Document:

DATED

            	 	
              2008

            

    

    

     

    Coda
      Octopus Group, Inc. (1)

    

    -
      and -

    

    THE
      ROYAL BANK OF SCOTLAND PLC (2)

    

    

    SUBSCRIPTION
      AGREEMENT

    

    

    

    

    

    

    

    Stuart
      Hodge Corporate Lawyers

    3
      Temple Row West

    Birmingham

    B2
      5NY

    
      
         

      

      
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      	THIS AGREEMENT is
              made 	
              2008

            

    

     

    BETWEEN:

    

    
      	
              (1)

            	
              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
                (“COGI”)

            

    

    
      	
              (2)

            	
              The
                Royal Bank of Scotland plc, incorporated in Scotland, (registered
                number
                90312) acting through its London offices at 135 Bishopsgate, London
                EC2M
                3UR (“the Subscriber”) 

            

    

    

    WHEREAS:
      -

    

    
      	
              (A)

            	
              COGI
                is a corporation incorporated in the State of Delaware. COGI proposes
                to
                issue USD 12,000,000 medium term loan notes (the “Notes”)
                on the Completion Date. 

            

    

    
      	
              (B)

            	
              The
                Subscriber has agreed to subscribe for the Notes issued by COGI pursuant
                to the Loan Note Instrument (as defined
                below).

            

    

    
      	
              (C)
                

            	
              Payment
                of principal and interest in respect of the Notes will be irrevocably
                guaranteed by the Guarantors (as defined below) on a joint and several
                basis in accordance with the Deed of Guarantee and the Security Agreement
                (both as defined below).

            

    

     

    IT
      IS HEREBY AGREED: -

    

    
      	
              1.

            	
              DEFINITIONS
                AND INTERPRETATION

            

    

    

    
      	 	
              1.1.

            	
              Capitalised
                terms used and not otherwise defined herein that are defined in any
                of the
                Transaction Documents shall, except where the context does not so
                permit,
                have the meanings given to such terms in the relevant Transaction
                Documents. In
                this Agreement the following words and expressions shall (except
                where the
                context otherwise requires) have the following
                meanings:

            

    

    
      
         

      

      
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    “Affiliate”
      means
      any
      Person that, directly or indirectly through one or more intermediaries, controls
      or is controlled by or is under common control with a Person as such terms
      are
      used in and construed under Rule 405 under the Securities Act.  With
      respect to a party, any investment fund or managed account that is managed
      on a
      discretionary basis by the same investment manager as such party will be deemed
      to be an Affiliate of such party;

     

    “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;

     

    “Approved
      Acquisitions” means
      the
      acquisitions of the two targets disclosed in the Confidentiality Agreement
      at
      the date of this Agreement, and other acquisitions or strategic transactions
      which may be approved by a Noteholder Majority in writing during the
      Term;

     

    “Board”
      means
      the
      board of directors of COGI from time to time;

     

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

     

    “Certificate”
      means
      a
      loan note certificate issued in accordance with Clause 2 of the Loan Note
      Instrument and substantially in the form set out in Schedule 1 A of the Loan
      Note Instrument;

    
      
         

      

      
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    “Colmek”
      means
      Miller and Hilton, Inc., d/b/a Colmek Systems Engineering, incorporated in
      the
      State of Utah and whose principal place of business is 2001 South 3480 West,
      Salt Lake City, Utah 84104;

     

    “Common
      Stock”
      means
      the common stock (nominal value USD 0.001) of COGI or any replacement stock
      into
      which such common stock is subdivided, split or consolidated;

     

    “Companies
      Act” means
      the
      Companies Act 1985 (as amended by the Companies Act 1989 and Companies Act
      2006)
      and every other statutory modification or re-enactment thereof from time to
      time
      in force;

     

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

     

    “Completion
      Date”
      means
      the date hereof;

     

    “Conditions”
      means
      the terms and conditions of the Notes endorsed or to be endorsed on the
      Certificates, as set out in Schedule 2 to the Loan Note Instrument. References
      to a numbered Condition shall be construed accordingly;

     

    “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; 

    
      
         

      

      
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    “Deed
      of Adherence”
      means a
      deed in the Agreed Form to be entered into by any Subsidiary which may be
      acquired by the Group after the date hereof (a “New Subsidiary”) whereby the New
      Subsidiary undertakes to guarantee the obligations of COGI under the Transaction
      Documents on a joint and several basis in the same manner as those Subsidiaries
      which entered into the Transaction Documents;

     

    “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;

     

    “Disclosed”
      means
      facts, matters or other information fairly disclosed in any of the Disclosure
      Documents in such a manner so as to enable a reasonable individual to make
      a
      reasonably informed assessment of the fact, matter or information concerned
      and
      its nature and effect;

     

     “Disclosure
      Bundle”
      means a
      bundle of documents referred to in and attached to the Disclosure
      Letter;

     

    “Disclosure
      Letter”
      means a
      letter from COGI to the Subscriber, dated the Completion Date and containing
      qualifications to the Warranties;

     

    “Event
      of Default” means
      any
      of the events listed in Condition 9.1 and which have not been remedied within
      the period (if any) granted to COGI under Condition 9.2;

     

    “Exchange
      Act” means
      the
      US Securities Exchange Act of 1934, as amended, and the rules and regulations
      of
      the SEC promulgated thereunder;

    
      
         

      

      
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    “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;

     

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

     

    “Group”
      means
      COGI, its Subsidiaries, any company of which COGI is a Subsidiary (a
“Holding
      Company”)
      and any
      Subsidiaries of any such Holding Company and references to a “member of the
      Group” or a “Group member” shall be construed accordingly;

     

    “Guarantor”
      means
      any subsidiary of COGI which has on or before the Completion Date entered into
      an agreement to guarantee the obligations of COGI under the Transaction
      Documents or which subsequently enters into an agreement to guarantee such
      obligations of COGI;

     

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

     

    “Legend”
      means
      an
      annotation endorsed upon the relevant Certificate or stock certificate,
      substantially in the form set out in Schedule 2;

     

    “Lien”
      means a
      lien, charge, security interest, encumbrance, right of first refusal or other
      restriction;

    
      
         

      

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

     

    “Noteholder
      Majority”
      means
      the holders for the time being of not less than 75% of the Aggregate Nominal
      Amount of the Notes then Outstanding;

     

    “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 represented by them, and each “Note”
      shall
      have a nominal amount of USD 100,000;

     

    “Outstanding”
      means
      in
      relation to the Notes as of any date of determination, all of the Notes issued
      other than:

     

    
      	
            	(a)	
              those
                Notes which have been redeemed or converted;
                and

            

    

     

    
      	
            	(b)	
              those
                Notes in respect of which the Redemption Date in accordance with
                the
                relevant Conditions has occurred and the redemption monies (including
                all
                interest payable in respect of the redemption monies and any interest
                payable under the relevant Conditions after such date) have been
                duly paid
                to the relevant Noteholders in the manner provided in the
                Conditions;

            

    

     

    
      
         

      

      
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    “Person”
      means an
      individual or corporation, partnership, trust, incorporated or unincorporated
      association, joint venture, limited liability company, joint stock company,
      government (or agency or subdivision thereof) or other entity of any
      kind;

     

    “Principal
      Amount Outstanding“ means
      as
      of any date of determination and in respect of any Note which is Outstanding,
      the principal amount of such Note as of such date;

     

    “Process
      Agent”
      means
      Jason Reid, Director, Martech Systems (Weymouth) Ltd, 14 Albany Road, Granby
      Industrial Estate, Weymouth, Dorset DT4 9TH or such other person and address
      in
      the United Kingdom as COGI may, from time to time, notify to the
      Noteholders;

     

    “Redemption
      Date” shall
      have the meaning given to it in Condition 3.2 or Condition 3.3, as
      applicable;

     

    “Register”
      means
      the register of Noteholders and other details relating to the Notes as referred
      to in Clause 6 of the Loan Note Instrument;

     

    “Registrar”
      means
      Greenwich Capital Markets, Inc., 600 Steamboat Road, Greenwich, Connecticut
      06830 or such other Registrar as may from time to time be appointed by
      the
      incumbent Registrar pursuant to Clause 5.2 of the Loan Note Instrument
(and
      whose identity is notified to the Noteholders and COGI) to maintain the
      Register;

     

    “SEC”
      means
      the US Securities and Exchange Commission;

    
      
         

      

      
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    “Securities”
      means
      the Notes and any Common Stock arising from the conversion of the
      Notes;

     

    “Securities
      Act”
      means
      the US Securities Exchange Act of 1933, as amended, and the rules and
      regulations promulgated thereunder;

     

    “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 security interest in and over the assets of COGI and those of its
      Subsidiaries incorporated in the United States of America;

     

    “Subsidiary”
      means
      a
      company incorporated or established in any jurisdiction in which COGI holds
      not
      less than 50.1% of the issued voting shares or stock (but, for the purposes
      of
      the Transaction Documents, shall only include Colmek to the extent that a
      security interest in Colmek is granted under the Security Agreement) and
“Subsidiaries”
      shall
      mean each Subsidiary of the Company from time to time;

     

    “Term”
      means
      the
      period from the Completion Date to whichever is the earlier of (1) the seventh
      anniversary of the Completion Date and (2) the date upon which the Notes have
      been repaid, redeemed, converted or cancelled in full in accordance with the
      Conditions;

     

    “Transaction
      Documents” means
      this Agreement, the Loan Note Instrument, the Deed of Guarantee, the Debentures,
      the Floating Charges, 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;

    
      
         

      

      
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    “USD”
      means
      United States dollars;

     

    “Warranties”
      means
      the warranties set out in Schedule 1 hereto

     

    References
      to, or any provision of, any treaty, legislation, statute, directive,
      regulation, judgment, decision, decree, order, regulation, instrument, by-law
      or
      any other law of, or having effect in, any jurisdiction (“Laws”)
      shall
      be construed also as references to all other Laws made under the Law referred
      to, and to all such Laws as amended, re-enacted, consolidated or replaced,
      or as
      their application is modified by other Laws from time to time, and whether
      before or after the date of this Agreement.

    

    
      	 	
              1.2.

            	
              Unless
                otherwise stated references to Clauses, subclauses and the Schedules
                are
                references to Clauses, subclauses and the Schedules to this Agreement.
                The
                Schedules form part of this
                Agreement.

            

    

    

    
      	 	
              1.3.

            	
              Clause
                headings are for ease of reference only and do not affect the construction
                or interpretation of this
                Agreement.

            

    

    

    
      	 	
              1.4.

            	
              References
                to persons shall include bodies corporate, unincorporated associations
                and
                partnerships.

            

    

    

    
      	 	
              1.5.

            	
              References
                to the parties hereto include their respective successors in title,
                permitted assigns, estates and legal personal
                representatives.

            

    

    

    
      	 	
              1.6.

            	
              Words
                and expressions defined in or for the purposes of the Companies Act
                and
                the Taxes Act 1988 shall where the context permits bear the same
                meanings
                in this Agreement.

            

    

    

    
      	 	
              1.7.

            	
              References
                to writing shall include typewriting, printing, lithography, photography,
                telex and fax messages, printed out versions of communications by
                email
                and other modes of reproducing words in a legible and non-transitory
                form.

            

    

    
      
         

      

      
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              2.

            	
              CONDITIONS
                PRECEDENT

            

    

    

    
      	 	
              2.1.

            	
              Save
                as provided in Clause 2.2, this Agreement is conditional upon each
                of the
                following matters (the “Conditions Precedent”) being fulfilled to the
                satisfaction of the Subscriber:

            

    

    

    
      	 	
              2.1.1.

            	
              all
                Transaction Documents being executed and delivered by the parties
                thereto;

            

    

    

    
      	 	
              2.1.2.

            	
              legal
                opinions, substantially in the form agreed between COGI and the
                Subscriber;

            

    

    

    
      	 	
              2.1.3.

            	
              a
                scanned or faxed copy (with a duplicate original to follow within
                7 days)
                of the resolution of the board of directors of COGI authorising the
                issuance of the Notes and the execution and delivery of the Transaction
                Documents and confirming the authority of the signatories of the
                Transaction Documents to bind COGI being
                provided;

            

    

    

    
      	 	
              2.1.4.

            	
              scanned
                or faxed copies (with duplicate originals to follow within 7 days)
                of the
                resolutions of the boards of directors of each Subsidiary which is
                entering into any of the Transaction Documents authorising the execution
                of the relevant Transaction Documents and confirming the authority
                of the
                signatories of such Transaction Documents to bind such subsidiary
                being
                provided;

            

    

    

    
      	 	
              2.2.

            	
              The
                Subscriber may waive all or any of the Conditions Precedent (subject
                to
                such terms and conditions as it deems fit) by notice in writing to
                COGI.

            

    

    
      
         

      

      
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              3.

            	
              COMPLETION
                AND DEPOSIT

            

    

    

    
      	 	
              3.1.

            	
              Completion
                shall take place on the Completion Date
                when:

            

    

    

    
      	 	
              3.1.1.

            	
              COGI
                shall deliver to the Subscriber such evidence as the Subscriber may
                require to satisfy itself that the Conditions Precedent have been
                fulfilled;

            

    

    

    
      	 	
              3.1.2.

            	
              subject
                to compliance with clause 3.1.1 the Subscriber shall pay the subscription
                monies as set out in Clause 3.2 for the Notes and COGI will procure
                that a
                meeting of the Board is held at which Certificates representing the
                Notes
                are issued and delivered to the Subscriber or as the Subscriber may
                direct
                (such delivery being conditional upon payment being made by the Subscriber
                in accordance with Clause 3.2);

            

    

    

    
      	 	
              3.1.3.

            	
              COGI
                shall enter into all other documentation of or relating to the issue
                of
                the Notes, all as agreed with the
                Subscriber;

            

    

    

    
      	 	
              3.1.4.

            	
              COGI
                shall instruct the Registrar to enter full details of the Notes and
                Noteholders in the Register as is required by the Loan Note
                Instrument.

            

    

    

    
      	 	
              3.2.

