On December 7, 2016, Security Devices International Inc. (the
“Company“) entered into a Securities Purchase Agreement
(the “Agreement“) with several accredited investors (the
“Purchasers”) and Northeast Industrial Partners, LLC as
collateral agent for the Purchasers (the “Collateral
Agent“) to sell USD$1,500,000 of 10% senior secured
convertible notes (the “Secured Notes“), convertible
into shares of the Company’s common stock, in a private
placement to Regulation D under the Securities Act of 1933 (the
“Securities Act“). The sale of the Secured Notes was
closed on December 7, 2016. The net proceeds from the sale of the
Secured Notes will be used for general corporate purposes and
working capital.

On December 7, 2016, the Company and its wholly-owned subsidiary,
Security Devices International Canada Corp. (“SDI
Canada“), entered into a Trust Indenture (the
“Indenture“) with TSX Trust Company, providing for the
issuance of up to CAD$1,550,000 of the Company’s Series B
Convertible Secured Debentures (the “Subordinate Secured
Debentures“), convertible into shares of the Company’s
common stock, in an offshore transaction to Regulation S under
the Securities Act.

A condition to the sale of the Secured Notes was the exchange of
at least 80% in principal amount of the Company’s outstanding
12% Unsecured Debentures, which mature on August 6, 2017 (the
“Unsecured Debentures“) for an equal principal amount of
Subordinate Secured Debentures. Concurrent with the sale of the
Secured Notes, CAD$1,363,000 of the Company’s outstanding
Unsecured Debentures, which represented approximately 88% of the
outstanding Unsecured Debentures, were exchanged for an equal
principal amount of the Subordinate Secured Debentures and an
additional $39,000 of Subordinated Secured Debentures were issued
in satisfaction of a portion of the accrued interest on the
Unsecured Debentures. After giving effect to the exchange,
CAD$186,000 of Unsecured Debentures remain outstanding.

Terms of the Secured Notes

The outstanding principal amount of the Secured Notes accrues
interest at a rate of 10% per annum, provided that, in the event
of default on the Secured Notes, the interest rate will be 15.0%
during the period of default. The maturity date of the Secured
Notes is June 6, 2019, which date is subject to optional
extension by each Purchaser if a change of control of the Company
is announced prior to such date. Interest on the Secured Notes is
payable in arrears on the last day of each May and November while
the Secured Notes are outstanding. The Company has the option to
redeem the Secured Notes by paying the Purchasers the Optional
Redemption Price as described in the Secured Notes.

Each Secured Note is convertible into common stock, at the option
of the Purchaser. Upon such optional conversion, the outstanding
principal amount of the Secured Note converts into shares of
Common Stock at a conversion price of $0.24 per share, subject to
adjustment as set forth in the Secured Notes (the “Note
Conversion Price“). The Company is not required to
convert any portion of a Secured Note if doing so results in the
Purchaser beneficially owning more than 4.99% of the outstanding
Common Stock after giving effect to such conversion, provided
that on sixty (60) days’ prior written notice from the Purchaser
to the Company, that percentage will increase to 19.99%.

Upon a Change of Control (as defined in the Secured Note), an
Purchaser may require the Company to redeem all or a portion of a
Secured Note, in which case the Company will pay in cash an
amount equal to the greater of (a) the sum of (x) the aggregate
consideration that the Purchaser would be entitled to receive in
connection with the Change of Control if the Purchaser were to
fully convert (without giving effect to any limitations on
conversion) the outstanding principal of the Secured Note into
Common Stock 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, or (b) an amount equal
to the sum of (i) the outstanding principal of the Secured Note
plus, (ii) any accrued and unpaid interest thereon through but
excluding the effective date of the Change of Control and any
accrued and unpaid late charges plus, (iii) an amount equal to
100% of the interest that would have been earned on the Secured
Note from the effective date of the Change of Control through the
maturity date of the Secured Note. Notwithstanding any other
provision of the Agreement or the Secured Note, the effective
interest rate may not exceed 25% per annum.

The Secured Notes contain restrictive covenants which, among
other things, restrict the Company’s ability to incur additional
indebtedness, grant security interests on its assets or make
distributions on or repurchase its common stock.

to the Agreement, the Purchasers appointed the Collateral Agent
to act as collateral agent for the Purchasers. SDI Canada, a
wholly owned subsidiary of the Company, has entered into a
Guaranty and Suretyship Agreement (the “Guaranty“) in
favor of the Collateral Agent, to which SDI Canada guaranteed the
Company’s obligations under the Secured Notes and the documents
executed in connection with the Agreement. Each of the Company
and SDI Canada granted to the Collateral Agent a security
interest in substantially all of its assets, as security for the
Company’s obligations under the Secured Notes and the documents
executed in connection with the Agreement, and SDI Canada’s
obligations under the Guaranty, respectively. As additional
security for such obligations, each of the Company and SDI Canada
entered into a pledge agreement to which each collaterally
pledged to the Collateral Agent the equity securities held by
each.

Concurrent with the execution of the Agreement, the Collateral
Agent and TSX Trust Company, as trustee for the holders of the
Subordinate Secured Debentures (the “Trustee“), entered
into an Intercreditor and Subordination Agreement, to which the
Trustee agreed (i) that all principal and interest due and
payable on the Subordinate Secured Debentures will be subordinate
and subject in right of payment to all principal, interest and
other payments due under the Secured Notes, and (ii) to
subordinate the Trustee’s security interests in the Company’s
assets to the Collateral Agent’s security interests in the
Company’s assets.

