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| (1) | Coda Octopus Group      Inc, a      Delaware corporation, whose office is at 164 West 25th      Street, New York, New York 10001 (COGI) and those of its      wholly-owned subsidiaries that are identified in Schedule 3      hereto; |
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| (2) | The Royal Bank of Scotland      plc, (RBS)      incorporated in Scotland, (registered number 90312) acting through its      London offices at 135 Bishopsgate, London EC2M 3UR;  and |
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| (3) | Greenhouse Investments Limited      (GIL), a company incorporated under the laws of Jersey, with its      main offices at 12 – 14 David Place, St Helier, Jersey JE2 4TD, British      Channel Islands and appointed by the Noteholder to, inter alia, manage the      Bank Accounts (as the term is defined below) and the remittances to be      made in respect of the Book Debts. |
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| (A) | WHEREAS COGI is a party      to a Subscription Agreement dated 21 February 2008 (Subscription Agreement)      and certain related documents (together Transaction Documents) pursuant to      which it has issued certain Notes to RBS, and under which its subsidiaries      are guarantors of COGI’s obligations under such  Notes. |
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| (B) | COGI      and its subsidiaries have granted security interests to RBS in their      property to secure the prompt payment, performance and discharge of the      obligations undertaken in the Transaction  Documents. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (C) | Under      the Transaction Documents, a portion of the proceeds of the Notes was for      the specific purpose identified in the Confidentiality Agreement dated 21      February 2008 (hereinafter referred to as Specific      Purpose). |
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| (D) | WHEREAS the Specific      Purpose has not been fulfilled within the time stipulated in the      Transaction Documents and no alternative use of proceeds has been approved      by the Noteholder Majority at the date of this  Agreement. |
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| (E) | WHEREAS the Parties      agree, in order to preserve the Specific Purpose amounts to satisfy either      the Specific Purpose or any demand the Noteholder Majority may make in      accordance with Clause 3.4 (Redemption if no acquisition) of the Loan Note      Instrument, to remit to the Bank Accounts the Specific Purpose amounts and      place the Bank Accounts under the management of the Agent appointed      specifically for this purpose. |
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| (F) | WHEREAS COGI has      remitted US$2,151,000 of the Specific Purpose amounts to the Bank Accounts      which represent only a part of the Special Purpose amounts provided for      under the Transaction Documents. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (G) | WHEREAS the Bank Account      Security has been (or will be) entered into by COGI in order to grant      fixed security over the Bank Accounts and the amounts standing to the      credit of the Bank Accounts from time totime. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (H) | WHEREAS without      derogating from or otherwise varying, modifying, amending, waiving or      consenting to the waiver or impairment of any of the rights including      future rights of the Subscriber or Noteholder under the Transaction      Documents, it is recognised that COGI and its group members require      ongoing working capital. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (I) | Therefore it is agreed,      subject to the terms herein and the Conditions Precedent (without      obligation and always subject to the overriding rights of the Noteholder      under the Transaction Documents), that  RBS, through the Agent,      may from time to time  permit the release of funds standing to      the credit of the Bank Accounts such amounts as the Agent deems in its      sole discretion on the condition that COGI and/or its group members remit      to the Bank Accounts all receivables from the Book Debts within each Book      Debt Schedule and to replenish during the term of this Agreement those      amounts required under the Loan Note Instrument to be set aside for the      Specific Purpose. |
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| (J) | NOW,      THEREFORE, in consideration of the premises and the representations,      warranties, covenants and acts referred to herein, and for good and      valuable consideration, the receipt and adequacy of which are hereby      acknowledged by each Invoicing Unit, the Parties agree as      follows: |
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| 1. | Interpretation |
|----|----------------|

| 1.a | The      definitions and rules of interpretation in this Clause apply in this      Agreement. |
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|   | Related Company: means a      company within the COGI Group, whether at the date of this Agreement or      subsequent to the date of thisAgreement. |
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| 1.b | Clause      and schedule headings do not affect the interpretation of this      agreement. |
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| 1.c | A      person includes a      corporate or unincorporated body. |
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| 1.d | Words      in the singular include the plural and in the plural include the      singular. |
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| 1.e | A      reference to one gender includes a reference to the other      gender. |
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| 1.f | The      Background shall form part of this Agreement. |
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| 1.g | Writing or written includes faxes      but not e-mail. |
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| 2. | Request      for Release |
|----|--------------------------|