            	
              The
                total subscription monies due in respect of the Notes are USD 12,000,000
                (subject to deduction of the costs and expenses referred to in Clause
                6).
                Subject to Clause 3.3, the Subscriber shall make payment to COGI
                of the
                sum of USD 10,598,907 being USD 12,000,000 of the subscription monies
                in
                respect of the Notes after deduction of USD 401,091.74 USD, being
                the
                agreed costs and expenses referred to in Clause 6 and deduction of
                the
                Retention Amount in accordance with Clause
                3.3.

            

    

    

    
      	 	
              3.3.

            	
              The
                balance of USD 1,000,000 of the subscription monies (the “Retention
                Amount”) shall be immediately placed on deposit by the Subscriber in an
                account held with and in the name of the Subscriber (such account
                paying
                interest at the Subscriber’s internal overnight funds rate), to be paid
                over to COGI in accordance with the provisions of Clause 3.4.
                

            

    

    
      
         

      

      
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              3.4.

            	
              The
                Retention Amount (together with all interest accrued on the Retention
                Amount) will be released to COGI immediately upon COGI having confirmed
                in
                writing to the Subscriber that it has (i) settled all indebtedness
                to FGI
                under the FGI Encumbrances (as defined in the Security Agreement)
                in
                accordance with Clause 4.1 of the Security Agreement and (ii) settled
                all
                indebtedness to FGI secured by the Permitted Encumbrance (as defined
                in
                the Debentures and Floating Charges) in accordance with paragraph
                6.10 of
                the Debentures and Clause 4.3 of the Floating
                Charges.

            

    

    

    
      	 	
              3.5.

            	
              If
                the Notes become due and payable following an Event of Default in
                accordance with Condition 9.3 and the Retention Amount has not been
                released to COGI in accordance with Clause 3.4 then all rights of
                COGI to
                receive payment of the Retention Amount in accordance with Clause
                3.4
                shall cease and the Subscriber shall apply, in its sole and absolute
                discretion, the Retention Amount either towards satisfaction of the
                Redemption Amount payable in respect of the Notes or towards any
                other
                liabilities of COGI, whether due to the Subscriber or any third
                party.

            

    

    

    
      	
              4.

            	
              WARRANTIES

            

    

    

    
      	 	
              4.1.

            	
              In
                consideration of the Subscriber entering into this Agreement and
                subscribing for the Notes COGI hereby warrants to the Subscriber,
                in the
                terms of Schedule 1.

            

    

    

    
      	 	
              4.2.

            	
              Each
                of the Warranties shall be construed as a separate and independent
                warranty and (save where expressly provided to the contrary) shall
                not be
                limited or restricted by reference to or inference from any other
                term of
                this Agreement or any other Warranty.

            

    

    

    
      	 	
              4.3.

            	
              The
                rights and remedies of the Subscriber in respect of any breach of
                any of
                the Warranties shall continue to subsist notwithstanding Completion
                or any
                termination of this Agreement.

            

    

    
      
         

      

      
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              4.4.

            	
              COGI
                shall have no liability under the Warranties unless notice in writing
                (giving the amount and details of the claim) is given on behalf of
                the
                Subscriber of any claim on or before the date falling six months
                after the
                date of final redemption or conversion of all of the
                Notes.

            

    

    

    
      	 	
              4.5.

            	
              Any
                claims notified under clause 4.4 shall be deemed to have been waived
                unless court proceedings in respect thereof have been issued and
                served on
                COGI within 6 months of such
                notice.

            

    

     

    
      	 	
              4.6.

            	
              The
                maximum aggregate liability of COGI under this Agreement shall not
                exceed
                an amount equal to the amount that would have been paid on redemption
                of
                the Notes in accordance with Condition 3.5.2 with the Subscriber’s costs
                and expenses in addition.

            

    

     

    
      	
            	4.7.	
              Any
                payment made by COGI for a breach of the Warranties shall be treated
                as a
                partial redemption of the Notes on a $ for $
                basis.

            

    

    

    
      	
            	4.8.	
              The
                Warranties shall be qualified by matters Disclosed in the Disclosure
                Letter and the Disclosure Bundle.

            

    

    

    
      	
            	4.9.	
              COGI
                undertakes to the Subscriber that if the Subscriber or its directors,
                officers or employees (each a “Relevant Party”) incurs any liability,
                damages, cost, loss or expense (including, without limitation, legal
                fees,
                costs and expenses) (a “Loss”) arising out of, in connection with or based
                on any (actual or alleged (which subsequently proves to be actual))
                breach
                of, or any failure to perform, any of the Warranties given by COGI
                in
                accordance with this Clause 4, COGI shall, subject to Clause 4.6,
                pay to
                the Subscriber on demand an amount equal to such Loss. The Subscriber
                shall not have any duty or obligation, whether as fiduciary for any
                Relevant Person or otherwise, to recover any such payment or to account
                to
                any other person for any amounts paid to it under this Clause 4.9.
                

            

    

    
      
         

      

      
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              5.

            	
              COVENANTS

            

    

    

    
      	
            	5.1	
              COGI
                undertakes to and covenants with the Subscriber in accordance with
                the
                provisions of Clause 4 of the Loan Note
                Instrument.

            

    

    

    
      	
            	5.2	
              COGI
                undertakes to and covenants with the Subscriber that it will procure
                that
                any New Subsidiary enters into a Deed of Adherence and (where relevant)
                grants any security interest to the Subscriber within 30 days of
                the New
                Subsidiary becoming a Subsidiary.

            

    

    

    
      	
            	5.3	
              COGI
                undertakes and covenants to pay to the
                Subscriber:

            

    

    

    
      	
            	(A)	
              any
                stamp, issue, registration, documentary or other taxes and duties,
                including interest and penalties, payable on or in connection with
                the
                creation, issue and offering of the Notes or payable on the execution,
                delivery or performance of the Transaction Documents to which it
                is party
                (but excluding, for the avoidance of doubt, any taxes levied on the
                Noteholders in relation to the income from the Notes or any capital
                gain
                made on the Notes) or the enforcement of this Agreement against COGI
                or
                any transactions carried out pursuant to the Transaction Documents
                to
                which it is party, and

            

    

    

    
      	
            	(B)	
              in
                addition to any amount payable by it under this Agreement, any value
                added, turnover or similar tax payable in respect of that
                amount.

            

    

    

    
      	
              6.

            	
              FEES
                AND EXPENSES

            

    

    

    COGI
      shall pay all agreed fees and expenses (together with value added tax thereon
      if
      applicable) incurred by the Subscriber in connection with the preparation,
      execution and delivery of this Agreement, the Loan Note Instrument and the
      other
      Transaction Documents and the matters provided for or contemplated herein and
      therein. Such fees and expenses shall be deducted from the moneys paid by the
      Subscriber, all as provided for in Clause 3.2.

    
      
         

      

      
        Page
          15 of
          28

        
          

        

      

      
         

      

    

    
      	
              7.

            	
              NO
                PARTNERSHIP

            

    

    

    Nothing
      contained in this Agreement shall be deemed to constitute a partnership between
      the parties hereto or any of them.

    

    
      	
              8.

            	
              SUBSCRIBER’S
                UNDERTAKINGS, REPRESENTATIONS AND
                WARRANTIES

            

    

    

    The
      Subscriber:

    

    
      	
            	8.1	
              confirms
                and undertakes to COGI that it shall not market, offer to sell or
                sell or
                otherwise transfer any of the Securities within the United Kingdom
                except
                to those parties falling within the exempt communication provisions
                of
                Articles 19 and 49 of The Financial Services and Markets Act 2000
                (Financial Promotion) Order 2005.

            

    

    

    
      	
            	8.2	
              confirms
                and undertakes to COGI that it shall not market, offer to sell or
                sell or
                otherwise transfer any of the Securities within the United States
                of
                America or to any United States citizen or resident except under
                any
                applicable exemption to the registration requirements of the Securities
                Act.

            

    

    

    
      	
            	8.3	
              confirms
                and undertakes to COGI that it agrees that the Loan Note Instrument,
                any
                Certificates issued under the Loan Note Instrument and any certificates
                for Common Stock issued as a result of any conversion of the Notes
                shall
                all be endorsed with a legend in the terms of the
                Legend.

            

    

    
      
         

      

      
        Page
          16 of
          28

        
          

        

      

      
         

      

    

     

    
      	
            	8.4	
              represents
                and warrants to COGI that it understands that the Securities are
                “restricted securities” for the purposes of United States securities laws
                and regulations and have not been registered under the Securities
                Act or
                any applicable state securities law and that it is not acquiring
                the
                Securities with a view to or for distributing or reselling the Securities
                or part thereof in violation of the Securities Act or any applicable
                state
                securities law, has no present intention of distributing any of such
                Securities in violation of the Securities Act or any applicable state
                securities law and has no direct or indirect arrangement or understandings
                with any other persons to distribute or regarding the distribution
                of such
                Securities (this representation and warranty not limiting the Subscriber’s
                right to sell the Securities in compliance with applicable federal
                and
                state securities laws) in violation of the Securities Act or any
                applicable state securities law. The Subscriber is acquiring the
                Securities hereunder in the ordinary course of its
                business.

            

    

    

    
      	
            	8.5	
              represents
                and warrants to COGI (1) that at the time it was offered the Securities,
                it was, and at the date hereof it is, and on each date on which it
                exercises any conversion right, it will be either: (i) an “accredited
                investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8)
                under the Securities Act or (ii) a “qualified institutional buyer” as
                defined in Rule 144A(a) under the Securities Act and (2) that it
                is not
                required to be registered as a broker-dealer under Section 15 of
                the
                Exchange Act.

            

    

    

    
      	
            	8.6	
              represents
                and warrants to COGI (1) that it, either alone or together with its
                representatives, has such knowledge, sophistication and experience
                in
                business and financial matters so as to be capable of evaluating
                the
                merits and risks of the prospective investment in the Securities,
                and has
                so evaluated the merits and risks of such investment and (2) that
                it is
                able to bear the economic risk of an investment in the Securities
                and, at
                the present time, is able to afford a complete loss of such
                investment.

            

    

    

    
      	
            	8.7	
              represents
                and warrants to COGI that it is not purchasing the Securities as
                a result
                of any advertisement, article, notice or other communication regarding
                the
                Securities published in any newspaper, magazine or similar media
                or
                broadcast over television or radio or presented at any seminar or
                any
                other general solicitation or general
                advertisement.

            

    

    
      
         

      

      
        Page
          17 of
          28

        
          

        

      

      
         

      

    

     

    
      	
              9.

            	
              APPROVED
                ACQUISITION LOAN

            

    

    

    The
      Subscriber agrees and confirms to COGI that, of the total amount to be
      subscribed in accordance with this Agreement, the sum of USD 6,000,000 is a
      specific purpose loan for the purpose of completing those of the Approved
      Acquisitions specifically named in the Confidentiality Agreement and that the
      undertakings of COGI in Condition 3.4 relate to such specific purpose loan.
      Upon
      the acquisition of the Approved Acquisitions COGI shall cause that a security
      interest in or over the undertaking of the target be perfected in favour of
      the
      Subscriber within 30 Business Days of legal closing of the acquisition
      transaction.

     

    
      	
              10.

            	
              SUCCESSORS
                IN TITLE AND ASSIGNMENT

            

    

    

    This
      Agreement shall be binding upon and enure for the benefit of each party’s
      successors in title. The Subscriber shall be bound to assign the benefit of
      this
      Agreement to any party to whom the Subscriber may transfer the legal or
      beneficial interest in the Notes but otherwise the benefit of this Agreement
      shall not be assignable by the Subscriber.

    

    
      	
              11.

            	
              ENTIRE
                AGREEMENT

            

    

    

    
      	 	
              11.1.

            	
              This
                Agreement including the Schedules hereto and the documents in the
                Agreed
                Form constitute the entire agreement and understanding between the
                parties
                with respect to the subject matter of this Agreement and supersedes
                and
                extinguishes any representations and warranties previously given
                or
                made.

            

    

    

    
      	 	
              11.2.

            	
              Each
                party acknowledges to the other (to the intent that the other shall
                execute this Agreement and any documents in the Agreed Form in reliance
                upon such acknowledgement) that it has not been induced to enter
                into this
                Agreement and such other documents nor relied upon any representation
                or
                warranty other than the representations and/or warranties expressly
                set
                out in this Agreement or in any such
                document.

            

    

    
      
         

      

      
        Page
          18 of
          28

        
          

        

      

      
         

      

    

     

    
      	 	
              11.3.

            	
              Each
                party hereby irrevocably and unconditionally waives any right it
                may have
                to claim damages or to rescind this Agreement and such other documents
                as
                aforesaid by reason of any misinterpretation and/or warranty not
                set out
                in this Agreement or in any such document PROVIDED THAT nothing in
                this
                Clause shall operate to limit or exclude any liability for
                fraud.

            

    

    

    
      	
              12.

            	
              VARIATIONS

            

    

    

    No
      variation of this Agreement or any of the documents in the Agreed Form shall
      be
      valid unless it is in writing and signed by or on behalf of each of the parties
      hereto.

    

    
      	
              13.

            	
              WAIVER

            

    

    

    No
      waiver
      by the Subscriber of any breach or non-fulfilment by COGI of any provisions
      of
      this Agreement shall be deemed to be a waiver of any subsequent or other breach
      of that or any other provision and no failure to exercise or delay in exercising
      any right or remedy under this Agreement shall constitute a waiver thereof.
      No
      single or partial exercise of any right or remedy under this Agreement shall
      preclude or restrict the further exercise of any such right or remedy. The
      right
      and remedies of the Subscriber provided in this Agreement are cumulative and
      not
      exclusive of any rights or remedies provided by law.

    

    
      	
              14.

            	
              AGREEMENT
                CONTINUES IN FORCE

            

    

    

    The
      invalidity illegality or unenforceability of any provisions of this Agreement
      shall not affect the continuation in force of the remainder of this
      Agreement.

    
      
         

      

      
        Page
          19 of
          28

        
          

        

      

      
         

      

    

    

    
      	
              15.

            	
              NOTICES

            

    

    

    
      	 	
              15.1.

