Document:

FLOATING
          CHARGE

        by

        CODA
          OCTOPUS R & D LIMITED

        in
          favour of

        THE
          ROYAL BANK OF SCOTLAND PLC

      

      

      

      
         

        Stuart
          Hodge Corporate Lawyers

        3
          Temple Row West

        Birmingham

        B2
          5NY

      

       

      
        
           

        

        
           

          
            

          

        

        
           

      

      TABLE
        OF CONTENTS

      

       

      
        	
                1.

              	
                Definitions
                  and Interpretation

              	
                1

              
	
                2.

              	
                Covenant
                  to Pay

              	
                3

              
	
                3.

              	
                Charging
                  Provision

              	
                4

              
	
                4.

              	
                Negative
                  Pledge and Ranking of Charge

              	
                4

              
	
                5.

              	
                Continuing
                  Obligations

              	
                4

              
	
                6.

              	
                Appointment
                  of Receiver or administrator

              	
                5

              
	
                7.

              	
                Security
                  Protection

              	
                6

              
	
                8.

              	
                Company
                  to meet expenses of the Subscriber

              	
                6

              
	
                9.

              	
                Further
                  Assurance

              	
                7

              
	
                10.

              	
                Power
                  of Attorney

              	
                7

              
	
                11.

              	
                Power
                  to grant the Charge

              	
                7

              
	
                12.

              	
                Demands
                  or Notices

              	
                8

              
	
                13.

              	
                Assignation

              	
                8

              
	
                14.

              	
                Currency
                  Clauses

              	
                8

              
	
                15.

              	
                Miscellaneous

              	
                9

              
	
                16.

              	
                Governing
                  Law

              	
                9

              
	
                17.

              	
                Consent
                  to Registration

              	
                9

              

      

      

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      FLOATING
        CHARGE 

       

      By
        

       

      
        	
                (1)

              	
                CODA
                  OCTOPUS R & D LIMITED
                  (Registered Number SC232622) having its registered office at Anderson
                  House, Breadalbane Street, Edinburgh EH6 5JR ("Company");
                  

              

      

       

      in
        favour
        of 

       

      
        	
                (2)

              	
                THE
                  ROYAL BANK OF SCOTLAND PLC (registered
                  in Scotland with Registered Number 90312) acting through its London
                  offices located at 135 Bishopsgate, London EC2M 3UR ("Subscriber”
                  which expression includes its successors in title, assignees and
                  transferees).

              

      

       

      WHEREAS:-

      

      
        	
                (A)

              	
                The
                  Company owes various obligations to the Subscriber under the Deed
                  of
                  Guarantee, and the Subscriber wishes to secure these and any future
                  obligations against all of the Assets of the Company from time
                  to time;
                  and

              

      

       

      
        	
                (B)

              	
                The
                  Company has therefore agreed to enter into this Charge in favour
                  of the
                  Subscriber on the following terms and
                  conditions.

              

      

       

      Definitions
        are given in Clause 1.1

      

      NOW
        IT IS
        HEREBY AGREED as follows:-

      

      
        	
                1.

              	
                Definitions
                  and Interpretation

              

      

       

      
        	
                1.1

              	
                In
                  the interpretation of this Charge:-

              

      

       

      “Agreed
        Form”
        in
        relation to any document means the form agreed and for the purposes of
        identification only initialled by or on behalf of COGI and the
        Subscriber;

       

      "Assets"
        means
        the whole of the undertaking, property, assets, rights and revenue (including
        uncalled capital) which is or may be from time to time comprised in the property
        and undertaking of the Company;

       

      “COGI”
        means
        Coda Octopus Group, Inc. incorporated in the State of Delaware, whose principal
        place of business is at 164 West 25th
        Street,
        New York, New York 10001;

       

      “Completion”
        means
        the carrying out by the parties of their obligations under Clause 3 of the
        Subscription Agreement;

       

      “Completion
        Date” means
        the
        date hereof;

       

      “Confidentiality
        Agreement”
        means
        the agreement dated on or around the Completion Date between COGI and the
        Subscriber whereby the Subscriber agrees, inter alia, to keep certain
        information confidential;

       

      “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;

       

      
        
           

        

        
          1

          
            

          

        

        
           

        

      

      “Deed
        of Guarantee” means
        a
        deed in the Agreed Form to be entered into at Completion whereby those
        Subsidiaries which are registered in the United Kingdom agree to guarantee
        the
        obligations of COGI under the Transaction Documents;

       

      “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;

       

      “Intercreditor
        Deed” means
        a
        deed entered into on or around the Completion Date among COGI, the Subscriber
        and FGI regulating the priorities of the various charges and security interests
        held by the Subscriber and FGI;

       

      “Loan
        Note Instrument” means
        the
        loan note instrument executed by COGI on the Completion Date pursuant to
        which
        the Notes are constituted;

       

      “Lock-up
        Agreements”
        means
        certain agreements entered into on or around the date hereof between the
        directors and board members of COGI and the Subscriber undertaking (with
        certain
        exceptions) not to sell or transfer or otherwise dispose of any of their
        shares
        in COGI;

       

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

       

      "Receiver"
        means a
        receiver or administrative receiver appointed pursuant to this Charge in
        respect
        of the Company or over all or any of its Assets; 

       

      "Secured
        Liabilities"
        means
        all monies, obligations and liabilities, howsoever arising, now or at any
        time
        in the future due, owing or incurred by the Company to the Subscriber under
        and
        in terms of the Transaction Documents, direct or indirect, absolute or
        contingent, including without limitation all interest (as well after as before
        any demand made or judgment given), fees, charges, expenses, legal fees and
        accounting fees chargeable to and payable by the Subscriber under or in relation
        to any such monies, obligations and/or liabilities;

       

      “Security
        Agreement”
        means an
        agreement in the Agreed Form to be entered into at Completion whereby COGI
        and
        those of its Subsidiaries incorporated in the United States of America grant
        a
        continuing and first security interest in and over the assets of COGI and
        those
        of its Subsidiaries incorporated in the United States of America

       

      "Security
        Interest"
        means
        any mortgage, charge, pledge, lien encumbrance, security interest or other
        security arrangement of any kind;

       

      “Subscription
        Agreement”
        means
        the subscription agreement dated the Completion Date between the Subscriber
        and
        COGI;

       

      
        
           

        

        
          2

          
            

          

        

        
           

        

      

      “Transaction
        Documents” means
        the
        Loan Note Instrument, the Subscription Agreement, this Floating Charge and
        the
        floating charge to be granted on the Completion Date by Coda Octopus Products
        Ltd, the Debentures, the Lock-up Agreements, the Security Agreement, the
        Confidentiality Agreement, the Intercreditor Deed and all other documents
        entered into in connection with any of them.

       

      
        	
                1.2

              	
                The
                  expressions "holding company" and "subsidiary" shall have the meanings
                  given to them in Section 736 of the Companies Act
                  1985.

              

      

       

      
        	
                1.3

              	
                References
                  to this Charge and to any provisions of it shall be construed as
                  references to it in force for the time being and as amended, varied,
                  supplemented, substituted or novated from time to
                  time.

              

      

       

      
        	
                1.4

              	
                References
                  to statutes, statutory provisions and other legislation shall include
                  all
                  amendments, modifications and re-enactments for the time being
                  in force
                  and shall include any orders, regulations, instruments or subordinate
                  legislation under or deriving from the relevant statute or statutory
                  provision.

              

      

       

      
        	
                1.5

              	
                Words
                  importing the singular are to include the plural and vice
                  versa.