| 2.1. | A      member of the COGI Group may submit a request in writing to the Agent for      a specific amount from either Bank Account (a Release Request)      provided that such request: |
|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (a) | confirms      that the proposed Release will be used for the COGI Group’s working      capital requirements; |
|--------|-----|--------------------------------------------------------------------------------------------------------------------|

|   | (b) | confirms      that all representations and warranties given by COGI and the Group under      clause 11 (Warranties) of this Agreement are true and      accurate; |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (c) | is      accompanied by a Book Debt Schedule containing: (1) Validated Book Debts      with a face value of at least 125% of the amount requested to be Released      and (2) details of all Impairments;and |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (d) | identifies      the account to which the Release will be remitted if the Release is      released by the Agent. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------|

| 2.2 | All      representations and warranties given by COGI and the Group under Clause 11      (Warranties) of this Agreement are deemed repeated each time a Release      Request is made and such representations and Warranties shall be construed      as repeated accordingly. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 3. | Conditions      of a Release |
|----|------------------------------|

| 3.1 | The      Agent will only consider any Release Request if, on or prior to the date      of the request for the first Release Request under this Agreement, the      Agent (or RBS as the case may be) has received the Conditions Precedent in      form and substance satisfactory to the Agent (or RBS as the case may      be). |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.2 | The      Agent will only consider a request for any Release (including the first      Release), if, on the date of the request and the date on which the Agent      agrees (if it so agrees) to release theRelease: |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (a) | the      representations and Warranties given by COGI and the Group under Clause 11      (Warranties) of this Agreement are true and  accurate; |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | COGI      and/or each of its other Invoicing Units is/are not in breach of execution      on the Cost Reduction Plan and have provided to the Agent an updated      report in writing detailing the achievement to date against the Cost      Reduction Plan (such report to contain the same level of detail as in the      Appendix to the Cost Reduction Plan);and |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (c) | COGI      and/or each of its other Invoicing Units is not in breach of any other      term of this Agreement or the Transaction  Documents. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------|

| 3.3 | Any      Release which the Agent may consent to will be on the further conditions      that: |
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|   | (a) | the      proceeds of the Release are used in the ordinary course of business for      the working capital of the COGI Group as is set out in its business plan;      and |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | the      proceeds of all the Validated Book Debts within the relevant Book Debt      Schedule are paid into one of the designated Bank  Accounts. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.4. | Nothing      in this Agreement shall put any obligation on the Agent or RBS to consent      to the Release and all parties to this Agreement expressly agree that the      Agent and/or RBS has an unfettered discretion as to whether or not to      permit any Release. |
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| 3.5. | Nothing      in this Agreement, including but not limited to the provisions set out in      Clause 22 (Transaction Documents) shall be construed as varying the      permitted use of the proceeds provisions under any of (and as defined in)      the Transaction Documents entered into on or around 21 February 2008 or      derogating from the overriding rights of the Noteholder Majority to serve      written notice under Clause 3.4 of the Loan Note    Instrument. |
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| 4. | Impairments      of Book Debts and Specific PurposeFund |
|----|---------------------------------------------------------|

| 4.1. | The      Agent shall be entitled at any time to reduce any permitted Release by a      sum equivalent to any Book Debt within the Book Debt Schedule which      suffers or which, in the reasonable judgment of the Agent, is likely to      suffer Impairment. |
|------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.2. | If      any Customer becomes entitled to a credit or Customer discount in respect      of any Book Debt  the relevant Invoicing Unit will notify the      Agent immediately and send a copy of the credit note in respect of the      credited or discounted Book Debt with any other documents and information      which the Agent may request. |
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| 4.3. | COGI      shall procure that on a quarterly basis any gross profits on the Excess      Revenues realised in the financial quarter are within 30 days of the end      of the relevant quarter deposited in the  Bank Accounts to make      up the shortfall in the Specific Purpose amounts stipulated in the      Transaction Documents. This obligation shall cease to apply when the Bank      Accounts are replenished to an amount in excess of that required for the      Specific Purpose under the Transaction Documents.  A certified      statement of the Company’s auditors shall be conclusive of what the gross      profits on the Excess Revenues are in any one financial      quarter. |
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| 5. | Releases |
|----|----------|