            	
              Any
                notice to be given pursuant to the terms of this Agreement must be
                given
                in writing to the party due to receive such notice at the addresses
                detailed in Clause 15.2 and Clause 15.3 or such other addresses as
                the
                relevant party may have notified to the other party for the purposes
                of
                this clause. Notice must be delivered personally or sent by first
                class
                pre-paid recorded delivery or registered post (air mail if overseas)
                or by
                facsimile transmission and shall be deemed to be given in the case
                of
                delivery on delivery and in the case of posting (in the absence of
                evidence of earlier receipt) within forty eight hours after posting
                (6
                days if sent by air mail) and in the case of facsimile transmission
                on
                completion of the transmission.

            

    

    

    
      	 	
              15.2.

            	
              All
                notices to be served upon COGI hereunder shall be sent to
                

            

    

    Coda
      Octopus Group, Inc.

    164
      West,
      25th Street, 

    New
      York,
      NY 10001

    Telecopy:
      +1 212 924 3447

    Attention:
      Jason Reid or Jody Frank

    With
      a
      copy to Fax: +1 917 591 8594

    For
      the
      attention of: Annmarie Gayle

     

    
      	 	
              15.3.

            	
              All
                notices to be served upon the Subscriber hereunder shall be sent
                to it at
                The Royal Bank of Scotland plc

            

    

    135
      Bishopsgate

    London
      EC2M 3UR

    Fax:
      +44
      20 7085 7984

    Attention:
      Repack Middle Office

    With
      a
      copy to Fax: +44 20 7085 8411

    Attention:
      GBM Legal 

    

    
      	
              16.

            	
              COUNTERPARTS

            

    

    

    This
      Agreement may be executed in any number of counterparts each of which when
      executed by one or more of the parties hereto shall constitute an original
      but
      all of which shall constitute one and the same instrument.

    
      
         

      

      
        Page
          20 of
          28

        
          

        

      

      
         

      

    

     

    
      	
              17.

            	
              THIRD
                PARTIES

            

    

    

    The
      Contracts (Rights of Third Parties) Act 1999 shall not apply to this Agreement
      and a person who is not a party to this Agreement shall not have nor acquire
      any
      right to enforce any term of it pursuant to that Act. This provision shall
      not
      affect any right or remedy of any third party which exists or is available
      otherwise than by reason of that Act and shall prevail over any other provision
      of this Agreement which is inconsistent with it.

    

    
      	
              18.

            	
              GOVERNING
                LAW

            

    

    

    
      	
            	18.1	
              This
                Agreement shall be governed by and construed in accordance with English
                Law and the parties hereby submit for all purposes in connection
                with this
                Agreement to the non-exclusive jurisdiction of the English
                courts.

            

    

    

    
      	
            	18.2	
              COGI
                hereby appoints the Process Agent as its agent for the purposes of
                receiving service of any process, proceedings or documents in connection
                with proceedings raised in the English courts in accordance with
                Clause
                18.1.

            

    

    

    IN
      WITNESS
      whereof
      the parties have executed this Agreement as a Deed. 

    
      
         

      

      
        Page
          21 of
          28

        
          

        

      

      
         

      

    

     

    SCHEDULE
      1

    The
      Warranties

    

    
      	1	
              No
                order has been made or petition presented or resolution passed for
                the
                winding up of COGI or any Group member and no distress, execution
                or other
                process has been levied on any of its or their
                assets.

            

    

    

    
      	2	
              Neither
                COGI nor any Group member has stopped payment on any debts and neither
                COGI nor any Group member is insolvent or unable to pay its or their
                debts
                for the purpose of Section 123 of the Insolvency Act
                1986.

            

    

    

    
      	3	
              No
                administrative receiver, receiver and manager or the equivalent in
                any
                other applicable jurisdiction has been appointed to the business
                or assets
                or any part thereof of COGI or of any Group
                member.

            

    

    

    
      	4	
              All
                of the direct and indirect subsidiaries of COGI are set forth in
                the
                Disclosure Letter. Except as is set forth in the Disclosure Letter,
                COGI
                owns, directly or indirectly, all of the capital stock or other equity
                interests of each Subsidiary free and clear of any Liens, and all
                of the
                issued and outstanding shares of capital stock of each Subsidiary
                are
                validly issued and are fully paid, non-assessable and free of pre-emptive
                and similar rights to subscribe for or purchase
                securities.

            

    

    

    
      	5	
              COGI
                and each of the Subsidiaries is an entity duly incorporated or otherwise
                organised, validly existing and in good standing under the laws of
                the
                jurisdiction of its incorporation or organisation (as applicable),
                with
                the requisite power and authority to own and use its properties and
                assets
                and to carry on its business as currently conducted. Neither COGI
                nor any
                Subsidiary is in violation or default of any of the provisions of
                its
                respective certificate or articles of incorporation, bylaws or other
                organisational or charter documents. Each of COGI and the Subsidiaries
                is
                duly qualified to conduct business and is in good standing as a foreign
                corporation or other entity in each jurisdiction in which the nature
                of
                the business conducted or property owned by it makes such qualification
                necessary, and no proceeding has been instituted in any such jurisdiction
                revoking, limiting or curtailing or seeking to revoke, limit or curtail
                such power and authority or
                qualification.

            

    

    
      
         

      

      
        Page
          22 of
          28

        
          

        

      

      
         

      

    

     

    
      	6	
              COGI
                has the requisite corporate power and authority to enter into and
                to
                consummate the transactions contemplated by each of the Transaction
                Documents and otherwise to carry out its obligations hereunder and
                thereunder. The execution and delivery of each of the Transaction
                Documents by COGI and the consummation by it of the transactions
                contemplated hereby and thereby have been duly authorised by all
                necessary
                action on the part of COGI and no further action is required by COGI,
                its
                board of directors or its stockholders in connection therewith. Each
                Transaction Document has been (or upon delivery will have been) duly
                executed by COGI and, when delivered in accordance with the terms
                hereof
                and thereof, will constitute the valid and binding obligation of
                COGI
                enforceable against COGI in accordance with its terms except (i)
                as
                limited by general equitable principles and applicable bankruptcy,
                insolvency, reorganisation, moratorium and other laws of general
                application affecting enforcement of creditors’ rights generally, (ii) as
                limited by laws relating to the availability of specific performance,
                injunctive relief or other equitable remedies and (iii) insofar as
                indemnification and contribution provisions may be limited by applicable
                law.

            

    

    

    
      	7	
              The
                execution, delivery and performance of the Transaction Documents
                by COGI,
                the issuance and sale of the Notes and the consummation by COGI of
                the
                other transactions contemplated hereby and thereby do not and will
                not (i)
                conflict with or violate any provision of COGI’s or any Subsidiary’s
                certificate or articles of incorporation, bylaws or other organisational
                or charter documents, or (ii) conflict with, or constitute a default
                (or
                an event that with notice or lapse of time or both would become a
                default)
                under, result in the creation of any Lien upon any of the properties
                or
                assets of COGI or any Subsidiary, or give to others any rights of
                termination, amendment, acceleration or cancellation (with or without
                notice, lapse of time or both) of, any agreement, credit facility,
                debt or
                other instrument (evidencing a COGI or Subsidiary debt or otherwise)
                or
                other understanding to which COGI or any Subsidiary is a party or
                by which
                any property or asset of COGI or any Subsidiary is bound or affected,
                or
                (iii) conflict with or result in a violation of any law, rule, regulation,
                order, judgment, injunction, decree or other restriction of any court
                or
                governmental authority to which COGI or a Subsidiary is subject (including
                federal and state securities laws and regulations), or by which any
                property or asset of COGI or a Subsidiary is bound or
                affected.

            

    

    
      
         

      

      
        Page
          23 of
          28

        
          

        

      

      
         

      

    

     

    
      	8	
              The
                Notes are duly authorised and, when issued and paid for in accordance
                with
                the applicable Transaction Documents, will be duly and validly issued,
                fully paid and non-assessable, free and clear of all Liens imposed
                by COGI
                other than restrictions on transfer provided for in the Transaction
                Documents. COGI has reserved from its duly authorised capital stock
                the
                maximum number of shares of Common Stock issuable upon conversion
                pursuant
                to the Transaction Documents. 

            

    

    

    
      	9	
              The
                capitalisation of COGI is as set forth in the Disclosure Letter which
                also
                includes the number of shares of Common Stock owned beneficially,
                and of
                record, by Affiliates of COGI as of the date hereof. COGI has not
                issued
                any capital stock since May 5, 2007, other than pursuant to the exercise
                of employee stock options under COGI’s stock option plans, the issuance of
                shares of Common Stock to employees pursuant to COGI’s employee stock
                purchase plans and pursuant to the conversion or exercise of other
                securities outstanding as of 1 January
                2008.

            

    

    

    
      	10	
              The
                issue of the Notes does not and will not constitute a breach of any
                existing law or regulation or of COGI’s charter or by-laws or exceed any
                limitation on the powers of COGI’s directors or breach the terms of any
                contract, charge or restriction binding upon it and the Loan Note
                Instrument and each Note constitutes (or will when executed constitute)
                COGI’s valid and binding
                obligations.

            

    

    

    
      	11	
              As
                of the Completion Date, no event has occurred which constitutes (or
                with
                the giving of notice or lapse of time or both would constitute) an
                Event
                of Default.

            

    

    

    
      	12	
              Payments
                under the Notes will be made by COGI without withholding or deducting
                for
                any taxes, duties or other charges of whatever nature of the jurisdiction
                of incorporation of COGI or any political subdivision or authority
                thereof
                or therein having power to tax.

            

    

    
      
         

      

      
        Page
          24 of
          28

        
          

        

      

      
         

      

    

     

    
      	13	
              Since
                the date of the latest audited financial statements of COGI, (i)
                there has
                been no event, occurrence or development that has had or that could
                reasonably be expected to result in an event which is materially
                adverse
                to the condition (financial or otherwise), prospects, results of
                operations or general affairs of COGI or the Group (a “Material Adverse
                Effect”), (ii) COGI has not incurred any liabilities (contingent or
                otherwise) other than (A) trade payables and accrued expenses incurred
                in
                the ordinary course of business consistent with past practice and
                (B)
                liabilities not required to be reflected in COGI’s financial statements
                pursuant to US GAAP, (iii) COGI has not altered its method of accounting,
                (iv) COGI has not declared or made any dividend or distribution of
                cash or
                other property to its stockholders or purchased, redeemed or made
                any
                agreements to purchase or redeem any shares of its capital stock
                and (v)
                COGI has not issued any equity securities to any officer, director
                or
                Affiliate, except pursuant to existing COGI stock option
                plans.

            

    

    

    
      	14	
              There
                is no action, suit, inquiry, notice of violation, proceeding or
                investigation pending or, to the knowledge of COGI, threatened against
                or
                affecting COGI, any Subsidiary or any of their respective properties
                before or by any court, arbitrator, governmental or administrative
                agency
                or regulatory authority (federal, state, county, local or foreign)
                (collectively, an “Action”) which (i) adversely affects or challenges the
                legality, validity or enforceability of any of the Transaction Documents
                or the Securities or (ii) could, if there were an unfavourable decision,
                have or reasonably be expected to result in a Material Adverse Effect.
                Neither COGI nor any Subsidiary, nor any director or officer thereof,
                is
                or has been the subject of any Action involving a claim of violation
                of or
                liability under federal or state securities laws or a claim of breach
                of
                fiduciary duty. There has not been, and to the knowledge of COGI,
                there is
                not pending or contemplated, any investigation by the SEC involving
                COGI
                or any current or former director or officer of COGI. The SEC has
                not
                issued any stop order or other order suspending the effectiveness
                of any
                registration statement filed by COGI or any Subsidiary under the
                Exchange
                Act or the Securities Act. 

            

    

    

    
      	15	
              Neither
                COGI nor any Subsidiary has engaged in, and each of them hereby covenants
                not to engage in, any directed selling efforts, general solicitiation
                or
                general advertising in relation to the Securities.
                

            

    

    
      
         

      

      
        Page
          25 of
          28

        
          

        

      

      
         

      

    

    

    
      	16	
              COGI
                and the Subsidiaries have good and marketable title in fee simple
                to all
                real property owned by them and good and marketable title in all
                personal
                property owned by them that is material to the business of COGI and
                the
                Subsidiaries, in each case free and clear of all Liens, except for
                Liens
                as do not materially affect the value of such property and do not
                materially interfere with the use made and proposed to be made of
                such
                property by COGI and the Subsidiaries and Liens for the payment of
                federal, state or other taxes, the payment of which is neither delinquent
                nor subject to penalties. Any real property and facilities held under
                lease by COGI and the Subsidiaries are held by them under valid,
                subsisting and enforceable leases with which COGI and the Subsidiaries
                are
                in compliance.

            

    

    

    
      	17	
              COGI
                and the Subsidiaries have, or have rights to use, all patents, patent
                applications, trademarks, trademark applications, service marks,
                trade
                names, trade secrets, inventions, copyrights, licenses and other
                intellectual property rights and similar rights necessary or material
                for
                use in connection with their respective businesses and which the
                failure
                to so have could have a Material Adverse Effect (collectively, the
                “Intellectual Property Rights”). Neither COGI nor any Subsidiary has
                received a notice (written or otherwise) that any of the Intellectual
                Property Rights used by COGI or any Subsidiary violates or infringes
                upon
                the rights of any Person. To the knowledge of COGI, all such Intellectual
                Property Rights are enforceable and there is no existing infringement
                by
                another Person of any of the Intellectual Property Rights. COGI and
                its
                Subsidiaries have taken reasonable security measures to protect the
                secrecy, confidentiality and value of all of their intellectual
                properties, except where failure to do so could not, individually
                or in
                the aggregate, reasonably be expected to have a Material Adverse
                Effect.

            

    

     

    
      
         

      

      
        Page
          26 of
          28

        
          

        

      

      
         

      

    

    SCHEDULE
      2

    The
      Legend

    

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

    
      
         

      

      
        Page
          27 of
          28

        
          

        

      

      
         

      

    

    

    IN
      WITNESS
      whereof
      this Deed has been duly executed the day and year first before
      written.