              

      

       

      
        	
                1.6

              	
                A
                  Receiver shall include a reference to joint receivers and any reference
                  to
                  the appointment of a person as receiver shall include a reference
                  to the
                  appointment of two or more persons as joint receivers.
                  

              

      

       

      
        	
                1.7

              	
                References
                  to a person are to be construed to include references to a corporation,
                  firm, company, partnership, joint venture, unincorporated body
                  of persons,
                  individual or any state or any agency of a state, whether or not
                  a
                  separate legal entity.

              

      

       

      
        	
                1.8

              	
                References
                  to any person are to be construed to include that person's assignees
                  or
                  transferees or successors in title, whether direct or
                  indirect.

              

      

       

      
        	
                1.9

              	
                Clause
                  headings are for ease of reference only and are not to affect the
                  interpretation of this Charge.

              

      

       

      
        	
                1.10

              	
                Any
                  phrase introduced by the terms “including”, “include”, “in particular” or
                  any similar expression shall be construed as illustrative.
                  

              

      

       

      
        	
                1.11

              	
                Any
                  reference to a "fixed security" shall be construed as a reference
                  to a
                  fixed security as defined in Section 486 of the Companies Act
                  1985.

              

      

       

      
        	
                1.12

              	
                Unless
                  the context requires otherwise, or unless otherwise defined in
                  this
                  Charge, words and expressions defined in the Transaction Documents
                  shall
                  have the same meanings when used in this
                  Charge.

              

      

       

      
        	
                2.

              	
                Covenant
                  to Pay 

              

      

       

      
        	
                2.1

              	
                The
                  Company covenants to pay and discharge in full on demand to the
                  Subscriber
                  the Secured Liabilities when they fall due and
                  payable.

              

      

       

      
        	
                2.2

              	
                Any
                  amount not paid in accordance with this Charge when due shall (subject
                  to
                  Clause 2.3 below) carry interest at the rate of 2% per annum above
                  the
                  base rate quoted by The Royal Bank of Scotland plc from time to
                  time or at
                  such other rate as may be agreed between the Company and the Subscriber
                  from time to time. In each case, interest shall accrue on a day
                  to day
                  basis until the date of irrevocable and unconditional repayment
                  in full
                  and, if unpaid, shall be compounded on the terms so agreed or (in
                  the
                  absence of such agreed terms) with quarterly rests on 31 March,
                  30 June,
                  30 September and 31 December in each year. Interest shall continue
                  to be
                  charged and compounded on this basis after as well as before any
                  demand or
                  judgment.

              

      

       

      
        
           

        

        
          3

          
            

          

        

        
           

        

      

      
        	
                2.3

              	
                Clause
                  2.2 above shall not apply to the extent that default interest on
                  such
                  amount for such period is charged pursuant to the relevant Transaction
                  Document and itself constitutes part of the Secured
                  Liabilities.

              

      

       

      
        	
                3.

              	
                Charging
                  Provision

              

      

       

      
        	
                3.1

              	
                The
                  Company grants a floating charge over the Assets to the
                  Subscriber as a continuing security for the payment and discharge
                  of the
                  Secured Liabilities.

              

      

       

      
        	
                3.2

              	
                Paragraph
                  14 of Schedule B1 to the Insolvency Act 1986 (incorporated by Schedule
                  16
                  to the Enterprise Act 2002) shall apply to this
                  Charge.

              

      

       

      
        	
                3.3

              	
                The
                  security constituted by or pursuant to this Charge shall be in
                  addition to
                  and independent of, and shall not in any way prejudice or be prejudiced
                  by, any other security, right or remedy against any person which
                  the
                  Subscriber may at any time hold for the satisfaction of the Secured
                  Liabilities or any part thereof.

              

      

       

      
        	
                4.

              	
                Negative
                  Pledge and Ranking of
                  Charge

              

      

       

      
        	
                4.1

              	
                The
                  Company agrees that it shall be prohibited from granting or creating
                  subsequent to the date of this Charge any fixed security or any
                  other
                  floating charge (as defined by the Companies Act 1985) having priority
                  over or ranking pari passu with this Charge, other than in favour
                  of the
                  Subscriber.

              

      

       

      
        	
                4.2

              	
                In
                  the event that the Company grants or creates any fixed security
                  or
                  floating charge in breach of the prohibition in Clause 4.1 above,
                  this
                  Charge shall rank in priority to that fixed security or floating
                  charge.

              

      

       

      
        	
                5.

              	
                Continuing
                  Obligations

              

      

       

      The
        Company covenants with and undertakes to the Subscriber as follows:

       

      
        	
                5.1

              	
                to
                  register this Charge with the Registrar of Companies for Scotland
                  no later
                  than 21 days after the date of execution of this
                  Charge.

              

      

       

      
        	
                5.2

              	
                if
                  required by the Subscriber to forthwith deposit with the Subscriber
                  all or
                  any documents, deeds, or other papers whatsoever relating to the
                  Assets as
                  the Subscriber may require.

              

      

       

      
        	
                5.3

              	
                to
                  make timely payment of all lawful amounts in respect of the Assets
                  when
                  due including all rents, periodic charges and outgoings of any
                  nature.

              

      

       

      
        	
                5.4

              	
                to
                  keep all of the Assets in a good state of repair and in proper
                  and good
                  working order and condition and to permit the Subscriber and such
                  other
                  persons as the Subscriber may from time to time appoint for the
                  purpose to
                  enter and view the state and condition of the Assets on reasonable
                  notice.

              

      

       

      
        	
                5.5

              	
                to
                  insure and keep insured all of the Assets which are of an insurable
                  nature
                  against loss or damage by fire and all other usual risks as the
                  Subscriber
                  may require in the full amount of their reinstatement value in
                  such name
                  and in such offices as the Subscriber shall approve in terms not
                  permitting the insurers to cancel the policy of insurance without
                  giving
                  at least 14 days’ notice to the Company and to pay when due all premiums
                  and any other charges necessary for effecting and maintaining such
                  insurance and, if requested by the Subscriber, to have the interest
                  of the
                  Subscriber noted on any policy or policies and if required to deliver
                  to
                  the Subscriber such policy or policies and the receipt for every
                  premium
                  payable in respect of such policy or
                  policies.

              

      

       

      
        
           

        

        
          4

          
            

          

        

        
           

        

      

      
        	
                5.6

              	
                to
                  hold all monies received on any insurance whatsoever in respect
                  of loss,
                  damage or destruction of the Assets whether under the covenant
                  in
                  paragraph 5.7 or otherwise on trust for the Subscriber to be applied
                  in
                  making good the loss or damage in respect of which the monies are
                  received
                  or in or towards discharge of the sums for the time being owing
                  to the
                  Subscriber under this Charge as the Subscriber may in its absolute
                  discretion require.

              

      

       

      
        	
                5.7

              	
                not
                  without the previous written consent of the Subscriber to create
                  or
                  attempt to create any mortgage, pledge, fixed or floating charge
                  or other
                  encumbrance or security interest on or over any of the
                  Assets.

              

      

       

      
        	
                5.8

              	
                not
                  to take or omit to take any action that might or would have the
                  result of
                  materially impairing the security interests created by this Charge.
                  The
                  Company will not grant to any person other than the Subscriber
                  and the
                  Noteholders any interest whatsoever in the
                  Assets.

              

      

       

      
        	
                5.9

              	
                to
                  inform the Subscriber immediately on becoming bound to complete
                  the
                  purchase of any estate or interest in any heritable or leasehold
                  property
                  after the date of this floating charge and to deposit with the
                  Subscriber
                  the deeds and documents of title relating to such
                  property.