| 5.1. | The      Agent will inform COGI whether it has granted its consent to a Release      against a Book Debt Schedule within three (3) working days of the      acceptance of that Book Debt Schedule by the  Agent. |
|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 6. | Fees |
|----|------|

| 6.1. | During      the term of this Agreement, the following Fees will  apply: |
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|   | (a) | COGI      shall pay the Agent an Administrative Fee of USD 10,000 per month payable      in advance and COGI agrees that the Agent may deduct this from the Bank      Accounts. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | All      bank charges for making the Release and Disbursements shall be borne by      COGI. |
|--------|-----|---------------------------------------------------------------------------------------------|

| 7. | Collection      from Customers |
|----|--------------------------------|

| 7.1. | The      Invoicing Unit shall collect the debts within each Book Debt Schedule and      procure that the proceeds of these are remitted to one of the Bank      Accounts. |
|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 7.2. | COGI      and Invoicing Units shall direct Customers to make payments in respect of      the Book Debts subject to a Book Debt Schedule in relation to which a      Release has or will be made to the Bank Account Number 1 (in the case of      customers located in the USA) and Bank Account Number 2 (in the case of      customers located outside of theUSA). |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 7.3. | If      a Customer makes a general payment to the Invoicing Unit without      specifying which debts are covered by the payment then the Invoicing Unit      shall apply it firstly against any Book Debts  outstanding. |
|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 8. | Disputed      Goods |
|----|---------------------|

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| 9. | Bank      Accounts |
|----|--------------------|

| 9.1. | The      amounts standing to the credit of each Bank Account are legally owned by      COGI alone and no other member of the COGI Group has any rights and/or any      other entitlement in and/or over those amounts standing to the credit of      each Bank Account and the Bank Accounts are or will be subject to a first      ranking security interest in favour ofRBS. |
|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 9.2 | If      an amount (a Relevant      Amount) is paid into a Bank Account by an Invoicing Unit (other      than COGI) (a Relevant      Unit) then COGI will owe the Relevant Unit an inter-company      receivable in an amount equal to the Relevant Amount (the Receivable).  Such      Receivable will not become repayable to the Relevant Unit by COGI on an      actual or contingent basis until all amounts under the Notes have been      paid and satisfied irrevocably in full.  Each Receivable will be      fully subordinated to all and any payments by any member of the COGI Group      under or in connection with the Notes and no Relevant Unit may make any      demand, take any action to recover, make any claim in relation to any      Receivable until all amounts under the Notes have been paid and satisfied      irrevocably in full. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 9.3. | COGI      and its Invoicing Units shall keep a permanent and accurate record to show      all transactions in relation to Book Debts and payments in and out of the      Bank Accounts and upon request by the Agent shall make such records      available to the Agent or RBS. |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10. | Accounting      and Access to Information |
|-----|-------------------------------------------|

|   | (a) | keep      up to date and proper accounting records, in such detail as may be      reasonably requested by the Agent and allow the Agent or its properly      authorised representatives to enter any of the premises of any of its      Invoicing Units whenever it wishes to inspect them and such other papers      as the Agent may wish relating to the COGI Group business and Book Debts      generally and allow the Agent to take possession of such material to      enable the Agent or its  representatives  to make      copies provided that the Agent returns such material to COGI or the      relevant Invoicing Unit within a reasonable  time; |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | (b) | permit      the Agent and its representative to verify with the Invoicing Units’      Customers by sampling or such other means as the Agent may deem      appropriate, the existence and collectability of Book Debts at any      time  during the term of this Agreement and as long as      any  Book Debts remainoutstanding; |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (c) | endeavour      in good faith to keep the Agent informed at all times of the financial      position of COGI and each Invoicing Unit Customers and the validity of      each Book Debt and in particular of any counter-claims, right of set off      raised by a Customer in relation to any Book Debt, Impairment and assist      the Agent in every way to safeguard its  interests; |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (d) | as      and when produced, send the Agent management accounts for the COGI Group      business in a format and at intervals acceptable to the    Agent; |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (e) | if      the Agent requires, send to it  within 10 days from the end of      each month an aged list of each Invoicing Unit’s  creditors; |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (f) | report      to the Agent promptly about reclaimed, repossessed or returned      merchandise, Customers' claims and disputes, and any other matters      affecting any Book Debts; |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (g) | notify      the Agent in writing |
|--------|-----|----------------------------------|