    
      

      
        	 	 	 
	
                EXECUTED
                  AS A DEED AND DELIVERED by

              	 	
                )

              
	
                Coda
                  Octopus Group, Inc. acting by: -

              	 	
                )

              

      

      

      
        	
                Jason
                  Lee Reid

              	
                Director

              
	
                Rodney
                  Peacock

              	
                Director

              

      

       

      
        	
                EXECUTED
                  AS A DEED AND DELIVERED by

              	 	
                )

              
	
                 

              	 	 
	
                THE
                  ROYAL BANK OF SCOTLAND PLC

              	 	
                )

              

      

      

      
        	 	
                By:

              

      

    

     

    
      
         

      

      
        Page
          28 of
          28DATED

            	
              2008

            

    

     

    

    

    

    
      	 	
               

              LOAN
                NOTE INSTRUMENT

              constituting

               

              the
                issue of USD 12,000,000 Convertible Loan Notes due 21 February 2015
                of
                Coda
                Octopus Group, Inc.

            	 

    

     

     

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    CONTENTS

    

    
      	
              1.
                DEFINITIONS AND INTERPRETATION

            	
              1

            
	 	 
	
              2.
                FORM OF NOTES

            	
              9

            
	 	 
	
              3.
                COVENANTS OF COGI

            	
              10

            
	 	
            
	
              4.
                CONVERSION

            	
              14

            
	 	 
	
              5.
                REGISTER

            	
              14

            
	 	 
	
              6.
                REPRESENTATIONS

            	
              15

            
	 	 
	
              7.
                INCORPORATION OF SCHEDULES

            	
              18

            
	 	 
	
              8.
                LAW

            	
              19

            
	 	 
	
              SCHEDULE
                1

            	
              20

            
	 	 
	
              FORM
                OF INDIVIDUAL CERTIFICATE

            	
              22

            
	 	 
	
              SCHEDULE
                2

            	
              23

            
	 	 
	
              THE
                CONDITIONS

            	
              23

            
	 	 
	
              SCHEDULE
                3

            	
              34

            
	 	 
	
              CONVERSION

            	
              34

            
	 	 
	
              SCHEDULE
                4

            	
              38

            
	 	
            
	
              THE
                LEGEND

            	
              38

            
	 	 
	
              SCHEDULE
                5

            	
              39

            
	 	 
	
              NOTICE
                OF CONVERSION

            	
              39

            

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    THIS
      LOAN NOTE INSTRUMENT is
      made
      on             2008

     

    PARTY

     

    CODA
      OCTOPUS GROUP, Inc.,
      incorporated in the State of Delaware and whose principal place of business
      is
      at 164 West 25th
      Street,
      New York, New York 1001 (“COGI”).

     

    BACKGROUND

     

    COGI
      has
      pursuant to a resolution of its board of directors passed on 21 February 2008,
      created and authorised the execution and issue of a nominal amount of up to
      USD
      12,000,000 Loan Notes due 21 February 2015 to be constituted as provided in
      this
      Instrument and subject to, and with the benefit of the schedules which shall
      be
      deemed to form part of this Instrument.

     

    COGI
      has
      on 21 February 2008 entered into a Subscription Agreement with the Subscriber
      (as defined below) pursuant to which the Subscriber shall subscribe for the
      Notes on the Completion Date (as defined herein).

     

    The
      payment obligations of COGI in respect of the Notes, this Instrument, the
      Subscription Agreement and the other Transaction Documents shall be secured
      in
      favour of the Subscriber for the benefit of the Noteholders in accordance with
      the security arrangements set out in the Deed of Guarantee, Debentures, Floating
      Charges and Security Agreement (each such term as defined herein).

     

    WITNESSES
      as
      follows:

     

    
      	
              1.

            	
              DEFINITIONS
                AND INTERPRETATION

            

    

     

    
      	
            	1.1	
              In
                this Instrument and the schedules the following words and expressions,
                unless the context requires otherwise,
                mean:

            

    

     

    “Affiliate”
      means
      any
      Person that, directly or indirectly through one or more intermediaries, controls
      or is controlled by or is under common control with a Person as such terms
      are
      used in and construed under Rule 405 under the Securities Act.  With
      respect to a party, any investment fund or managed account that is managed
      on a
      discretionary basis by the same investment manager as such party will be deemed
      to be an Affiliate of such party;

     

    “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;

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

     

    “Aggregate
      Nominal Amount” means
      the
      aggregate Nominal Amount of all Notes in issue from time to time; 

     

    “Approved
      Acquisitions” means
      the
      acquisitions of the two targets disclosed in the Confidentiality Agreement
      at
      the date of this Instrument, and other acquisitions or strategic transactions
      which may be approved by a Noteholder Majority in writing during the
      Term

     

    “Authorised
      Signatory” means
      any
      director of COGI, or any other officer of COGI authorised to sign on behalf
      of
      COGI;

     

    “Board”
      means
      the
      board of directors of COGI from time to time;

     

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

     

    “Certificate”
      means
      a
      loan note certificate issued in accordance with Clause 2 and substantially
      in
      the form set out in Schedule 1A;

     

    “Change
      of Control” means
      a
      Sale;

     

    “Collateral”
      shall
      have the same meaning as is given to such term in the Security
      Agreement;

     

    “Colmek”
      means
      Miller and Hilton, d/b/a Colmek Systems Engineering, incorporated in the State
      of Utah and whose principal place of business is 2001 South 3480 West, Salt
      Lake
      City, Utah 84104; ;

     

    “Common
      Stock”
      means
      the common stock (nominal value USD 0.001) of COGI or any replacement stock
      into
      which such common stock is subdivided, split or consolidated;

     

    “Companies
      Act” means
      the
      Companies Act 1985 (as amended by the Companies Act 1989 and Companies Act
      2006)
      and every other statutory modification or re-enactment thereof from time to
      time
      in force;

     

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

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    “Completion
      Date”
      means
      the date hereof; 

     

    “Conditions”
      means
      the terms and conditions of the Notes endorsed or to be endorsed on the
      Certificates, as set out in Schedule 2. References to a numbered Condition
      shall
      be construed accordingly;

     

    “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; 

     

    “Debt”
      for the
      purposes of Clause 3.4.9 means the aggregate of all bank borrowings, receivables
      financing and all other financing, debt and borrowings of whatever nature (other
      than (i) the Principal Amount Outstanding of all the Notes and (ii) debts due
      by
      COGI and its Group in the ordinary course of business) of COGI and its Group
      (as
      shown in the relevant audited consolidated accounts of COGI and its Group);
      

     

    “Deed
      of Adherence”
      means a
      deed in the Agreed Form to be entered into by any Subsidiary which may be
      acquired by the Group after the date hereof (a “New Subsidiary”) whereby the New
      Subsidiary undertakes to guarantee the obligations of COGI under the Transaction
      Documents on a joint and several basis in the same manner as those Subsidiaries
      which entered into the Transaction Documents;

     

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

     

    “EBIT”
      means
      the
      operating profit of COGI and its Group (as shown in the relevant audited
      consolidated accounts of COGI and its Group) before deductions are made for
      interest and taxation payable by COGI and its Group;

     

    “Event
      of Default” means
      any
      of the events listed in Condition 9.1 and which have not been remedied within
      the period (if any) granted to COGI under Condition 9.2;

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    “Exchange
      Act”
means
      the US Securities Exchange Act of 1934, as amended, and the rules and
      regulations of the SEC promulgated thereunder;

     

    “Extraordinary
      Resolution”
      means a
      resolution passed as an Extraordinary Resolution at a meeting of Noteholders
      held in accordance with Condition 10;

     

    “Final
      Maturity Date”
      shall
      have the meaning given to it in Condition 3.1;

     

    “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;

     

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

     

    “Group”
      means
      COGI, its Subsidiaries, any company of which COGI is a Subsidiary (a
“Holding
      Company”)
      and any
      Subsidiaries of any such Holding Company and references to a “member of the
      Group” or a “Group member” shall be construed accordingly;

     

    “Guarantor”
      means
      any subsidiary of COGI which has on or before the Completion Date entered into
      an agreement to guarantee the obligations of COGI under the Transaction
      Documents, or which subsequently enters into an agreement to guarantee such
      obligations of COGI;

     

    “Individual
      Certificate” means
      a
      Certificate representing one or more of the Notes in individual registered
      form;

     

    “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;

     

    “Legend”
      means
      an
      annotation endorsed upon the relevant Certificate or stock certificate,
      substantially in the form set out in Schedule 4;

     

    “Lien”
      means a
      lien, charge, security interest, encumbrance, right of first refusal or other
      restriction;

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    “Liquidation”
      means
      the liquidation of COGI pursuant to the making of a winding-up order by a court
      of competent jurisdiction or the passing of a resolution by the stockholders
      of
      COGI that COGI be wound-up (save for a solvent winding-up for the purpose of
      reconstruction or amalgamation);

     

    “Loan
      Note Instrument”
      means
      this Instrument;

     

    “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;

     

    “Nominal
      Amount” means
      the
      amount specified in the relevant Individual Certificate as being the Principal
      Amount Outstanding of the relevant Note or Notes to which such Individual
      Certificate relates as at the date of such Individual Certificate’s
      issue;

     

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

     

    “Noteholder
      Majority”
      means
      the holders for the time being of not less than 75% of the Aggregate Nominal
      Amount of the Notes then Outstanding;

     

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

     

    “Omnitech”
      means
      Coda Octopus Omnitech AS, incorporated in Norway whose principal place of
      business is at Sandviksboder 1A, N-5035 Bergen, Norway;

     

    “Outstanding”
      means
      in
      relation to the Notes as of any date of determination, all of the Notes issued
      other than:

     

    
      	
            	(a)	
              those
                Notes which have been redeemed or converted;
                and

            

    

     

    
      	
            	(b)	
              those
                Notes in respect of which the Redemption Date in accordance with
                the
                relevant Conditions has occurred and the redemption monies (including
                all
                interest payable in respect of the redemption monies and any interest
                payable under the relevant Conditions after such date) have been
                duly paid
                to the relevant Noteholders in the manner provided in the
                Conditions;

            

    

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

    “Permitted
      Issuance”
means
      the issuance by COGI of (i) shares of Common Stock or options to employees,
      officers, directors or consultants of COGI pursuant to COGI’s existing Employees
      Stock Option Plans of 19 October 2004 and March 2, 2006 (“Existing Stock Option
      Plan”) and which at the date of this Instrument has available for issuance
      approximately 600,000 units of Common Stock; or (ii) Common Stock issued
      pursuant to any new Stock Option Plan (a “New Stock Option Plan”) adopted by
      COGI in accordance with its statutes and Delaware Law; provided that any New
      Stock Option Plan is substantially on the same terms and conditions as the
      Existing Stock Option Plan and shall not exceed 2,500,000 shares of Common
      Stock
      and all issuances pursuant to any New Stock Option Plan shall be based on the
      prevailing market price of the Common Stock at the time of issuance but subject
      to a minimum exercise price or sale price (whilst any sums remain outstanding
      under this Instrument) of USD1.05; or (iii) Common Stock issued upon the
      exercise or exchange of or conversion of the Notes issued hereunder; or (iv)
      Common Stock or other securities issued in connection with Approved
      Acquisitions; or (v) Common Stock issued by COGI pursuant to any contractual
      obligations which exist at the date of this Instrument (including the exercise
      of warrants, options or conversion of preferred stock into Common Stock)
      provided that such securities have not been amended since the date of this
      Instrument to increase the number of such securities or to decrease the
      exercise, exchange or conversion price of such securities; or (vi) up to 900,000
      shares of Common Stock as compensation to certain parties in connection with
      the
      transactions envisaged by the Transaction Documents; or (vii) issuances of
      up to
      300,000 units of Common Stock in each fiscal year of COGI in addition to any
      issuances referred to in parts (i) to (vi) inclusive of this
      definition.

     

    “Permitted
      Liens”
      means,
      as the context so requires, (a) Liens in favour of Faunus Group International,
      Inc, (b) Liens in the Colmek Shares (as defined in the Security Agreement)
      in
      favour of the Selling Shareholders (as defined in the Security Agreement),
      (c)
      the Bond and Floating Charge granted by Coda Octopus Products Limited in favour
      of The Governor and Company of the Bank of Scotland, (d) any Liens for taxes
      or
      assessments not at the time due and (e) Liens in respect of pledges or deposits
      under workers’ compensation laws or similar legislation, carriers’,
      warehousemen’s, mechanics’, laborers’ and material men’s and similar Liens, if
      the obligations secured by such Liens are not then delinquent;

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     

    “Person”
      means an
      individual or corporation, partnership, trust, incorporated or unincorporated
      association, joint venture, limited liability company, joint stock company,
      government (or agency or subdivision thereof) or other entity of any
      kind;

     

    “Principal
      Amount Outstanding” means
      as
      of any date of determination and in respect of any Note which is Outstanding,
      the principal amount of such Note as of such date;

     

    “Principal
      Office” means,
      in
      relation to COGI, 164 West 25th
      Street,
      New York, New York 10001 or such other address as COGI may, from time to time,
      notify to the Noteholders; 

     

    “Process
      Agent”
      means
      Jason Reid, Director, Martech Systems (Weymouth) Ltd, 14 Albany Road, Granby
      Industrial Estate, Weymouth, Dorset DT4 9TH or such other person and address
      in
      the United Kingdom as COGI may, from time to time, notify to the
      Noteholders;

     

    “Recapitalisation
      Event” means
      any
      increase, repayment, subdivision, consolidation, capitalisation or other
      variation of the share capital of COGI other than Permitted Issuances and except
      for the proposed increase of the authorised share capital of COGI at its next
      annual general meeting of shareholders in 2008 by another 50,000,000 shares
      of
      Common Stock having par value of $0.001

     

    “Redemption
      Amount” has
      the
      meaning given to it by Condition 3.5;

     

    “Redemption
      Date” shall
      have the meaning given to it in Condition 3.2 or Condition 3.3, as
      applicable;

     

    “Register”
      means
      the register of Noteholders and other details relating to the Notes as referred
      to in Clause 5;

     

    “Registrar”
      means
      Greenwich Capital Markets, Inc of 600 Steamboat Road, Greenwich, Connecticut
      06830 or such other Registrar as may from time to time be appointed by the
      incumbent Registrar pursuant to Clause 5.2 (and whose identity is notified
      to
      the Noteholders and COGI) to maintain the Register;

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

     

    “Sale”
      means
      the sale of any part of the Common Stock to any person after the Completion
      Date
      resulting in that person together with any person acting in concert (within
      the
      meaning given in the City Code on Takeovers and Mergers as in force at the
      Completion Date) with such person holding more than 50% of the Common Stock
      in
      issue (in aggregate) and, for these purposes, the persons who are holders of
      the
      Common Stock at the Completion Date and any person(s) for the ultimate benefit
      of whom such holders are holding such Common Stock shall not be deemed to be
      acting in concert with each other;

     

    “SEC”
      means
      the US Securities and Exchange Commission;

     

    “Securities
      Act”
      means
      the US Securities Exchange Act of 1933, as amended, and the rules and
      regulations promulgated thereunder;

     

    “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;

     

    “Subscriber”
      means
      The Royal Bank of Scotland plc, incorporated in Scotland, with registered number
      90312, acting through its London offices located at 135 Bishopsgate, London
      EC2M
      3UR;

     

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

     

    “Subsidiary”
      means
      a
      company incorporated or established in any jurisdiction in which COGI holds
      not
      less than 50.1% of the issued voting shares or stock (but, for the purposes
      of
      the Transaction Documents, shall only include Colmek to the extent that a
      security interest in Colmek is granted under the Security Agreement) and
“Subsidiaries”
      shall
      mean each Subsidiary of the Company from time to time;

     

    “Term”
      means
      the
      period from the Completion Date to whichever is the earlier of (1) the seventh
      anniversary of the date of the Completion Date and (2) the date upon which
      the
      Notes have been repaid, redeemed, converted or cancelled in full in accordance
      with the Conditions;

     

    “Transaction
      Documents” means
      the
      Subscription Agreement, this Instrument, the Deed of Guarantee, the Debentures,
      the Floating Charges, 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;

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

     

    “USD”
      means
      United States dollars.