              

      

       

      
        	
                5.10

              	
                to
                  execute at any time upon request over all or any of the property
                  referred
                  to in paragraph 5.9 and which is capable of being so charged, a
                  standard
                  security in favour of the Subscriber in such form as the Subscriber
                  shall
                  require.

              

      

       

      
        	
                5.11

              	
                to
                  execute and do all such assurances and things including (without
                  prejudice
                  to the generality of the foregoing) charges and assignations as
                  the
                  Subscriber may require for perfecting the security constituted
                  by this
                  Charge and for facilitating the realisation of the Assets and for
                  exercising all powers, authorities and discretions conferred by
                  this
                  Charge upon the Subscriber or any receiver appointed by the Subscriber
                  and
                  to give notice of any such assurance or other thing to any person
                  the
                  Subscriber may require.

              

      

       

      
        	
                5.12

              	
                to
                  comply with any and all covenants and undertakings which the Company
                  has
                  entered into in the other Transaction
                  Documents.

              

      

       

      
        	
                6.

              	
                Appointment
                  of Receiver or
                  administrator

              

      

       

      
        	
                6.1

              	
                All
                  monies secured by this Charge shall be immediately payable on demand
                  by
                  the Subscriber in accordance with the provisions of the Loan Note
                  Instrument and the other Transaction Documents and failing payment
                  immediately of any monies so demanded this security shall become
                  immediately enforceable and the Subscriber shall be entitled to
                  appoint in
                  writing a Receiver of all or any of the Assets and/or an Administrator
                  of
                  the Company (in each case in accordance with and to the extent
                  permitted
                  by applicable laws) either immediately or at any time thereafter.
                  In
                  addition, all monies secured by this Charge shall also become payable
                  without any demand and this security will become immediately enforceable
                  in the same manner as if demanded either immediately or at any
                  time
                  after:

              

      

       

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

      
        	 	
                6.1.1

              	
                if
                  the Company shall request that the Subscriber shall appoint a Receiver
                  or
                  an administrator; or

              

      

       

      
        	 	
                6.1.2

              	
                if
                  there is an Event of Default (as detailed in Condition 9.1 of the
                  Loan
                  Note Instrument) which has not been remedied as provided for in
                  Condition
                  9.2 of the Loan Note Instrument; or

              

      

       

      
        	 	
                6.1.3

              	
                if
                  the Company fails to observe or commits any breach of any of the
                  covenants
                  undertakings conditions or provisions of this Charge provided always
                  that
                  (save for a breach of Paragraphs 5.1 or 5.2 of this Charge or a
                  breach of
                  Condition 9.1 (e) of the Loan Note Instrument) before this security
                  becomes enforceable the Company shall have a period of 30 days
                  (or such
                  longer period as is reasonable in the circumstances and which is
                  agreed
                  between the Company and the Subscriber, both parties acting reasonably)
                  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 either
                  the
                  Subscriber or a majority (by value) of the Noteholders in which
                  to remedy
                  any failure to observe or breach. If the Company remedies the failure
                  to
                  observe or breach in accordance with this Paragraph 6.1.3 then
                  this
                  security shall not become immediately enforceable as a result of
                  the
                  failure to observe or breach which has been
                  remedied;

              

      

       

      
        	 	
                6.1.4

              	
                if
                  an order is made for the winding up of the Company by the court
                  or if an
                  effective resolution is passed for the members’ or creditors’ voluntary
                  winding up of the Company; or

              

      

       

      
        	 	
                6.1.5

              	
                if
                  a petition is presented for an administration order to be made
                  in relation
                  to the Company pursuant to the Insolvency Act 1986;
                  or

              

      

       

      
        	 	
                6.1.6

              	
                if
                  a receiver is appointed to all or any part of the property and
                  assets of
                  the Company. 

              

      

       

      
        	
                6.2

              	
                After
                  this Charge shall have become enforceable the Subscriber may in
                  its
                  absolute discretion enforce all or any part of the security constituted
                  hereby in such manner as it sees
                  fit.

              

      

       

      
        	
                7.

              	
                Security
                  Protection

              

      

       

      This
        security shall be a continuing security notwithstanding any settlement of
        account or other matter whatsoever and is in addition to and shall not merge
        with or otherwise prejudice any contractual or other right or remedy or any
        other security now or hereafter held by or available to the Subscriber and
        shall
        not be in any way prejudiced or affected thereby or by the Subscriber now
        or
        hereafter dealing with, exchanging, releasing, varying or abstaining from
        perfecting or enforcing any of the same or any rights which they may now
        or
        hereafter have or giving time for payment or indulgence or compounding with
        any
        other person liable.

       

      
        	
                8.

              	
                Company
                  to meet expenses of the
                  Subscriber

              

      

       

      
        
           

        

        
          6

          
            

          

        

        
           

        

      

      The
        Company shall pay (on a full indemnity basis) all liabilities, costs, charges
        and expenses (including any taxes levied or assessed) incurred or to be incurred
        by the Subscriber in the creation, registration, perfection, enforcement,
        discharge and assignation of this Charge, which costs, charges and expenses
        shall form part of the Secured Liabilities.

       

      
        	
                9.

              	
                Further
                  Assurance

              

      

       

      The
        Company shall whenever requested by the Subscriber execute and sign all such
        deeds and documents and do all such things as the Subscriber may require
        at the
        Company's cost over any property or assets specified by the Subscriber for
        the
        purpose of perfecting or more effectively providing security to the Subscriber
        for the payment and discharge of the Secured Liabilities. 

       

      
        	
                10.

              	
                Power
                  of Attorney

              

      

       

      The
        Company irrevocably appoints the Subscriber (whether or not a Receiver has
        been
        appointed) and also (as a separate appointment) the Receiver severally as
        the
        attorney and attorneys of the Company, for the Company and in its name and
        on
        its behalf and as its act and deed or otherwise to execute and deliver and
        otherwise perfect any deed, assurance, agreement, instrument or act which
        may be
        required of the Company under this Charge or may be deemed proper for any
        of its
        purposes.

       

      
        	
                11.

              	
                Power
                  to grant the Charge

              

      

       

      
        	
                11.1

              	
                The
                  Company represents and warrants to the Subscriber
                  that:-

              

      

       

      
        	 	
                11.1.1

              	
                it
                  is duly incorporated and validly existing in the United Kingdom
                  and has
                  full authority to enter into this Charge and to perform its obligations
                  hereunder;

              

      

       

      
        	 	
                11.1.2

              	
                this
                  Charge constitutes its legal, valid and binding obligation and
                  is an
                  effective security over the Assets;

              

      

       

      
        	 	
                11.1.3

              	
                that
                  neither the execution of this Charge nor the creation of any security
                  under or pursuant to it contravenes or will contravene the provisions
                  of
                  the memorandum or articles of association of the Company or any
                  equivalent
                  constitutional documents governing the Company;

              

      

       

      
        	 	
                11.1.4

              	
                the
                  Company is the sole legal and beneficial owner of the Assets subject
                  to
                  any security interests disclosed in the Disclosure
                  Letter;

              

      

       

      
        	 	
                11.1.5

              	
                the
                  Company has not stopped payment on any debts and is not insolvent
                  or
                  unable to pay its debts for the purpose of Section 123 of the
                  Act;

              

      

       

      
        	 	
                11.1.6

              	
                all
                  approvals required to be obtained whether under the provisions
                  of the
                  Companies Act 1985 or any other enactment have been duly obtained
                  and that
                  it is in a position to enter into this
                  Charge.

