
however, that in the event certificates for Warrant Shares are to be
issued in a name other than the name of the Holder (in accordance with and
subject to the provisions of Section 4), this Warrant when surrendered
for exercise shall be accompanied by the Assignment Form attached hereto duly
executed by the Holder and the Company may require, as a condition thereto, the
payment of a sum sufficient to reimburse it for any transfer tax incidental
thereto. The Company shall pay all Transfer Agent fees required for same- day
processing of any Notice of Exercise. 

    v.      Closing of Books. The Company
will not close its stockholder books or records in any manner which prevents the
timely exercise of this Warrant, pursuant to the terms hereof. 

4 




d)      Holder’s Exercise
Limitations. The Company shall not effect any exercise of this Warrant, and
a Holder shall not have the right to exercise any portion of this Warrant,
pursuant to Section 2 or otherwise, to the extent that after giving
effect to such issuance after exercise as set forth on the applicable Notice of
Exercise, the Holder (together with the Holder’s Affiliates, and any other
Persons acting as a group together with the Holder or any of the Holder’s
Affiliates), would beneficially own in excess of the Beneficial Ownership
Limitation (as defined below). “Affiliate” shall mean a person or entity
that directly or indirectly controls, is controlled by, or is under common
control with another person or entity pursuant to Rule 405 of the Securities Act
and Rule 12b-2 of the Exchange Act. 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
exercise of this Warrant with respect to which such determination is being made,
but shall exclude the number of shares of Common Stock which would be issuable
upon (i) exercise of the remaining, nonexercised portion of this Warrant
beneficially owned by the Holder or any of its Affiliates, and (ii) exercise or
conversion of the unexercised or nonconverted portion of any other securities of
the Company (including, without limitation, any other Common Stock Equivalents)
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
2.d), beneficial ownership shall be calculated in accordance with Section
13(d) of the Exchange Act and the rules and regulations promulgated thereunder,
it being acknowledged by the Holder that the Company is not representing to the
Holder that such calculation is in compliance with Section 13(d) of the Exchange
Act and the Holder is solely responsible for any schedules required to be filed
in accordance therewith. To the extent that the limitation contained in this
Section 2.d) applies, the determination of whether this Warrant is
exercisable (in relation to other securities owned by the Holder together with
any Affiliates) and of which portion of this Warrant is exercisable shall be in
the sole discretion of the Holder, and the submission of a Notice of Exercise
shall be deemed to be the Holder’s determination of whether this Warrant is
exercisable (in relation to other securities owned by the Holder together with
any Affiliates) and of which portion of this Warrant is exercisable, in each
case subject to the Beneficial Ownership Limitation, and the Company shall have
no obligation to verify or confirm the accuracy of such determination. In
addition, a determination as to any group status as contemplated above shall be
determined in accordance with Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder. For purposes of this Section
2.d), in determining the number of outstanding shares of Common Stock, a
Holder may rely on the number of outstanding shares of Common Stock as reflected
in the latest of (A) the Company’s most recent periodic or annual report filed
with the Commission, as the case may be, (B) a more recent public announcement
by the Company or (C) a more recent written notice by the Company or the
Transfer Agent setting forth the number of shares of Common Stock outstanding.
Upon the written or oral request of a Holder, the Company shall within two (2)
Trading Days 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 Warrant, by the Holder or
its Affiliates since the date as of which such number of outstanding shares of
Common Stock was reported. The “Beneficial Ownership Limitation”
shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the
issuance of shares of Common Stock issuable upon exercise of this Warrant. The
Holder, upon not less than 61 days’ prior notice to the Company in each
instance: (i) may increase or decrease the Beneficial Ownership Limitation
provisions of this Section 2.d), insofar as the Beneficial Ownership
Limitation in no event exceeds 9.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of shares of Common
Stock upon exercise of this Warrant held by the Holder (the “First
Notice”), and (ii) may further increase or decrease the Beneficial Ownership
Limitation provisions of this Section 2.d), such that the Beneficial
Ownership Limitation shall exceed 9.99% of the number of shares of the Common
Stock outstanding immediately after giving effect to the issuance of shares of
Common Stock upon exercise of this Warrant held by the Holder (the “Second
Notice”), and the provisions of this Section 2.d) shall continue to
apply to both a First Notice and Second Notice. Any such increase or decrease
will not be effective until the 61st day after the First Notice or
Second Notice, as applicable, is delivered to the Company. The provisions of
this paragraph shall be construed and implemented in a manner otherwise than in
strict conformity with the terms of this Section 2.d) to correct this
paragraph (or any portion hereof) which may be defective or inconsistent with
the intended Beneficial Ownership Limitation herein contained or to make changes
or supplements necessary or desirable to properly give effect to such
limitation. The limitations contained in this paragraph shall apply to a
successor holder of this Warrant.

