Security Devices International Inc.: Exhibit 10.5 - Filed by newsfilecorp.com






Exhibit 10.5

UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF
THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE •, 2013. 

SECURITY DEVICES INTERNATIONAL INC. 

CONVERTIBLE DEBENTURE 

Security Devices International Inc. (the “Company”), for
value received, hereby acknowledges itself indebted to and promises to pay  • (the “Holder”), on  
• or on such earlier date as the principal hereof
becomes payable in accordance with the provisions of this Debenture, on
presentation and surrender of this Debenture, the principal sum of
$__________________(the “Principal Sum”) in lawful money of the United
States of America, in the City of Toronto, Ontario, subject to the right of the
Holder in certain circumstances to elect to receive Common Shares (as defined in
the Terms and Conditions) of the Company in lieu of receiving such sum, as
provided in the terms and conditions attached hereto as Schedule “A” and forming
part hereof (the “Terms and Conditions”) and to pay interest on such
principal amount as provided in the Terms and Conditions. The Terms and
Conditions are incorporated by reference herein. 

This Debenture may only be transferred upon compliance with the
conditions prescribed in the Terms and Conditions on the register kept at the
principal office of the Company Washington, D.C., and upon compliance with such
reasonable requirements as the Company may prescribe (including evidence
satisfactory to the Company that the transfer complies with all applicable
laws). 

This Debenture is convertible, at the option of the Holder into
Common Shares of the Company, upon and subject to the provisions and conditions
contained in the Terms and Conditions. 

IN WITNESS WHEREOF the Company has caused this Debenture to be
executed under the hand of its duly authorized officer as of the __________day
of ______________________, 2013. 

SECURITY
DEVICES INTERNATIONAL INC.


Per:


_______________________________________________________

•

•




SCHEDULE “A” 

Terms and Conditions

ARTICLE 1 INTERPRETATION 

1.1 Certain Defined Terms: In this Debenture, unless the
context otherwise requires: 

“Business Day” means a day
(other than a Saturday or Sunday) on which chartered banks are open for business
during normal banking hours in Toronto, Ontario. 

“Common Shares” means the common
shares in the capital of the Company; provided that if the conversion rights are
subsequently adjusted or altered pursuant to ARTICLE 4, “Common Shares” will
thereafter mean the shares or other securities or property that the Holder is
entitled to on a conversion of this Debenture after the adjustment. 

“Company” means Security Devices
International Inc., a corporation incorporated under the laws of the State of
Delaware. 

“Conversion Date” means the date
on which the Holder converts all or any portion of this Debenture in compliance
with the terms of this Debenture. 

“Conversion Period” means the
period during which the Holder may convert all or part of the Principal Sum
under ARTICLE 2. 

“Conversion Price” means the
price per Common Share at which the Principal Sum shall from time to time be
convertible into Common Shares, being $0.30 on or before the first anniversary
of the issuance of this Debenture, $0.35 after the first anniversary and on or
before the second anniversary of the issuance of this Debenture, and $0.40 after
the second anniversary of the issuance of Debenture and before the end of the
Term, subject to adjustment under this Debenture. 

“Current Market Price” at any
date, means the weighted average price per Common Share at which the Common
Shares have traded on the OTCBB for the twenty (20) consecutive trading days
ending with the trading day immediately before such date; provided that if the
Common Shares are not traded during that 20 consecutive trading day period for
at least 10 trading days, the Current Market Price shall mean the simple average
of the following prices established for each of the trading days during that 20
trading day period: (A) the average of the bid and ask prices for each day on
which there was no trading; and (B) the closing price of the Common Shares for
each day that there was trading, and for these purposes, the weighted average
price for any period shall be determined by dividing the aggregate sale prices
during such period by the total number of Common Shares sold during such period.


“Event of Default” has the
meaning given to that term in section 6.1. 

“Principal Sum” has the meaning
given to that term on the first page of this Debenture. 

“this Debenture”,
“hereof”, “herein”, “hereto” and like references refer to
this Debenture and any schedules, exhibits or appendices hereto and not to any
particular Article, section or other subdivision of this Debenture. 

“$” means USD. 