              

      

       

      
        	 	
                11.1.7

              	 

      

       

      
        
           

        

        
          7

          
            

          

        

        
           

        

      

      
        	
                11.2

              	
                The
                  Company agrees and undertakes to indemnify the Subscriber on a
                  full
                  indemnity basis from and against all and any liabilities arising
                  as a
                  result of any breach of the warranties set out in Paragraph
                  11.1.

              

      

       

      
        	
                12.

              	
                Demands
                  or Notices

              

      

       

      
        	
                12.1

              	
                A
                  demand for payment or any other demand or notice under this Charge
                  shall
                  either be delivered personally or sent by first class recorded
                  delivery
                  post, tested telex or facsimile transmission. The address of the
                  service
                  of each party shall be the address stated in this Charge or such
                  other
                  address as it shall have from time to time notified to the other
                  party. A
                  notice shall be deemed to have been served as
                  follows:-

              

      

       

      
        	 	
                12.1.1

              	
                if
                  personally delivered, at the date of
                  delivery;

              

      

       

      
        	 	
                12.1.2

              	
                if
                  posted, at the expiration of 48 hours after the envelope containing
                  the
                  same was delivered into the custody of the postal authority;
                  and

              

      

       

      
        	 	
                12.1.3

              	
                if
                  sent by facsimile transmission, at the time of
                  transmission.

              

      

       

      
        	
                12.2

              	
                A
                  certificate by any manager or officer of the Subscriber as to the
                  amount
                  of the Secured Liabilities or any part of them shall in the absence
                  of
                  manifest error, be conclusive and binding on the
                  Company.

              

      

       

      
        	
                13.

              	
                Assignation

              

      

       

      
        	
                13.1

              	
                The
                  Subscriber may assign and transfer the benefit of this Charge to
                  any
                  person acting for the benefit of the Noteholders and all references
                  in
                  this Charge to the Subscriber shall be deemed to include its assignees
                  and
                  other successors.

              

      

       

      
        	
                13.2

              	
                The
                  Company shall not be entitled to assign or transfer all or any
                  of its
                  rights in respect of this Charge to any person without the prior
                  written
                  consent of the Subscriber.

              

      

       

      
        	
                14.

              	
                Currency
                  Clauses

              

      

       

      
        	
                14.1

              	
                All
                  monies received or held by the Subscriber, a Receiver or an administrator
                  under this Charge may from time to time after demand has been made
                  by the
                  Subscriber be converted into such other currency as the Subscriber
                  considers necessary or desirable to cover the obligations and liabilities
                  actual or contingent of the Company in that other currency at the
                  then
                  prevailing spot rate of exchange obtainable by the Subscriber (as
                  conclusively determined by the Subscriber) for purchasing that
                  other
                  currency with the existing
                  currency.

              

      

       

      
        	
                14.2

              	
                If
                  and to the extent that the Company fails to pay the amount due
                  on demand
                  the Subscriber may in its absolute discretion without notice to
                  the
                  Company purchase at any time thereafter so much of any currency
                  as the
                  Subscriber considers necessary or desirable to cover the obligations
                  and
                  liabilities of the Company in such currency hereby secured at the
                  then
                  prevailing spot rate of exchange obtainable by the Subscriber (as
                  conclusively determined by the Subscriber) for purchasing such
                  currency
                  with sterling and the Company hereby agrees to indemnify the Subscriber
                  against the full sterling cost incurred by the Subscriber for such
                  purchase.

              

      

       

      
        
           

        

        
          8

          
            

          

        

        
           

        

      

      
        	
                14.3

              	
                No
                  payment to the Subscriber (whether under any judgement or court
                  order or
                  otherwise) shall discharge the obligation or liability of the Company
                  in
                  respect of which it was made unless and until the Subscriber shall
                  have
                  received payment in full in the currency in which such obligation
                  or
                  liability was incurred and to the extent that the amount of any
                  such
                  payment shall on actual conversion into such currency falls short
                  of such
                  obligation or liability actual or contingent expressed in that
                  currency
                  the Subscriber shall have a further separate cause of action against
                  the
                  Company and shall be entitled to enforce the charges hereby created
                  to
                  recover the amount of the
                  shortfall.

              

      

       

      
        	
                15.

              	
                Miscellaneous

              

      

       

      
        	
                15.1

              	
                All
                  the provisions of this Charge are severable and distinct from one
                  another
                  and if at any time one or more of such provisions is or becomes
                  invalid
                  illegal or unenforceable the validity legality and enforceability
                  of the
                  remaining provisions hereof shall not in any way be affected or
                  impaired
                  thereby.

              

      

       

      
        	
                15.2

              	
                No
                  payment to the Subscriber (whether under any judgment or order
                  of any
                  Court or otherwise) shall discharge the obligation or liability
                  of the
                  Company in respect of which it was made unless and until the Subscriber
                  shall have received payment in full and to the extent that the
                  amount of
                  any such payment shall fall short of such obligation or liability
                  the
                  Subscriber shall have a further separate cause of action against
                  the
                  Company and shall be entitled to enforce the charges hereby created
                  to
                  recover such sum as shall pay the amount of the
                  shortfall.

              

      

       

      
        	
                15.3

              	
                No
                  failure or delay by the Subscriber in exercising any right or remedy
                  shall
                  operate as a waiver thereof nor shall any single or partial exercise
                  or
                  waiver of any right or remedy preclude its further exercise or
                  the
                  exercise of any other right or remedy as though no waiver had been
                  made
                  and no relaxation or indulgence
                  granted.

              

      

       

      
        	
                15.4

              	
                Any
                  change in the constitution of the Subscriber or its absorption
                  in or
                  amalgamation with any other person or the acquisition of all or
                  part of
                  its undertaking by any other person shall not in any way prejudice
                  or
                  affect its rights hereunder.

              

      

       

      
        	
                16.

              	
                Governing
                  Law

              

      

       

      This
        Charge shall be governed by and construed in accordance with the law of Scotland
        and the parties hereby prorogate the non-exclusive jurisdiction of the Scottish
        Courts.

       

      
        	
                17.

              	
                Consent
                  to Registration

              

      

       

      
        
           

        

        
          9

          
            

          

        

        
           

        

      

      The
        Company consents to the registration of this Charge and of the certificate
        referred to in Clause 12 above for preservation and execution: IN WITNESS
        WHEREOF this Charge consisting of this and the 8 preceding pages are executed as
        follows:-

       

      

      SUBSCRIBED
        for and on behalf of the said 

      CODA
        OCTOPUS R & D LIMITED

      

      

      
        at      
          ......................................

        

        on      ......................................

        

        by

      

      
        	
                 

                .................................................Director

                Jason
                  Reid

              	
                 

                 

                ..........................................Director

                (Signature)

              
	 	 
	
                 

                .................................................Director/

                Jody
                  Frank Secretary

              	
                 

                 

                 

                ............................................Director/

                (Signature)
                  Secretary

              

      

      

       

      
        
           

        

        
          10FLOATING
        CHARGE

      by

      CODA
        OCTOPUS PRODUCTS LIMITED

      in
        favour of

      THE
        ROYAL BANK OF SCOTLAND PLC

     

    
 

    

    

    
      Stuart
        Hodge Corporate Lawyers

      3
        Temple Row West

      Birmingham

      B2
        5NY

    

     

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    

    

    TABLE
      OF CONTENTS

    

     

    
      	
              1.

            	
              Definitions
                and Interpretation

            	
              1

            
	
              2.

            	
              Covenant
                to Pay

            	
              3

            
	
              3.

            	
              Charging
                Provision

            	
              4

            
	
              4.

            	
              Negative
                Pledge and Ranking of Charge

            	
              4

            
	
              5.

