Document:

No
      1                    

     

     

    CODA
      OCTOPUS GROUP, Inc.

     

    (Incorporated
      in the State of Delaware)

     

    Issue
      of
      USD 12,000,000 Loan Notes due 21st February 2015 ("Notes")

     

    Issued
      pursuant to a resolution of the Board of Directors of Coda Octopus Group, Inc.
      passed on 21st February 2008.

     

    THIS
      IS
      TO CERTIFY that The Royal Bank of Scotland plc of 135 Bishopsgate, London EC2M
      3UR is the registered holder of USD 12,000,000 of the Notes ("Nominal
      Amount") which are constituted by an Instrument dated 21st February 2008
      ("Instrument")
      and
      issued on 21st February 2008 ("Issue
      Date").
      The
      Notes are issued subject to the terms of the Instrument and the Conditions
      endorsed hereon. Capitalised terms defined in the Instrument and the Conditions
      shall bear the same meaning in this Individual Certificate.

     

    Dated
      21st February 2008

     

    
      	
              EXECUTED
                and delivered as a deed by Coda Octopus Group, Inc acting by two
                directors:

            	 	
              )

              )

              )

              )

            
	 	 	 
	 	 	 
	
              Director

            	 	 
	 	 	 
	 	 	 
	
              Director

            	 	 

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    THIS
      SECURITY HAS NOT BEEN  REGISTERED WITH THE SECURITIES AND EXCHANGE
      COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
      EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
      “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
      TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT
      TO
      AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
      REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
      APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL
      TO
      THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY
      ACCEPTABLE TO THE COMPANY.  THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH
      A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH
      A
      FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a)
      UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.DATED
        21 FEBRUARY
        2008

       

      
        
          

        

      

       

      SECURITY
        AGREEMENT 

       

      

      between

      

       

      CODA
        OCTOPUS GROUP, INC. 

       

       

      CERTAIN
        OF ITS WHOLLY OWNED SUBSIDIARIES

       

      

      and

      

       

      THE
        ROYAL BANK OF SCOTLAND PLC 

       

    

     

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

     

    THIS
      SECURITY AGREEMENT (this “Agreement”) dated
      as
      of 21 February 2008 by and among Coda Octopus Group, Inc., a corporation
      organized under the laws of Delaware which has its main offices at 164 West
      25th
      Street,
      6th
      Floor,
      New York, New York 10001 (as is defined in Section 1.1 below, the “Company”) and
      certain of the Company’s Subsidiaries named on the signature page to this
      Agreement and The Royal Bank of Scotland plc acting through its London offices
      located at 135 Bishopgate, London EC2M 3UR a signatory hereto (collectively,
      the
“Secured Party”) 

     

    W
      I T N E
      S S E TH

    

    WHEREAS,
      pursuant to a Subscription Agreement dated the date hereof between the Company
      and the Secured Party (the “Subscription
      Agreement”),
      the
      Company has agreed to issue to the Secured Party and the Secured Party has
      agreed to purchase from the Company certain of the Company’s 8.5% Secured
      Convertible Loan Notes due 7 years from the date of issue (the “Notes”) which
      are convertible into shares of the Company’s Common Stock, par value $0.001 per
      share (the “Common Stock”); and 

     

    WHEREAS,
      in order to induce the Secured Party to purchase the Notes, the Company has
      agreed to execute and deliver to the Secured Party for the benefit of the
      Secured Party and to grant to it a security interest in certain property of
      the
      Company to secure the prompt payment, performance and discharge of all of the
      Company’s Obligations (as defined below) under the Notes; 

     

    NOW,
      THEREFORE, in consideration of the agreements set forth herein and for other
      good and valuable consideration, the receipt and adequacy of which are hereby
      acknowledged, the parties hereto agree as follows:

     

    AGREED
      TERMS

     

    
      	
              1.

            	
              DEFINITIONS
                AND INTERPRETATION

            

    

     

    
      	
              1.1

            	
              Definitions

            

    

     

    As
      used
      in this Agreement, the following terms shall have the meanings set forth in
      this
      Section 1. Terms used but not otherwise defined in this Section 1 or Article
      9
      of the UCC (such as “general intangibles” and “proceeds”) shall have the
      respective meanings given to such terms in Article 9 of the UCC. 

     

    “Business
      Day”
      means a
      day (excluding Saturdays, Sundays and any public holiday) on which banks are
      open for business in New York and London for the transaction of normal banking
      business.

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    “Collateral”
      means
      the
      collateral in which the Secured Party is granted a security interest by this
      Agreement and which shall include the following, whether presently owned or
      existing or hereafter acquired or coming into existence, and all additions
      and
      accessions thereto and all substitutions and replacements thereof, and all
      proceeds, products and accounts thereof, including, without limitation, all
      proceeds from the sale or transfer of the Collateral and of insurance covering
      the same in connection therewith:

     

    
      	
            	(i)	
              All
                goods of the Company, including, without limitation, all machinery,
                equipment, computers, motor vehicles, trucks tanks, boats, ships,
                appliances, furniture, special and general tools, fixtures, test
                and
                quality control devices and other
                equipment of every kind and nature and wherever situated, together
                with
                all documents of title and documents representing the same, all additions
                and accessions thereto replacements therefor, all parts therefor,
                and all
                substitutes for any of the foregoing and all other items in connection
                with the Company's businesses improvements thereto (collectively,
                the
                “Equipment”);

            

    

     

    
      	
            	(ii)	
              All
                inventory of the Company; and 

            

    

     

    
      	
            	(iii)	
              All
                of the Company's contract rights and general intangibles including,
                without limitation, all partnership interests, stock or other securities,
                licenses, distribution and other agreements,
                computer software development rights, leases, franchises, customer
                lists,
                quality control procedures, grants and rights, goodwill, trademarks,
                service marks, trade styles, trade names, patents, patent applications,
                copyrights, internet domain names, deposit accounts, and income tax
                refunds (collectively, “General Intangibles”); and
                

            

    

     

    
      	
            	(iv)	
              All
                present and future rights of the Company to payment of a monetary
                obligation, whether or not earned by performance, which is not evidenced
                by chattel paper or an instrument, (a) for property that has been
                or is to
                be sold, leased, licensed, assigned, or otherwise disposed of, (b)
                for
                services rendered or to be rendered, (c) for a secondary obligation
                incurred or to be incurred, or (d) arising out of the use of a credit
                or
                charge card or information contained on or for use with the card
                (collectively, “Accounts”); and

            

    

     

    
      	
            	(v)	
              All
                receivables of the Company including all insurance proceeds, and
                rights to
                refunds or indemnification whatsoever owing, together with all
                instruments, all documents of title representing any of the foregoing,
                all
                rights in any merchandising, goods, equipment, motor vehicles and
                trucks
                which
                any of the same may represent, and all right, title, security and
                guaranties with respect to each receivable including any right of
                stoppage
                in transit; and

            

    

     

    
      	
            	(vi)	
              All
                of the Company's documents, instruments, chattel paper, files, records,
                books of account, business papers, computer programs
                and the products and proceeds of all Collateral set forth in clauses
                (i)-(iv) above in any form including, without limitation, all claims
                against third parties for loss or damage to, or destruction of, or
                other
                involuntary conversion of any kind or nature of any of the other
                Collateral;

            

    

     

    but
      excludes Excluded Property and all assets of Colmek (as is defined below) until
      the provisions set forth in Paragraph 2 of Schedule 1.1(a) hereto are satisfied
      and upon such satisfaction the collateral in respect of which the Colmek
      security interest is granted is limited as set forth in Paragraph 2 of Schedule
      1.1(a).