1.2 Headings: The division of this Debenture into
Articles and sections and the insertion of headings in this Debenture are for
convenience of reference only and shall not affect the construction or
interpretation of this Debenture. 




- 3 - 

1.3 Number and Gender: In this Debenture, where the
context so requires, words importing the singular number shall include the
plural and vice versa, words importing any gender shall include all genders
(including the neuter), and words importing persons shall include individuals,
partnerships, associations, trusts, unincorporated organizations and
corporations. 

1.4 Currency: Unless otherwise specified herein, all
statements of or references to dollar amounts in this Debenture shall mean
lawful money of the United States of America. 

1.5 Prohibited Provisions: If any provision herein is
determined to be void, voidable or unenforceable, in whole or in part, such
determination shall not affect or impair or be deemed to affect or impair the
validity of any other provision hereof and all the provisions hereof are hereby
declared to be separate, severable and distinct. 

1.6 Applicable Law: This Debenture and all documents
delivered pursuant hereto shall be governed by and construed in accordance with
laws of the Province of Ontario. 

1.7 Computation of Time Period: Except to the extent
otherwise provided herein, in the computation of a period of time from a
specified date to a later specified date, the word “from” means “from and
including” and the words “to” and “until” each mean “to but excluding”. 

ARTICLE 2 PROMISE TO PAY 

2.1 Indebtedness: FOR VALUE RECEIVED the Company hereby
acknowledges itself indebted to the Holder and promises: 

	 	(a) 	
      to pay to the Holder the Principal Sum on  • or sooner
      upon the occurrence of an Event of Default;

	 	 	 
	 	(b) 	
      to pay to the Holder interest on any monies owing by the
      Company to the Holder hereunder, as required in this Debenture;
  and

	 	 	 
	 	(c) 	
      to pay to the Holder all other monies which may be owing
      by the Company to the Holder under this Debenture.



2.2 Calculation and Payment of Interest: The Company
shall pay interest on the Principal Sum outstanding from time to time at the
rate of 8.00% per annum, calculated annually and payable annually in arrears on
each anniversary of the issuance of this Debenture until the Maturity Date, both
before and after maturity, default and judgment. Interest shall be payable on
overdue interest, such interest to be calculated and paid in accordance with the
provisions of this Debenture in the same manner as interest on the Principal
Sum. The interest payable hereunder may be paid in cash, or, at the sole option
of the Holder, by the delivery of Common Shares in a number determined by
dividing the amount of interest owing by the Current Market Price 

2.3 No Merger: Neither the taking of any action, suit or
proceedings, judicial or extra-judicial, nor the exercise of any power of
seizure or disposition shall extinguish the liability of the Company to pay the
amounts owing under this Debenture or to perform and observe the terms,
agreements and conditions of this Debenture. No covenant, representation or
warranty of the Company herein shall merge in any judgment and such judgment
shall bear interest in the manner set out in this ARTICLE 2 and be payable on
the same days when interest is payable hereunder. 

ARTICLE 3 CONVERSION RIGHTS 

3.1 Right to Convert: Subject to and upon compliance
with the provisions of this Article, the Principal Sum or any portion of the
Principal Sum thereof which is $1,000 or an integral multiple of $1,000 may, at
the option of the Holder thereof, at any time prior to payment of this
Debenture, be converted into fully paid and non-assessable Common Shares at the
Conversion Price then in effect. 




- 4 - 

3.2 Exercise of Conversion Privilege: In order to
exercise the conversion privilege, the Holder shall surrender this Debenture to
the Company at the registered office of the Company in the City of Toronto,
accompanied by written notice in the form of Schedule “B” hereto signed by the
Holder stating that it elects to convert this Debenture or a stated portion of
the Principal Sum thereof constituting $1,000 or an integral multiple of $1,000.
The surrender of this Debenture, accompanied by such written notice, shall be
deemed to constitute a contract between the Holder and the Company whereby (i)
the Holder subscribes for the number of Common Shares which it shall be entitled
to receive on such conversion, (ii) the Holder releases the Company from all
liability under this Debenture or from all liability with respect to that
portion of the Principal Sum to be converted, as the case may be, and (iii) the
Company agrees that the release of liability constitutes full payment of the
subscription price for the Common Shares issuable upon such conversion. 