5 





e)      Acceleration of Termination Date. If the Company’s
Common Stock trades at a price that closes above USD $0.35 per share for twenty
(20) consecutive Trading Days ending more than two years after the Issuance
Date, the Company may accelerate the Termination Date of this Warrant to a date
that is not less than thirty (30) calendar days from the date it gives the
Holder notice of such acceleration (the “Accelerated Termination Date”).
The Holder may exercise the Warrant prior to the Accelerated Termination Date.


	Section 3. 	  Certain Adjustments. 


a)      Stock Dividends and
Splits. If the Company, at any time while this Warrant is outstanding: (i)
pays a stock dividend or otherwise makes a distribution or distributions on
shares of its Common Stock or any other equity or equity equivalent securities
payable in shares of Common Stock (which, for avoidance of doubt, shall not
include any shares of Common Stock issued by the Company upon exercise of this
Warrant), (ii) subdivides outstanding shares of Common Stock into a larger
number of shares, (iii) combines (including by way of reverse stock split)
outstanding shares of Common Stock into a smaller number of shares, or (iv)
issues by reclassification of shares of the Common Stock any shares of capital
stock of the Company, then in each case the Exercise Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding immediately before such
event and of which the denominator shall be the number of shares of Common Stock
outstanding immediately after such event, and the number of shares issuable upon
exercise of this Warrant shall be proportionately adjusted such that the
aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment
made pursuant to this Section 3.a) shall become effective immediately
after the effective date or payment date, as applicable, of such dividend,
distribution, subdivision, combination or re-classification.

6 




b)      Pro Rata Distributions.
If the Company, at any time while this Warrant is outstanding, shall distribute
to all holders of Common Stock (and not to the Holder) evidences of its
indebtedness or assets (including cash and cash dividends) or rights or warrants
to subscribe for or purchase any security other than the Common Stock, then in
each such case the Exercise Price shall be adjusted by multiplying the Exercise
Price in effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of which the
denominator shall be the volume weighted average price (“VWAP”) determined as of
the record date mentioned above, and of which the numerator shall be such VWAP
on such record date less the then per share fair market value at such record
date of the portion of such assets or evidence of indebtedness so distributed
applicable to one outstanding share of the Common Stock as determined by the
Board of Directors of the Company in good faith. In either case the adjustments
shall be described in a statement provided to the Holder of the portion of
assets or evidences of indebtedness so distributed or such subscription rights
applicable to one share of Common Stock. Such adjustment shall be made whenever
any such distribution is made and shall become effective immediately after the
record date mentioned above. 

c)      Fundamental Transaction. If, at any time
while this Warrant is outstanding, (i) the Company, directly or indirectly, in
one or more related transactions effects any merger or consolidation of the
Company with or into another Person, (ii) the Company, directly or indirectly,
effects any sale, lease, license, assignment, transfer, conveyance or other
disposition of all or substantially all of its assets in one or a series of
related transactions, (iii) any, direct or indirect, purchase offer, tender
offer or exchange offer (whether by the Company or another Person) is completed
pursuant to which holders of Common Stock are permitted to sell, tender or
exchange their shares for other securities, cash or property and has been
accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the
Company, directly or indirectly, in one or more related transactions effects any
reclassification, reorganization or recapitalization of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is effectively
converted into or exchanged for other securities, cash or property, or (v) the
Company, directly or indirectly, in one or more related transactions consummates
a stock or share purchase agreement or other business combination (including,
without limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with another Person or group of Persons whereby such other Person
or group acquires more than 50% of the outstanding shares of Common Stock (not
including any shares of Common Stock held by the other Person or other Persons
making or party to, or associated or affiliated with the other Persons making or
party to, such stock or share purchase agreement or other business combination)
(each a “Fundamental Transaction”), then, upon any subsequent exercise of
this Warrant, the Holder shall have the right to receive, for each Warrant Share
that would have been issuable upon such exercise immediately prior to the
occurrence of such Fundamental Transaction, at the option of the Holder , the
number of shares of Common Stock of the successor or acquiring corporation or of
the Company, if it is the surviving corporation, and any additional
consideration (the “Alternate Consideration”) receivable as a
result of such Fundamental Transaction by a holder of the number of shares of
Common Stock for which this Warrant is exercisable immediately prior to such
Fundamental Transaction . If holders of Common Stock are given any choice as to the securities, cash or property to be received in
a Fundamental Transaction, then the Holder shall be given the same choice as to
the Alternate Consideration it receives upon any exercise of this Warrant
following such Fundamental Transaction. 

