Document:

Security Devices International Inc.: Exhibit 4.2 - Filed by newsfilecorp.com

FORM OF SECURED CONVERTIBLE NOTE 

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED
BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR (B) AN OPINION IN A GENERALLY ACCEPTABLE FORM OF COUNSEL, WHICH
COUNSEL SHALL BE SELECTED BY THE HOLDER AND BE REASONABLY ACCEPTABLE TO THE
ISSUER, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD
PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES. ANY TRANSFEREE OF THIS
NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS 3(c)(v)
AND 18(a) HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND,
ACCORDINGLY, THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE
AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(v) OF THIS NOTE.
THIS NOTE IS SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER SET FORTH IN SECTION 5
OF THE SECURITIES PURCHASE AGREEMENT DATED AS OF APRIL 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 MAY 16, 2020.

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 MAY 16, 2020. 

SECURITY DEVICES INTERNATIONAL INC. 

SECURED CONVERTIBLE
NOTE 

	Issuance Date: January 15, 2020 	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
October 31, 2019 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 Secured Convertible Note (including all Secured Convertible Notes issues in
exchange, transfer, or replacement hereof, this “Note”) is one of an
issue of 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 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 April 15, 2020, 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 April and October 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 April 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- 

          (c)
Maximum Effective Interest Rate: Notwithstanding any other provision of
the Securities Purchase Agreement or this Note (including, for certainty,
Section 4(b) (Redemption Right) and Section 5 (Rights Upon Fundamental
Transaction And Change Of Control)), the effective rate of interest per
annum may not exceed 25% and any payments otherwise required to be made to the
Holder will be reduced as necessary for that purpose. 

     (3) CONVERSION OF NOTES.
This Note shall be convertible into shares of the Company's common stock, par
value $0.001 per share (the “Common Stock”), on the terms and conditions
set forth in this Section 3. 

          (a)
Conversion Right. Subject to the provisions of Section 3(d), at any time
or times on or after the Issuance Date, the Holder shall be entitled to convert
any portion of the outstanding and unpaid Conversion Amount (as defined below)
into fully paid and nonassessable shares of Common Stock in accordance with
Section 3(c), at the Conversion Rate (as defined below). The Company shall not
issue any fraction of a share of Common Stock upon any conversion. If the
issuance would result in the issuance of a fraction of a share of Common Stock,
the Company shall round such fraction of a share of Common Stock up to the
nearest whole share. The Company shall pay any and all taxes that may be payable
with respect to the issuance and delivery of Common Stock upon conversion of any
Conversion Amount. 

          (b)
Conversion Rate. The number of shares of Common Stock issuable upon
conversion of any Conversion Amount pursuant to Section 3(a) shall be determined
by dividing (x) such Conversion Amount by (y) the Conversion Price (such number
of shares, the “Conversion Rate”). For the purposes of this Note: 

               (i)
“Conversion Amount” means the portion of the Principal to be converted,
redeemed or otherwise with respect to which this determination is being made.

               (ii)
“Conversion Price” means, as of any Conversion Date (as defined below) or
other date of determination a price equal to USD$0.15, subject to adjustment as
provided herein. 

          (c)
Mechanics of Conversion. 

               (i)
Optional Conversion. To convert any Conversion Amount into shares of
Common Stock on any date (a “Conversion Date”), the Holder shall (A)
transmit by facsimile (or otherwise deliver), for receipt on or prior to 5:00
p.m., New York City time, on such date, a copy of an executed notice of
conversion in the form attached hereto as Exhibit I (the “Conversion
Notice”) to the Company and (B) if required by Section 3(c)(v), surrender
this Note to a common carrier for delivery to the Company as soon as practicable
on or following such date (or an indemnification undertaking with respect to
this Note in the case of its loss, theft or destruction). Promptly following the
date of receipt of a Conversion Notice, the Company shall transmit by facsimile a confirmation of receipt of such
Conversion Notice to the Holder and the Company's transfer agent (the
“Transfer Agent”). On or before the fifth Business Day following the date
of receipt of a Conversion Notice (the “Share Delivery Date”), the
Company shall (1) (X) provided that the Transfer Agent is participating in the
Depository Trust Company (“DTC”) Fast Automated Securities Transfer
Program and so long as the certificates therefor are not required to bear a
legend pursuant to Section 5(c) of the Securities Purchase Agreement, credit
such aggregate number of shares of Common Stock to which the Holder shall be
entitled to the Holder's or its designee's balance account with DTC through its
Deposit Withdrawal Agent Commission system or (Y) if the Transfer Agent is not
participating in the DTC Fast Automated Securities Transfer Program, issue and
deliver to the address as specified in the Conversion Notice, a certificate,
registered in the name of the Holder or its designee, for the number of shares
of Common Stock to which the Holder shall be entitled, which certificate shall
not bear any restrictive legend unless the certificate is required to bear such
a legend pursuant to Section 5(c) of the Securities Purchase Agreement, and (2)
pay to the Holder in cash an amount equal to the sum of (A) the amount of any
accrued and unpaid Interest on the applicable Conversion Amount being converted
through the Conversion Date and (B) any accrued and unpaid Late Charges on such
Conversion Amount and Interest. Delivery of physical certificates shall be
deemed to have been made if delivered personally or when delivered to a
nationally recognized overnight carrier. If this Note is physically surrendered
for conversion as required by Section 3(c)(iii) and the outstanding Principal of
this Note is greater than the Conversion Amount, then the Company shall as soon
as practicable and in no event later than three Business Days after receipt of
this Note and at its own expense, issue and deliver to the holder a new Note (in
accordance with Section 18(d)) representing the outstanding Principal not
converted. The Person or Persons entitled to receive the shares of Common Stock
issuable upon a conversion of this Note shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on the Conversion
Date.