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    “Company”
      means,
      collectively, the Company and all its US subsidiaries (whether wholly owned
      or
      otherwise) which are set forth in Schedule 1.1 (b) hereto and any future US
      subsidiaries (whether wholly owned or otherwise) or any of them as the context
      permits.

     

    “Costs”:
      means
      all costs, charges, expenses and liabilities of any kind including, without
      limitation, costs and damages in connection with litigation, professional fees,
      disbursements and any value added tax charged on Costs.

     

    “Colmek
      Encumbrances” means
      those set forth in Paragraph 2 of Schedule 1.1(c).

     

    “Colmek
      Shares”
means
      all the issued and outstanding shares of common stock of Colmek sold by the
      Selling Shareholders to Coda Octopus (US) Holdings, Inc. 

     

    “Cure
      Period”
means
      the period before the Security Interest provided for herein becomes enforceable
      and which shall be 30 days from the earlier of (i)
      the
      date the Company becomes aware, or ought reasonably to be aware, of the failure
      to observe or commission of the breach and (ii) the date the Company is given
      notice by RBS to remedy an
      Event
      of Default.

     

    “Debentures”
      means
      the two debentures to be granted on the date hereof in favour of the Subscriber,
      one debenture to be granted by Coda Octopus (UK) Holdings Ltd and the other
      by
      Martech Systems (Weymouth) Ltd and “Debenture”
      shall
      mean whichever of the Debentures as the context admits;

     

    “Encumbrance”
      means
      any mortgage, charge (whether legal or equitable), pledge, lien, assignment
      by
      way of security or other security interest securing any obligation of any
      person, or any other agreement or arrangement having a similar effect.

     

    “Excluded
      Property”
      means
      any leasehold property held by the Company under a lease which precludes, either
      absolutely or conditionally (including requiring the consent of any third
      party), the Company from creating any charge over its leasehold interest in
      that
      property. 

     

    “FGI”
      means
      Faunus Group International, Inc. a Delaware corporation whose principal place
      of
      business is 80 Pine Street, 32nd
      Floor,
      New York, New York 10005.

     

    “FGI
      Encumbrances”
means
      those set forth in Paragraph 1 of Schedule 1.1(c).

     

    “Floating
      Charges”
      means
      the two floating charges to be granted on the date hereof in favour of the
      Subscriber, one floating charge to be granted by Coda Octopus Products Ltd
      and
      the other by Coda Octopus R & D Ltd and “Floating
      Charge”
      shall
      mean whichever of the Floating Charges as the context admits;

     

    
      
         

      

      
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    “Intercreditor
      Deed” means
      a
      deed entered into on or around the date of this Agreement among the Company,
      the
      Secured Party and FGI regulating the priorities of the various charges and
      security interests held by the Secured Party and FGI.

     

    “Loan
      Note Instrument
      means an
      instrument executed by Coda Octopus Group, Inc. on the date hereof creating
      USD
      12,000,000 of secured, convertible loan notes.

     

    “Lock-up
      Agreements”
      means
      certain agreements entered into on or around the date hereof between the
      directors and board members of the Company (with certain exceptions) during
      the
      agreed period not to sell or transfer or otherwise disposed of any of their
      shares in the Company.

     

    “Miller
      & Hilton d/b/a Colmek Systems Engineering (“Colmek”),
      means a
      corporation incorporated and registered in the State of Utah with Company Number
      689323-0142 and whose address is 2001 South 3480 West, Salt Lake City, Utah
      84104 and which is a wholly owned subsidiary of the Company.

     

    “Noteholder”
      means
      the
      person for the time being entered in the Register as a holder of any part of
      the
      Notes 

     

    “Notes”
      means
      USD 12,000,000 Convertible Secured Loan Notes due 21 February
      2015 constituted by this Instrument, or, as the case may be, the Principal
      Amount Outstanding represented by them, and each “Note”
      shall be
      for a nominal amount of USD 100,000;

     

    “Obligations”
      means
      all of the Company’s obligations under the Transaction Documents, in each case,
      whether now or hereafter existing, voluntary or involuntary, indirect, absolute
      or contingent, liquidated or unliquidated, whether or not jointly owed with
      others, and whether or not from
      time
      to time decreased or extinguished and later decreased, created or incurred,
      and
      all or any portion of such obligations or liabilities that are paid, to the
      extent all or any part of such payment is avoided or recovered directly or
      indirectly from the Secured Party as a preference, fraudulent transfer or
      otherwise as such obligations may be amended, supplemented, converted, extended
      or modified from time to time.

     

    “Permitted
      Encumbrance”
      means
      any Encumbrances referred to in Schedule 1.1(c).

     

    “Selling
      Shareholders”
means
      the shareholders who sold the Colmek Shares to Coda Octopus (US) Holdings Inc.
      pursuant to an acquisition agreement between the parties dated April 6,
      2007.

     

    “Subscription
      Agreement”
      means
      the subscription agreement on the date hereof between the Secured Party and
      the
      Coda Octopus Group, Inc. 

     

    “Transaction
      Documents” means
      this Agreement, the Subscription Agreement, the Loan Note Instrument, the Deed
      of Guarantee, the Debentures, the Floating Charges, the Lock-up Agreements,
      the
      Confidentiality Agreement, the Intercreditor Deed and all other documents
      entered into in connection with any of them;

     

    “UCC”
      means
      the Uniform Commercial Code, as effect in the State of New York.

    
      
         

      

      
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              2.

            	
              GRANT
                OF SECURITY INTEREST 

            

    

    

    
      	
              2.1.

            	
              As
                an inducement for the Secured Party to purchase the Notes and secure
                the
                complete and timely payment, performance, discharge in full, as the
                case
                may be, of all the Obligations, the Company hereby unconditionally
                and
                irrevocably pledges, grants and hypothecates to the Secured Party,
                a
                continuing security interest in, a continuing lien upon, and a right
                of
                set-off against, in each case to the fullest extent permitted by
                law, all
                of the Company’s right, title and interest of whatsoever kind and nature
                in and to the Collateral ( the “Security
                Interest”).