     

    
      	
            	1.2	
              Words
                denoting the singular shall include the plural and vice versa. References
                to persons shall include bodies corporate, unincorporated associations
                and
                partnerships. References to any statute or statutory provision shall
                include any statute or statutory provision which amends, consolidates,
                extends or replaces the same.

            

    

     

    
      	
            	1.3	
              Words
                and phrases defined in the Companies Act 1985 or in the Companies
                Act 2006
                shall, save as expressly provided in this Instrument or the schedules
                have
                the same meanings in this Instrument and the
                schedules.

            

    

     

    
      	
            	1.4	
              References
                to clauses and schedules shall be to clauses of and the schedules
                to this
                Instrument. Headings in this Instrument are inserted for ease of
                reference
                only and shall not affect its
                interpretation.

            

    

     

    
      	
            	1.5	
              The
                word “redemption”
                includes
                purchase and repayment and the words “redeem”
                or
                “redeemed”
                shall
                be construed accordingly.

            

    

     

    
      	
            	1.6	
              The
                words “this
                Instrument” refer
                to the provisions of the Loan Note Instrument and the schedules to
                the
                Loan Note Instrument (as from time to time modified under the terms
                of the
                Loan Note Instrument) and any deed expressed to be supplemental to
                the
                Loan Note Instrument.

            

    

     

    
      	
            	1.7	
              References
                to any provisions of any statute shall be deemed also to refer to
                any
                statutory modification or re-enactment thereof or any statutory
                instrument, order or regulation made thereunder or under such
                re-enactment.

            

    

     

    
      	
            	1.8	
              Each
                of the provisions of this Instrument is severable and distinct from
                the
                other and if at any time when one or more of such provisions is invalid,
                illegal or unenforceable, the validity, legality and enforceability
                of the
                remaining provisions of this Instrument will not in any way be affected
                or
                impaired.

            

    

     

    
      	
              2.

            	
              FORM
                OF NOTES

            

    

     

    The
      Notes
      will be represented by Certificates in the form or substantially in the form
      set
      out in Schedule 1, each signed by the duly authorised officers of
      COGI.

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

     

    
      	
              3.

            	
              COVENANTS
                OF COGI

            

    

     

    
      	
            	3.1	
              The
                Subscriber has agreed to pay to COGI the subscription moneys on the
                terms
                set out in Clauses 3.2 to 3.5 of the Subscription Agreement and COGI
                shall
                on the date hereof issue to the Subscriber Notes for an amount equal
                to
                USD 12,000,000.

            

    

     

    
      	
            	3.2	
              COGI,
                for value received, hereby promises to pay to the Noteholders the
                Redemption Amount of the Notes together with such other amounts as
                may be
                payable all subject to and in accordance with the
                Conditions.

            

    

     

    
      	
            	3.3	
              COGI
                will comply with the provisions of this Instrument, the Notes and
                the
                Conditions in all respects and the Notes shall be held subject to
                this
                Instrument and the Conditions.

            

    

     

    
      	
            	3.4	
              So
                long as any of the Notes remain Outstanding COGI
                shall:

            

    

     

    
      	
            	3.4.1	
              at
                all times perform and comply with its obligations set out in the
                Subscription Agreement, this Instrument and the
                Conditions;

            

    

     

    
      	
            	3.4.2	
              not
                take any steps or actions which materially impair or adversely affect
                or
                derogate from, in any manner whatsoever, the enforceability in any
                respect
                of any of the Transaction Documents;

            

    

     

    
      	
            	3.4.3	
              keep,
                and procure that its Subsidiaries keep, proper books of account and
                allow
                the Noteholders free access to such books of account at any time
                following
                an Event of Default, provided that COGI shall not be obliged to disclose
                confidential and / or proprietary information in relation to any
                of its
                customers;

            

    

     

    
      	
            	3.4.4	
              give
                notice to the Noteholders in writing immediately on becoming aware
                of an
                Event of Default or an event which with the giving of notice or lapse
                of
                time or both would constitute an Event of
                Default;

            

    

     

    
      	
            	3.4.5	
              give
                notice to the Noteholders of any unconditional payment of amounts
                due in
                respect of the Notes made after the due date for such
                payment;

            

    

     

    
      	
            	3.4.6	
              send
                to the Noteholders or procure that the Registrar sends to the Noteholders,
                as soon as practicable following a request in writing by a Noteholder
                Majority, a certificate of COGI or the Registrar signed by an Authorised
                Signatory confirming the total number and Aggregate Nominal Amount
                of
                Notes outstanding;

            

    

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

     

    
      	
            	3.4.7	
              give
                notice to the Noteholders immediately on COGI becoming aware that
                it or
                any Guarantor has become subject generally to the taxing jurisdiction
                of
                any territory other than (or in addition to) the United States of
                America,
                Norway and the United Kingdom and enter, as soon as practicable,
                into a
                supplemental deed to this Instrument giving the Noteholders an undertaking
                or covenant (in a form and manner satisfactory to a Noteholder Majority)
                in terms corresponding to the terms of Condition 3, with the substitution
                for (or addition to) the references to the United States of America,
                Norway and the United Kingdom of references to that other (or additional)
                territory or authority;

            

    

     

    
      	
            	3.4.8	
              apportion
                the proceeds of the Notes to the following categories: a) working
                capital
                and b) (in accordance with Clause 9 of the Subscription Agreement)
                Approved Acquisitions;

            

    

     

    
      	
            	3.4.9	
              ensure
                that the
                ratio of Debt to EBIT shall not exceed 6:1 in the year to 31 October
                2008,
                1.35:1 in the year to 31 October 2009 and 0:8:1 thereafter. In the
                event
                that the Approved Acquisitions do not take place and a Noteholder
                Majority
                does not require partial repayment in accordance with Condition 3.4,
                the
                ratios will be altered to 3:1 for the year to 31 October 2009 and
                1:1
                thereafter. In the event that a Noteholder Majority does require
                partial
                repayment, the ratios will be altered to 3:1 for the year to 31 October
                2009 and 2:1 thereafter;

            

    

     

    
      	
            	3.4.10	
              not
                incur, and shall procure that no Group member shall incur, any further
                indebtedness (including acquired debt) provided that COGI and any
                Group
                member may incur additional indebtedness, if in each
                case:

            

    

     

    
      	
            	(a)	
              debt
                shall not be created that is senior to the Notes;
                and

            

    

     

    
      	
            	(b)	
              the
                total aggregate amount outstanding incurred by COGI and all Group
                members
                at any one time of such further debt does not exceed USD 2,000,000;
                and

            

    

     

    
      	
            	(c)	
              the
                approval of a Noteholder Majority is sought, such approval not to
                be
                unreasonably withheld and which approval shall be deemed to have
                been
                given, in the absence of a response from the Noteholders, at the
                expiry of
                14 days from the date the approval is sought or (if later) 10 days
                from
                the date COGI is reasonably satisfied that the Noteholders received
                the
                approval request.

            

    

     

    For
      the
      purposes of this Clause 3.4.10 “indebtedness” shall not include trade debts and
      other debts and obligations incurred in the normal course of business of COGI
      and each Group member.

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

     

    
      	
            	3.5	
              During
                the Term COGI will not:

            

    

     

    
      	
            	3.5.1	
              save
                for Permitted Issuances, make any new purchases, redemptions or otherwise
                acquire or retire for value, directly or indirectly, any new shares
                of
                COGI’s capital stock or any options, new warrants or other rights to
                acquire such shares of capital stock;
                or

            

    

     

    
      	
            	3.5.2	
              other
                than in connection with the repayment of sums due to FGI, or the
                payments
                due to the Selling Shareholders of Colmek as part of the deferred
                consideration due in respect of Colmek, make any principal payment
                on, or
                repurchase, redeem, defease or otherwise acquire or retire for value,
                prior to any scheduled principal payment, sinking fund payment or
                stated
                maturity, any subordinated debt not otherwise permitted or provided
                for in
                this Instrument and any associated documentation;
                or

            

    

     

    
      	
            	3.5.3	
              except
                for (i) the Approved Acquisitions and (ii) the CODA MENA operations
                mentioned in the Confidentiality Agreement and (iii) reasonable
                investments under its existing patent programme, make any additional
                corporate investments (other than any investment approved in writing
                by a
                Noteholder Majority or in cash and cash equivalents) in any person;
                or

            

    

     

    
      	
            	3.5.4	
              permit
                payment of shareholders’ dividends without the written consent of a
                Noteholder Majority except for payment of COGI’s existing 12% Series A
                Preferred Stock comprising 6,406.70 units;
                or

            

    

     

    
      	
            	3.5.5	
              permit,
                create, or cause to be permitted or created, any Recapitalisation
                Event;
                or

            

    

     

    
      	
            	3.5.6	
              provide
                finance or other funding to Colmek in excess of 5% of the Aggregate
                Nominal Amount without the written consent of a Noteholder
                Majority.

            

    

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

     

    
      	
            	3.6	
              During
                the Term COGI will not sell, pledge or otherwise dispose of, directly
                or
                indirectly, any shares of its capital stock except for Permitted
                Issuances
                provided for in this Instrument and any associated
                documentation.

            

    

     

    
      	
            	3.7	
              During
                the Term COGI will not without the written consent of a Noteholder
                Majority, sell, pledge or otherwise dispose of (“disposition”), directly
                or indirectly, any assets equating to or more than five percent (5%)
                of
                COGI’s net asset value (as shown by the latest audited consolidated
                accounts of COGI and its Group which are available at the date of
                the
                disposition). Such consent shall not be unreasonably
                withheld.

            

    

     

    
      	
            	3.8	
              During
                the Term COGI will not, directly or indirectly, enter into or suffer
                to
                exist any transaction (including, without limitation, the sale, purchase,
                exchange or lease of assets or property or the rendering of any service)
                with, or for the benefit of, any Affiliate of COGI unless such transaction
                is entered into in good faith and such transaction is on terms, that,
                taken as a whole, are not materially less favourable to COGI than
                those
                that could have been obtained in comparable arm’s-length transactions with
                third parties that are not
                Affiliates.

            

    

     

    
      	
            	3.9	
              During
                the Term, save for (i) the security interests of FGI, (ii) the Selling
                Shareholders’ pledges in respect of the Colmek Shares and (iii) the Bond
                and Floating Charge granted by Coda Octopus Products Limited in favour
                of
                The Governor and Company of the Bank of Scotland, COGI will not take
                or
                omit to take any action that might or would have the result of materially
                impairing the first ranking security interests securing the Notes.
                COGI
                will not grant to any person other than the Lender any interest whatsoever
                in the Collateral.

            

    

     

    
      	
            	3.10	
              During
                the Term COGI will not, directly or indirectly, create, incur, assume
                or
                suffer to exist any Lien of any kind on or with respect to any of
                COGI’s
                property or assets, including any shares or stock or debt, whether
                owned
                at or acquired after the date of this Instrument, or any income,
                profits
                or proceeds therefrom with the exception of the Permitted
                Liens.

            

    

     

    
      	
            	3.11	
              During
                the Term, except for the Permitted Liens, COGI will not further pledge
                its
                assets as security or otherwise without the prior written consent
                of a
                Noteholder Majority.

            

    

     

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

     

    
      	
            	3.12	
              So
                long as any Notes are Outstanding, COGI will furnish to the Noteholders
                quarterly reports to a standard (in terms of detail and disclosure)
                no
                less than required by the SEC. All and any obligations of COGI to
                comply
                with applicable SEC regulations including regulations concerning
                disclosure of non-public information shall take precedence over any
                obligations to provide information under this Clause 4.12 and COGI
                shall
                not be considered to be in breach of this condition where it cannot
                comply
                with the requirements to provide information to the Noteholders set
                out in
                this clause 3.12 due to its SEC obligations. Additionally COGI will
                provide a monthly report to include summary of cash balances, new/pending
                orders, order backlog and noteworthy events and until the FGI security
                interest is discharged provide information of the amounts financed
                by FGI
                in the relevant quarter.

            

    

     

    
      	
            	3.13	
              At
                all times during the Term COGI shall procure that either (i) any
                assets
                which Omnitech may acquire shall, within 30 days of becoming assets
                of
                Omnitech, be transferred to another Group member or (ii) the approval
                of a
                Noteholder Majority is obtained to Omnitech holding such assets (such
                approval to include, if the Noteholder Majority so directs, a requirement
                that Omnitech enters into a Deed of Adherence and grants any required
                security over its assets).