-3- 

               (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.

          (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.

-5-

     (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; 

-6- 

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

               (iv)
the Company's failure to pay to the Holder any amount of Principal, Interest,
Late Charges or other amounts when and as due under this Note (including,
without limitation, the Company's failure to pay any redemption payments,
premiums or other amounts hereunder) or any other Transaction Document (as
defined in the Securities Purchase Agreement) except in the case of a failure to
pay Interest and Late Charges when and as due, in which case only if such
failure continues for a period of at least five Trading Days; 

               (v)
the Company shall either (i) fail to pay, when due, or within any applicable
grace period, any payment with respect to any Indebtedness in excess of $250,000
due to any third party, other than, with respect to unsecured Indebtedness only,
payments contested by the Company in good faith by proper proceedings and with
respect to which adequate reserves have been set aside for the payment thereof
in accordance with GAAP, or otherwise be in breach or violation of any agreement
for monies owed or owing in an amount in excess of $250,000, which breach or
violation permits the other party thereto to declare a default or otherwise
accelerate amounts due thereunder, or (ii) suffer to exist any other
circumstance or event that would, with or without the passage of time or the
giving of notice, result in a default or event of default under any agreement
binding the Company, which default or event of default would or is likely to
have a material adverse effect on the business, operations, properties,
prospects or financial condition of the Company or any of its Subsidiaries,
individually or in the aggregate; 

               (vi)
the Company or any of its Subsidiaries, pursuant to or within the meaning of
Title 11, U.S. Code, or the Bankruptcy and Insolvency Act (Canada), or any
similar Federal, foreign or state law for the relief of debtors (collectively,
“Bankruptcy Law”), (A) commences a voluntary case, (B) consents to the
entry of an order for relief against it in an involuntary case, (C) consents to
the appointment of a receiver, trustee, assignee, liquidator or similar official
(a “Custodian”), (D) makes a general assignment for the benefit of its
creditors or (E) admits in writing that it is generally unable to pay its debts
as they become due; 

               (vii)
a court of competent jurisdiction enters an order or decree under any Bankruptcy
Law that (A) is for relief against the Company or any of its Subsidiaries in an
involuntary case, (B) appoints a Custodian of the Company or any of its
Subsidiaries or (C) orders the liquidation of the Company or any of its
Subsidiaries; 

               (viii)
bankruptcy, insolvency, reorganization or liquidation proceedings or other
proceedings for the relief of debtors shall be instituted by or against the
Company or any of its Subsidiaries and, if instituted against the Company or any
of its Subsidiaries by a third party, shall not be dismissed within 60 days of
their initiation; 

               (ix)
a final judgment or judgments for the payment of money aggregating in excess of
$500,000 are rendered against the Company or any of its Subsidiaries, which
judgments are not, within 60 days after the entry thereof, bonded, discharged or
stayed pending appeal, or are not discharged within 60 days after the
expiration of such stay; provided, however, that any judgment that is covered by
insurance or an indemnity from a credit worthy party shall not be included in
calculating the $500,000 amount set forth above; 

-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 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. 

-13- 

               (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.

-14- 

          (d)
De Minimis Adjustments. No adjustment in the Conversion Price shall be
required unless such adjustment would require an increase or decrease of at
least USD$0.01 in such price; provided, however, that any adjustment which by
reason of this Section 7(d) is not required to be made shall be carried forward
and taken into account in any subsequent adjustments under this Section 7. All
calculations under this Section 7 shall be made by the Company in good faith and
shall be made to the nearest cent or to the nearest one hundredth of a share, as
applicable. No adjustment need be made for a change in the par value or no par
value of the Company’s Common Stock. 