            

    

    

    
      	
              2.2.

            	
              The
                Security Interest in Colmek shall be subject to the Colmek Encumbrances
                and shall be granted in and/or over the Colmek Collateral defined
                in the
                said Schedule.

            

    

    

    
      	
              2.3.

            	
              The
                Secured Party acknowledges the Permitted Encumbrances set forth in
                Schedule 1.1(c) hereto, and that FGI has first and continuing security
                interest existing in the Collateral (FGI Encumbrance) and the Selling
                Shareholders have prior pledges of the Colmek Shares at the date
                of this
                Agreement (Colmek Encumbrance).

            

    

     

    
      	
              3.

            	
              REPRESENTATIONS,
                WARRANTIES, COVENANTS AND AGREEMENTS OF THE COMPANY
                

            

    

    

    
      	
              3.1.

            	
              The
                Company represents and warrants to, and covenants and agrees with
                the
                Secured Party as follows: 

            

    

    

    
      	
              3.1.1.

            	
              Authorization
                and Binding Effect. Each
                of the Company has the requisite corporate power and authority to
                enter
                into this Agreement and otherwise to carry out its obligations thereunder.
                The execution, delivery and performance by the Company and the filings
                contemplated therein have been duly authorized by all necessary action
                of
                the Company and no further action is required by the Company. This
                Agreement constitutes a legal, valid and binding obligation of the
                Company
                enforceable in accordance with its terms, except as enforceability
                may be
                limited by bankruptcy, insolvency, reorganization, moratorium or
                similar
                principles affecting the enforcement of creditors’ rights generally.
                

            

    

    

    
      	
              3.1.2.

            	
              Title
                in and over Collateral. Except as is disclosed in Schedule 3.1.2
                hereto,
                the Company is the sole owner of the Collateral (except for non-exclusive
                licenses granted by the Company in the ordinary course of business),
                free
                and clear of any Encumbrances and is fully authorized to grant the
                Security Interest in and pledge the Collateral. Except as is disclosed
                in
                Schedule 3.1.2 hereto, there is not on file in any governmental or
                regulatory authority, agency or recording office an effective financing
                statement, security agreement, license or transfer or any notice
                of any of
                the foregoing (other than those that have been filed in favor of
                the
                Secured Party pursuant to this Agreement) covering or affecting any
                of the
                Collateral. 

            

    

    
      
         

      

      
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              3.1.3.

            	
              Impairment
                of Collateral. No part of the Collateral has been judged invalid
                or
                unenforceable. No written claim has been received that any Collateral
                or
                the Company's use of any Collateral violates rights of any third
                party.
                There has been no adverse decision to the Company's claim of ownership
                rights in or exclusive rights to use the Collateral in any jurisdiction
                or
                to the Company's right to keep and maintain such Collateral in force and
                effect, and there is no proceeding involving said rights pending
                or, to
                the best knowledge of the Company threatened before any court, judicial
                body, administrative or regulatory agency, arbitrator or other
                governmental authority. 

            

    

    

    
      	
              3.1.4.

            	
              Contractual
                Obligations.
                The execution, delivery and performance of this Agreement does not
                conflict with or cause a breach or default, or an event that with
                or
                without the passage of time or notice, shall constitute a breach
                or
                default, under any agreement to which the Company is
                a party or by which the Company is bound. No consent (including,
                without
                limitation, from stockholders or creditors of the Company) is required
                for
                the Company to enter into and perform its obligations hereunder.
                

            

    

    

    
      	3.1.5.	
              Maintenance
                of Liens and Security Interest Obligations. Subject to existing Permitted
                Encumbrances at the date of this Agreement, the Company shall at
                all times
                maintain the liens and Security Interest provided for hereunder as
                valid
                and perfected first priority liens and security interests in the
                Collateral in favor of the Secured Party until this Agreement and
                the
                Security Interest hereunder shall terminate pursuant to Section 12
                hereof.
                The Company hereby agrees to defend the same against any and all
                persons.
                The Company shall safeguard and protect all Collateral for the account
                of
                the Secured Party. Without limiting the generality of the foregoing,
                the
                Company shall pay all fees, taxes and other amounts necessary to
                maintain
                the Collateral and the Security Interest hereunder, and the Company
                shall
                obtain and furnish to the Secured Party from time to time, upon demand,
                such releases subordinations of claims and liens which may be required
                to
                maintain the priority of the Security Interest.

            

    

    

    
      	
              3.1.6.

            	
              Restriction
                on further Encumbrances. Save Permitted Encumbrances at the date
                of this
                Agreement and those authorized by Clause 3.7 of the Loan Note Instrument,
                the Company will not grant or create any Encumbrances in favor of
                a third
                party (except in the ordinary course of business and in connection
                with
                any receivables financing which the Company may obtain and in such
                event
                any grant of a security interest will rank junior to the Secured
                Party’s
                Security Interest granted herein), sell or otherwise dispose of any
                of the
                Collateral without the prior written consent of the Secured Party.
                

            

    

    

    
      	
              3.1.7.

            	
              The
                Company shall keep and preserve its Equipment, inventory and other
                tangible Collateral in good condition, repair and order and shall
                not
                operate or locate any such Collateral (or cause to be operated or
                located)
                in any area excluded from insurance coverage.

            

    

    
      
         

      

      
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              3.1.8.

            	
              The
                Company shall, within 15 days of obtaining knowledge thereof, advise
                the
                Secured Party promptly, in sufficient detail, of any substantial
                change in
                the Collateral, and of the occurrence of any event which would have
                material adverse effect on the value of the Collateral or on the
                Secured
                Party’s Security Interest therein. 

            

    

    

    
      	
              3.1.9.

            	
              The
                Company shall promptly execute and deliver to the Secured Party such
                further deeds, mortgages, assignments, agreements, financing statements
                or
                other instruments, documents, certificates and assurances and take
                such
                further action as the Secured Party may from time request and may
                in its
                sole discretion deem necessary to perfect, protect or enforce its
                Security
                Interest in the Collateral. 

            

    

    

    
      	
              3.1.10.

            	
              The
                Company shall permit the Secured Party and its representatives and
                agents
                to inspect the Collateral at any time, and to make copies of records
                pertaining to the Collateral as may be requested by the Secured Party
                from
                time to time. 

            

    

    

    
      	
              3.1.11.

            	
              The
                Company will take all steps reasonably necessary to pursue diligently
                and
                seek to preserve, enforce and collect any rights, claims, causes
                of action
                and accounts in respect of the Collateral.