            

    

     

    
      	
            	3.14	
              During
                the Term COGI shall indemnify and keep indemnified the Noteholders
                against
                any loss incurred by the Noteholders if COGI makes a payment to the
                Noteholders in a currency other than the Specified Currency that,
                when
                exchanged into the Specified Currency on the day it is received by
                the
                Noteholders, is less than the amount due to the
                Noteholders.

            

    

     

    
      	
              4.

            	
              CONVERSION

            

    

     

    The
      Notes
      shall be convertible into units of Common Stock in accordance with the
      provisions of Schedule 3.

     

    
      	
              5.

            	
              REGISTER

            

    

     

    
      	
            	5.1	
              COGI
                undertakes to immediately appoint the Registrar to maintain the Register
                at all times. There shall be entered in the Register by the
                Registrar:

            

    

     

    
      	
            	5.1.1	
              the
                names and addresses of the Noteholders and, where required by law,
                beneficial owner where different;

            

    

     

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

     

    
      	
            	5.1.2	
              the
                amount of the Notes held by each registered holder (including the
                Issue
                Date (as shown on each Individual Certificate), the Principal Amount
                Outstanding of the Notes represented in such Individual Certificate
                and
                the Nominal Amount specified in the Individual Certificate relating
                to
                such registered holder);

            

    

     

    
      	
            	5.1.3	
              the
                date at which the name of every such registered holder is entered
                in
                respect of the Notes standing in its
                name;

            

    

     

    
      	
            	5.1.4	
              the
                serial number of each Note and Individual Certificate issued and
                its date
                of issue; and

            

    

     

    
      	
            	5.1.5	
              particulars
                of any partial redemption, transfer and other changes of ownership
                of the
                Notes, subject to the same being duly
                stamped.

            

    

     

    
      	
            	5.2	
              Subject
                to notifying COGI and the Noteholders of the identity of the new
                Registrar, the Registrar may, at any time, transfer the role of Registrar
                to any party to whom any of the Notes are transferred in accordance
                with
                the Conditions. If the Registrar for the time being wishes to appoint
                a
                party as Registrar who is not a Noteholder then the prior written
                consent
                of COGI will be required, which consent shall not be unreasonably
                withheld
                provided the whole costs of the proposed new Registrar, both for
                accepting
                the role of Registrar and for maintaining the Register, are met by
                the
                outgoing Registrar or by the Noteholders.

            

    

     

    
      	
            	5.3	
              If
                at any time the Registrar is not the Subscriber or a Noteholder,
                COGI
                shall procure that the Registrar shall not amend the Register otherwise
                than in accordance with the provisions for amendment contained in
                this
                Instrument and the Conditions. 

            

    

     

    
      	
            	5.4	
              A
                Noteholder and any person authorised in writing by any such persons
                shall
                be entitled without charge at all reasonable times during office
                hours in
                London to inspect the Register and take copies of and extracts from
                the
                Register or any part thereof free of charge insofar as it refers
                to that
                specific Noteholder.

            

    

     

    
      	
              6.

            	
              REPRESENTATIONS

            

    

     

    COGI
      warrants and represents to the Noteholders that on the date of this Instrument
      and on each anniversary thereof and on the Redemption Date:

     

    
      	
            	6.1	
              it
                and each of the Subsidiaries is an entity duly incorporated or otherwise
                organised, validly existing and in good standing under the laws of
                the
                jurisdiction of its incorporation or organisation (as applicable),
                with
                the requisite power and authority to own and use its and their properties
                and assets and to carry on its and their businesses as currently
                conducted. COGI is not, nor are any of the Subsidiaries, in violation
                or
                default of any of the provisions of its or their certificate or articles
                of incorporation, bylaws or other organisational or charter
                documents;

            

    

     

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

     

    
      	
            	6.2	
              no
                order has been made or petition presented or resolution passed for
                the
                winding up of COGI or any Group member and no distress, execution
                or other
                process has been levied on any of its or their
                assets;

            

    

     

    
      	
            	6.3	
              neither
                COGI nor any Group member has stopped payment on any debts and neither
                COGI nor any Group member is insolvent or unable to pay its or their
                debts
                for the purpose of Section 123 of the Insolvency Act
                1986;

            

    

     

    
      	
            	6.4	
              no
                administrative receiver, receiver and manager or the equivalent in
                any
                other applicable jurisdiction has been appointed to the business
                or assets
                or any part thereof of COGI or of any Group
                member;

            

    

     

    
      	
            	6.5	
              all
                of the direct and indirect subsidiaries of COGI are set forth in
                the
                Disclosure Letter. Except as is set forth in the Disclosure Letter,
                COGI
                owns, directly or indirectly, all of the capital stock or other equity
                interests of each Subsidiary free and clear of any Liens, and all
                of the
                issued and outstanding shares of capital stock of each Subsidiary
                are
                validly issued and are fully paid, non-assessable and free of pre-emptive
                and similar rights to subscribe for or purchase
                securities;

            

    

     

    
      	
            	6.6	
              payments
                under the Notes will be made by COGI without withholding or deducting
                for
                any taxes, duties or other charges of whatever nature of the jurisdiction
                of incorporation of COGI or any political subdivision or authority
                thereof
                or therein having power to tax;

            

    

     

    
      
         

      

      
        16

        
          

        

      

      
         

      

    

     

    
      	
            	6.7	
              since
                the date of the latest audited financial statements of COGI, (i)
                there has
                been no event, occurrence or development that has had or that could
                reasonably be expected to result in an event which is materially
                adverse
                to the condition (financial or otherwise), prospects, results of
                operations or general affairs of COGI or the Group (a “Material Adverse
                Effect”), (ii) COGI has not incurred any liabilities (contingent or
                otherwise) other than (A) trade payables and accrued expenses incurred
                in
                the ordinary course of business consistent with past practice and
                (B)
                liabilities not required to be reflected in COGI’s financial statements
                pursuant to US GAAP, (iii) COGI has not altered its method of accounting,
                (iv) COGI has not declared or made any dividend or distribution of
                cash or
                other property to its stockholders or purchased, redeemed or made
                any
                agreements to purchase or redeem any shares of its capital stock
                and (v)
                COGI has not issued any equity securities to any officer, director
                or
                Affiliate, except pursuant to existing COGI stock option
                plans;

            

    

     

    
      	
            	6.8	
              there
                is no action, suit, inquiry, notice of violation, proceeding or
                investigation pending or, to the knowledge of COGI, threatened against
                or
                affecting COGI, any Subsidiary or any of their respective properties
                before or by any court, arbitrator, governmental or administrative
                agency
                or regulatory authority (federal, state, county, local or foreign)
                (collectively, an “Action”) which (i) adversely affects or challenges the
                legality, validity or enforceability of any of the Transaction Documents
                or the Securities or (ii) could, if there were an unfavourable decision,
                have or reasonably be expected to result in a Material Adverse Effect.
                Neither COGI nor any Subsidiary, nor any director or officer thereof,
                is
                or has been the subject of any Action involving a claim of violation
                of or
                liability under federal or state securities laws or a claim of breach
                of
                fiduciary duty. There has not been, and to the knowledge of COGI,
                there is
                not pending or contemplated, any investigation by the SEC involving
                COGI
                or any current or former director or officer of COGI. The SEC has
                not
                issued any stop order or other order suspending the effectiveness
                of any
                registration statement filed by COGI or any Subsidiary under the
                Exchange
                Act or the Securities Act;

            

    

     

    
      	
            	6.9	
              COGI
                and the Subsidiaries have good and marketable title in fee simple
                to all
                real property owned by them and good and marketable title in all
                personal
                property owned by them that is material to the business of COGI and
                the
                Subsidiaries, in each case free and clear of all Liens, except for
                Liens
                as do not materially affect the value of such property and do not
                materially interfere with the use made and proposed to be made of
                such
                property by COGI and the Subsidiaries and Liens for the payment of
                federal, state or other taxes, the payment of which is neither delinquent
                nor subject to penalties. Any real property and facilities held under
                lease by COGI and the Subsidiaries are held by them under valid,
                subsisting and enforceable leases with which COGI and the Subsidiaries
                are
                in compliance;

            

    

     

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

     

    
      	
            	6.10	
              COGI
                and the Subsidiaries have, or have rights to use, all patents, patent
                applications, trademarks, trademark applications, service marks,
                trade
                names, trade secrets, inventions, copyrights, licenses and other
                intellectual property rights and similar rights necessary or material
                for
                use in connection with their respective businesses and which the
                failure
                to so have could have a Material Adverse Effect (collectively, the
                “Intellectual Property Rights”). Neither COGI nor any Subsidiary has
                received a notice (written or otherwise) that any of the Intellectual
                Property Rights used by COGI or any Subsidiary violates or infringes
                upon
                the rights of any Person. To the knowledge of COGI, all such Intellectual
                Property Rights are enforceable and there is no existing infringement
                by
                another Person of any of the Intellectual Property Rights. COGI and
                its
                Subsidiaries have taken reasonable security measures to protect the
                secrecy, confidentiality and value of all of their intellectual
                properties, except where failure to do so could not, individually
                or in
                the aggregate, reasonably be expected to have a Material Adverse
                Effect;

            

    

     

    
      	
            	6.11	
              it
                has full power to issue and perform its obligations under the Notes
                to
                borrow and repay up to the Aggregate Nominal Amount and has obtained
                and
                will maintain in effect all consents necessary for the foregoing
                purposes;
                

            

    

     

    
      	
            	6.12	
              the
                execution of this Instrument and the issue of the Notes does not
                and will
                not constitute a breach of any existing law or regulation or its
                charter
                or by-laws or exceed any limitation on the powers of its directors
                or
                breach the terms of any contract, charge or restriction binding upon
                it
                and this Instrument and each Note constitutes (or will when executed
                constitute) its valid and binding obligations;
                and

            

    

     

    
      	
            	6.13	
              no
                event has occurred which constitutes (or with the giving of notice
                or
                lapse of time or both would constitute) an Event of
                Default.

            

    

     

    
      	
              7.

            	
              INCORPORATION
                OF SCHEDULES

            

    

     

    The
      schedules shall have effect in the same manner as if such provisions were set
      out and incorporated in this Instrument.

    
      
         

      

      
        18

        
          

        

      

      
         

      

    

     

    
      	
              8.

            	
              LAW

            

    

     

    
      	
            	8.1	
              This
                Instrument, the schedules and the Notes shall be governed by and
                construed
                in accordance with the laws of England and
                Wales.

            

    

     

    
      	
            	8.2	
              Each
                of the parties agrees that the courts of England are to have non-exclusive
                jurisdiction to settle any dispute (including claims for set-off
                and
                counter claims) which may arise in connection with the creation,
                validity,
                effect, interpretation, or performance of, or of legal relationships
                established by, this Instrument or otherwise arising in connection
                with
                this Instrument, the schedules and the Notes and for such purposes
                irrevocably submit to the jurisdiction of the English
                courts.

            

    

     

    
      	
            	8.3	
              COGI
                hereby appoints the Process Agent as its agent for the purposes of
                receiving service of any process, proceedings or documents in connection
                with proceedings raised in the English courts in accordance with
                Clause
                8.2.

            

    

     

    IN
      WITNESS whereof
      this Instrument has been executed as a deed by COGI the day and year first
      above
      written.

    
      
         

      

      
        19

        
          

        

      

      
         

      

    

     

    SCHEDULE
      1 A

     

    Form
      of Individual Certificate

     

    No
      u                    

     

    

     

    CODA
      OCTOPUS GROUP, Inc.

     

    (Incorporated
      in the State of Delaware)

     

    Issue
      of
      USD 12,000,000 Loan Notes due [ ] February 2015

    (“Notes”)

     

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

     

    THIS
      IS
      TO CERTIFY that
      [                    ]
      of
      [                   ] is
      the registered holder of USD
      [                    ]
      of the Notes (“Nominal Amount”) which are constituted by an Instrument dated 21
      February 2008 (“Instrument”)
      and
      issued on 21 February 2008 (“Issue
      Date”).
      The
      Notes are issued subject to the terms of the Instrument and the Conditions
      endorsed hereon. Capitalised terms defined in the Instrument and the Conditions
      shall bear the same meaning in this Individual Certificate.

     

    Dated
                                     
2008

     

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

            	 	
              )

              )

              )

              )

            
	 	 	 
	 	 	 
	
              Director

            	 	 
	 	 	 
	 	 	 
	
              Director

            	 	 

    

     

    
      
         

      

      
        20

        
          

        

      

      
         

      

    

     

    NOTE:

     

    
      	
              1.

            	
              This
                Individual Certificate must be surrendered to the Registrar before
                any
                transfer whether of the whole or any part of the Notes comprised
                in it can
                be registered or any new Individual Certificate can be issued in
                exchange.

            

    

     

    
      	
              2.

            	
              The
                Notes are transferable in the amount or multiples of USD 100,000 only
                in accordance with the Conditions endorsed hereon. No transfer, whether
                of
                the whole or any part of the Notes comprised in this Individual
                Certificate, will be accepted for registration unless accompanied
                by this
                Individual Certificate and lodged at the offices of the
                Registrar.

            

    

     

    
      	
              3.

            	
              The
                Notes are repayable in accordance with the Conditions endorsed
                hereon.

            

    

     

    
      	
              4.

            	
              A
                copy of the Instrument and Register of Noteholders is available for
                inspection at the offices of the Registrar at all reasonable times
                during
                office hours in London.

            

    

     

    
      
         

      

      
        21

        
          

        

      

      
         

      

    

    SCHEDULE
      1 B

     

    Form
      of Instrument of Transfer

     

    IRREVOCABLE
      NOTE, STOCK OR BOND POWER

     

    CODA
      OCTOPUS GROUP, Inc.

     

    (Incorporated
      in the State of Delaware)

     

    USD
      12,000,000 Loan Notes due [ ] February 2015 (“Notes”)

     

    WE
      [ ] of
      [ ] the registered holder of Notes (constituted by an Instrument dated [ ]
      February 2008 (the “Instrument”))
      representing a Nominal Amount of USD [ ] For value received, the undersigned
      does(do) HEREBY sell, assign, and transfer to [ ] of [ ]USD [ ] Nominal Amount
      of the Notes, No.s [ ] inclusive to the said [ ]1 
      standing
      in the name of the undersigned on the register maintained by [ ] in connection
      with the Notes. The undersigned does (do) hereby irrevocably constitute and
      appoint [ ] attorney to transfer the said Notes, on the books of the said
      Company, with the full power of substitution in the premises. The Transferee
      by
      acceptance of this Instrument of Transfer and by presenting this Instrument
      of
      Transfer to the Registrar for registration accepts the Notes subject to the
      terms of the Instrument and the Conditions forming Schedule 2 to the
      Instrument.