7 




d)      Calculations. All calculations under this Section
3 shall be made to the nearest cent or the nearest 1/100th of a share, as
the case may be. For purposes of this Section 3, the number of shares of
Common Stock deemed to be issued and outstanding as of a given date shall be the
sum of the number of shares of Common Stock (excluding treasury shares, if any)
issued and outstanding. 

 e)      Notice to Holder.

     i.      Adjustment to Exercise
Price. Whenever the Exercise Price is adjusted pursuant to any provision of
this Section 3, the Company shall promptly mail to the Holder a notice
setting forth the Exercise Price after such adjustment and any resulting
adjustment to the number of Warrant Shares and setting forth a brief statement
of the facts requiring such adjustment. For purposes hereof, a notice delivered
within five (5) calendar days of an event resulting in an adjustment shall be
deemed to have been timely delivered. 

      ii.      Notice to Allow Exercise by
Holder. If (A) the Company shall declare a dividend (or any other
distribution in whatever form) on the Common Stock, (B) the Company shall
declare a special nonrecurring cash dividend on or a redemption of the Common
Stock, (C) the Company shall authorize the granting to all holders of the Common
Stock rights or warrants to subscribe for or purchase any shares of capital
stock of any class or of any rights, (D) the approval of any stockholders of the
Company shall be required in connection with any reclassification of the Common
Stock, any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, or any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property, or (E) the Company shall authorize the voluntary
or involuntary dissolution, liquidation or winding up of the affairs of the
Company, then, in each case, the Company shall cause to be mailed to the Holder
at its last address as it shall appear upon the Warrant Register (as defined
under Section 4.c) below) of the Company, at least ten (10) Business Days
prior to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of the Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; provided that the failure to mail such notice or any defect
therein or in the mailing thereof shall not affect the validity of the corporate
action required to be specified in such notice. To the extent that any notice
provided hereunder constitutes, or contains, material, non-public information
regarding the Company or any of the Subsidiaries, the Company shall
simultaneously file such notice with the Commission pursuant to a Current Report
on Form 8-K. The Holder shall remain entitled to exercise this Warrant during
the period commencing on the date of such notice to the effective date of the
event triggering such notice except as may otherwise be expressly set forth
herein; provided that nothing herein shall entitle the Holder to exercise this
Warrant after the Termination Date. 

8 




	Section 4. 	Transfer of Warrant. 


a)      Transferability.
Subject to compliance with applicable federal and state securities laws, this
Warrant (including the legends set out on the face page) and all rights
hereunder (including, without limitation, any registration rights) are
transferable, in whole or in part, upon surrender of this Warrant at the
principal office of the Company or its designated agent, together with a written
assignment of this Warrant substantially in the form attached hereto duly
executed by the Holder or its agent or attorney and funds sufficient to pay any
transfer taxes payable upon the making of such transfer. In connection with any
such transfer (if made other than pursuant to an effective registration
statement or Rule 144, to the Company or to an Affiliate of a Purchaser or in
connection with a pledge relating to a bona fide margin account or other loan
secured by the Warrants), the Company may require the transferor thereof to
provide to the Company an opinion of counsel selected by the transferor and
reasonably acceptable to the Company, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred Securities under the
Securities Act. Upon (i) such surrender, (ii) if required, such payment, and
(iii) if required, such opinion, the Company shall execute and deliver a new
Warrant or Warrants in the name of the assignee or assignees, as applicable, and
in the denomination or denominations specified in such instrument of assignment,
and shall issue to the assignor a new Warrant evidencing the portion of this
Warrant not so assigned, and this Warrant shall promptly be cancelled. The
Warrant, if properly assigned in accordance herewith, may be exercised by a new
holder for the purchase of Warrant Shares without having a new Warrant issued.