            	
              Continuing
                Obligations

            	
              4

            
	
              6.

            	
              Appointment
                of Receiver or administrator

            	
              6

            
	
              7.

            	
              Security
                Protection

            	
              7

            
	
              8.

            	
              Company
                to meet expenses of the Subscriber

            	
              7

            
	
              9.

            	
              Further
                Assurance

            	
              7

            
	
              10.

            	
              Power
                of Attorney

            	
              7

            
	
              11.

            	
              Power
                to grant the Charge

            	
              7

            
	
              12.

            	
              Demands
                or Notices

            	
              8

            
	
              13.

            	
              Assignation

            	
              8

            
	
              14.

            	
              Currency
                Clauses

            	
              8

            
	
              15.

            	
              Miscellaneous

            	
              9

            
	
              16.

            	
              Governing
                Law

            	
              9

            
	
              17.

            	
              Consent
                to Registration

            	
              10

            

    

    

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    
      FLOATING
        CHARGE 

       

      By
        

       

      
        	
                (1)

              	
                CODA
                  OCTOPUS PRODUCTS LIMITED
                  (Registered Number SC151068) having its registered office at Anderson
                  House, Breadalbane Street, Edinburgh EH6 5JR ("Company");
                  

              

      

       

      in
        favour
        of 

       

      
        	
                (2)

              	
                THE
                  ROYAL BANK OF SCOTLAND PLC (registered
                  in Scotland with Registered Number 90312) acting through its London
                  offices located at 135 Bishopsgate, London EC2M 3UR ("Subscriber”
                  which expression includes its successors in title, assignees and
                  transferees).

              

      

       

      WHEREAS:-

      

      
        	
                (A)

              	
                The
                  Company owes various obligations to the Subscriber under the Deed
                  of
                  Guarantee, and the Subscriber wishes to secure these and any future
                  obligations against all of the Assets of the Company from time
                  to time;
                  and

              

      

       

      
        	
                (B)

              	
                The
                  Company has therefore agreed to enter into this Charge in favour
                  of the
                  Subscriber on the following terms and
                  conditions.

              

      

       

      Definitions
        are given in Clause 1.1

      

      NOW
        IT IS
        HEREBY AGREED as follows:-

      

      
        	
                1.

              	
                Definitions
                  and Interpretation

              

      

       

      
        	
                1.1

              	
                In
                  the interpretation of this Charge:-

              

      

       

      “Agreed
        Form”
        in
        relation to any document means the form agreed and for the purposes of
        identification only initialled by or on behalf of COGI and the
        Subscriber;

       

      "Assets"
        means
        the whole of the undertaking, property, assets, rights and revenue (including
        uncalled capital) which is or may be from time to time comprised in the property
        and undertaking of the Company;

       

      “COGI”
        means
        Coda Octopus Group, Inc. incorporated in the State of Delaware, whose principal
        place of business is at 164 West 25th
        Street,
        New York, New York 10001;

       

      “Completion”
        means
        the carrying out by the parties of their obligations under Clauses 3.1 to
        3.3 of
        the Subscription Agreement;

       

      “Completion
        Date” means
        the
        date hereof;

       

      “Confidentiality
        Agreement”
        means
        the agreement dated on or around the Completion Date between COGI and the
        Subscriber whereby the Subscriber agrees, inter alia, to keep certain
        information confidential;

       

      “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;

       

      
        
           

        

        
          1

          
            

          

        

        
           

        

      

      “Deed
        of Guarantee” means
        a
        deed in the Agreed Form to be entered into at Completion whereby those
        Subsidiaries which are registered in the United Kingdom agree to guarantee
        the
        obligations of COGI under the Transaction Documents;

       

      “Intercreditor
        Deed” means
        a
        deed entered into on or around the Completion Date among COGI, the Subscriber
        and FGI regulating the priorities of the various charges and security interests
        held by the Subscriber and FGI;

       

      “Loan
        Note Instrument” means
        the
        loan note instrument executed by COGI on the Completion Date pursuant to
        which
        the Notes are constituted;

       

      “Lock-up
        Agreements”
        means
        certain agreements entered into on or around the date hereof between the
        directors and board members of COGI and the Subscriber undertaking (with
        certain
        exceptions) not to sell or transfer or otherwise dispose of any of their
        shares
        in COGI;

       

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

       

      “Permitted
        Encumbrance”
        means a
        Floating Charge dated 30th
        October
        2006 and registered with the Registrar of Companies on 17th
        November
        2006 granted by the Company in favour of Faunus Group International, Inc.
        (“FGI”)
        a
        Delaware corporation whose principal place of business is 80 Pine Street,
        32nd
        Floor,
        New York, New York 10005; 

       

      "Receiver"
        means a
        receiver or administrative receiver appointed pursuant to this Charge in
        respect
        of the Company or over all or any of its Assets; 

       

      "Secured
        Liabilities"
        means
        all monies, obligations and liabilities, howsoever arising, now or at any
        time
        in the future due, owing or incurred by the Company to the Subscriber under
        and
        in terms of the Transaction Documents, direct or indirect, absolute or
        contingent, including without limitation all interest (as well after as before
        any demand made or judgment given), fees, charges, expenses, legal fees and
        accounting fees chargeable to and payable by the Subscriber under or in relation
        to any such monies, obligations and/or liabilities;

       

      “Security
        Agreement”
        means an
        agreement in the Agreed Form to be entered into at Completion whereby COGI
        and
        those of its Subsidiaries incorporated in the United States of America grant
        a
        continuing and first security interest in and over the assets of COGI and
        those
        of its Subsidiaries incorporated in the United States of America

       

      "Security
        Interest"
        means
        any mortgage, charge, pledge, lien encumbrance, security interest or other
        security arrangement of any kind;

       

      
        
           

        

        
          2

          
            

          

        

        
           

        

      

      “Subscription
        Agreement”
        means
        the subscription agreement dated the Completion Date between the Subscriber
        and
        COGI;

       

      “Transaction
        Documents” means
        the
        Loan Note Instrument, the Subscription Agreement, this Floating Charge and
        the
        floating charge to be granted on the Completion Date by Coda Octopus R & D
        Ltd, the Debentures, the Lock-up Agreements, the Security Agreement, the
        Confidentiality Agreement, the Intercreditor Deed and all other documents
        entered into in connection with any of them.

       

      
        	
                1.2

              	
                The
                  expressions "holding company" and "subsidiary" shall have the meanings
                  given to them in Section 736 of the Companies Act
                  1985.

              

      

       

      
        	
                1.3

              	
                References
                  to this Charge and to any provisions of it shall be construed as
                  references to it in force for the time being and as amended, varied,
                  supplemented, substituted or novated from time to
                  time.

              

      

       

      
        	
                1.4

              	
                References
                  to statutes, statutory provisions and other legislation shall include
                  all
                  amendments, modifications and re-enactments for the time being
                  in force
                  and shall include any orders, regulations, instruments or subordinate
                  legislation under or deriving from the relevant statute or statutory
                  provision.

              

      

       

      
        	
                1.5

              	
                Words
                  importing the singular are to include the plural and vice
                  versa.

              

      

       

      
        	
                1.6

              	
                A
                  Receiver shall include a reference to joint receivers and any reference
                  to
                  the appointment of a person as receiver shall include a reference
                  to the
                  appointment of two or more persons as joint receivers.
                  

              

      

       

      
        	
                1.7

              	
                References
                  to a person are to be construed to include references to a corporation,
                  firm, company, partnership, joint venture, unincorporated body
                  of persons,
                  individual or any state or any agency of a state, whether or not
                  a
                  separate legal entity.