|   | (i) | as      soon as becoming aware of any event which affects or is likely to affect      COGI and each Invoicing Unit’sWarranties; |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------|

|   | (ii) | of      any existing mortgages, charges, liens or other security over COGI or any      of its Invoicing Units assets; |
|--------|------|-----------------------------------------------------------------------------------------------------------------------|

|   | (iii) | of      any company which becomes or ceases to be a Related Company;      and |
|--------|-------|-------------------------------------------------------------------------------|

|   | (iv) | of      any Customer which is an Associate. |
|--------|------|---------------------------------------------|

| 11. | Warranties |
|-----|------------|

| 11.1. | COGI      and each of the other Invoicing Unit warrants generally    that:- |
|-------|-----------------------------------------------------------------------------|

|   | (a) | The      obligations to be assumed by COGI and each Invoicing Unit in this      Agreement are valid binding and enforceable on COGI and each of the      Invoicing Unit in respect of the Book Debts in accordance with their terms      and in entering into this Agreement COGI and each of its Invoicing Unit      will not be in breach of any existing contractual    obligations. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | COGI      and each Invoicing Unit has the requisite corporate power and authority to      enter into and to consummate the transactions contemplated by herein      including dealing with the Book Debts within the Book Debt Schedule in the      manner provided for herein and otherwise to carry out its obligations      hereunder and thereunder.  The execution and delivery of this      Agreement by COGI and each other Invoicing Unit and the consummation by      each member of the COGI Group which has signed this Agreement of the      transactions contemplated hereby have been duly authorised by all      necessary action on the part of COGI and each member of the COGI Group      which has signed this Agreement and no further action is required by COGI      or each of its other Invoicing Unit, their board of directors or its      stockholders or shareholders in connection  therewith. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | (c) | No      member of the COGI Group has taken any corporate action or any other step      nor have any legal proceedings been threatened or served for the      winding-up, administration, receivership, administrative receivership or      other insolvency or recoveryprocess. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (d) | No      member of the COGI Group is in breach or default under any agreement to      which it is a party or which may affect it or any of its assets to an      extent or in a manner which might have a material adverse effect on the      business or financial condition of any member of the COGI      Group. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (e) | All      financial statements delivered to the Agent unless otherwise expressly      stated have been prepared in accordance with US GAAP and UK GAAP (in      respect of Invoicing Units in the United Kingdom) consistently applied and      give a true and fair view of the financial condition of that Invoicing      Unit or the COGI Group at the date as of which they were prepared and the      result of the Invoicing Unit or COGI Group operations for the period to      which they relate. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (f) | All      information provided by COGI or any of its Invoicing Units is true      complete, accurate and up to date in all material respects and neither      COGI nor any of its Invoicing Units is aware of any material facts or      circumstances that have not been fairly disclosed to  the Agent      in writing as an annex to a Book Debt Schedule which if disclosed might      adversely affect the willingness of RBS or the Agent  to enter      into this Agreement or accept any person to be an indemnifier of COGI and      its Invoicing Units obligations and liabilities such as, but not limited,      to invoices from related  third  parties. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (g) | For      the purposes of the Warranties given herein, nothing in the public domain      including any of COGI’s Securities Exchange Commission (SEC) filings      including its quarterly and annual filings, shall be deemed notice or      serve to qualify in any way the representations and Warranties made herein      unless COGI has specifically brought such matter to the attention of RBS      or the Agent in writing. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 11.2. | COGI      and each Invoicing Unit warrant and undertake in respect of each Book Debt      that:- |
|-------|--------------------------------------------------------------------------------------------------|