As promptly as practicable after the Conversion Date, the
Company shall issue and delivered to the Holder a certificate in the name of the
Holder for the number of Common Shares deliverable upon the conversion of such
Debenture (or specified portion thereof). Such conversion shall be deemed to
have been effected immediately prior to the close of business on the Conversion
Date. 

3.3 No Fractional Common Shares: Notwithstanding any
other provision of this Debenture, the Company shall not be required to issue a
fractional Common Share, or to pay any cash or other consideration in lieu of a
fractional Common Share, upon the conversion of this Debenture. If any
fractional Common Share would, except for the provisions of this Section, be
deliverable upon the conversion of any Debenture, the number of Common Shares
issuable to the Holder shall be rounded down to the next whole number of Common
Shares. 

3.4 Partial Exercise: The Holder may elect to convert
less than all the Principal Sum into Common Shares, in which case the Holder
shall be entitled to receive, without charge, a new certificate representing the
balance of the Principal Sum. 

3.5 Exercise During Legend Period: If the Holder elects
to convert all or part of this Debenture prior to the expiry of the hold period
referred to in the legend on the face page of this certificate, the Common
Shares issuable on such exercise shall bear the same legend as on the face page
of this certificate. 

3.6 Transfer of Debenture: This Debenture may be
transferred by the Holder (subject to limitations imposed by applicable
securities laws and the rules of any stock exchange on which the Common Shares
are listed for trading), provided that on or before the transfer of this
Debenture all necessary notices and other documents with respect to the transfer
of the Debenture shall have been filed by the Holder with the applicable
securities regulatory authorities. The transferee shall be entitled to become a
registered holder of the Debenture, and to receive a new certificate registered
in the transferee’s name for that portion of the Principal Sum transferred to
the transferee, upon delivery of each of the following (collectively, the
“Transfer Documents”) to the address of the Company: 

	 	(a) 	
      this Debenture;

	 	 	 
	 	(b) 	
      a completed transfer in the form attached to this
      certificate as Schedule “C”, signed by the Holder.



The Company shall be entitled to rely upon delivery of the
Transfer Documents as sufficient evidence that there has been compliance with
applicable securities laws and stock exchange requirements, or the Company may
require evidence of compliance with applicable securities laws and stock
exchange requirements. 

Any delivery of Transfer Documents made after 4:00 p.m. shall
be deemed to have been received on the next Business Day. The transfer of all or
part of this Debenture shall be recorded in the register maintained by the
Company as of the close of business on the date on which the Transfer Documents
are received by the Company. A certificate for the transferred portion of the
Debenture shall be delivered to the transferee (and if the transferred portion
of the Debenture represent less than all of the Principal Sum, a certificate for
the balance of this Debenture shall be delivered to the Holder) within a
reasonable time. 

3.7 Ownership of Debenture: The Company shall treat the
registered owner of this Debenture as the absolute owner thereof for all
purposes, and the Company shall not be affected by any notice or knowledge to
the contrary except where the Company is required to take notice by statute
or by order of a court of competent jurisdiction. The issue by the Company of
the Common Shares (and/or any other securities or assets pursuant to ARTICLE 4)
upon the conversion of all or part of the Debenture by the Holder, shall
discharge all responsibilities of the Company with respect to the portion of the
Debenture so exercised and the Company shall not be bound to inquire into the
title of the Holder except where the Company is required to take notice by
statute or by order of a court of competent jurisdiction. 




- 5 - 

3.8 Not a Shareholder: Nothing in this certificate shall
be construed as conferring upon the Holder any right or interest whatsoever as a
shareholder of the Company. 

3.9 Lost Certificate: If this certificate becomes
stolen, lost, mutilated or destroyed, the Company may, on such terms as it in
its discretion imposes (including the requirement to provide a bond of
indemnity), issue a new certificate of like denomination, tenure and date as
this certificate. 

3.10 Register of the Debenture: The Company will keep,
at its principal office, a register of the names and addresses of the holders of
this Debenture and any other debentures in this series and particulars of the
debenture held by them. 