Two of the Purchasers, NLW1, LLC and REF Securities Co., are
deemed to be members of a Section 13(d) group that may deemed to
collectively beneficially own more than 10% of the Company’s
outstanding Common Stock. As such, each of NLW1, LLC and REF
Securities Co. are not permitted to convert their Secured Notes
due to the restriction against conversion if any Purchaser would
beneficially own more than 4.99% of the outstanding Common Stock
after giving effect to conversion.

The Secured Notes (and the common stock issuable upon conversion
of the Secured Notes) have not been and will not be registered
under the Securities Act, and may not be sold, transferred or
assigned (i) in the absence of an opinion in a generally
acceptable form of counsel, which counsel shall be selected by
the holder and be reasonably acceptable to the Company, that
registration is not required under the Securities Act or (ii)
unless sold to Rule 144 under the Securities Act.

The foregoing summary of the Agreement, Secured Notes and related
agreements is qualified in its entirety by the terms of the
Agreement and the exhibits thereto (including the form of 10%
Senior Secured Convertible Note), attached as Exhibit 10.1 and
incorporated herein by reference.

Terms of the Subordinate Secured Debentures

$1,363,000 of Subordinate Secured Debentures were issued to the
Indenture in exchange for the Unsecured Debentures in equal
principal amount and $39,000 of Subordinate Secured Debentures
were issued to the Indenture in payment of accrued interest. The
Subordinate Secured Debentures mature on June 6, 2019 and bear
interest at 12% per annum payable, semi-annually. The Subordinate
Secured Debentures are convertible into common shares of the
Company’s Common Stock at the Note Conversion Price so long as
any Secured Notes are outstanding, and thereafter, subject to
adjustment as set forth in the Indenture. The terms of the
Subordinate Secured Debentures with respect to the Company’s
redemption rights and the holders’ rights in the event of a
Change of Control are the same as provided in the Secured Notes,
in each case subject to the terms of the Intercreditor and
Subordination Agreement. The Trustee also entered into security
agreements with the Company that are substantially identical to
the security agreements between the Company and the Collateral
Agent, granting a security interest in the same property and
assets as secure the Secured Notes, but the security interest for
the Subordinate Secured Notes is subordinate and junior to the
security interest of granted the Collateral Agent on behalf of
the holders of the Secured Notes.

The Subordinate Secured Debentures were issued in a non-brokered
private placement and were offered and sold only to Non-U.S.
Persons outside the United States in a transaction exempt from
the registration requirements of the Securities Act in reliance
on Regulation S. Subject to all applicable securities laws, the
Company may pay, to persons who were instrumental in arranging
accepted subscription agreements for the Subordinate Secured
Debentures, cash compensation equal to 2% of the principal amount
of the Subordinate Secured Debentures arranged by such persons.

The foregoing summary of the Indenture and Subordinate Secured
Debentures and related agreements is qualified in its entirety by
the terms of the Indenture and the exhibits thereto (including
the form of Series B Convertible Secured Debentures), attached as
Exhibit 10.2 and incorporated herein by reference.

This document contains certain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995 with respect to the Agreement, including benefits of the
transaction. These forward-looking statements generally are
identified by the words “believe”, “project”, “expect”,
“anticipate”, “estimate”, “future”, “strategy” ,
“opportunity”, “plan”, “may”, “should”, “will”,
“would”, “will be”, “will continue”, “will likely
result”, and similar expressions. Forward-looking statements are
predictions, projections and other statements about future events
that are based on current expectations and assumptions and, as a
result, are subject to risks and uncertainties. Many factors
could cause actual future events to differ materially from the
forward-looking statements in this document, including, but not
limited to, the Company’s ability to comply with all the terms
and provisions of the Agreement and the documents executed in
connection therewith, and general economic conditions. In
addition please refer to the documents that the Company files
with the SEC on Forms 10-K, 10-Q and 8-K. These filings identify
and address other important risks and uncertainties that could
cause events and results to differ materially from those
contained in the forward-looking statements set forth in this
document. Forward-looking statements speak only as of the date
they are made. Readers are cautioned not to put undue reliance on
forward-looking statements and the Company assumes no obligation,
and does not intend, to update or revise these forward-looking
statements, whether as result of new information, future events,
or otherwise.

Item 2.03 Creation of a Direct Financial Obligation or an
Obligation under an Off-Balance Sheet Arrangement of a
Registrant.

The Company incorporates by reference the discussion included at
Item 1.01 above.

Item 3.02 Unregistered Sales of Equity Securities.

The Company incorporates by reference the discussion included at
Item 1.01 above. The Company relied on Section 4(a)(2) of the
Securities Act and Rule 506 of Regulation D promulgated under the
Securities Act to offer and sell the Secured Notes inasmuch as
the offer and sale was made to accredited investors only and the
Company did not undertake any form of general solicitation or
general advertising.

The Company relied on Regulation S promulgated under the
Securities Act to offer and sell the Subordinate Secured
Debentures, inasmuch as the Subordinate Secured Debentures were
offered and sold to solely to “Non-U.S. Persons” in an
“Offshore Transaction,” as such terms are defined in Regulation
S. Purchasers of the Subordinate Secured Debentures may not offer
to sell, sell, pledge or otherwise transfer the Subordinate
Secured Debentures (or any common stock into which the
Subordinate Secured Debentures may be converted) in the United
States or to or for the account or benefit of any U.S. Person
unless such offer, sale, pledge or transfer is registered under
the Securities Act or an exemption from registration is available
and the Subordinate Secured Debentures may not be converted into
common stock by or on behalf of any U.S. Person except to such
registration or an exemption therefrom.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.