|   | (a) | No      Invoicing Unit will waive or modify its normal trading terms with any      Customer without obtaining the Agent’s prior written consent nor will COGI      or the relevant Invoicing Unit extend the time for  payment; |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | the      relevant Invoicing Unit has already performed all the obligations required      for enforcement of the Book Debt including delivery of goods or      performance of services and is not aware of any actual or threatened      dispute arising from or relating to such  obligations; |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (d)    | the      Customer will pay the full amount of each Book Debt no later than 90 days      from the end of the month in which the relevant Book Debt Schedule was      signed and dated;                                                                                                                        |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                         |
|   | (e)    | the      Customer has an established place of business, is not connected or      associated with the relevant Invoicing Unit (owner of the Book Debt) and      has no right which would reduce or extinguish the Gross Invoice Amount of      the Book Debt which is subject to the Book Debt      Schedule. |
|   |   |                                                                                                                                                                                                                                                                                                         |
|   | (f)    | the      supply contract giving rise to that BookDebt:                                                                                                                                                                                                                                                       |

|   | (i)    | is      valid, binding and enforceable against the Customer; |
|--------|--------|--------------------------------------------------------------|
|   |   |                                                         |
|   | (ii)   | has      been made in the ordinary course of  business;      |

|   | (iii) | contains      no prohibition against that would invalidate the arrangements contemplated      herein; |
|--------|-------|-------------------------------------------------------------------------------------------------------|

|   | (iv)   | is      not regulated by the Consumer Credit Act 1974 or subordinate legislation      (or any equivalent legislation in any other jurisdiction);    or |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                   |
|   | (v)    | provides      for payment in US$ or in GB£ orEUROs.                                                                                               |

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|   | (g) | Each      Invoicing Unit has taken all reasonable steps to ascertain the      creditworthiness of the Customer prior to the delivery of goods or the      rendering of services; |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (h)    | Neither      COGI nor the relevant Invoicing Unit has any reason to believe that the      Customer will be unable to, or will not for any reason, pay the Book Debt      in full when it falls due; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                |
|   | (i)    | the      Book Debt:                                                                                                                                                                                 |

|   | (i) | is      a bona fide Book Debt owed by the Customer to the relevant Invoicing Unit      in the amount notified to the Agent by COGI or its other Invoicing      Unit; |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (ii) | has      not been sold, assigned (whether absolutely or by way of security),      mortgaged, charged, pledged, hypothecated or otherwise disposed of or      transferred to, or encumbered in favour of, to any other person, nor has      any agreement been made to do so;and |
|--------|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (iii) | is      not subject to withholding tax; and |
|--------|-------|---------------------------------------------|

|   | (j) | the      Customer has no right of set-off, deduction, abatement or counterclaim in      respect of the Book Debt. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------|

| 12 | Undertakings |
|----|--------------|

| 12.1 | Negative      Undertakings |
|------|----------------------------|

|   | (a) | sell,      assign, transfer, mortgage, charge, pledge or otherwise dispose of or      encumber any Book Debt and/or its related rights and/or the proceeds of a      Book Debt or its related rights or your rights under this Agreement, or      agree or purport to do so, other than in favour of RBS in its capacity as      Noteholder under the Loan NoteInstrument; |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | (b) | without      the Agent’s prior written consent, waive or modify (or purport to waive or      modify) any of the terms on which COGI or the relevant Invoicing Unit      supplies goods or provide services and, in particular COGI nor the      relevant Invoicing Unit will not extend the time for payment of any Book      Debt or purport to do so. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 12.2 | Positive      Undertakings |
|------|----------------------------|

|   | (a) | ensure      that all proceeds of the Book Debts within each Book Debt Schedule are      remitted when paid to by the Customers to the Bank Accounts and no other      account. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | ensure      that gross profits on all Excess Revenues are remitted to the Bank      Accounts in accordance with the provisions set forth in Clause 4.3      (Impairment of Book Debts and Specific Purpose  Fund). |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (c) | ensure      that the Bank Accounts are replenished with the Specific Purpose amounts      within the term of this Agreement; |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------|