            

    

    

    
      	
              3.1.12.

            	
              The
                Company shall promptly notify the Secured Party in sufficient detail
                upon
                becoming aware of any garnishment, execution or other legal process
                levied
                against any Collateral and of any other information received by the
                Company that may materially affect the value of the Collateral, the
                Security Interest or the rights of the Secured Party hereunder.
                

            

    

    

    
      	
              3.1.13

            	
              All
                information heretofore, herein or hereafter supplied to the Secured
                Party
                by or on behalf of the Company with respect to the Collateral is
                accurate
                and complete in all respects as of the date
                furnished.

            

    

     

    
      	
              3.1.14
                

            	
              Accounts
                Covenants.
                The Secured Party shall after an Event of Default and after the expiration
                of the Cure Period (and the Event of Default remains uncured) have
                the
                right at any time or times, in Secured Party's name or in the name
                of a
                nominee of Secured Party, to verify the validity, amount or any other
                matter relating to any Account or other Collateral, by mail, telephone,
                facsimile transmission or otherwise.

            

    

     

    
      	3.1.15	
              Chief
                Executive Office. Collateral Locations. The chief executive office
                of the
                Company and the Company's records concerning Accounts are located
                only at
                the address set forth in the preamble to this Agreement. Except as
                is
                disclosed in this Schedule 3.1.15, the Company has not, during the
                past
                five years, been known by or used by any other corporate or fictitious
                name or been a party to any merger or consolidation, or acquired
                all or
                substantially all of the assets of any Person, or acquired any of
                its
                property or assets out of the ordinary course of
                business.

            

    

     

    
      
         

      

      
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      	3.1.16	
              Maintenance
                of Existence.
                The Company shall at all times preserve, renew and keep in full force
                and
                effect its corporate existence and rights and franchises with respect
                thereto and maintain in full force and effect all permits, licenses,
                approvals, authorizations, leases and contracts necessary to carry
                on the
                business as presently, or proposed to be, conducted. The Company
                shall not
                change its name unless each of the following conditions is specified:
                (i)
                the Company shall give the Secured Party fifteen (15) days’ prior written
                notice of any proposed change in its legal name, which notice shall
                accurately set forth the new name; and (ii) prior to the filing thereof
                the Company shall deliver to Secured Party a copy of the proposed
                amendment to the certificate of incorporation of the Company providing
                for
                the name change and once the filing has been made, Secured Party
                shall
                receive a copy of such amendment to the certificate of incorporation
                of
                the Company certified by the Secretary of State of the jurisdiction
                of
                organization of the Company as soon as it is available. The Company
                shall
                not change its jurisdiction of incorporation without the consent
                of the
                Secured Party.

            

    

     

    
      	3.1.17	
              Payment
                of Taxes and Claims. The Company has paid or caused to be paid all
                taxes
                due and payable or claimed due and payable in any assessment received
                by
                it, except taxes the validity of which is being contested in good
                faith by
                appropriate proceedings diligently pursued and available to the Company
                and with respect to which adequate reserves have been set aside on
                its
                books. The Company shall duly pay and discharge all taxes, assessments,
                contributions and governmental charges upon or against it or its
                properties or assets, except for taxes the validity of which is being
                contested in good faith by appropriate proceedings diligently pursued
                and
                available to the Company and with respect to which adequate reserves
                have
                been set aside on its books. 

            

    

     

    
      	3.1.18	
              Insurance.
                The Company shall, at all times, maintain with reputable insurers
                insurance with respect to the Collateral against loss or damage and
                all
                other insurance of the kinds and in the amounts customarily insured
                against or carried by corporations of established reputation engaged
                in
                similar businesses and similarly situated.

            

    

     

    
      	
              4.

            	
              COVENANT
                TO DISCHARGE PERMITTED
                ENCUMBRANCES

            

    

     

    
      	
              4.1.

            	
              The
                Company shall take all steps necessary to settle all its indebtedness
                and
                obligations in full in relation to (a) the Colmek Encumbrances by
                no later
                than April 30, 2008; and (b) the FGI Encumbrances by no later than
                September 30, 2008; and procure that the security interest in and
                over the
                Collateral in respect of these Permitted Encumbrances be released
                and all
                filings and recordings pertaining to same be terminated or otherwise
                removed from all registers.

            

    

     

    
      	
              4.2.

            	
              In
                respect of the Colmek Encumbrances the Company shall no later than
                April
                30, 2008 take all steps in all jurisdictions necessary to ensure
                that
                after the discharge of the Colmek Encumbrance, the Security Interest
                of
                the Secured Party constitutes at that time a first priority Security
                Interest in the Collateral. No Cure Period shall be given for breach
                of
                this covenant. 

            

    

     

    
      	
              4.3.

            	
              In
                respect of the FGI Encumbrance the Company shall no later than November
                1,
                2008, take all steps in all jurisdictions necessary to ensure that
                after
                the discharge of the related Permitted Encumbrance, the Security
                Interest
                of the Secured Party constitutes at that time a first priority Security
                Interest in the Collateral. No Cure Period shall be given for breach
                of
                this covenant.

            

    

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

     

    
      	 	
              5.
                DEFAULTS

            

    

     

    
      	5.1.	
              The
                following events shall be Events of Default:

            

    

    

    
      	
              5.1.1.

            	
              an
                Event of Default as is prescribed by Condition 9 of Loan Note Instrument
                which has not been remedied as provided for in Condition 9.2 of the
                Loan
                Note Instrument. 

            

    

    

    
      	
              5.1.2.

            	
              Any
                representation or warranty of the Company in this Agreement proves
                to have
                been incorrect in any material respect when made.
                

            

    

    

    
      	
              5.1.3

            	
              the
                failure of the Company to observe or perform its obligations hereunder
                and
                which remains uncured after the expiration of the Cure
                Period.

            

    

     

    
      	6.	
              DUTY
                TO HOLD ON TRUST

            

    

     

    Upon
      the
      expiration of the Cure Period and if the Event of Default remains uncured and
      at
      any time thereafter, the Company shall, upon receipt by it of any revenue,
      income or other sums subject to the Security Interest, whether payable pursuant
      to the Notes or otherwise, or of any check, draft, note, trade acceptance or
      other instrument evidencing an obligation to pay any such sum, hold the same
      in
      trust for the Secured Party and shall forthwith endorse and transfer any such
      sums or instruments or both, to the Secured Party for application to the
      satisfaction of the Obligations. 

     

    
      	7.	
              RIGHTS
                AND REMEDIES UPON DEFAULT

            

    

     

    
      	
              7.1.