     

    Dated
                                     
20[ ]

     

    
      	
              EXECUTED
                and delivered as a deed by [ ] acting by two directors or one director
                and
                the company secretary

            	 	
              )

              )

              )

              )

            
	 	 	 
	 	 	 
	
              Director

            	 	 
	 	 	 
	 	 	 
	
              Director
                / Secretary

            	 	 

    

     

    
      

      
        1
          IMPORTANT: The signature(s) to this power must correspond with the name(s)
          as
          written upon the face of the certificate(s) in every particular without
          alteration

        
 

        
          
             

          

          
            22

            
              

            

          

          
             

          

        

      

    

     

    SCHEDULE
      2

     

    The
      Conditions

     

    Unless
      the context requires otherwise, words and expressions defined in the Instrument
      shall have the same meaning when used in these Conditions.

     

    
      	
              1.

            	
              AMOUNT
                AND STATUS OF THE NOTES

            

    

     

    
      	
            	1.1	
              Status

            

    

     

    The
      Notes
      constitute direct, general, secured, unconditional obligations of COGI
      constituted by the Instrument. The Notes shall at all times rank pari
      passu
      and
      rateably without any preference amongst themselves. 

     

    
      	
            	1.2	
              Denomination
                and Nominal Amount

            

    

     

    The
      Notes
      shall be issued in amounts of USD 100,000 and integral multiples thereof in
      nominal value subject to and with the benefit of the provisions of the
      Instrument. All the obligations and covenants contained in the Instrument shall
      be binding on COGI and the Noteholders and all persons claiming through them.
      The maximum Aggregate Nominal Amount of the Notes shall be USD
      12,000,000.

     

    
      	
              2.

            	
              FORM
                OF NOTES

            

    

     

    
      	
            	2.1	
              The
                Notes will be represented by Certificates in the form or substantially
                in
                the form set out in Schedule 1 of the Instrument, each signed by
                the duly
                authorised officers of COGI. The Notes shall be issued in registered
                form.

            

    

     

    
      	
            	2.2	
              Any
                Certificates and any certificates for Common Stock issued as a result
                of
                any conversion of the Notes in accordance with Clause 4 of the Instrument
                shall all be imprinted with the
                Legend.

            

    

     

    
      	
              3.

            	
              REDEMPTION

            

    

     

    
      	 	
              3.1

            	
              Final
                Redemption.
                Unless previously redeemed in full, or purchased or converted or
                cancelled, COGI will redeem the Notes on the earliest of the following
                (“Maturity
                Date”):

            

    

     

    
      	 	
              3.1.1

            	
              21
                February 2015, or if such date is not a Business Day on the immediately
                preceding Business Day (“Final
                Maturity Date”);
                and

            

    

     

    
      	 	
              3.1.2

            	
              the
                date upon which a Liquidation takes
                place;

            

    

     

    when
      the
      Noteholders shall be paid the Redemption Amount for each Note then
      outstanding.

    
      
         

      

      
        23

        
          

        

      

      
         

      

    

     

    
      	 	
              3.2

            	
              Full
                or partial redemption prior to the Maturity Date at the option of
                COGI.
                COGI may, by giving not less than five Business Days prior written
                notice
                to the Noteholders, redeem all or any of the Notes. Upon the day
                specified
                in the relevant notice (“Redemption
                Date”)
                COGI shall be bound to redeem the Notes specified in the relevant
                notice,
                each at the Redemption Amount (as calculated in accordance with Condition
                1.4) and the Noteholders shall be bound to deliver the Individual
                Certificates representing the Notes to
                COGI.

            

    

     

    
      	 	
              3.3

            	
              Full
                redemption prior to the Maturity Date at the option of the
                Noteholders.
                If there is a Change of Control at any time prior to the Maturity
                Date
                then a Noteholder Majority or Noteholders (acting under Extraordinary
                Resolution of the Noteholders) may by giving not less than five Business
                Days prior written notice to COGI specifying a date for redemption
                of the
                Notes (“Redemption
                Date”),
                require the redemption of all the Notes represented by each of the
                Individual Certificates and COGI shall be bound to redeem the Notes
                accordingly each at the Redemption Amount (as calculated in accordance
                with Condition 3.5) and the Noteholders shall be bound to deliver
                the
                Individual Certificates representing the Notes to the Registrar,
                with a
                copy to COGI at the same time.

            

    

     

    
      	 	
              3.4

            	
              Redemption
                if no acquisitions.
                Should the acquisitions of those of the Approved Acquisitions specifically
                named in the Confidentiality Agreement not be completed with 12 months
                of
                the date of the Instrument, COGI will, no later than 30 days before
                the
                first anniversary of the date of this Instrument, submit alternative
                investment plans to the Noteholders for approval by a Noteholder
                Majority.
                If such approval is not forthcoming within 30 days of it being sought,
                COGI will, within 14 days of the written request of a Noteholder
                Majority,
                repay, without penalty, but including any interest accrued up to
                the date
                of repayment, the sum of USD 6,000,000. Any such repayment shall
                be
                treated as a redemption of sixty (60) of the Notes and the remainder
                of
                the Notes shall continue in existence in accordance with the terms
                of this
                Instrument. For
                the avoidance of doubt, no premium or other payment over and above
                the
                Nominal Amount of the sixty (60) Notes shall be due in the event
                of
                partial repayment under this Condition
                3.4;

            

    

     

    
      
         

      

      
        24

        
          

        

      

      
         

      

    

     

    
      	 	
              3.5

            	
              Redemption
                Amount. 

            

    

     

    
      	
            	3.5.1	
              For
                the purposes of a redemption taking place on the Maturity Date in
                accordance with Condition 3.1 the Redemption Amount shall be 130%
                of the
                Nominal Amount.

            

    

     

    
      	
            	3.5.2	
              For
                the purposes of Condition 3.2 and Condition 3.3, the Redemption Amount
                on
                the relevant Redemption Date shall be an amount equal to whichever
                is the
                greater of (1) 130% of NA or (2) NA +
                P

            

    

     

    Where:

     

    
      	
              NA

            	
              =

            	
              The
                Nominal Amount

            
	 	 	 
	
              P

            	
              =

            	
              The
                amount which, when added to the Nominal Amount on the Redemption
                Date,
                will result in the Noteholders receiving an IRR of not less than
                30%

            
	 	 	 
	
              IRR

            	
              =
                

            	
              The
                internal rate of return for each Note such that the net present value
                of
                all cashflows associated with the Notes (including all interest paid
                on
                the Notes to the Redemption Date and including the original subscription
                amount and the Redemption Amount for the Notes) when discounted back
                to
                the date of issue of the Notes equals
                zero.

            

    

     

    
      	
            	3.5.3	
              If
                a partial redemption is effected under the provisions of Condition
                3.4
                (Redemption if no acquisition) then the Redemption Amount shall be
                100% of
                the Nominal Amount of each Note
                redeemed.

            

    

     

    
      	
            	3.5.4	
              If
                the Notes become due and payable following an Event of Default in
                accordance with Condition 9.3 then the Redemption Amount shall be
                the
                amount calculated in accordance with the provisions of Condition
                3.5.2.

            

    

     

    
      	 	
              3.6

            	
              All
                Notes redeemed by COGI shall be cancelled and shall not be available
                for
                reissue.

            

    

     

    
      
         

      

      
        25

        
          

        

      

      
         

      

    

     

    
      	 	
              3.7

            	
              Where
                some, but not all, of the Notes are redeemed under Condition 3.2
                or
                Condition 3.4, those of the Notes to be redeemed shall be randomly
                selected from all of the Notes then in issue by means of drawing
                lots from
                the serial numbers of all the Notes remaining in issue at the relevant
                time. Such drawing of lots shall be conducted by COGI which shall
                certify
                to the Noteholders the serial numbers of the Notes to be redeemed.
                

            

    

     

    
      	
              4.

            	
              INTEREST

            

    

     

    
      	
            	4.1	
              The
                Notes will bear interest at a rate of 8.5% (eight and one-half percent)
                per annum payable half-yearly in arrears on 21 February and 21 August.
                The
                first payment shall be due on 21 February 2009 for the period from
                the
                date of issue of the Notes to and including 21 February 2009. Interest
                shall be calculated on the basis of a standard 30 days per month
                and 360
                days per annum, regardless of the actual number of days in any month
                or
                year.

            

    

     

    
      	
            	4.2	
              If
                COGI fails at any time to make any payment on the due date, COGI
                shall pay
                to the Noteholders interest on such sum for the period between the
                due
                date and the date on which such unpaid sum is paid in full (as well
                after
                as before judgement), such interest accruing daily on the basis of
                a year
                of 365 days and the number of days elapsed at the rate of 2% per
                annum
                above the base rate quoted by The Royal Bank of Scotland plc from
                time to
                time.

            

    

     

    
      	
              5.

            	
              SET
                OFF

            

    

     

    
      	 	
              5.1

            	
              All
                payments in respect of the Notes shall be without set-off or counterclaim
                and free and clear of all claims liens charges encumbrances and any
                equity
                set-off or cross-claim on the part of COGI against any Noteholder
                and
                (except where required by law) without deduction or withholding or
                payment
                for or on account of any taxes which may be imposed in the United
                States
                of America, Norway, the United Kingdom or any other jurisdiction
                from
                which payment may be made by COGI.

            

    

     

    
      	 	
              5.2

            	
              If
                a payment due in respect of the Notes is subject to taxation by way
                of
                withholding at its source, the Noteholders shall be entitled to receive
                from COGI such amounts as shall ensure that the net receipt, after
                taxation, to the Noteholders in respect of the payment is the same
                as it
                would have been were the payment not subject to
                taxation.

            

    

    
      
         

      

      
        26

        
          

        

      

      
         

      

    

     

    
      	
              6.

            	
              TITLE
                TO NOTES

            

    

     

    Except
      as
      required by law, COGI shall be entitled to recognise the registered holder(s)
      of
      the Notes as the absolute owner(s) thereof and shall not be bound to take notice
      of any trust whether express, implied or constructive to which any Notes may
      be
      subject. COGI may accept the receipt of the registered holder for the time
      being
      of any Notes for any moneys payable in respect thereof as a good discharge
      to
      COGI notwithstanding any notice it may have whether express or otherwise of
      the
      right, title, interest or claim of any other person to or in such Notes,
      interest or moneys. No notice of any trust, express, implied or constructive,
      shall be entered on the Register in respect of any Notes.

     

    
      
        	7.	
                TRANSFER

              

      

    

     

    
      	 	
              7.1

            	
              The
                Notes shall be freely transferrable (in integral multiples of USD
                100,000)
                by execution of an instrument of transfer in the form set out in
                Schedule
                1 B to the Instrument.

            

    

     

    
      	 	
              7.2

            	
              Every
                instrument of transfer shall be signed as a deed by or on behalf
                of the
                transferor and the transferor shall be deemed to remain the owner
                of the
                Notes until the name of the transferee is entered in the Register
                in
                respect of the Notes.

            

    

     

    
      	 	
              7.3

            	
              Every
                instrument of transfer must be left, duly stamped, at the offices
                of the
                Registrar from time to time for registration accompanied by the Individual
                Certificate of the Notes to be transferred and such other evidence
                (if
                any) as the Registrar may reasonably require to prove the title of
                the
                transferor or its right to transfer the Notes (and if the instrument
                of
                transfer is executed by some other person on his behalf the authority
                of
                that person to do so), whereupon COGI shall procure that such transfers
                shall be so registered. No fee will be charged by the Registrar or
                COGI
                for the registration of any
                transfer.

            

    

     

    
      	 	
              7.4

            	
              In
                the case of any transfer of Notes, the transferee shall be entitled
                to an
                Individual Certificate in respect of such Notes so transferred. If
                the
                Individual Certificate related to Notes of a higher Nominal Amount
                than
                the Notes transferred then the transferor shall be entitled to an
                Individual Certificate for the balance of Notes held by it after
                the
                completion of the relevant transfer of
                Notes.

            

    

     

    
      	 	
              7.5

            	
              No
                application has been or is intended to be made to any stock exchange
                for
                any of the Notes to be listed or otherwise traded.
                

            

    

     

    
      	 	
              7.6

            	 

    

     

    
      
         

      

      
        27

        
          

        

      

      
         

      

    

     

    
      	 	
              7.7

            	
              All
                instruments of transfer which shall be registered and all Individual
                Certificates which are surrendered to the Registrar or COGI will
                be
                retained by the Registrar or COGI for a period of three (3) years
                following the Final Maturity Date.

            

    

     

    
      	 	
              7.8

            	
              Any
                person becoming entitled to a Note in consequence of the insolvency
                or
                bankruptcy of any Noteholder or of any other event giving rise to
                the
                transmission of such Note by operation of law may upon producing
                such
                evidence of its title and the relevant Individual Certificate be
                registered itself as the holder of the Note or may transfer the
                Note.

            

    

     

    
      	 	
              7.9

            	
              Upon
                surrender to the Registrar of the relevant Certificate or Certificates,
                any Noteholder shall be entitled to a replacement Certificate or
                Certificates in respect of any Certificate or Certificates which
                have been
                mutilated or defaced. If any Certificate or Certificates are destroyed
                or
                lost, then upon the Noteholder indemnifying the Registrar and COGI,
                in
                terms reasonably acceptable to the Registrar and COGI, the Noteholder
                shall be entitled to a replacement Certificate or Certificates.
                

            

    

     

    
      	
              8.

            	
              PAYMENT
                OF MONEYS

            

    

     

    If
      the
      due date for payment of any amount due hereunder falls on a day which is not
      a
      Business Day, such amount shall be due and payable on the Business Day
      immediately following such day. 

     

    
      	
              9.