|   | (d) | execute      and deliver or (as the case may be) procure that the relevant person or      persons execute and deliver such documents that may be required to perfect      title in the Book Debts whenever requested by RBS or the      Agent; |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (e) | comply      in all material respects with all legislation and regulatory requirements      relating to its business or assets where failure to do so might adversely      affect its business, assets or financial  condition; |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (f) | promptly      perform its continuing obligations under every supply contract giving rise      to a Book Debt, including without limitation the repair and/or maintenance      of goods supplied, to ensure that the Customer will accept the invoice      relating to it (or, if the Customer is insolvent, the Customer’s trustee      in bankruptcy or liquidator will accept a proof of the unpaid balance of      the Book Debt) without any dispute or claim whatsoever (whether or not      justifiable); |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | (g) | promptly      notify the Agent in writing of any dispute of any kind between an      Invoicing Unit and the Customer of a Book Debt subject to the Book Debt      Schedule and to use all reasonable endeavours promptly to settle every      such dispute; |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (h) | COGI      shall grant RBS or its security agent a first ranking security interest in      the Bank Account(s) in a form satisfactory to RBS or its security agent      and shall within 14 days of Commencement perfect the security in respect      of the said pledge.  This shall be a condition of further      Release; |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |  (i) | enter      into the Bank Account Security and any associated documentation, and take      all such action as is available to it (including making all filings and      registrations) as may be necessary for the purpose of the creation,      perfection, protection or maintenance of any security conferred or      intended to be conferred on RBS by or pursuant to the Bank Account      Security; |
|--------|-----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (j) | enter      into any such bank account mandates or equivalent or related documentation      so as to ensure that the Agent and COGI’s      representative  are  a co-signatories on each Bank      Account and that no withdrawals can be made without the Agent’s consent      evidenced by its signature; |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (k) | COGI      shall meet formally with the Agent quarterly (to report progress in the      Company towards profitability, and answer, or obtain answers to any      questions that the Agent shall deem it suitable to ask. These meetings      shall be held on or around the same time as the Board Meeting of COGI.      This provision shall lapse after three successive profitable      quarters; |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (l) | COGI      shall produce in writing on a monthly basis a report to the Agent which      details the achievement against the Cost Reduction Plan. This progress      report will be at the same level of detail as in the Appendix to the Cost      Reduction Plan which identifies the specific  cost-cuts. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (m) | COGI      and each Invoicing Unit will: |
|--------|-----|-----------------------------------------|

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|   | (i)    | keep      the Agent informed at all times of the creditworthiness of all Customers      and (without prejudice to any of your other obligations under this      Agreement) of any counterclaim, right of set-off, deduction, abatement or      contra-item raised by a Customer at any time; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                         |
|   | (ii)   | if      the Agent so requires:                                                                                                                                                                                                                                                               |

|   | (a) | instruct      COGI’s auditors to report directly to the Agent at COGI’s expense;      and/or |
|--------|-----|----------------------------------------------------------------------------------------------------------|

|   | (b) | procure      that each bank or similar financial institution with which COGI or an      Invoicing Unit maintains accounts provides the Agent with copies of      statements of those accounts. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | COGI      and each Invoicing Unit irrevocably appoint the Agent as COGI’s and each      Invoicing Unit’s attorney both during the term of this Agreement and      thereafter for so long as any  Book Debts remain outstanding to      act in COGI and/or each of the Invoicing Unit name, as may be appropriate,      and on each of the said behalf to execute all documents and do all things      necessary in the sole opinion of the Agent and/or RBS to give effect to      this Agreement or their  rights including making any arrangement      or compromise, taking or defending any proceedings endorsing any      negotiable instrument on any Invoicing Unit’s behalf and executing legal      assignments of all or any BookDebt. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 14. | Project      Financing |
|-----|------------------------|

| 14.1. | The      Agent will consider proposals from COGI and Invoicing Units for Releases      in relation to projects having a value of at least the equivalent of      US$140,000 (Project Financing) on a case by case basis.  In      principle, for a Project Financing proposal to be accepted a valid and      binding contract must exist between COGI or another Invoicing Unit and the      potential customer, the contract value must not be less than US$140,000      and the contract period for performance (including payment) of the same      must not be longer than six (6) months from the commencement date of the      contract. |
|-------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 15.1. | The      Agreement shall commence on Commencement and shall be for a period of      twelve (12) months. |
|-------|---------------------------------------------------------------------------------------------------------|