            	
              Upon
                occurrence of any Event of Default and provided that after the lapse
                of
                the Cure Period such Event of Default remains uncured, and at any
                time
                thereafter, the Secured Party shall have the right to exercise all
                of the
                remedies conferred hereunder and under the Notes, and the Secured
                Party
                shall have all the rights and remedies of a secured party under the
                UCC
                and/or any other applicable law (including Commercial Code of any
                jurisdiction in which then located) but subject always to the prior
                Permitted Encumbrances if such Event of Default occurs prior to their
                discharge. Without limitation, the Secured Party shall have the following
                rights and powers:

            

    

     

    
      	
              7.1.1.

            	
              The
                Secured Party shall have the right to take possession of the Collateral
                and, for that purpose, enter, with the aid and assistance
                of any person, any premises where the Collateral or any part thereof,
                is
                or may be placed and remove the same and the Company shall assemble
                the
                Collateral or any part thereof and make it available to the Secured
                Party
                at places which Secured Party shall reasonably select, whether at
                the
                Company’s premises or elsewhere, and make available to the Secured Party,
                without rent, all of the Company's respective premises and facilities
                for
                the purpose of the Secured Party taking possession of, removing or
                putting
                the Collateral in saleable or disposable form.

            

    

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

     

    
      	
              7.1.2.

            	
              The
                Secured Party shall have the right to operate the business of the
                Company
                using the Collateral and shall have the right to
                assign, sell, lease or otherwise dispose of and deliver all or any
                part of
                the Collateral, at public or private sale or otherwise, either with
                or
                without special conditions or stipulations, for cash or on credit
                or for
                future delivery such parcel or parcels and at such time or times
                and at
                such place or places, and upon such terms and conditions as the Secured
                Party may deem commercially reasonable, (except as shall be required
                by
                applicable statute and cannot be waived) all without advertisement
                or
                demand upon or notice to the Company or right of redemption of the
                Company, which are hereby expressly waived.

            

    

     

    
      	8.	
              APPLICATION
                OF PROCEEDS

            

    

    

    
      	
              8.1
                

            	
              The
                proceeds of any such sale, lease or other disposition of the Collateral
                hereunder shall be applied first, to the expenses of retaking, holding,
                storing, processing and preparing for sale, selling and the like,
                including Costs incurred in connection therewith, of the Collateral
                by the
                Secured Party in enforcing its rights hereunder and in connection
                with
                collecting, storing and disposing of the Collateral, and then to
                satisfaction of any indebtedness in relation to the prior Permitted
                Encumbrances (if the Event of Default occurs prior to their discharge),
                satisfaction of the Obligations, and to the payment of any other
                amounts
                required by applicable law, after which the Secured Party shall pay
                the
                Company any surplus proceeds. If, upon the sale, license or other
                disposition of the Collateral, the proceeds thereof are insufficient
                to
                pay all amounts to which the Secured Party is legally entitled, the
                Company will be liable for the deficiency, together with interest
                thereon,
                at the rate of 10% per annum (the “Default Rate”), and the reasonable
                Costs incurred by the Secured Party in collecting the deficiency.
                To the
                extent permitted by applicable law, the Company waives all claims,
                damages
                and demands against the Secured Party arising out of the repossession,
                removal, retention or sale of the Collateral, unless resulting from
                the
                negligence or wilful misconduct of the Secured Party.
                

            

    

     

    
      	9.	
              COSTS
                AND EXPENSES

            

    

    

    The
      Company agrees to pay out-of-pocket fees and Costs incurred in connection with
      any filing required hereunder, including without limitation, any financing
      statements, continuation statements, partial releases and/or termination
      statements related thereto or any expenses of any searches reasonably required
      by the Secured Party. The Company shall also pay all other claims and charges
      which in the reasonable opinion of the Secured Party might prejudice, imperil
      or
      otherwise affect the Security Interest therein. The Company will also, upon
      demand, pay to the Secured Party the amount of reasonable expenses and Costs
      which the Secured Party may incur in connection with (i) enforcement of this
      Agreement, (ii) the custody or preservation of, or the sale of, collection
      from,
      or other realization upon, any of the Collateral, (iii) the exercise or
      enforcement of any of the rights of the Secured Party under the Transaction
      Documents. 

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

     

    
      	10.	
              RESPONSIBILITIY
                FOR THE COLLATERAL

            

    

    

    The
      Company assumes all liabilities and responsibility in connection with all
Collateral,
      and the obligations of the Company hereunder or under the Transaction Documents
      shall in no way be affected or diminished by reason of the loss, destruction,
      damage or theft of any of the Collateral or its unavailability for any
      reason.

     

    
      	11.	
              SECURITY
                INTEREST ABSOLUTE

            

    

     

    All
      rights of the Secured Party and all Obligations of the Company hereunder, shall
      be absolute and unconditional, irrespective of: (a) any lack of validity or
      enforceability of this Agreement or the Transaction Documents or any agreement
      entered
      into in connection with the foregoing, or any portion hereof or thereof; b)
      any
      change in the time, manner or place of payment or performance of, or in any
      other term of, all or any of the Obligations, or any other amendment or waiver
      of or any consent to any departure from the Transaction Documents or any other
      agreement entered into in connection with the foregoing; (c) any exchange,
      release, nonperfection of any of the Collateral, or any release or amendment
      or
      waiver of or consent to departure from any other collateral for, or any
      guaranty, or any other security for all or any of the Obligations; (d) any
      action by the Secured Party to obtain, adjust, settle and cancel in its sole
      discretion any insurance claims or matters made or arising in connection with
      the Collateral; or (e) any other circumstances which might otherwise constitute
      any legal or equitable defense available to the Company, or a discharge of
      all
      or any part of the Security Interest granted hereby. Until the Obligations
      shall
      have been paid and performed in full the rights of the Secured Party shall
      continue even if the Obligations are barred for any reason, including, without
      limitation, the running of the statute of limitations or bankruptcy. The Company
      expressly waives presentment, protest, notice of protest, demand, notice of
      non-payment and demand for performance. In the event that at any time any
      transfer of any Collateral or any payment received by the Secured Party
      hereunder shall be deemed by final order of a court of competent jurisdiction
      to
      have been a voidable preference or fraudulent conveyance under the bankruptcy
      or
      insolvency laws of the United States, or shall be deemed to be otherwise due
      to
      any party other than the Secured Party, then, in any such event, the Company's
      obligations hereunder shall survive the cancellation of this Agreement, and
      shall not be discharged or satisfied by any prior payment thereof and/or
      cancellation of this Agreement, but shall remain a valid and binding obligation
      enforceable in accordance with the provisions hereof. The Company waives all
      right to require the Secured Party to proceed against any other person or to
      apply any Collateral which the Secured Party may hold at any time or to marshal
      assets, or to pursue any other remedy. The Company waives any defense arising
      by
      reason of the application of the statute of limitations to any obligations
      secured hereby.