 b)      New Warrants. This Warrant may be
divided or combined with other Warrants upon presentation hereof at the
aforesaid office of the Company, together with a written notice specifying the
names and denominations in which new Warrants are to be issued, signed by the
Holder or its agent or attorney. Subject to compliance with Section
4.a), as to any transfer which may be involved in such division or
combination, the Company shall execute and deliver a new Warrant or Warrants in
exchange for the Warrant or Warrants to be divided or combined in accordance
with such notice. All Warrants issued on transfers or exchanges shall be dated
the initial issuance date of this Warrant and shall be identical with this
Warrant except as to the number of Warrant Shares issuable pursuant thereto.

 c)      Warrant Register. The Company
shall register this Warrant, upon records to be maintained by the Company for that purpose (the
“Warrant Register”), in the name of the record Holder hereof from time to
time. The Company may deem and treat the registered Holder of this Warrant as
the absolute owner hereof for all purposes, except where the Company is required
to take notice by law or by order of a court of competent jurisdiction.

9 




	Section 5. 	Compliance with the Securities Act.
  


a)      Agreement to Comply with
the Securities Act; Legend. The Holder, by acceptance of this Warrant,
agrees to comply in all respects with the provisions of this Section 5 and the
restrictive legend requirements set forth on the face of this Warrant and
further agrees that such Holder shall not offer, sell or otherwise dispose of
this Warrant or any Warrant Shares to be issued upon exercise hereof except
under circumstances that will not result in a violation of the Securities Act.
This Warrant and all Warrant Shares (unless registered under the Securities Act)
shall be stamped or imprinted with a legend in substantially the following form:


         A.      THE SECURITIES AND THE
SECURITIES ISSUABLE UPON EXERCISE HEREOF REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES HAVE
BEEN ACQUIRED BY THE HOLDER THEREOF FOR INVESTMENT AND MAY NOT BE SOLD, OFFERED
FOR SALE PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION UNDER THE SECURITIES ACT, AND COMPLIANCE WITH ANY APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY IN FORM AND SUBSTANCE TO
COUNSEL FOR THE CORPORATION THAT THE TRANSACTION WILL NOT RESULT IN A VIOLATION
OF UNITED STATES FEDERAL OR STATE SECURITIES LAWS. 

b)      Representations of the
Holder. In connection with the issuance of this Warrant, the Holder
specifically represents, as of the date hereof and the date of the exercise of
the Warrant, to the Company by acceptance of this Warrant as follows: 

     i. The Holder is an "accredited
investor" as defined in Rule 501(a) of Regulation D promulgated under the
Securities Act. The Holder is acquiring this Warrant and the Warrant Shares to
be issued upon exercise hereof for investment for its own account and not with a
view towards, or for resale in connection with, the public sale or distribution
of this Warrant or the Warrant Shares, except pursuant to sales registered or
exempted under the Securities Act. 

     ii. The Holder understands and acknowledges that this Warrant
and the Warrant Shares to be issued upon exercise hereof are "restricted
securities" under the federal securities laws inasmuch as they are being
acquired from the Company in a transaction not involving a public offering and that, under such laws and applicable regulations,
such securities may be resold without registration under the Securities Act only
in certain limited circumstances. In addition, the Holder represents that it is
familiar with Rule 144 under the Securities Act, as presently in effect, and
understands the resale limitations imposed thereby and by the Securities Act. 

10 





     iii. The Holder acknowledges that it can bear the economic and financial risk of
its investment for an indefinite period, and has such knowledge and experience
in financial or business matters that it is capable of evaluating the merits and
risks of the investment in the Warrant and the Warrant Shares. The Holder has
had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Warrant and the
business, properties, prospects and financial condition of the Company. 