          (e)
Notice of Adjustments. Upon the occurrence of any event which requires
any adjustment or readjustment of the Conversion Price pursuant to this Section
7 or any change in the number or type of stock, securities and/or other property
issuable upon conversion of the Notes, the Company, at its expense, shall
promptly make a public announcement of such adjustment or readjustment and shall
give notice thereof to the Holder, which notice shall state the Conversion Price
resulting from such adjustment or readjustment and any change in the number or
type of stock, securities and/or other property issuable upon conversion of this
Note, setting forth in reasonable detail the method of calculation and the facts
upon which such calculation is based. Such calculation shall be certified by the
chief financial officer of the Company. The Company shall, upon the written
request at any time of the Holder, furnish a like certificate setting forth (i)
the Conversion Price at the time in effect and (ii) the number of shares of
Common Stock and the amount, if any, of other securities or property which at
the time would be received upon conversion of this Note.

     (8) COMPANY’S RIGHT OF
OPTIONAL REDEMPTION. 

          (a)
Redemption Right. At any time and from time to time following the
Issuance Date, the Company may elect, at its option, to redeem all or any
portion of the outstanding Principal of the Notes, on a pro rata basis, by
delivering written notice thereof (the “ Optional Redemption Notice”) at
least thirty (30) days in advance of the date scheduled for redemption (the “
Optional Redemption Date”) to the holders of the Notes, which
Optional Redemption Notice shall indicate the portion of the Notes that the
Company is electing to redeem. The portion of this Note subject to redemption
pursuant to this Section 8 (the “Optional Redemption Portion”) shall be
redeemed by the Company for the Option Redemption Price (as defined in Section
8(b)), which shall be paid to the Holder in cash on the Optional Redemption
Date.

          (b)
As used in this Section 8, the “Optional Redemption Price” shall mean 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.

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.

-15- 

          (c)
Redemptions made pursuant to this Section 8 shall be made in accordance with
Section 12 to the extent applicable. 

     (9) SECURITY. On the
Springing Lien Date (as hereinafter defined), 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. 

-16- 

          (b)
Insufficient Authorized Shares. If at any time while any of the Notes
remain outstanding the Company does not have a sufficient number of authorized
and unreserved shares of Common Stock to satisfy its obligation to reserve for
issuance upon conversion of the Notes at least a number of shares of Common
Stock equal to the Required Reserve Amount (an “Authorized Share
Failure”), then the Company shall immediately take all action necessary to
increase the Company's authorized shares of Common Stock to an amount sufficient
to allow the Company to reserve the Required Reserve Amount for the Notes then
outstanding. Without limiting the generality of the foregoing sentence, as soon
as practicable after the date of the occurrence of an Authorized Share Failure,
but in no event later than 60 days after the occurrence of such Authorized Share
Failure, the Company shall hold a meeting of its stockholders for the approval
of an increase in the number of authorized shares of Common Stock. In connection
with such meeting, the Company shall provide each stockholder with a proxy
statement and shall use its best efforts to solicit its stockholders' approval
of such increase in authorized shares of Common Stock and to cause its board of
directors to recommend to the stockholders that they approve such proposal. In
lieu of holding a meeting of its stockholders, the Company may obtain
stockholder approval of the increase in the number of authorized shares of
Common Stock by written consent in lieu of meeting to the extent permitted by
law and the rules of any Eligible Market upon which the Common Stock is then
traded. 

     (12) REDEMPTIONS. 

          (a)
Mechanics. The Company shall deliver the applicable Event of Default
Redemption Price to the Holder within five Business Days after the Company's
receipt of the Holder's Event of Default Redemption Notice. If the Holder has
submitted a Change of Control Redemption Notice in accordance with Section 5(b),
the Company shall deliver the applicable Change of Control Redemption Price to
the Holder concurrently with the consummation of such Change of Control if such
notice is received prior to the consummation of such Change of Control and
within five Business Days after the Company's receipt of such notice otherwise.
The Company shall deliver the Optional Redemption Price to the Holder on the
Optional Redemption Date specified in the Optional Redemption Notice as
specified in Section 8. In the event of a redemption of less than all of the
Principal of this Note and provided that the Holder has delivered this Note to
the Company, the Company shall promptly cause to be issued and delivered to the
Holder a new Note (in accordance with Section 18(d)) representing the
outstanding Principal which has not been redeemed. If the Company fails to pay
the Holder the applicable Redemption Price to the Holder within the time period
required, at any time thereafter and until the Company pays such unpaid
Redemption Price in full, the Holder shall have the option, by written notice to
the Company, in lieu of redemption, to require the Company to promptly return to
the Holder all or any portion of this Note representing the Conversion Amount
that was submitted or called for redemption and for which the applicable
Redemption Price (together with any Late Charges thereon) has not been paid.
Upon the Company's receipt of such notice, (x) the Redemption Notice shall be
null and void with respect to such Conversion Amount, (y) the Company shall
immediately return this Note, or issue a new Note (in accordance with Section
18(d)) to the Holder representing the sum of such Conversion Amount to be redeemed together with accrued and unpaid Interest with respect to such Conversion Amount and accrued and unpaid Late Charges with respect to such Conversion Amount and Interest and (z) the Conversion Price of this Note or such new Notes shall be adjusted to the lesser of (A) the Conversion Price as in effect on the date on which the Redemption Notice is voided and (B) the lowest Closing Sale Price of the Common Stock during the period beginning on and including the date on which the Redemption Notice is delivered to the Company and ending on and including the date on which the Redemption Notice is voided. The Holder's delivery of a notice voiding a Redemption Notice and exercise of its rights following such notice shall not affect the Company's obligations to make any payments of Late Charges which have accrued prior to the date of such notice with respect to the Conversion Amount subject to such notice. 