| 15.2. | Notwithstanding      the provisions set out in Clause 15.1, RBS or the Agent may terminate this      Agreement during the term (i) for material breach including but not      limited to breach of any of the Warranties by COGI; or (ii) failure to      execute on the Cost Reduction Plan and achieving the committed cost      reduction within the financial year 2009; or (iii) where the Bank Accounts      are withdrawn from use in the manner provided herein; or (iv) where there      has been the occurrence of an Event of Default (as defined in the      Transaction Documents). |
|-------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 15.3. | Except      for termination on the grounds provided for in paragraphs (iii) and (iv)      of Clause15.2 above (where any termination will occur on the date of      notice from RBS or the Agent to COGI), RBS or the Agent shall give COGI      and each of its Invoicing Unit 30 days notice of termination in      writing. |
|-------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 16. | Indemnity      and Liability |
|-----|------------------------------|

| 16.1. | COGI      and each Invoicing Unit agree to jointly and severally indemnify each of      RBS and the Agent against any loss, action, cost, expense (including      reasonable legal expenses), claim, damage or liability (or action in      respect of any of the same) incurred by RBS or the Agent (as applicable)      as a result of its entering into this Agreement (including, but not      limited to, in connection with any claim by a Customer in relation to the      Book Debts or related rights or any claim in respect of breach of the      Warranties or other obligations hereunder by any of COGI or the Invoicing      Units).  No waiver, forbearance or indulgence granted by RBS or      the Agent to COGI or any Invoicing Unit or to any Customer will in any way      discharge COGI or any of its Invoicing Units from its liabilities to      RBS. |
|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 16.2. | RBS      shall have no liability to COGI or any Associate in respect of any matter      connected with this agreement whether in relation to any acts or omissions      of RBS or the Agent or otherwise. RBS shall further have no liability to      the Agent in respect of any matter connected with this      Agreement. |
|-------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 17. | Transfer      of Rights |
|-----|-------------------------|

| 18. | Variation |
|-----|-----------|

|   | This      Agreement may only be varied by a document signed by the Parties      hereto. |
|--------|-----------------------------------------------------------------------------------------|

|   | This      Agreement is to be interpreted in accordance with and governed by English      Law.  Any notices to be given by either of parties to the other      may be either delivered by hand to the other party or its authorised agent      or sent by pre-paid first class letter, registered post, recorded delivery      fax transmission or telex to such party as its principal place of business      or at its registered office. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 20. | Third      Parties |
|-----|--------------------|

| 21.1 | This      Agreement may be executed in any number of counterparts, and on separate      counterparts, but shall not be effective until at least one counterpart      has been executed on behalf of eachparty. |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 21.2 | Each      counterpart shall constitute an original of this Agreement, but all the      counterparts shall together constitute but one and the same      instrument. |
|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 22.1. | This      Agreement and each document creating Bank Account Security are designated      Transaction Documents under and in connection with the Loan Note      Instrument. |
|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 22.2. | For      the avoidance of doubt, the designation of the documents referred to in      Clause 22.1 above as Transaction Documents does not derogate from or      otherwise vary, modify, amend, waive or imply consent to the waiver or      impairment of any of the rights including future rights of the Subscriber      or Noteholder under the Transaction Documents (other than the documents      referred to in Clause 22.1 above). |
|-------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| Invoicing Unit      Name:      | Schedule Number      ________________ |
|---------------------------------------------------------|---------------------------------------|
|                                                    |                                  |
| Page ____ of      _____                  | Date ________      200[..]            |

| Invoice      Date | Invoice      Number | Name      of Account Book Debtor | Location | Invoice      Amount | Credit      Notes | Other      Impairment |
|-------------------|---------------------|----------------------------------|----------|---------------------|-------------------|-----------------------|
| ii                | iii                 | iv                               | v        | vi                  | vii               | viii                  |
| ix                | x                   | xi                               | xii      | xiii                | xiv               | xv                    |
| xvi               | xvii                | xviii                            | xix      | xx                  | xxi               | xxii                  |
| xxiii             | xxiv                | xxv                              | xxvi     | xxvii               | xxviii            | xxix                  |
| xxx               | xxxi                |                             |     |                |              |                  |
|              |                |                             |     |                |              |                  |
|              |                |                             |     |                |              |                  |
|              |                |                             |     |                |              |                  |
|              |                |                             |     |                |              |                  |