ARTICLE 4 ADJUSTMENTS 

4.1 Adjustment to Conversion Price: The Conversion Price
in effect at any time is subject to adjustment from time to time in the events
and in the manner provided in this Article 4. 

4.2 Share Reorganization: Whenever during the Conversion
Period the Company: 

	 	(a) 	
      issues Common Shares to all or substantially all the
      holders of the Common Shares by way of a stock dividend or other
      distribution (other than dividends paid in the ordinary course);
  or

	 	 	 
	 	(b) 	
      subdivides, redivides or changes its outstanding Common
      Shares into a greater number of shares; or

	 	 	 
	 	(c) 	
      combines, consolidates or reduces its outstanding Common
      Shares into a smaller number of shares,



(any of those events being a “Share Reorganization”),
the Conversion Price will be adjusted effective immediately after the record
date at which the holders of Common Shares are determined for the purposes of
the Share Reorganization to a number that is the product of (1) the Conversion
Price in effect on the record date and (2) a fraction: 

	 	(d) 	
      the numerator of which is the number of outstanding
      Common Shares, calculated as of the record date before giving effect to
      the Share Reorganization; and

	 	 	 
	 	(e) 	
      the denominator of which is the number of outstanding
      Common Shares, calculated as of the record date after giving effect to the
      Share Reorganization.



4.3 Rights Offering: Whenever during the Conversion
Period the Company issues rights, options or warrants to all or substantially
all the holders of the Common Shares pursuant to which those holders are
entitled to subscribe for, purchase or otherwise acquire Common Shares or
Convertible Securities within a period of 45 days from the date of issue (the
“Rights Period”) at a price, or at a conversion price, of less than 90%
of the Current Market Price at the record date for such distribution (any such
issuance being a “Rights Offering” and Common Shares that may be acquired
in exercise of the Rights Offering, or upon conversion of the Convertible
Securities offered by the Rights Offering, being the “Offered Shares”),
the Conversion Price will be adjusted effective immediately after the record
date at which holders of Common Shares are determined for the purposes of the
Rights Offering to a number that is the product of (1) the Conversion Price in
effect on the record date, and (2) a fraction: 




- 6 - 

	 	(a) 	
      the numerator of which is the sum of:

	 	 	 	 	 
	 		(i) 	
      the number of Common Shares outstanding on the record
      date, before giving effect to the Rights Offering; and

	 	 	 	 	 
	 		(ii) 	
      the number arrived at when either the product
  of:

	 	 	 	 	 
	 			(A) 	
      the number of Offered Shares offered and the price at
      which those shares are offered; or

	 	 	 	 	 
	 			(B) 	
      the conversion price of the Offered Shares and the
      maximum number of Offered Shares for or into which the Convertible
      Securities offered pursuant to the Rights Offering may be
  converted,

	 	 	 	 	 
	 			
      as the case may be, is divided by the Current Market
      Price of the Common Shares on the record date; and

	 	 	 	 	 
	 	(b) 	
      the denominator of which is the sum of:

	 	 	 	 	 
	 		(i) 	
      the number of Common Shares outstanding on the record
      date, before giving effect to the Rights Offering; and

	 	 	 	 	 
	 		(ii) 	
      the number of Offered Shares offered pursuant to the
      Rights Offering or the maximum number of Offered Shares into which the
      Convertible Securities offered pursuant to the Rights Offering may be
      converted, as the case may be.



If all the Offered Shares are not issued, the Conversion Price
will be readjusted based upon the number of Offered Shares actually issued.

4.4 Special Distribution: Whenever during the Conversion
Period the Company issues or distributes to all or substantially all the holders
of Common Shares (other than as a Share Reorganization, a Rights Offering or
dividends paid in the ordinary course): 

	 	(a) 	
      shares of any class;

	 	 	 
	 	(b) 	
      rights, options or warrants;

	 	 	 
	 	(c) 	
      evidences of indebtedness; or

	 	 	 
	 	(d) 	
      any other assets including shares of other
      corporations,



(any of those issuances or distributions being a “Special
Distribution”), the Conversion Price will be adjusted effective immediately
after the record date at which the holders of Common Shares are determined for
purposes of the Special Distribution to an Conversion Price that is the product
of (1) the Conversion Price in effect on the record date, and (2) a fraction:


	 	(e) 	
      the numerator of which is the amount determined under
      Section 4.4(f), less the aggregate fair market value, as determined by the
      board (whose determination, absent manifest error, will be conclusive), of
      the shares, rights, options, warrants, evidences of indebtedness or other
      assets issued or distributed in the Special Distribution; and

	 	 	 
	 	(f) 	
      the denominator of which is the product
  of:




	 	(i) 	
      the number of Common Shares outstanding on the record
      date, and







- 7 - 

	 	(ii) 	
      the Current Market Price thereof on that
  date.



To the extent that the distribution of shares, rights, options,
warrants, evidences of indebtedness or assets is not made or to the extent that
any rights, options or warrants expire without being exercised, the Conversion
Price will be readjusted to the Conversion Price that would then be in effect
based upon shares, rights, options, warrants, evidences of indebtedness or
assets actually distributed or based upon the number of securities actually
delivered upon the exercise of the rights, options or warrants, as the case may
be. 

4.5 Reclassification of Common Shares: If the Company
reclassifies or otherwise changes the outstanding Common Shares, the right to
purchase Common Shares evidenced by this certificate will be adjusted effective
immediately upon the reclassification becoming effective so that the Holder if
converting this Debenture thereafter will be entitled to receive such property
as the Holder would have received had the Debenture been converted immediately
prior to the effective date of the reclassification. 

4.6 Redemption on Capital Reorganization and Certain Other
Events: Whenever during the Conversion Period there is a reorganization of
the Company not otherwise provided for in Sections 4.2, 4.3, 4.4 or 4.5 or a
consolidation or merger or amalgamation of the Company with or into another body
corporate or other entity (including a transaction whereby all or substantially
all of the Company’s undertaking and assets become the property of any other
body corporate, trust, partnership or other entity), a sale of all or
substantially all of the assets of the Company, or the Company receiving
conditional listing approval for the listing of the Company’s Common Shares on
any of the TSX, the TSX Venture, the AMEX, the AIM, or the NASDAQ Stock Exchange
(and the Company holding a bona fide intention to so list), the Company may
redeem the Debenture at its option on not less than fifteen (15) business days’
notice (during which period the Holder may convert the Debenture at its sole
option), at the following rates: 

(i) $1,250 per $1,000 of Principal Sum,
if occurring on or before the first anniversary of issuance; 

(ii) $1,125 per $1,000 of Principal Sum
if occurring after the first anniversary and prior to the second anniversary of
issuance; and 

(iii) $1,050 per $1,000 of Principal
Sum if occurring after the second anniversary of issuance and prior to the end
of the term. 

4.7 Rules Regarding Calculation of Adjustment of Conversion
Price 

	 	(a) 	
      The adjustments and readjustments provided for in this
      ARTICLE 4 are cumulative and, subject to subsection 4.7(b), will apply
      (without duplication) to successive issues, subdivisions, combinations,
      consolidations, distributions and any other events that require adjustment
      of the Conversion Price or the number or kind of shares or securities to
      be issued upon conversion of this Debenture.

	 	 	 
	 	(b) 	
      No adjustment in the Conversion Price will be required
      unless the adjustment would result in a change of at least 1% in the
      Conversion Price then in effect provided however, that any adjustments
      that, except for the provisions of this subsection 4.7(b) would otherwise
      have been required to be made, will be carried forward and taken into
      account in any subsequent adjustment.

	 	 	 
	 	(c) 	
      No adjustment in the Conversion Price will be made in
      respect of any event described in subsections 4.2(a), 4.3 or 4.4 if the
      Holder is entitled to participate in the event as if the Holder had
      converted this Debenture immediately prior to the effective date or record
      date of the event.

	 	 	 
	 	(d) 	
      No adjustment in the Conversion Price will be made
      pursuant to this ARTICLE 4 in respect of Common Shares issued or issuable
      from time to time as dividends paid in the ordinary
  course.