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

     

    
      	12.	
              TERM
                OF AGREEMENT

            

    

     

    This
      Agreement and the Security Interest shall terminate on the date on which all
      payments under the Notes have been made in full and all other Obligations been
      paid or discharged. Upon such termination, the Secured Party,
      at
      the request and at the expense of the Company, will join in executing any
      termination statement with respect to any financing statement authorized and
      filed pursuant to this Agreement.

     

    
      	13.	
              POWER
                OF ATTORNEY; FURTHER ASSURANCES  

            

    

    

    
      	
              13.1.

            	
              The
                Company authorizes the Secured Party, and does hereby make, constitute
                and
                appoint it, and its respective agents, successors or assigns with
                full
                power of substitution, as the Company's true and lawful attorney-in-fact,
                with power in its own name or in the name of the Company, to, after
                the
                occurrence and after any Cure Period has lapsed and the Event of
                Default
                continues (i) endorse any notes, checks, drafts, money orders or
                other
                instruments of payment (including payments payable under or in respect
                of
                any policy of insurance) in respect of the Collateral that may come
                into
                possession of the Secured Party (ii) authorize and endorse any UCC
                financing statement or any invoice, freight or express bill, bill
                of
                lading, storage or warehouse receipts, drafts against debtors,
                assignments, verifications and notices in connection with accounts,
                and
                other documents relating to the Collateral; (iii) pay or discharge
                taxes,
                liens, security interests or other Encumbrances at any time levied
                or
                placed on or threatened against the Collateral; (iv) demand, collect,
                receipt for, compromise, settle and sue for monies due in respect
                of the
                Collateral; and (v) generally, do, at the option of the Secured Party,
                and
                at the Company’s expense at any time, or from time to time, all acts and
                things which the Secured Party deems necessary to protect, preserve
                and
                realize upon the Collateral and the Security Interest granted therein
                in
                order to effect the intent of this Agreement and the other Transaction
                Documents, all as fully and effectually as the Company might or could
                do;
                and the Company hereby ratifies all that said attorney shall lawfully
                do
                or cause to be done by virtue hereof. This power of attorney is coupled
                with an interest and shall be irrevocable for the term of this Agreement
                and thereafter as long as any of the Obligations shall be
                outstanding.

            

    

    

    
      	
              13.2.
                

            	
              On
                a continuing basis, the Company will make, execute, acknowledge,
                deliver,
                file and record, as the case may be, in the proper filing and recording
                places in any jurisdictions, including without limitation, the
                jurisdictions indicated on Schedule 13.2 hereof, all such instruments,
                and
                take all such actions as may reasonably be deemed necessary to perfect
                the
                Security Interest granted hereunder and otherwise to carry out the
                intent
                and purposes of this Agreement or for assuring and confirming to
                the
                Secured Party the grant or perfection of a security interest in all
                the
                Collateral. 

            

    

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

     

    
      	
              13.3.

            	
              The
                Company hereby irrevocably appoints the Secured Party as the Company's
                attorney-in-fact, with full authority in the place and stead of the
                Company and in the name of the Company, from time to time in the
                Secured
                Party's discretion, to take any action and to execute any instrument
                which
                the Secured Party may deem necessary or advisable to accomplish the
                purposes of this Agreement including the filing, in its sole discretion,
                of one or more financing or continuation statements and amendments
                thereto, relative to any of the Collateral without the signature
                of the
                Company where permitted by law.

            

    

     

    
      	14.	
              NOTICES

            

    

     

    
      	
              14.1.

            	
              All
                notices, demands and other communications provided for or permitted
                hereunder shall be made in writing and shall be by registered or
                certified
                first-class mail, return receipt requested, telecopier, courier service
                or
                personal delivery:

            

    

     

    if
      to the
      Company or any of its subsidiaries to:

     

    Coda
      Octopus Group, Inc.

    164
      West
      25th
      Street

    New
      York,
      NY 10001

    Telecopy:
      1 212 924 3447

    Attention:
      Chief Executive Officer and President 

     

    with
      copies to:

     

    Sichenzia
      Ross Friedman & Ferrence LLP

    61
      Broadway

    New
      York,
      NY 10006

    Attention:
      Louis Brilleman, Esq.

    Telecopy:
      212-930-9725

    

    and
      to

    

    Coda
      Octopus Group, Inc.

    164
      West
      25th
      Street

    New
      York,
      NY 10001

    Telecopy:
      1 917 591 8594

    Attention:
      Annmarie Gayle

     

    if
      to the
      Secured Party :

    The
      Royal
      Bank of Scotland plc

    135
      Bishopgate

    London
      EC2M 3UR

    Attention:
      Repack Middle Office

    Fax:
      +44
      20 7085 7984

     

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

    

    with
      copies to:

     

    The
      Royal
      Bank of Scotland plc

    135
      Bishopgate

    London
      EC2M 3UR

    Attention:
      GBM Legal

    Fax:
      +44
      20 7085 8411

     

    and
      to

     

    Simons
      & Simmons

    Citypoint,
      One Ropemaker Street, London EC2Y 9SS

    United
      Kingdom

    Attention:
      Dusan Stojkovic, Esq.

    

    All
      such
      notices, demands and other communications shall be deemed to have been duly
      given when delivered by hand, if personally delivered; when delivered by
      courier, if delivered by commercial courier service; five (5) Business Days
      after being deposited in the mail, postage prepaid, if mailed; and when receipt
      is mechanically acknowledged, if telecopied. Any party may by notice given
      in
      accordance with this Section 14 designate another address or Person for receipt
      of notices hereunder.

     

    
      	15.	
              MISCELLANEOUS

            

    

     

    
      	15.1.	
              Headings
                

            

    

     

    The
      headings in this Agreement are for convenience of reference only and shall
      not
      limit or otherwise affect the meaning hereof.

     

    
      	15.2.	
              Governing
                law

            

    

     

    This
      Agreement shall be governed by and construed in accordance with the laws of
      the
      State of New York without regard to the principles of conflicts of law
      thereof.

     

    
      	15.3.	
              Amendment
                and Waiver

            

    

     

    No
      course
      of dealing between the Company and the Secured Party, failure to exercise,
      nor
      delay in exercising, on the part of the Secured Party, any right, power or
      privilege hereunder or under the Transaction Documents shall operate as a waiver
      thereof; nor shall any single or partial exercise or any right, power or
      privilege hereunder preclude any other further exercise thereof or the exercise
      of any other right, power or privilege. All of the rights and remedies of the
      Secured Party with respect to the Collateral, whether established hereby or
      by
      the Transaction Documents or any other agreements, instruments or documents
      or
      by law shall be cumulative and may be exercised singly or concurrently.