              

      

       

      
        	
                1.8

              	
                References
                  to any person are to be construed to include that person's assignees
                  or
                  transferees or successors in title, whether direct or
                  indirect.

              

      

       

      
        	
                1.9

              	
                Clause
                  headings are for ease of reference only and are not to affect the
                  interpretation of this Charge.

              

      

       

      
        	
                1.10

              	
                Any
                  phrase introduced by the terms “including”, “include”, “in particular” or
                  any similar expression shall be construed as illustrative.
                  

              

      

       

      
        	
                1.11

              	
                Any
                  reference to a "fixed security" shall be construed as a reference
                  to a
                  fixed security as defined in Section 486 of the Companies Act
                  1985.

              

      

       

      
        	
                1.12

              	
                Unless
                  the context requires otherwise, or unless otherwise defined in
                  this
                  Charge, words and expressions defined in the Transaction Documents
                  shall
                  have the same meanings when used in this
                  Charge.

              

      

       

      
        	
                2.

              	
                Covenant
                  to Pay 

              

      

       

      
        	
                2.1

              	
                The
                  Company covenants to pay and discharge in full on demand to the
                  Subscriber
                  the Secured Liabilities when they fall due and
                  payable.

              

      

       

      
        	
                2.2

              	
                Any
                  amount not paid in accordance with this Charge when due shall (subject
                  to
                  Clause 2.3 below) carry interest at the rate of 2% per annum above
                  the
                  base rate quoted by The Royal Bank of Scotland plc from time to
                  time or at
                  such other rate as may be agreed between the Company and the Subscriber
                  from time to time. In each case, interest shall accrue on a day
                  to day
                  basis until the date of irrevocable and unconditional repayment
                  in full
                  and, if unpaid, shall be compounded on the terms so agreed or (in
                  the
                  absence of such agreed terms) with quarterly rests on 31 March,
                  30 June,
                  30 September and 31 December in each year. Interest shall continue
                  to be
                  charged and compounded on this basis after as well as before any
                  demand or
                  judgment.

              

      

       

      
        
           

        

        
          3

          
            

          

        

        
           

        

      

      
        	
                2.3

              	
                Clause
                  2.2 above shall not apply to the extent that default interest on
                  such
                  amount for such period is charged pursuant to the relevant Transaction
                  Document and itself constitutes part of the Secured
                  Liabilities.

              

      

       

      
        	
                3.

              	
                Charging
                  Provision

              

      

       

      
        	
                3.1

              	
                The
                  Company grants a floating charge over the Assets to the
                  Subscriber as a continuing security for the payment and discharge
                  of the
                  Secured Liabilities.

              

      

       

      
        	
                3.2

              	
                Paragraph
                  14 of Schedule B1 to the Insolvency Act 1986 (incorporated by Schedule
                  16
                  to the Enterprise Act 2002) shall apply to this
                  Charge.

              

      

       

      
        	
                3.3

              	
                The
                  security constituted by or pursuant to this Charge shall be in
                  addition to
                  and independent of, and shall not in any way prejudice or be prejudiced
                  by, any other security, right or remedy against any person which
                  the
                  Subscriber may at any time hold for the satisfaction of the Secured
                  Liabilities or any part thereof.

              

      

       

      
        	
                4.

              	
                Negative
                  Pledge and Ranking of
                  Charge

              

      

       

      
        	
                4.1

              	
                The
                  Company agrees that it shall be prohibited from granting or creating
                  subsequent to the date of this Charge any fixed security or any
                  other
                  floating charge (as defined by the Companies Act 1985) having priority
                  over or ranking pari passu with this Charge, other than in favour
                  of the
                  Subscriber.

              

      

       

      
        	
                4.2

              	
                In
                  the event that the Company grants or creates any fixed security
                  or
                  floating charge in breach of the prohibition in Clause 4.1 above,
                  this
                  Charge shall rank in priority to that fixed security or floating
                  charge.

              

      

       

      
        	
                4.3

              	
                The
                  Subscriber by acceptance of this Charge hereby acknowledges the
                  existence
                  of the Permitted Encumbrance and that the Permitted Encumbrance
                  has
                  priority over the security of the Subscriber in all respects and
                  the
                  rights and powers of the Subscriber under this Charge shall always
                  be
                  subject to the Permitted Encumbrance for so long as the Permitted
                  Encumbrance remains outstanding.

              

      

       

      
        	
                5.

              	
                Continuing
                  Obligations

              

      

       

      The
        Company (subject to the rights of FGI under the Permitted Encumbrance) covenants
        with and undertakes to the Subscriber as follows:

       

      
        	
                5.1

              	
                in
                  accordance with the terms of the Permitted Encumbrance the Company
                  shall
                  take all steps required by contract and law to satisfy its indebtedness
                  to
                  FGI secured by the Permitted Encumbrance no later than 31 January
                  2009 and
                  to secure the discharge of the registered charges no later than
                  28
                  February 2009.

              

      

       

      
        	
                5.2

              	
                to
                  register this Charge with the Registrar of Companies for Scotland
                  no later
                  than 21 days after the date of execution of this
                  Charge.

              

      

       

      
        
           

        

        
          4

          
            

          

        

        
           

        

      

      
        	
                5.3

              	
                upon
                  discharge of the Permitted Encumbrance the Company shall take all
                  steps
                  required under the laws of Scotland to ensure that the Subscriber
                  has a
                  first ranking security interest in the
                  Assets.

              

      

       

      
        	
                5.4

              	
                if
                  required by the Subscriber to forthwith deposit with the Subscriber
                  all or
                  any documents, deeds, or other papers whatsoever relating to the
                  Assets as
                  the Subscriber may require.

              

      

       

      
        	
                5.5

              	
                to
                  make timely payment of all lawful amounts in respect of the Assets
                  when
                  due including all rents, periodic charges and outgoings of any
                  nature.

              

      

       

      
        	
                5.6

              	
                to
                  keep all of the Assets in a good state of repair and in proper
                  and good
                  working order and condition and to permit the Subscriber and such
                  other
                  persons as the Subscriber may from time to time appoint for the
                  purpose to
                  enter and view the state and condition of the Assets on reasonable
                  notice.

              

      

       

      
        	
                5.7

              	
                to
                  insure and keep insured all of the Assets which are of an insurable
                  nature
                  against loss or damage by fire and all other usual risks as the
                  Subscriber
                  may require in the full amount of their reinstatement value in
                  such name
                  and in such offices as the Subscriber shall approve in terms not
                  permitting the insurers to cancel the policy of insurance without
                  giving
                  at least 14 days’ notice to the Company and to pay when due all premiums
                  and any other charges necessary for effecting and maintaining such
                  insurance and, if requested by the Subscriber, to have the interest
                  of the
                  Subscriber noted on any policy or policies and if required to deliver
                  to
                  the Subscriber such policy or policies and the receipt for every
                  premium
                  payable in respect of such policy or
                  policies.

              

      

       

      
        	
                5.8

              	
                to
                  hold all monies received on any insurance whatsoever in respect
                  of loss,
                  damage or destruction of the Assets whether under the covenant
                  in
                  paragraph 5.7 or otherwise on trust for the Subscriber to be applied
                  in
                  making good the loss or damage in respect of which the monies are
                  received
                  or in or towards discharge of the sums for the time being owing
                  to the
                  Subscriber under this Charge as the Subscriber may in its absolute
                  discretion require.

              

      

       

      
        	
                5.9

              	
                not
                  without the previous written consent of the Subscriber to create
                  or
                  attempt to create any mortgage, pledge, fixed or floating charge
                  or other
                  encumbrance or security interest on or over any of the
                  Assets.