- 8 - 

	 	(e) 	
      If a dispute arises with respect to adjustments of the
      Conversion Price, the dispute will be conclusively determined by the
      Company’s auditors or, if they are unable or unwilling to act, by such
      firm of independent chartered accountants as may be selected by the
      directors of the Company and any such determination, absent manifest
      error, will be binding upon the Company and the Holder.

	 	 	 
	 	(f) 	
      If the Company sets a record date to determine the
      holders of Common Shares for the purpose of entitling them to receive any
      dividend or distribution or any subscription or purchase rights and
      thereafter abandons its plans to pay or deliver the dividend, distribution
      or subscription or purchase rights then no adjustment in the Conversion
      Price will be required by reason of the setting of the record
  date.



ARTICLE 5 COVENANTS AND WARRANTIES 

5.1 Covenants: The Company covenants and agrees that
during the Conversion Period: 

	 	(a) 	
      the Company will cause the Common Shares and the
      certificates representing the Common Shares to be duly issued in
      accordance with the terms of this certificate;

	 	 	 
	 	(b) 	
      all Common Shares issued by the Company will be fully
      paid and non-assessable shares;

	 	 	 
	 	(c) 	
      the Company will perform and carry out all the acts or
      things to be done by it as provided in this
Debenture.



5.2 Representations and Warranties: The Company hereby
represents and warrants with and to the Holder that the Company is duly
authorized and has the corporate and lawful power and authority to create and
issue the Debenture evidenced hereby and the Common Shares issuable upon the
conversion of this Debenture and to perform its obligations hereunder and that
this certificate represents a valid, legal and binding obligation of the Company
enforceable in accordance with its terms. 

ARTICLE 6 DEFAULT AND ENFORCEMENT 

6.1 Events of Default: The whole of the Principal Sum
together with interest and all other moneys evidenced by this Debenture shall,
at the option of the Holder, become immediately due and payable in each of the
following events (each event being herein called an "Event of Default"):


	 	(a) 	
      if the Company defaults in payment of the Principal Sum
      when payment becomes due;

	 	 	 
	 	(b) 	
      if the Company defaults in payment of interest on this
      Debenture when the same becomes due and payable and such default continues
      for ten (10) business days after notice of such default is given by the
      Holder to the Company;

	 	 	 
	 	(c) 	
      if the Company defaults in the performance or observance
      of any covenant or condition contained herein and such default continues
      for fifteen (15) business days after notice of such default is given by
      the Holder to the Company;

	 	 	 
	 	(d) 	
      if an order is made or a resolution passed for the
      winding-up of the Company or notice of intention to make a proposal is
      filed or a proposal is made by the Company to its creditors under the
      Bankruptcy and Insolvency Act, or a petition is filed by or against the
      Company or an authorized assignment is made by the Company under the
      Bankruptcy and Insolvency Act, or a receiver or agent is appointed in
      respect of the Company under any bankruptcy or insolvency legislation or
      by or on behalf of a secured creditor of the Company or an application is
      made under the Companies' Creditors' Arrangement Act, or any successor or
      similar legislation in other jurisdictions;







- 9 - 

	 	(e) 	
      if a secured creditor takes possession of any part of the
      property of the Company or any execution, distress or other process of any
      court becomes enforceable against any part of the property of the Company,
      or a distress or like process is levied upon any of such property and the
      aggregate value of all property subject to any such action exceeds
      $500,000; or

	 	 	 
	 	(f) 	
      if an order is made or the Company takes any corporate
      proceedings for its dissolution or liquidation or if the corporate
      existence of the Company shall be terminated or dissolved by expiration,
      forfeiture or otherwise.



6.2 Enforcement: Upon the occurrence and during the
continuance of any Event of Default, the Holder may proceed to enforce its
rights by any action, suit, remedy or proceedings authorized or permitted by law
or by equity, up to the amount of the then outstanding Principal Sum, plus
accrued interest, and may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have its claims lodged in
any bankruptcy, winding-up or other judicial proceeding relative to the
Company.

ARTICLE 7 GENERAL PROVISIONS 

7.1 Waiver: No delay or omission to exercise any right
or remedy accruing to the Holder upon any breach or default by the Company
hereunder shall impair any such right or remedy by the Holder nor be construed
as a waiver of any such breach or default or of any similar breach or default
thereafter occurring, nor shall any single or partial exercise thereof preclude
any other or further exercise thereof or the exercise of any other right or
remedy. No waiver of a single breach or default shall operate or be construed as
a waiver of any subsequent breach or default. All waivers hereunder must be in
writing and signed by the waiving party. 