    

    Except
      as
      is specifically set forth in this Agreement, no provision of this Agreement
      may
      be modified or amended except by a written agreement specifically referring
      to
      this Agreement and signed by the parties hereto.

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

     

    
      	15.4.	
              Rules
                of Construction. 

            

    

     

    Unless
      the context otherwise requires, references to sections or subsections refer
      to
      sections or subsections of this Agreement.

     

    
      	15.5.	
              Entire
                Agreement 

            

    

     

    This
      Agreement, together with the exhibits and schedules hereto, and the other
      Transaction Documents are intended by the parties as a final
      expression of their agreement and intended to be a complete and exclusive
      statement of the agreement and understanding of the parties hereto in respect
      of
      the subject matter contained herein and therein. There are no restrictions,
      promises, representations, warranties or undertakings, other than those set
      forth or referred to herein or therein. This Agreement, together with the
      exhibits and schedules hereto, and the other Transaction Documents supersede
      all
      prior agreements and understandings between the parties with respect to such
      subject matter.

     

    
      	15.6.	
              Severability

            

    

     

    
      	 	
              If
                any one or more of the provisions contained herein, or the application
                thereof in any circumstance, is held invalid, illegal or unenforceable
                in
                any respect for any reason, the validity, legality and enforceability of
                any such provision in every other respect and of the remaining provisions
                hereof shall not be in any way impaired, unless the provisions held
                invalid, illegal or unenforceable shall substantially impair the
                benefits
                of the remaining provisions hereof.

            

    

     

    
      	15.7.	
              Counterparts

            

    

     

    This
      Agreement may be executed in any number of counterparts and by the parties
      hereto in separate counterparts, each of which when so executed shall be deemed
      to be an original and all of which taken together shall constitute one and
      the
      same agreement.

     

    
      	
              15.8.

            	
              Further
                Assurances

            

    

     

    Each
      of
      the parties shall execute such documents and perform such further acts
      (including, without limitation, obtaining any consents,
      exemptions, authorizations or other actions by, or giving any notices to, or
      making any filings with, any governmental authority or any other person as
      may
      be reasonably required or desirable to carry out or to perform the provisions
      of
      this Agreement.

     

    
      
         

      

      
        16

        
          

        

      

      
         

      

    

     

    
      	15.9	
              Choice
                of Forum; Service of Process; Jury Trial Waiver.

            

    

     

    
      	
              15.9.1.

            	
              The
                Company irrevocably consents and submits to the non-exclusive jurisdiction
                of any federal or State court of competent jurisdiction sitting in
                the
                City and County of New York, New York, and waives any objection based
                on
                venue or forum
                non conveniens
                with respect to any action instituted therein arising under this
                Agreement
                or any of the other Transaction Documents or in any way connected
                or
                related or incidental to the dealings of the Company and Secured
                Party in
                respect of this Agreement or the other Transaction Documents or the
                transactions related hereto or thereto, in each case whether now
                existing
                or hereafter arising, and whether in contract, tort, equity or otherwise,
                and agrees that any dispute with respect to any such matters shall
                be
                heard only in the courts described above (except that Secured Party
                shall
                have the right to bring any action or proceeding against the Company
                or
                its property in the courts of any other jurisdiction which Secured
                Party
                deems necessary or appropriate in order to realize on the Collateral
                or to
                otherwise enforce its rights against the Company or its property).
                

            

    

     

    
      	
              15.9.2.

            	
              The
                Company hereby waives personal service of any and all process upon
                it and
                consents that all such service of process may be made by certified
                mail
                (return receipt requested) directed to its address set forth in the
                preamble hereto and service so made shall be deemed to be completed
                five
                (5) days after the same shall have been so deposited in the U.S.
                mails,
                or, at Secured Party's option, by service upon the Company in any
                other
                manner provided under the rules of any such courts. Within thirty
                (30)
                days after such service, the Company shall appear in answer to such
                process, failing which the Company shall be deemed in default and
                judgment
                may be entered by Secured Party against the Company for the amount
                of the
                claim and other relief requested.

            

    

     

    
      	
              15.9.3.

            	
              The
                Company hereby waives and right to trial by jury of any claim, demand,
                action or cause of action (i) arising under this Agreement or any
                of the
                other Transaction Documents or (ii) in any way connected with or
                related
                or incidental to the dealings of the Company and Secured Party in
                respect
                of this Agreement or any of the other Transaction Documents or the
                transactions related hereto or thereto in each case whether now existing
                or hereafter arising, and whether in contract, tort, equity or otherwise.
                The Company hereby agrees and consents that any such claim, demand,
                action
                or cause of action shall be decided by court trial without a jury
                and that
                the Company or Secured Party may file an original counterpart of
                a copy of
                this Agreement with any court as written evidence of the consent
                of the
                Company and Secured Party to the waiver of their right to trial by
                jury.
                

            

    

     

    

     

    [Remainder
      of page intentionally left blank.]

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

    IN
      WITNESS WHEREOF, the undersigned have executed, or have caused to be executed,
      this Security Agreement on the date first written above.

     

    
      	 	 	 
	 	CODA
              OCTOPUS GROUP, INC.
	 
 	 
 	 
 
	 	By:  	 
	 	
              

              Name:
                Jason Reid

              Title:
                President

            
	 	 

       

      
        	 	 	 
	 	
                CODA
                  OCTOPUS (US) HOLDINGS, INC.

              
	 
 	 
 	 
 
	 	By:  	 
	 	
                

                Name:
                  Jason Reid

                Title:
                  President

              
	 	 

         

        
          	 	 	 
	 	
                  PORT
                    SECURITY GROUP, Inc.

                
	 
 	 
 	 
 
	 	By:  	 
	 	
                  

                  Name:
                    Jason Reid

                  Title:
                    Director

                
	 	 

           

          
            	 	 	 
	 	INNALOGIC,
                    Inc.
	 
 	 
 	 
 
	 	By:  	 
	 	
                    

                    Name:
                      

                    Title:
                      

                  
	 	 

             

            
              	 	 	 
	 	MILLER
                      AND
                      HILTON D/BA COLMEK ENGINEERING SYSTEMS
	 
 	 
 	 
 
	 	By:  	 
	 	
                      

                      Name:
                        

                      Title:
                        

                    
	 	 

            

          

        

      

    

    
      
         

      

      
        18

        
          

        

      

      
         

      

    

     

    
      	 	 	 
	 	THE
              ROYAL
              BANK OF SCOTLAND PLC 
	 
 	 
 	 
 
	 	By:  	 
	 	
              

              Name:
                

              Title:
                

            
	 	 

    

     

    
      
         

      

      
        19

        
          

        

      

      
         

      

    

     

    Schedule
      1.1(a)

     

    

    The
      grant
      of the Security Interest in Colmek shall be construed as taking effect on or
      no
      later than April 30, 2008 and at such time the “Collateral” for the purposes of
      securing the Obligations shall mean: 

    

    “All
      receivables of the Company including all insurance proceeds, and rights to
      refunds or indemnification whatsoever owing, together with all instruments,
      all
      documents of title representing any of the foregoing, all rights in any
      merchandising, goods, equipment, motor vehicles and trucks which
      any of
      the same may represent, and all right, title, security and guaranties with
      respect to each Receivable including any right of stoppage in transit (“Colmek
      Collateral”).