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|   | 1. | At      the date of this Agreement, COGI providing  a report in writing      to the Agent which details the achievement against the Cost Reduction      Plan. This progress report will be at the same level of detail as in the      Appendix to the Cost Reduction Plan which identifies the specific      cost-cuts achieved at the date of the agreement and its impact on COGI      Selling, General Administrative (SG&A)  expenses. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | COGI      shall undertake to further reduce costs by a minimum of US$850,000 with an      agreed target level of US$1 million on an annualised basis, of which at      least $350,000 to be achieved in Financial Year 2009 with an agreed target      of US$400,000.     The Amended Cost Reduction      Plan (with the same level of detail as in the Appendix to the Cost      Reduction Plan identifying the specific cost cuts) shall be furnished      within 10 days from this Agreement along with a revised business plan for      Financial Year 2009 showing the impact of the overall Cost Reduction      Plan. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3. | COGI      shall reconstitute its Board of Directors in accordance with the      discussions between the parties. |
|--------|----|------------------------------------------------------------------------------------------------------------------|

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| 1. | Coda      Octopus Products Limited (Company Number SC151068), a company incorporated      under the laws of Scotland and having its registered office at Anderson      House, Breadalbane Street, Edinburgh EH6 5JR, Scotland. Prior to this,      this Company was registered under the name of Coda Octopus      Limited. |
|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2. | Coda      Octopus Products Inc., a Delaware Corporation with its place of business      at 164 West 25th      Street, 6th      Floor (6F), New York, NY 10001.  Prior to this, this Company was      registered under the name of Coda Octopus,Inc. |
|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3. | Coda      Octopus (US) Holdings, Inc., a Delaware corporation with its place of      business at 164 West 25th      Street, 6th      Floor (6F), New York, NY 10001. |
|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4. | Coda      Octopus (UK) Holdings Limited (Company Number 05834897), a company      incorporated under the laws of England and Wales and having its registered      office at 14 Albany Road, Granby Industrial Estate, Weymouth, DT4      9TH. |
|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 5. | Coda      Octopus Omnitech AS (Organisation Number NO 985 252 076), a company      incorporated under the laws of Norway and having its place of business at      Sandviksboder 1A, N-5035 Bergen,Norway. |
|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 6. | Coda      Octopus Martech Limited (Company Number 2300406), a company incorporated      under the laws of England and Wales and having its registered office at 14      Albany Road, Granby Industrial Estate, Weymouth, DT4  9TH. |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 7. | Coda      Octopus Innalogic, Inc., a Delaware corporation with its place of business      at 164 West 25th      Street, 6th      Floor (6R), New York, NY 10001. |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 8. | The      Port Security Group, Inc., a Delaware corporation with its place of      business at 164 West 25th      Street, 6th      Floor (6F), New York, NY 10001. |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 9. | Coda      Octopus Colmek, Inc. (“Colmek”), a Utah corporation with Corporation      Number 2400704-0150 and whose address is 2001 South 3480 West, Salt Lake      City, Utah 84104 |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10. | Coda      Octopus Research and Development, Inc., a Delaware corporation, with its      place of business at 164 West 25th      Street, 6th      Floor (6F), New York, NY 10001. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 11. | Coda      Octopus R & D Limited (Company Number SC232622), a company      incorporated under the laws of Scotland and having its registered office      at Anderson House, Breadalbane Street, Edinburgh EH6 5JR,      Scotland. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 12. | Dragon      Design Limited (Company Number 3726245) having its registered office at      14a Cambridge Road, Granby Industrial Estate, Weymouth, DT4      9TJ. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 13. | Coda      Octopus Tactical Intelligence, Inc., a Delaware corporation, with its      place of business at 164 West 25th      Street, 6th      Floor (6F), New York, NY 10001. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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