7.2 Amendment: This Debenture may only be amended,
supplemented or terminated by a written agreement signed by the Company and the
Holder. 

7.3 Notice: Any notice, document or communication
required or permitted by this Debenture to be given by a party hereto shall be
in writing and is sufficiently given if delivered personally, or if sent by
prepaid registered mail posted in Canada or the United States, to such party
addressed as follows: (i) to the Holder at the address of the Holder set out in
the Debenture register maintained by the Company, and (ii) to the Company at its
registered office. 

Notice so mailed shall be deemed to have been given on the
fifth (5th) business day after deposit in a post office or public letter box.
Neither party shall mail any notice, request or other communication hereunder
during any period in which Canadian or United States postal workers are on
strike or if such strike is imminent and may reasonably be anticipated to affect
the normal delivery of mail. Notice transmitted by a form of recorded
telecommunication or delivered personally shall be deemed given on the day of
transmission or personal delivery, as the case may be. Any party may from to
time notify the other in the manner provided herein of any change of address
which thereafter, until change by like notice, shall be the address of such
party for all purposes hereof. 

7.4 Entire Agreement: There are no representations,
agreements, warranties, conditions, covenants or terms, express or implied,
collateral or otherwise, affecting this Debenture or the Company’s obligations
and liabilities hereunder other than as expressed herein. 

[The remainder of this page is intentionally left blank.]





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7.5 Time of Essence Time shall in all respects be of the
essence hereof. 

7.6 Binding Effect: This Debenture shall enure to the
benefit of and be binding upon the parties hereto and their respective heirs,
executors, administrators, successors and assigns. 

IN WITNESS WHEREOF the Company has duly executed this
Debenture as of the date first above written. 

SECURITY
DEVICES INTERNATIONAL INC.


Per:
______________________________________________________
         
•




Schedule “B” 

Conversion Notice 

TO: Security Devices International Inc. 

The undersigned Holder hereby irrevocably elects to convert
$_______________of the Principal Sum of the Debenture to which this notice is
attached into Common Shares in accordance with the terms of the attached
Debenture, and directs that a certificate for the Common Shares deliverable and
issuable upon conversion be issued and delivered to the undersigned. 

Terms which are defined in the Debenture and not in this notice
shall have the meaning given to them in the Debenture. 

Dated: ______________________________________

	 	Signature
      of Holder 	 
	 	 	 
	 	Name of Holder 	 
	 	  	 
	 	  	 
	 	  	 
	 	Address: 	 
	 	 	 
	 	 	 
	 	 	 
	 	 	 






Schedule “C” 

Assignment 

FOR VALUE RECEIVED the undersigned hereby sells, assigns and
transfers unto

	 
	 
	(name and address of transferee - print or type)
  



	the Debenture represented by the accompanying certificate
      (or $___________________________principal amount thereof *) of the
      Debenture and all rights represented thereby. 
	 
	            
      DATED the day of ____________________________, _______.




	Signature guaranteed by: 	)	  
		)	 
		)	 
		)	 
	Authorized Signature 	)	Signature of Registered Holder 
		)	 
		)	 
	Name of Guarantor (Print) 	)	Name of Registered Holder (Print)
  
		)	 
		)	 
	Address (Print) 	)	 Name of Authorized
      Representative, if applicable 
	  	)	(Print) 


* If less than the principal amount of the Debenture is to be
assigned, indicate in the space provided the principal amount to be assigned,
which amount shall be a multiple of $1,000. 

INSTRUCTIONS FOR ASSIGNMENT 

The signature on the foregoing assignment must correspond with
the name written on the face of this Debenture in every particular without
alteration or enlargement or any change whatever and must be guaranteed by a
Canadian chartered bank or by some other person satisfactory to Security Devices
International Inc. In the case of a person signing by agent or attorney, the
authority of the agent or attorney to sign must be proven to the satisfaction of
Security Devices International Inc.