	Section 6. 	Miscellaneous. 


a)      Currency. All
currencies indicated in this Warrant shall be United States Dollar. 

b)      No Rights as Stockholder Until Exercise. This Warrant
does not entitle the Holder to any voting rights, dividends or other rights as a
stockholder of the Company prior to the exercise hereof as set forth in Section
2.d)i. 

c)      Loss, Theft, Destruction or Mutilation of Warrant.
The Company covenants that upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Warrant
or any stock certificate relating to the Warrant Shares, and in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it,
and upon surrender and cancellation of such Warrant or stock certificate, if
mutilated, the Company will make and deliver a new Warrant or stock certificate
of like tenor and dated as of such cancellation, in lieu of such Warrant or
stock certificate. 

d)      Saturdays, Sundays, Holidays, etc. If the last or
appointed day for the taking of any action or the expiration of any right
required or granted herein shall not be a Business Day, then, such action may be
taken or such right may be exercised on the next succeeding Business Day. 

  e)     
      Authorized Shares.

The Company covenants that,
during the period the Warrant is outstanding, it will reserve from its
authorized and unissued Common Stock a sufficient number of shares to provide
for the issuance of the Warrant Shares upon the exercise of any purchase rights
under this Warrant. The Company further covenants that its issuance of this
Warrant shall constitute full authority to its officers who are charged with the
duty of executing stock certificates to execute and issue the necessary
certificates for the Warrant Shares upon the exercise of the purchase rights
under this Warrant. The Company will take all such reasonable action as may be
necessary to assure that such Warrant Shares may be issued as provided herein
without violation of any applicable law or regulation, or of any requirements of the trading market
upon which the Common Stock may be listed or quoted. The Company covenants that
all Warrant Shares which may be issued upon the exercise of the purchase rights
represented by this Warrant will, upon exercise of the purchase rights
represented by this Warrant and payment for such Warrant Shares in accordance
herewith, be duly authorized, validly issued, fully paid and nonassessable and
free from all taxes, liens and charges created by the Company in respect of the
issue thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issue).

11 




Except and to the extent as
waived or consented to by the Holder, the Company shall not by any action,
including, without limitation, amending its certificate of incorporation or
through any reorganization, transfer of assets, consolidation, merger,
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 Warrant,
but will at all times in good faith assist in the carrying out of all such terms
and in the taking of all such actions as may be necessary or appropriate to
protect the rights of Holder as set forth in this Warrant against impairment.
Without limiting the generality of the foregoing, the Company will (i) not
increase the par value of any Warrant Shares above the amount payable therefor
upon such exercise immediately prior to such increase in par value, (ii) take
all such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable Warrant Shares upon the
exercise of this Warrant and (iii) use commercially reasonable efforts to obtain
all such authorizations, exemptions or consents from any public regulatory body
having jurisdiction thereof, as may be, necessary to enable the Company to
perform its obligations under this Warrant. 

Before taking any action which
would result in an adjustment in the number of Warrant Shares for which this
Warrant is exercisable or in the Exercise Price, the Company shall obtain all
such authorizations or exemptions thereof, or consents thereto, as may be
necessary from any public regulatory body or bodies having jurisdiction thereof.


f)      Jurisdiction. All questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall be
determined in accordance with the provisions of the Purchase Agreement. 

g)      Restrictions. The Holder acknowledges that the
Warrant Shares acquired upon the exercise of this Warrant will have restrictions
upon resale imposed by state and federal securities laws. 

h)      Nonwaiver and Expenses. No course of dealing or any
delay or failure to exercise any right hereunder on the part of Holder shall
operate as a waiver of such right or otherwise prejudice the Holder’s rights,
powers or remedies. Without limiting any other provision of this Warrant or the
Purchase Agreement, if the Company willfully and knowingly fails to comply with
any provision of this Warrant, which results in any material damages to the
Holder, the Company shall pay to the Holder such amounts as shall be sufficient
to cover any costs and expenses including, but not limited to, reasonable
attorneys’ fees, including those of appellate proceedings, incurred by the
Holder in collecting any amounts due pursuant hereto or in otherwise enforcing
any of its rights, powers or remedies hereunder. 