-17- 

          (b)
Redemption by Other Holders. Upon the Company's receipt of notice from
any of the holders of the Other Notes for redemption or repayment as a result of
an event or occurrence substantially similar to the events or occurrences
described in Section 4(a), Section 5(b) or Section 8 (each, an “Other
Redemption Notice”), the Company shall immediately, but no later than one
Business Day of its receipt thereof, forward to the Holder by facsimile a copy
of such notice and make a prompt public announcement thereof. If the Company
receives a Redemption Notice and one or more Other Redemption Notices during the
seven Business Day period beginning on and including the date which is three
Business Days prior to the Company's receipt of the Holder's Redemption Notice
and ending on and including the date which is three Business Days after the
Company's receipt of the Holder's Redemption Notice and the Company is unable to
redeem all principal, interest and other amounts designated in such Redemption
Notice and such Other Redemption Notices received during such seven Business Day
period, then the Company shall redeem a pro rata amount from each holder of the
Notes (including the Holder) based on the principal amount of the Notes
submitted for redemption pursuant to such Redemption Notice and such Other
Redemption Notices received by the Company during such seven Business Day
period. 

     (13) VOTING RIGHTS. The
Holder shall have no voting rights as the holder of this Note, except as
required by law, including, but not limited to, the Delaware General Corporation
Law, and as expressly provided in this Note. 

     (14) COVENANTS.

          (a)
Rank. This Note is subordinated in right of payment to those certain
Series B Convertible Secured Debentures (the “Senior Debt”) issued by the
Company to certain holders pursuant to a Trust Indenture dated as of December 7,
2016 entered into between the Company, Security Devices International Canada
Corp., and TSX Trust Company, as trustee (the “Trustee”), in the
aggregate original principal amount of CAD $1,550,000. The Company hereby
agrees, and by accepting this Note, the Holder hereby acknowledges and agrees,
that so long as any Senior Debt is outstanding, upon notice from the Trustee
that an event of default, or any event which the giving of notice or the passage
of time or both would constitute an event of default, has occurred under the
terms of the Senior Debt (a “Senior Default Notice”), the Company
will not make, and the Holder will not receive or retain, any payment under this
Note. Nothing in this paragraph will preclude or prohibit the Holder from
receiving and retaining any payment hereunder unless and until the Holder has
received notice of a Senior Default Notice or from converting this Note or any amounts due hereunder into Common Stock. All payments due under this Note shall rank pari passu with all Other Notes from this offering. Upon the occurrence of the Springing Lien Date (as defined in the Securities Purchase Agreement), the Springing 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. 

-18- 

          (b)
Incurrence of Indebtedness. On and after the Springing Lien 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 Springing Lien 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. 

          (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(q)(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. 

-19- 

          (f)
Par Value. So long as any Notes are outstanding, the Company shall not
change the par value of the Common Stock without the written consent of the
Required Holders. 

     (15) PARTICIPATION. The
Holder, as the holder of this Note, shall be entitled to receive such dividends
paid and distributions made to the holders of Common Stock to the same extent as
if the Holder had converted this Note into Common Stock (without regard to any
limitations on conversion herein or elsewhere) and had held such shares of
Common Stock on the record date for such dividends and distributions. Payments
under the preceding sentence shall be made concurrently with the dividend or
distribution to the holders of Common Stock.

     (16) VOTE TO ISSUE, OR CHANGE
THE TERMS OF, NOTES. This Note and the Other Notes shall be amended in
accordance with the terms of any resolution approved by the affirmative vote at
a meeting duly called for such purpose or the written consent without a meeting
of the Required Holders; provided that the Company approves any such amendment
in writing and, further provided that, without the consent of each Holder so
affected, no amendment shall (a) reduce the Principal of or Interest Rate on
this Note, (b) postpone the Maturity Date or any date fixed for the payment of
any Interest on this Note, (c) increase the percentage specified in the
definition of “Required Holders,” (d) amend Section 3(d) or the application of
Section 3(d) to any other provision of this Note or (e) have the effect of
creating different provisions in different Notes, provided that nothing
contained herein shall prohibit the Holder from waiving any of the Holder’s
rights hereunder or under any of the other Transaction Documents.