              

      

       

      
        	
                5.10

              	
                except
                  for the Permitted Encumbrance, not to take or omit to take any
                  action that
                  might or would have the result of materially impairing the security
                  interests created by this Charge. The Company will not grant to
                  any person
                  other than the Subscriber and the Noteholders any interest whatsoever
                  in
                  the Assets.

              

      

       

      
        	
                5.11

              	
                to
                  inform the Subscriber immediately on becoming bound to complete
                  the
                  purchase of any estate or interest in any heritable or leasehold
                  property
                  after the date of this floating charge and to deposit with the
                  Subscriber
                  the deeds and documents of title relating to such
                  property.

              

      

       

      
        	
                5.12

              	
                to
                  execute at any time upon request over all or any of the property
                  referred
                  to in paragraph 5.11 and which is capable of being so charged,
                  a standard
                  security in favour of the Subscriber in such form as the Subscriber
                  shall
                  require.

              

      

       

      
        	
                5.13

              	
                to
                  execute and do all such assurances and things including (without
                  prejudice
                  to the generality of the foregoing) charges and assignations as
                  the
                  Subscriber may require for perfecting the security constituted
                  by this
                  Charge and for facilitating the realisation of the Assets and for
                  exercising all powers, authorities and discretions conferred by
                  this
                  Charge upon the Subscriber or any receiver appointed by the Subscriber
                  and
                  to give notice of any such assurance or other thing to any person
                  the
                  Subscriber may require.

              

      

       

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

      
        	
                5.14

              	
                to
                  comply with any and all covenants and undertakings which the Company
                  has
                  entered into in the other Transaction
                  Documents.

              

      

       

      
        	
                6.

              	
                Appointment
                  of Receiver or
                  administrator

              

      

       

      
        	
                6.1

              	
                All
                  monies secured by this Charge shall be immediately payable on demand
                  by
                  the Subscriber in accordance with the provisions of the Loan Note
                  Instrument and the other Transaction Documents and failing payment
                  immediately of any monies so demanded this security shall become
                  immediately enforceable and the Subscriber shall be entitled to
                  appoint in
                  writing a Receiver of all or any of the Assets and/or an Administrator
                  of
                  the Company (in each case in accordance with and to the extent
                  permitted
                  by applicable laws) either immediately or at any time thereafter.
                  In
                  addition, all monies secured by this Charge shall also become payable
                  without any demand and this security will become immediately enforceable
                  in the same manner as if demanded either immediately or at any
                  time
                  after:

              

      

       

      
        	 	
                6.1.1

              	
                if
                  the Company shall request that the Subscriber shall appoint a Receiver
                  or
                  an administrator; or

              

      

       

      
        	 	
                6.1.2

              	
                if
                  there is an Event of Default (as detailed in Condition 9.1 of the
                  Loan
                  Note Instrument) which has not been remedied as provided for in
                  Condition
                  9.2 of the Loan Note Instrument; or

              

      

       

      
        	 	
                6.1.3

              	
                if
                  the Company fails to observe or commits any breach of any of the
                  covenants
                  undertakings conditions or provisions of this Charge provided always
                  that
                  (save for a breach of Paragraphs 5.1 or 5.2 of this Charge or a
                  breach of
                  Condition 9.1 (e) of the Loan Note Instrument) before this security
                  becomes enforceable the Company shall have a period of 30 days
                  (or such
                  longer period as is reasonable in the circumstances and which is
                  agreed
                  between the Company and the Subscriber, both parties acting reasonably)
                  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 either
                  the
                  Subscriber or a majority (by value) of the Noteholders in which
                  to remedy
                  any failure to observe or breach. If the Company remedies the failure
                  to
                  observe or breach in accordance with this Paragraph 6.1.3 then
                  this
                  security shall not become immediately enforceable as a result of
                  the
                  failure to observe or breach which has been
                  remedied;

              

      

       

      
        	 	
                6.1.4

              	
                if
                  an order is made for the winding up of the Company by the court
                  or if an
                  effective resolution is passed for the members’ or creditors’ voluntary
                  winding up of the Company; or

              

      

       

      
        	 	
                6.1.5

              	
                if
                  a petition is presented for an administration order to be made
                  in relation
                  to the Company pursuant to the Insolvency Act 1986;
                  or

              

      

       

      
        	 	
                6.1.6

              	
                if
                  a receiver is appointed to all or any part of the property and
                  assets of
                  the Company. 

              

      

       

      
        
           

        

        
          6

          
            

          

        

        
           

        

      

      
        	
                6.2

              	
                After
                  this Charge shall have become enforceable the Subscriber may in
                  its
                  absolute discretion enforce all or any part of the security constituted
                  hereby in such manner as it sees
                  fit.

              

      

       

      
        	
                7.

              	
                Security
                  Protection

              

      

       

      This
        security shall be a continuing security notwithstanding any settlement of
        account or other matter whatsoever and is in addition to and shall not merge
        with or otherwise prejudice any contractual or other right or remedy or any
        other security now or hereafter held by or available to the Subscriber and
        shall
        not be in any way prejudiced or affected thereby or by the Subscriber now
        or
        hereafter dealing with, exchanging, releasing, varying or abstaining from
        perfecting or enforcing any of the same or any rights which they may now
        or
        hereafter have or giving time for payment or indulgence or compounding with
        any
        other person liable.

       

      
        	
                8.

              	
                Company
                  to meet expenses of the
                  Subscriber

              

      

       

      The
        Company shall pay (on a full indemnity basis) all liabilities, costs, charges
        and expenses (including any taxes levied or assessed) incurred or to be incurred
        by the Subscriber in the creation, registration, perfection, enforcement,
        discharge and assignation of this Charge, which costs, charges and expenses
        shall form part of the Secured Liabilities.

       

      
        	
                9.

              	
                Further
                  Assurance

              

      

       

      The
        Company shall whenever requested by the Subscriber execute and sign all such
        deeds and documents and do all such things as the Subscriber may require
        at the
        Company's cost over any property or assets specified by the Subscriber for
        the
        purpose of perfecting or more effectively providing security to the Subscriber
        for the payment and discharge of the Secured Liabilities. 

       

      
        	
                10.

              	
                Power
                  of Attorney

              

      

       

      The
        Company irrevocably appoints the Subscriber (whether or not a Receiver has
        been
        appointed) and also (as a separate appointment) the Receiver severally as
        the
        attorney and attorneys of the Company, for the Company and in its name and
        on
        its behalf and as its act and deed or otherwise to execute and deliver and
        otherwise perfect any deed, assurance, agreement, instrument or act which
        may be
        required of the Company under this Charge or may be deemed proper for any
        of its
        purposes.

       

      
        	
                11.

              	
                Power
                  to grant the Charge

              

      

       

      
        	
                11.1

              	
                The
                  Company represents and warrants to the Subscriber
                  that:-

              

      

       

      
        	 	
                11.1.1

              	
                it
                  is duly incorporated and validly existing in the United Kingdom
                  and has
                  full authority to enter into this Charge and to perform its obligations
                  hereunder;

              

      

       

      
        	 	
                11.1.2

              	
                this
                  Charge constitutes its legal, valid and binding obligation and
                  is an
                  effective security over the Assets;

              

      

       

      
        	 	
                11.1.3

              	
                that
                  neither the execution of this Charge nor the creation of any security
                  under or pursuant to it contravenes or will contravene the provisions
                  of
                  the memorandum or articles of association of the Company or any
                  equivalent
                  constitutional documents governing the Company;

              

      

       

      
        
           

        

        
          7

          
            

          

        

        
           

        

      

      
        	 	
                11.1.4

              	
                the
                  Company is the sole legal and beneficial owner of the Assets subject
                  to
                  the Permitted Encumbrance or any other security interests disclosed
                  in the
                  Disclosure Letter;

              

      

       

      
        	 	
                11.1.5

              	
                the
                  Company has not stopped payment on any debts and is not insolvent
                  or
                  unable to pay its debts for the purpose of Section 123 of the
                  Act;

              

      

       

      
        	 	
                11.1.6

              	
                all
                  approvals required to be obtained whether under the provisions
                  of the
                  Companies Act 1985 or any other enactment have been duly obtained
                  and that
                  it is in a position to enter into this
                  Charge.