     

    The
      Secured Party specifically takes its Security Interest in and over the Colmek
      Collateral with full knowledge that the Company’s interest in and over Colmek is
      restricted by the terms of a Special Security Agreement between Coda Octopus
      Group Inc, Coda Octopus (US) Holdings, Inc and its affiliates, Colmek (on the
      one hand) and United States Department of Defense (DoD) appended hereto as
      Exhibit
      2 and
      which
      is designed to prevent the unauthorized access or disclosure of US classified
      restricted information.

     

     

    Schedule
      1.1(b)

     

    As
      of
      date hereof the Coda Octopus Group, Inc. has the following wholly owned US
      subsidiaries:

    

    
      	
              1.

            	
              Coda
                Octopus Products Inc. a Delaware Corporation with its principal place
                of
                business at 100 14th
                Avenue South, Pinelas County, Florida

            

    

    

    
      	
              2.

            	
              Coda
                Octopus (US) Holdings, Inc. a Delaware corporation with its principal
                place of business at 164 West 25th
                Street, 6th
                Floor (6R), New York NY 10017.

            

    

     

    
      	
              3.

            	
              Coda
                Octopus Research and Development Inc, a Delaware corporation with
                its
                principal place of business at 164 West 25th
                Street, 6th
                Floor (6R), New York NY 10017.

            

    

     

    
      	
              4.

            	
              Innalogic
                Inc., a Delaware corporation with its place of business at 164 West,
                25th
                Street, 6th
                Floor (6F), New York NY 10017 with its principal place of business
                at 164
                West 25th
                Street, 6th
                Floor (6R), New York NY 10017. 

            

    

    

    
      	
              5.

            	
              The
                Port Security Group, Inc., a Delaware corporation with its place
                of
                business at 164 West 25th
                Street, 6th
                Floor (6R), New York NY 10017.

            

    

     

    
      	
              6.

            	
              Miller
                and Hilton, d/b/a Colmek Systems Engineering (“Colmek”), a Utah
                corporation (Corporation Number 2400704-0150) with its principal
                place of
                business at 2001 South 3480 West, Salt Lake City, Utah
                84104.

            

    

    
      
         

      

      
        20

        
          

        

      

      
         

      

    

     

    Schedule
      1.1(c)

     

    Permitted
      Encumbrances

     

    
      	1.	
              FGI
                Encumbrance

            

    

     

    As
      of the
      date hereof Faunus Group International, Inc a Delaware corporation whose
      principal place of business is 80 Pine Street, 32nd
      Floor,
      New York, New York 10005 has a prior first and continuing security interest
      in a
      part of the Collateral pursuant to a “Sale of Accounts and Security Agreement”
(Exhibit
      1 hereto)
      and
      which has been perfected in accordance with the applicable provisions of the
      UCC. The said Permitted Encumbrances are specifically subject to the various
      covenants and undertakings of the Company to discharge the Permitted
      Encumbrances.

     

    
      	2.	
              Colmek
                Encumbrance

            

    

     

    As
      of the
      date hereof and pursuant to the acquisition agreement between the Coda Octopus
      (US) Holdings Inc, Colmek and the Selling Shareholders of Colmek, Coda Octopus
      (US) Holdings has pledged the Colmek Shares to the Selling Shareholders to
      secure the deferred consideration remaining and due to the Selling Shareholders
      of US$700,000. This is due to be discharged on April 6, 2008 along with the
      pledges. 

     

    
      
        	3.	
                General
                  Liens

              

      

    

     

    Any
      liens
      for taxes or assessments not at the time due and (b) liens in respect of pledges
      or deposits under workers’ compensation laws or similar legislation, carriers’,
      warehousemen’s, mechanics’, laborers’ and material men’s and similar liens, if
      the obligations secured by such liens are not then delinquent.

     

    
      
         

      

      
        21

        
          

        

      

      
         

      

    

     

    Schedule
      3.1.2

     

    The
      Company’s title in and over the Collateral is limited by the Permitted
      Encumbrances disclosed in Schedule 1.1.(c).

     

    UCC
      Filings are recorded in Delaware in respect of the FGI Encumbrance.

     

    
      
         

      

      
        22

        
          

        

      

      
         

      

    

     

    Schedule
      3.1.15

     

    On
      July
      13, 2004, pursuant to the terms of a share exchange agreement between The Panda
      Project, Inc., a Florida corporation, and Fairwater Technologies Ltd.
      (“Fairwater”), Panda acquired the shares of Coda Octopus Limited, a UK
      corporation and Fairwater’s wholly-owned subsidiary, in consideration for the
      issuance of a total of 20,050,000 shares of common stock to Fairwater and other
      shareholders of Coda Octopus Limited. The shares issued represented
      approximately 90.9% of the issued and outstanding shares of Panda. The share
      exchange was accounted for as a reverse acquisition of Panda by Coda.
      Subsequently, Panda was reincorporated in Delaware and changed its name to
      Coda
      Octopus Group, Inc. (“COGI”)

    

    The
      business of COGI began as Coda Technologies Ltd (now operating under the name
      of
      Coda Octopus Products Limited), a UK corporation which was formed in 1994.
      

    

    In
      June
      2002, Coda Technologies Ltd acquired by way of merger Octopus Marine Systems
      Ltd, a UK corporation, and changed its name from Coda Technologies Ltd to Coda
      Octopus Ltd.

     

    In
      December 2002, Coda Octopus Ltd acquired OmniTech AS, a Norwegian company,
      which
      became a wholly-owned subsidiary of Coda Octopus Ltd and now operates under
      the
      name CodaOctopus Omnitech AS. 

    

    In
      June
      2006, COGI’s subsidiary, Coda Octopus (UK) Holdings Ltd, acquired all the issued
      and outstanding shares of Martech Systems (Weymouth) Ltd
      (“Martech”).

    

    In
      April
      2007, COGI acquired all the issued and outstanding shares of common stock of
      Utah-based engineering firm, Miller & Hilton, Inc. d/b/a Colmek Systems
      Engineering, 

     

    
      
         

      

      
        23

        
          

        

      

      
         

      

    

     

    Schedule
      13.2

     

    State
      of
      Delaware

     

    State
      of
      Utah

     

    
      
         

      

      
        24

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