     (17) TRANSFER. This Note
is subject to certain restrictions on transfer set forth in Section 5 of the
Securities Purchase Agreement; provided, however, that this Note and any shares
of Common Stock issued upon conversion of this Note may be offered for sale,
sold, assigned or transferred by the Holder without the consent of the Company,
subject to applicable securities law restrictions. Notwithstanding the foregoing
or any other provisions hereof, the Holder may not transfer this Note unless the
transferee agrees in writing to be bound by all of the provisions of the
Transaction Documents (including, but not limited to, Section 8 of the Security
Purchase Agreement), and it shall be a condition to any such transfer that any
such transferee execute and deliver appropriate documentation, in form and
substance reasonably satisfactory to the Company and the Collateral Agent, to
such effect. 

     (18) REISSUANCE OF THIS
NOTE. 

          (a)
Transfer. If this Note is to be transferred, the Holder shall surrender
this Note to the Company, whereupon the Company will forthwith issue and deliver
upon the order of the Holder a new Note (in accordance with Section 18(d)),
registered as the Holder may request, representing the outstanding Principal
being transferred by the Holder and, if less than the entire outstanding
Principal is being transferred, a new Note (in accordance with Section 18(d)) to
the Holder representing the outstanding Principal not being transferred. The
Holder and any assignee, by acceptance of this Note, acknowledge and agree that,
by reason of the provisions of Section 3(c)(v) following conversion or
redemption of any portion of this Note, the outstanding Principal represented by
this Note may be less than the Principal amount stated on the face of this Note.

-20- 

          (b)
Lost, Stolen or Mutilated Note. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Note, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the Holder to the Company in customary form and,
in the case of mutilation, upon surrender and cancellation of this Note, the
Company shall execute and deliver to the Holder a new Note (in accordance with
Section 18(d)) representing the outstanding Principal. 

          (c)
Note Exchangeable for Different Denominations. This Note is exchangeable,
upon the surrender hereof by the Holder at the principal office of the Company,
for a new Note or Notes (in accordance with Section 18(d) and in principal
amounts of at least $1,000) representing in the aggregate the outstanding
Principal of this Note, and each such new Note will represent such portion of
such outstanding Principal as is designated by the Holder at the time of such
surrender. 

          (d)
Issuance of New Notes. Whenever the Company is required to issue a new
Note pursuant to the terms of this Note, such new Note (i) shall be of like
tenor with this Note, (ii) shall represent, as indicated on the face of such new
Note, the Principal remaining outstanding (or in the case of a new Note being
issued pursuant to Section 18(a) or Section 18(c), the Principal designated by
the Holder which, when added to the principal represented by the other new Notes
issued in connection with such issuance, does not exceed the Principal remaining
outstanding under this Note immediately prior to such issuance of new Notes),
(iii) shall have an issuance date, as indicated on the face of such new Note,
which is the same as the Issuance Date of this Note, (iv) shall have the same
rights and conditions as this Note, and (v) shall represent accrued Interest and
Late Charges on the Principal and Interest of this Note, from the Issuance Date.

     (19) REMEDIES, CHARACTERIZATIONS,
OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided
in this Note shall be cumulative and in addition to all other remedies available
under this Note and any of the other Transaction Documents at law or in equity
(including a decree of specific performance and/or other injunctive relief), and
nothing herein shall limit the Holder's right to pursue actual and consequential
damages for any failure by the Company to comply with the terms of this Note.
The Company covenants to the Holder that there shall be no characterization
concerning this instrument other than as expressly provided herein. Amounts set
forth or provided for herein with respect to payments, conversion and the like (and the
computation thereof) shall be the amounts to be received by the Holder and shall
not, except as expressly provided herein, be subject to any other obligation of
the Company (or the performance thereof). The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to the Holder and
that the remedy at law for any such breach may be inadequate. The Company
therefore agrees that, in the event of any such breach or threatened breach, the
Holder shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach, without the necessity of showing economic
loss and without any bond or other security being required. 

     (20) PAYMENT OF COLLECTION,
ENFORCEMENT AND OTHER COSTS. If (a) this Note is placed in the hands
of an attorney for collection or enforcement or is collected or enforced through
any legal proceeding or the Holder otherwise takes action to collect amounts due
under this Note or to enforce the provisions of this Note or (b) there occurs
any bankruptcy, reorganization, receivership of the Company or other proceedings
affecting Company creditors' rights and involving a claim under this Note, then
the Company shall pay the costs incurred by the Holder for such collection,
enforcement or action or in connection with such bankruptcy, reorganization,
receivership or other proceeding, including, but not limited to, attorneys' fees
and disbursements. 

-21- 

     (21) CONSTRUCTION;
HEADINGS. This Note shall be deemed to be jointly drafted by the Company and
the Holder and shall not be construed against any person as the drafter hereof.
The headings of this Note are for convenience of reference and shall not form
part of, or affect the interpretation of, this Note. 

     (22) FAILURE OR INDULGENCE NOT
WAIVER. No failure or delay on the part of the Holder in the exercise of any
power, right or privilege hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such power, right or privilege preclude
other or further exercise thereof or of any other right, power or privilege.