12 




i)      Notices. Unless
provided hereunder, any notice, request or other document required or permitted
to be given or delivered to the Holder by the Company shall be delivered in
accordance with the notice provisions of the Purchase Agreement.

j)      Limitation of Liability. No provision hereof,
in the absence of any affirmative action by the Holder to exercise this Warrant
to purchase Warrant Shares, and no enumeration herein of the rights or
privileges of the Holder, shall give rise to any liability of the Holder for the
purchase price of any Common Stock or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the Company. 

k)      Remedies. The Holder, in addition to being entitled
to exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Warrant. The Company
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Warrant and
hereby agrees to waive and not to assert the defense in any action for specific
performance that a remedy at law would be adequate. 

l)      Successors and Assigns. Subject to applicable
securities laws, this Warrant and the rights and obligations evidenced hereby
shall inure to the benefit of and be binding upon the successors and permitted
assigns of the Company and the successors and permitted assigns of Holder. The
provisions of this Warrant are intended to be for the benefit of any Holder from
time to time of this Warrant and shall be enforceable by the Holder or holder of
Warrant Shares. 

m)      Amendment. This Warrant may be modified or amended or
the provisions hereof waived with the written consent of the Company and the
Holder. 

n)      Severability. Wherever possible, each provision of
this Warrant shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Warrant shall be prohibited
by or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provisions or the remaining provisions of this Warrant. 

o)      Headings. The headings used in this Warrant are for
the convenience of reference only and shall not, for any purpose, be deemed a
part of this Warrant. 

(Signature Page Follows) 

13 




IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized as of the date first above
indicated. 

	B. 	      SECURITY DEVICES INTERNATIONAL
      INC. 
	




	 	Signature:
      __________________________________________________________________________________________
	 	Name:     
      __________________________________________________________________________________________
	 	Title:       
     __________________________________________________________________________________________



[Signature Page to Warrant] 





	C. 	
          NOTICE OF EXERCISE



	TO: 	SECURITY DEVICES INTERNATIONAL INC.
  


(1)     The undersigned hereby elects to purchase
_____________________________Warrant Shares of Security Devices International
Inc. (the “Company”) pursuant to the terms of the attached Warrant, and tenders
herewith payment of the exercise price in full in the amount of             USD$
_______________________ in lawful money of the United States, together with all
applicable transfer taxes, if any. Upon exercise hereof and as of the date
hereof, the undersigned makes the representations and warranties to the Company
contained in Section 5(b) of the Warrant. 

(2)      Please issue a certificate or certificates representing
said Warrant Shares in the name of the undersigned or in such other name as is
specified below: 

_____________________________________________________________________________________________________________

The Warrant Shares shall be delivered to the following DWAC
Account Number or by physical delivery of a certificate to: 

_____________________________________________________________________________________________________________

_____________________________________________________________________________________________________________

_____________________________________________________________________________________________________________

 


	Name of Investing Entity:
      __________________________________________________________________________________________________
	Signature of Authorized Signatory of Investing
      Entity: __________________________________________________________________________________________________
	Name of Authorized Signatory: __________________________________________________________________________________________________
	Title of Authorized Signatory: ______________________________________________________________________________________
	Date: __________________________________________________________________________________________________








	D. 	
          ASSIGNMENT FORM


(To assign the foregoing warrant,
execute this form and supply required information. Do not use this form to
exercise the warrant.) 


	E. 	
           SECURITY DEVICES INTERNATIONAL
  INC.


FOR VALUE RECEIVED,
________________shares of the foregoing Warrant and all rights evidenced thereby
are hereby assigned to [name of assignee] whose address is 


	 	 	 
	 	Dated:
      _________________________________________________________________________________________________________________________
	 	Holder’s Signature: 
      ________________________________________________________________________________________________________________
	 	Holder’s Address:
      _________________________________________________________________________________________________________________





	Signature Guaranteed: 
	  
	  
	  
	
      NOTE: The signature to this Assignment Form must
      correspond with the name as it appears on the face of the Warrant, without
      alteration or enlargement or any change whatsoever, and must be guaranteed
      by a bank or trust company. Officers of corporations and those acting in a
      fiduciary or other representative capacity should file proper evidence of
      authority to assign the foregoing Warrant.