              

      

       

      
        	 	
                11.1.7

              	 

      

       

      
        	
                11.2

              	
                The
                  Company agrees and undertakes to indemnify the Subscriber on a
                  full
                  indemnity basis from and against all and any liabilities arising
                  as a
                  result of any breach of the warranties set out in Paragraph
                  11.1.

              

      

       

      
        	
                12.

              	
                Demands
                  or Notices

              

      

       

      
        	
                12.1

              	
                A
                  demand for payment or any other demand or notice under this Charge
                  shall
                  either be delivered personally or sent by first class recorded
                  delivery
                  post, tested telex or facsimile transmission. The address of the
                  service
                  of each party shall be the address stated in this Charge or such
                  other
                  address as it shall have from time to time notified to the other
                  party. A
                  notice shall be deemed to have been served as
                  follows:-

              

      

       

      
        	 	
                12.1.1

              	
                if
                  personally delivered, at the date of
                  delivery;

              

      

       

      
        	 	
                12.1.2

              	
                if
                  posted, at the expiration of 48 hours after the envelope containing
                  the
                  same was delivered into the custody of the postal authority;
                  and

              

      

       

      
        	 	
                12.1.3

              	
                if
                  sent by facsimile transmission, at the time of
                  transmission.

              

      

       

      
        	
                12.2

              	
                A
                  certificate by any manager or officer of the Subscriber as to the
                  amount
                  of the Secured Liabilities or any part of them shall in the absence
                  of
                  manifest error, be conclusive and binding on the
                  Company.

              

      

       

      
        	
                13.

              	
                Assignation

              

      

       

      
        	
                13.1

              	
                The
                  Subscriber may assign and transfer the benefit of this Charge to
                  any
                  person acting for the benefit of the Noteholders and all references
                  in
                  this Charge to the Subscriber shall be deemed to include its assignees
                  and
                  other successors.

              

      

       

      
        	
                13.2

              	
                The
                  Company shall not be entitled to assign or transfer all or any
                  of its
                  rights in respect of this Charge to any person without the prior
                  written
                  consent of the Subscriber.

              

      

       

      
        	
                14.

              	
                Currency
                  Clauses

              

      

       

      
        	
                14.1

              	
                All
                  monies received or held by the Subscriber, a Receiver or an administrator
                  under this Charge may from time to time after demand has been made
                  by the
                  Subscriber be converted into such other currency as the Subscriber
                  considers necessary or desirable to cover the obligations and liabilities
                  actual or contingent of the Company in that other currency at the
                  then
                  prevailing spot rate of exchange obtainable by the Subscriber (as
                  conclusively determined by the Subscriber) for purchasing that
                  other
                  currency with the existing
                  currency.

              

      

       

      
        
           

        

        
          8

          
            

          

        

        
           

        

      

      
        	
                14.2

              	
                If
                  and to the extent that the Company fails to pay the amount due
                  on demand
                  the Subscriber may in its absolute discretion without notice to
                  the
                  Company purchase at any time thereafter so much of any currency
                  as the
                  Subscriber considers necessary or desirable to cover the obligations
                  and
                  liabilities of the Company in such currency hereby secured at the
                  then
                  prevailing spot rate of exchange obtainable by the Subscriber (as
                  conclusively determined by the Subscriber) for purchasing such
                  currency
                  with sterling and the Company hereby agrees to indemnify the Subscriber
                  against the full sterling cost incurred by the Subscriber for such
                  purchase.

              

      

       

      
        	
                14.3

              	
                No
                  payment to the Subscriber (whether under any judgement or court
                  order or
                  otherwise) shall discharge the obligation or liability of the Company
                  in
                  respect of which it was made unless and until the Subscriber shall
                  have
                  received payment in full in the currency in which such obligation
                  or
                  liability was incurred and to the extent that the amount of any
                  such
                  payment shall on actual conversion into such currency falls short
                  of such
                  obligation or liability actual or contingent expressed in that
                  currency
                  the Subscriber shall have a further separate cause of action against
                  the
                  Company and shall be entitled to enforce the charges hereby created
                  to
                  recover the amount of the
                  shortfall.

              

      

       

      
        	
                15.

              	
                Miscellaneous

              

      

       

      
        	
                15.1

              	
                All
                  the provisions of this Charge are severable and distinct from one
                  another
                  and if at any time one or more of such provisions is or becomes
                  invalid
                  illegal or unenforceable the validity legality and enforceability
                  of the
                  remaining provisions hereof shall not in any way be affected or
                  impaired
                  thereby.

              

      

       

      
        	
                15.2

              	
                No
                  payment to the Subscriber (whether under any judgment or order
                  of any
                  Court or otherwise) shall discharge the obligation or liability
                  of the
                  Company in respect of which it was made unless and until the Subscriber
                  shall have received payment in full and to the extent that the
                  amount of
                  any such payment shall fall short of such obligation or liability
                  the
                  Subscriber shall have a further separate cause of action against
                  the
                  Company and shall be entitled to enforce the charges hereby created
                  to
                  recover such sum as shall pay the amount of the
                  shortfall.

              

      

       

      
        	
                15.3

              	
                No
                  failure or delay by the Subscriber in exercising any right or remedy
                  shall
                  operate as a waiver thereof nor shall any single or partial exercise
                  or
                  waiver of any right or remedy preclude its further exercise or
                  the
                  exercise of any other right or remedy as though no waiver had been
                  made
                  and no relaxation or indulgence
                  granted.

              

      

       

      
        	
                15.4

              	
                Any
                  change in the constitution of the Subscriber or its absorption
                  in or
                  amalgamation with any other person or the acquisition of all or
                  part of
                  its undertaking by any other person shall not in any way prejudice
                  or
                  affect its rights hereunder.

              

      

       

      
        	
                16.

              	
                Governing
                  Law

              

      

       

      
        
           

        

        
          9

          
            

          

        

        
           

        

      

      This
        Charge shall be governed by and construed in accordance with the law of Scotland
        and the parties hereby prorogate the non-exclusive jurisdiction of the Scottish
        Courts.

       

      
        	17.	
                17. Consent
                  to Registration

              

      

       

      The
        Company consents to the registration of this Charge and of the certificate
        referred to in Clause 12 above for preservation and execution: IN WITNESS
        WHEREOF this Charge consisting of this and the 10 preceding pages are executed
        as follows:-

       

      

      SUBSCRIBED
        for and on behalf of the said 

      CODA
        OCTOPUS PRODUCTS LIMITED

      

      

      at      
        ......................................

      

      on      ......................................

      

      by

      
        	
                 

                .................................................Director

                Jason
                  Lee Reid

              	
                 

                 

                ...........................................Director

                (Signature)

              
	 	 
	
                 

                .................................................Director/

                Jody
                  Frank Secretary

              	
                 

                 

                 

                 

                ............................................Director/

                (Signature)
                  Secretary

              

      

      

      

      
        
           

        

        
          10

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