     (23) DISPUTE RESOLUTION.
In the case of a dispute as to the determination of the Closing Bid Price, the
Closing Sale Price or the Weighted Average Price or the arithmetic calculation
of the Conversion Rate, any Conversion Default Payment or the Redemption Price,
the Company shall submit the disputed determinations or arithmetic calculations
via facsimile within one Business Day of receipt, or deemed receipt, of the
Conversion Notice or Redemption Notice or other event giving rise to such
dispute, as the case may be, to the Holder. If the Holder and the Company are
unable to agree upon such determination or calculation within one Business Day
of such disputed determination or arithmetic calculation being submitted to the
Holder, then the Company shall, within one Business Day submit via facsimile (a)
the disputed determination of the Closing Bid Price, the Closing Sale Price or
the Weighted Average Price to an independent, reputable investment bank selected
by the Company and approved by the Holder or (b) the disputed arithmetic
calculation of the Conversion Rate, the Conversion Default Payment or the
Redemption Price to the Company's independent, outside accountant. The Company,
at the Company's expense, shall cause the investment bank or the accountant, as
the case may be, to perform the determinations or calculations and notify the
Company and the Holder of the results no later than five Business Days from the
time it receives the disputed determinations or calculations. Such investment bank's or
accountant's determination or calculation, as the case may be, shall be binding
upon all parties absent demonstrable error. 

     (24) NOTICES; PAYMENTS;
EXCHANGE RATE. 

          (a)
Notices. Whenever notice is required to be given under this Note, unless
otherwise provided herein, such notice shall be given in accordance with Section
9(f) of the Securities Purchase Agreement. The Company shall provide the Holder
with prompt written notice of all actions taken pursuant to this Note, including
in reasonable detail a description of such action and the reason therefor.
Without limiting the generality of the foregoing, the Company will give written
notice to the Holder (i) immediately upon any adjustment of the Conversion
Price, setting forth in reasonable detail, and certifying, the calculation of
such adjustment and (ii) at least 10 days prior to the date on which the Company
closes its books or takes a record (A) with respect to any dividend or
distribution upon the Common Stock, (B) with respect to any pro rata
subscription offer to holders of Common Stock or (C) for determining rights to
vote with respect to any Fundamental Transaction, dissolution or liquidation,
provided in each case that such information shall be made known to the public
prior to or in conjunction with such notice being provided to the Holder.
Notwithstanding anything herein to the contrary, the Company shall not provide
the Holder with any material non-public information without the Holder's prior
written consent. 

-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. 

-23- 

     (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. 

     (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. 

-24- 

          (e)
“Closing Bid Price” and “Closing Sale Price” means, for any
security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price,
as the case may be, then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York Time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the Eligible Market that is the principal
securities exchange or trading market where such security is listed or traded as
reported by Bloomberg, or if the foregoing do not apply, the last closing bid
price or last trade price, respectively, of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no closing bid price or last trade price,
respectively, is reported for such security by Bloomberg, the average of the bid
prices, or the ask prices, respectively, of any market makers for such security
as reported in the “pink sheets” by Pink Sheets LLC (formerly the National
Quotation Bureau, Inc.). If the Closing Bid Price or the Closing Sale Price
cannot be calculated for a security on a particular date on any of the foregoing
bases, the Closing Bid Price or the Closing Sale Price, as the case may be, of
such security on such date shall be the fair market value as mutually determined
by the Company and the Holder. If the Company and the Holder are unable to agree
upon the fair market value of such security, then such dispute shall be resolved
pursuant to Section 23. All such determinations shall be appropriately adjusted
for any stock dividend, stock split, stock combination or other similar
transaction during the applicable calculation period. 

          (f)
“Common Stock Deemed Outstanding” means, at any given time, the number of
shares of Common Stock actually outstanding at such time, plus the number of
shares of Common Stock deemed to be outstanding pursuant to Sections 7(a)(i) and
7(a)(ii) hereof regardless of whether the Options or Convertible Securities are
actually exercisable at such time, but excluding any Common Stock owned or held
by or for the account of the Company or issuable upon conversion or exercise, as
applicable, of the Notes. 

          (g)
“Contingent Obligation” means, as to any Person, any direct or indirect
liability, contingent or otherwise, of that Person with respect to any
indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent of the Person incurring such liability, or the primary
effect thereof, is to provide assurance to the obligee of such liability that
such liability will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such liability will be
protected (in whole or in part) against loss with respect thereto. 

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

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

-25- 

          (j)
“Excluded Securities” means any Common Stock issued or issuable: (i) in
connection with mergers, acquisitions, strategic business partnerships or joint
ventures, in each case with non-affiliated third parties and otherwise on an
arm’s length basis, the primary purpose of which, in the reasonable judgment of
the Company’s Board of Directors, is not to raise additional capital; (ii) in
connection with the grant of options to purchase Common Stock or other
stock-based awards or sales, with exercise or purchase prices not less than the
market price of the Common Stock on the date of grant or issuance of the option,
which are issued or sold to employees, officers, consultants or directors of the
Company for the primary purpose of soliciting or retaining their employment or
service pursuant to an equity compensation plan approved by the Company's Board
of Directors, and the Common Stock issued upon the exercise thereof; (iii) upon
conversion of the Notes; or (iv) upon conversion of any Options or Convertible
Securities which are disclosed in Schedule 3(c) of the Securities Purchase
Agreement, provided that the terms of such Options or Convertible Securities are
not amended, modified or changed on or after the Subscription Date without the
consent of the Required Holders. 

          (k)
“Fundamental Transaction” means: (i) a transaction or series of related
transactions pursuant to which the Company: (A) sells, conveys or disposes of
all or substantially all of its assets (or the stock or assets of one or more of
its Subsidiaries which, on a consolidated basis, constitute all or substantially
all of the Company’s assets), determined on either a quantitative or qualitative
basis (the presentation of any such transaction for stockholder approval being
conclusive evidence that such transaction involves the sale of all or
substantially all of the assets of the Company on a consolidated basis); (B)
merges or consolidates with or into, or engages in any other business
combination with, any other person or entity, in any case that results in the
holders of the voting securities of the Company immediately prior to such
transaction holding or having the right to direct the voting of 50% or less of
the total outstanding voting securities of the Company or such other surviving
or acquiring person or entity immediately following such transaction, as the
case may be; or (C) sells or issues, or any of its stockholders sells or
transfers, any securities to any person or entity, or the acquisition or right
to acquire securities by any person or entity, in either case acting
individually or in concert with others, such that, following the consummation of
such transaction(s), such person(s) or entity(ies) (together with their
respective affiliates, as such term is used under Section 13(d) of the Exchange
Act) would own or have the right to acquire greater than 50% of the outstanding
shares of Common Stock; (ii) any reclassification or change of the outstanding
shares of Common Stock (other than a change in par value, or from par value to
no par value, or from no par value to par value, or as a result of a subdivision
or combination); or (iii) any event, transaction or series of related
transactions that results in individuals serving on the Board of Directors on
the date hereof (the “Incumbent Board”) ceasing for any reason to
constitute at least a majority of the Board of Directors; provided, however,
that any individual becoming a director subsequent to the date hereof whose appointment, election, or nomination for election by the
Company's stockholders was approved by a vote of at least a two-thirds of the
directors then comprising the Incumbent Board, after giving effect to this
proviso (other than an appointment, election, or nomination of an individual
whose initial assumption of office is in connection with an actual or threatened
election contest relating to the election of the directors of the Company),
shall be considered as though such person were a member of the Incumbent Board.

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

-26- 

          (m)
“Indebtedness” of any Person means, without duplication (i) all
indebtedness for borrowed money, (ii) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services, including
(without limitation) “capital leases” in accordance with generally accepted
accounting principles (other than trade payables entered into in the ordinary
course of business), (iii) all reimbursement or payment obligations with respect
to letters of credit, surety bonds and other similar instruments, (iv) all
obligations evidenced by notes, bonds, debentures or similar instruments,
including obligations so evidenced incurred in connection with the acquisition
of property, assets or businesses, (v) all indebtedness created or arising under
any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (vi) all monetary obligations under any
leasing or similar arrangement which, in connection with generally accepted
accounting principles, consistently applied for the periods covered thereby, is
classified as a capital lease, (vii) all indebtedness referred to in clauses (i)
through (vi) above secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any mortgage,
lien, pledge, charge, security interest or other encumbrance upon or in any
property or assets (including accounts and contract rights) owned by any Person,
even though the Person that owns such assets or property has not assumed or
become liable for the payment of such indebtedness, and (viii) all Contingent
Obligations in respect of indebtedness or obligations of others of the kinds
referred to in clauses (i) through (vii) above. 

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

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

          (p)
“Parent Entity” of a Person means an entity that, directly or indirectly,
controls the applicable Person and whose common stock or equivalent equity
security is quoted or listed on an Eligible Market, or, if there is more than
one such Person or Parent Entity, the Person or Parent Entity with the largest
public market capitalization as of the date of consummation of the Fundamental
Transaction. 

          (q)
“Permitted Indebtedness” means (A) 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. 

-27- 

          (r)
“Permitted Liens” means (i) any Lien for taxes not yet due or delinquent
or being contested in good faith by appropriate proceedings for which adequate
reserves have been established in accordance with GAAP, (ii) any statutory Lien
arising in the ordinary course of business by operation of law with respect to a
liability that is not yet due or delinquent, (iii) any Lien created by operation
of law, such as materialmen's liens, mechanics' liens and other similar liens,
arising in the ordinary course of business with respect to a liability that is
not yet due or delinquent or that are being contested in good faith by
appropriate proceedings, (iv) Liens securing the purchase price of assets
purchased or leased by the Company or Subsidiaries in the ordinary course of
business; provided that (A) such Liens shall not extend to or cover any other
property of the Company or its Subsidiaries, (B) the value of any such Lien
shall not, individually, exceed $50,000 and (C) the value of all Liens incurred
under this subsection (iv) while this Note is outstanding shall not exceed, in
the aggregate, $500,000, (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(q)(E). 

          (s)
“Person” means an individual, a limited liability company, a partnership,
a joint venture, a corporation, a trust, an unincorporated organization, any
other entity and a government or any department or agency thereof.

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

          (u)
“Redemption Notices” means, collectively, the Event of Default Redemption
Notices, Change of Control Redemption Notices, and the Optional Redemption
Notices and, each of the foregoing, individually, a Redemption Notice. 

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

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

          (x)
“Securities Purchase Agreement” means the Securities Purchase Agreement
dated as of the Subscription Date by and among the Company and the initial
holders of the Notes pursuant to which the Company issued the Notes. 

          (y)
“Springing Lien” and “Springing Lien Date” have the meaning set
forth in the Securities Purchase Agreement.

          (z)
“Subscription Date” means April  22, 2019.

          (aa)
“Successor Entity” means the Person, which may be the Company, formed by,
resulting from or surviving any Fundamental Transaction or the Person with which
such Fundamental Transaction shall have been made, provided that if such Person
is not a publicly traded entity whose common stock or equivalent equity security
is quoted or listed for trading on an Eligible Market, Successor Entity shall
mean such Person's Parent Entity. 

-28- 

          (bb)
“Trading Day” means any day on which trading the Common Stock is reported
on the Principal Market, or, if the Principal Market is not the principal
trading market for the Common Stock, then on the Eligible Market that is the
principal securities exchange or securities market on which the Common Stock is
then traded; provided that “Trading Day” shall not include any day on which the
Common Stock is scheduled to trade on such exchange or market for less than 4.5
hours or any day that the Common Stock is suspended from trading during the
final hour of trading on such exchange or market (or if such exchange or market
does not designate in advance the closing time of trading on such exchange or
market, then during the hour ending at 4:00:00 p.m., New York Time). 

          (cc)
“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. 
	 	  
	 	  
	 	By:
  
	 	           Name:
    
	 	           Title:
    

[Signature Page to Secured Convertible Note] 

EXHIBIT I 

SECURITY DEVICES
INTERNATIONAL INC. 
CONVERSION NOTICE 

Reference is made to the Secured Convertible Note (the
“Note”) issued to the undersigned by Security Devices International Inc.
(the “Company”). In accordance with and pursuant to the Note, the
undersigned hereby elects to convert the Conversion Amount (as defined in the
Note) of the Note indicated below into shares of Common Stock par value $.001
per share (the “Common Stock”) of the Company, as of the date specified
below. 

	 	Date of Conversion: 	 	 
	 	Aggregate Conversion Amount to be converted:	 	 
	 	 	 	 
	Please confirm the following information: 	 	 
	 	 	 
	 	Conversion Price: 	 	 
	 	Number of shares of Common Stock to be issued:
    	 	 

Please issue the Common Stock into which the Note is being
converted in the following name and to the following address: 

	 	Issue to: 	 	 
	 		 	 
		 	 	 
		 	 	 
	 	Facsimile Number: 	 	 
	 	Authorization: 	 	 
	 	 By: 	 	 
	 	 Title: 	 	 
	Dated: 	 	 	 
	 	 
    	 	 
	 	Account Number:  	 	 
	 	 (if electronic book entry
    transfer) 	 	 
	 	Transaction Code Number: 	 	 
	 	 (if electronic book entry transfer) 	 	 

	                   
	  
	  
	                   
	                   
	
	                                                     
	

	
	
	  
	
	

ACKNOWLEDGMENT 

                     
The Company hereby acknowledges this Conversion Notice and hereby directs
[Insert name of transfer agent] to issue the above indicated number of shares of
Common Stock in accordance with the Transfer Agent Instructions dated

_________ __, 2018 from the Company and acknowledged and agreed to by
[Insert name of transfer agent]. 

	 	SECURITY DEVICES INTERNATIONAL INC. 
	 	  
	 	  
	 	By:
  
	 	           Name:
    
	 	           Title:Security Devices International Inc.: Exhibit 4.3 - Filed by newsfilecorp.com

     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: January 15, 2020

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 October 22, 2023 (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. 

	 	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. 

1 

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.

2

	 		
      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.

	 	 	 
	 		
      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 

3

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 

4

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. 

                     
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.

                      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. 

5

                     
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. 

                     
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. 

6

	  	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.
  

7

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. 

8 

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: 

     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. 

9 

                     
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). 

10

	 	                     
      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. 
	 	 
	 	                     
      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.

11

                    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) 

12 

                     
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. 

	 	SECURITY DEVICES INTERNATIONAL INC.
  
	 	  
	 	  
	 	By:
  
	 	Name: 
	 	Title: 

[Signature Page to Warrant] 

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: 	 

ASSIGNMENT FORM 

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

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.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00303-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00303-of-00352.parquet"}]]