            	
              EVENTS
                OF DEFAULT

            

    

     

    9.1 Subject
      to Condition 9.2, each of the following shall constitute an Event of
      Default:

     

    
      	 	
              (a)

            	
              COGI
                fails to pay any sums due hereunder upon the relevant interest payment
                date, Redemption Date or the Maturity Date of the Notes (as the case
                may
                be); or

            

    

     

    
      	 	
              (b)

            	
              COGI
                fails to procure the issue by its transfer agents and delivery within
                ten
                (10) Business Days, to the parties entitled to the same, of certificates
                or other appropriate evidence of title to the Common Stock arising
                from
                any conversion of the Notes (evidence that irrevocable instructions
                for
                the issuance of the shares of Common Stock were given to its transfer
                agents by COGI shall be sufficient and in such circumstances shall
                not
                constitute an Event of Default); or

            

    

     

    
      
         

      

      
        28

        
          

        

      

      
         

      

    

     

    
      	 	
              (c)

            	
              COGI
                fails to comply to a material extent with the covenants contained
                in
                Clause 3 of the Loan Note Instrument;
                or

            

    

     

    
      	 	
              (d)

            	
              COGI
                fails to comply to a material extent with any of the Conditions;
                or

            

    

     

    
      	 	
              (e)

            	
              COGI
                fails to advise the Noteholders of any material circumstances which
                would,
                in all probability, constitute an Event of Default;
                or

            

    

     

    
      	 	
              (f)

            	
              COGI
                or any member of the Group ceases or threatens to cease to carry
                on its
                business or a substantial part of its business without first obtaining
                the
                prior written consent of a Noteholder Majority;
                or

            

    

     

    
      	 	
              (g)

            	
              any
                Guarantor failing to pay when due any sum due under the Subscription
                Agreement (or any other agreement whereby such Guarantor guarantees
                the
                obligations of COGI under the Transaction Documents) of not less
                than USD
                100,000; or

            

    

     

    
      	 	
              (h)

            	
              if
                any order is made by any competent court or any resolution is passed
                by
                COGI for the winding up or dissolution or for the appointment of
                a
                liquidator of COGI (except in the case of a voluntary amalgamation
                or
                reconstruction of COGI on a solvent basis);
                or

            

    

     

    
      	 	
              (i)

            	
              if
                a liquidator, administrator, receiver, receiver and manager or
                administrative receiver or similar officer is appointed in relation
                to the
                whole or any part of its assets, rights or undertaking;
                or

            

    

     

    
      	 	
              (j)

            	
              if
                proceedings are commenced under any law, regulation or procedure
                relating
                to the reconstruction or adjustment of debts;
                or

            

    

     

    
      	 	
              (k)

            	
              if
                any order is made by any competent court for the appointment of an
                administrator in relation to COGI;
                or

            

    

     

    
      	 	
              (l)

            	
              if
                COGI becomes prevented by law or court order from performing its
                obligations under the Instrument;
                or

            

    

     

    
      	 	
              (m)

            	
              if
                any security or security documentation granted pursuant to the
                Subscription Agreement is terminated (without the prior written consent
                of
                a Noteholder Majority) or becomes unenforceable;
                or

            

    

     

    
      
         

      

      
        29

        
          

        

      

      
         

      

    

     

    
      	 	
              (n)

            	
              if
                there is a breach of any of the restrictions contained in the Lock-up
                Agreements by any party to it;

            

    

     

    
      	 	
              (o)

            	
              if
                there is any breach by COGI of any material warranty or material
                representation contained in the Loan Note Instrument or the Subscription
                Agreement.

            

    

     

    
      	
            	9.2	
              Save
                in respect of any Event of Default falling under Condition 9.1(e)
                above,
                if there are any matters, facts or circumstances which, but for this
                Condition 9.2, would constitute an Event of Default but such Event
                of
                Default is capable of being remedied (a “Possible Breach”) then COGI shall
                have a period of 30 days (or such longer period as is reasonable
                in the
                circumstances and which is agreed between COGI and a Noteholder Majority,
                all parties acting reasonably) from the earlier of (i) the date COGI
                becomes aware, or ought reasonably to be aware, of such matters,
                facts or
                circumstances and (ii) the date COGI is given notice by a Noteholder
                Majority in which to remedy any matters, facts or circumstances giving
                rise to the Possible Breach. If COGI remedies the matters, facts
                or
                circumstances in accordance with this Condition 9.2 then any Event of
                Default which would have arisen, but for the remediation, shall be
                deemed
                not to have occurred.

            

    

     

    
      	
            	9.3	
              If
                an Event of Default occurs and it is not remedied in accordance with
                Condition 9.2 then, on the expiry of the period allowed in Condition
                9.2
                to remedy the Event of Default, and upon written notice by a Noteholder
                Majority, the Notes shall become immediately due and payable at the
                Redemption Amount and the Noteholders shall be entitled to take such
                enforcement action as they see fit in accordance with the Transaction
                Documents or as may otherwise be available at law. In the event that
                either (i) the Noteholders do not take such action within six months
                of
                becoming aware of the occurrence of the Event of Default or (ii)
                the Event
                of Default is remedied by action or passage of time before the Noteholders
                take any enforcement action then (without prejudice to the rights
                of the
                Noteholders in respect of any other Event of Default which has or
                may
                subsequently occur) the rights of the Noteholders to take such action
                in
                respect of that Event of Default shall terminate and the Event of
                Default
                will be deemed to have been waived.

            

    

     

    
      
         

      

      
        30

        
          

        

      

      
         

      

    

     

    
      	
              10.

            	
              MEETINGS
                OF NOTEHOLDERS

            

    

     

    
      	 	
              10.1

            	
              COGI
                may (and shall at the written request of a Noteholder Majority) at
                any
                time convene a meeting of the Noteholders by not less than 7 (or
                such
                shorter period as a Noteholder Majority may agree) days' notice to
                the
                Noteholders, specifying the place, day and hour of the meeting and
                the
                terms of any resolution (an “Extraordinary Resolution”) to be proposed at
                the meeting and which is to be passed by a Noteholder Majority. The
                meeting shall have power by an Extraordinary Resolution to approve
                (subject to the consent of COGI in writing) any modification, abrogation
                or compromise or any arrangement in respect of the rights of the
                Noteholders against COGI and to assent to any modification of the
                Instrument to the extent that it affects the Notes. No variation
                or
                modification of the rights of the Noteholders or of any provision
                of the
                Instrument or such Notes shall be made without the prior approval
                of an
                Extraordinary Resolution by the Noteholders in accordance with this
                Condition 10.1. A poll may be demanded either by the chairman of
                the
                meeting or by a Noteholder Majority. On a poll, a Noteholder shall
                have
                one vote for every USD 1 in Nominal Amount of Notes registered in
                its
                name. The non-receipt by any Noteholder of or the accidental omission
                to
                give any Noteholder notice of any such meeting shall not invalidate
                the
                proceedings at that meeting. An Extraordinary Resolution passed at
                a
                meeting of the Noteholders duly convened and held in accordance with
                this
                Condition 10.1 shall be binding on each of the Noteholders whether
                present
                or not present at such meeting. A resolution signed by a Noteholder
                Majority shall be as valid and effectual as if it had been passed
                at a
                meeting of the Noteholders duly convened and held and such resolution
                in
                writing may be contained in one document or in several documents
                in like
                form each signed by or on behalf of one or more of the Noteholders.
                

            

    

     

    
      	 	
              10.2

            	
              The
                quorum at any meeting shall be Noteholders holding or representing
                by
                proxy seventy-five per cent (75%) of the Aggregate Nominal Amount
                outstanding of the Notes. If within a quarter of an hour from the
                time
                appointed for any meeting, a quorum is not present the meeting shall
                stand
                adjourned to such day (not being less than 5 or more than 21 days
                after
                the date of the meeting from which such adjournment takes place)
                and to
                such time and place as the chairman of the meeting may determine.
                At the
                adjourned meeting the quorum shall comprise of Noteholders holding
                or
                representing by proxy a minimum of seventy-five per cent (75%) of
                the
                Aggregate Nominal Amount outstanding of the Notes. Notice of an
                adjournment shall be given in like manner as for the original
                meeting.

            

    

    
      
         

      

      
        31

        
          

        

      

      
         

      

    

     

    
      	 	
              10.4

            	
              Any
                Noteholder being a body corporate may appoint a representative to
                attend
                and vote on such Noteholder’s behalf at meetings of Noteholders. Any
                Noteholder being an individual may appoint an attorney or proxy to
                attend
                and vote on such Noteholder’s behalf at meetings of Noteholders. The
                authority of any such representative, attorney or proxy to attend
                and vote
                shall be determined by the chairman of the relevant meeting of
                Noteholders, acting reasonably. 

            

    

     

    
      	
              11.

            	
              ALTERATION
                OF THE INSTRUMENT

            

    

     

    The
      provisions of the Instrument and these Conditions may not be altered abrogated
      or added to save with the consent in writing of COGI and the consent in writing
      of a Noteholder Majority.

     

    
      	
              12.

            	
              NOTICES

            

    

     

    Any
      notice, demand or other document to be given under the Instrument or the
      Conditions:

     

    
      	 	
              12.1

            	
              must
                be in writing;

            

    

     

    
      	 	
              12.2

            	
              may
                be given to COGI at its Principal Office for the time
                being;

            

    

     

    
      	 	
              12.3

            	
              may
                be given to each Noteholder at its address as shown in the Register
                or
                such other address as it may notify to COGI for such purpose;
                and

            

    

     

    
      	 	
              12.4

            	
              shall
                be deemed to have been served:

            

    

     

    
      	 	
              12.4.1

            	
              if
                delivered by hand, at the time of delivery;
                or

            

    

     

    
      	 	
              12.4.2

            	
              if
                posted, at 10.00 a.m. on the second (or, in the case of air mail,
                fourth)
                Business Day after it was put into the post;
                or

            

    

     

    
      	 	
              12.4.3

            	
              if
                sent by facsimile on receipt of a successful transmission report,
                or if
                despatched after 5.00 p.m. on any Business Day at 10.00am on the
                Business
                Day following the date of receipt of a successful transmission
                report.

            

    

    
      
         

      

      
        32

        
          

        

      

      
         

      

    

     

    
      	
              13.

            	
              INSTRUMENT

            

    

     

    A
      copy of
      the Instrument shall be supplied free of charge to each Noteholder on receipt
      by
      COGI of a written request of the Noteholder.

     

    
      	
              14.

            	
              EXPENSES

            

    

     

    COGI
      will
      pay any stamp duty, issue, registration, documentary and other similar fees,
      duties and taxes incurred by it including interest and penalties payable on
      or
      in connection with the execution and delivery of the Instrument and the
      constitution and issue of the Notes.

     

    
      	
              15.

            	
              THIRD
                PARTIES

            

    

     

    The
      Contracts (Rights of Third Parties) Act 1999 shall not apply to the Instrument
      and the Notes and a person who is not a party to the Instrument nor a Noteholder
      shall not have nor acquire any right to enforce any term of it pursuant to
      that
      Act. This provision shall not affect any right or remedy of any third party
      which exists or is available otherwise than by reason of that Act and shall
      prevail over any other provision of the Instrument which is inconsistent with
      it.

     

    
      	
              16.

            	
              LAW

            

    

     

    
      	 	
              16.1

            	
              The
                Instrument, the Schedules and the Notes shall be governed by and
                construed
                in accordance with the laws of England and
                Wales.

            

    

     

    
      	 	
              16.2

            	
              Each
                of the parties agrees that the courts of England are to have non-exclusive
                jurisdiction to settle any dispute (including claims for set-off
                and
                counter claims) which may arise in connection with the creation,
                validity,
                effect, interpretation, or performance of, or of legal relationships
                established by, the Instrument or otherwise arising in connection
                with the
                Instrument, the Schedules and the Notes and for such purposes irrevocably
                submit to the jurisdiction of the English
                courts.

            

    

     

    
      	 	
              16.3

            	
              COGI
                hereby appoints the Process Agent as its agent for the purposes of
                receiving service of any process, proceedings or documents in connection
                with proceedings raised in the English courts in accordance with
                Condition
                16.2.

            

    

     

    
      
         

      

      
        33

        
          

        

      

      
         

      

    

     

    SCHEDULE
      3

     

    Conversion

     

    
      	1	
              Definitions

            

    

     

    Words
      and
      expressions defined in Clause 1 of this Instrument shall have the same meaning
      when used in this Schedule. In addition, the following words and expressions,
      unless the context requires otherwise, mean: 

    

    “Company”
means
      COGI

    

    “Conversion
      Price”
means
      USD 1.05 of nominal value of the Notes for each unit of Common
      Stock;

    

    “Converted
      Stock”
means
      the total number of units of Common Stock issued upon any conversion in
      accordance with Paragraph 2 or Paragraph 3;

    

    “Convertible
      Balance”
means
      the Aggregate Nominal Amount of the Notes but deducting therefrom the Nominal
      Amounts (if any) of any Notes which have been redeemed or repaid but not
      surrendered for cancellation;

    

    “Final
      Company Conversion Period”
means
      the period commencing on 22 February 2012 and ending on the last date upon
      which
      all of the Notes have been redeemed, converted or cancelled in accordance with
      the provisions of the Loan Note Instrument;

    

    “First
      Company Conversion Period”
means
      the period from 22 February 2010 to 21 February 2011 (both dates
      inclusive);

    

    “Listing”
means
      a
      successful application being made for all or any of the Common Stock either
      (A)
      to be admitted to trading on any of (i) a US national exchange such as American
      Exchange, (ii) the New York Stock Exchange, (iii) the National Association
      of
      Securities Dealers Automated Quotation system, or (B) to be admitted to the
      Official List of the United Kingdom Listing Authority and to trading on the
      London Stock Exchange plc's main market for listed securities or (C) a
      successful application being made to any other recognised investment exchange
      or
      overseas investment exchange (as such expressions are defined in the Financial
      Services and Markets Act 2000) for all or any of the Common Stock to be admitted
      to trading on such exchange;

    
      
         

      

      
        34

        
          

        

      

      
         

      

    

     

    “Minimum
      Stock Price”
      means:

    

    
      	
              (1)

            	
              During
                the First Company Conversion Period, USD
                2.50;

            

    

     

    
      	
              (2)

            	
              During
                the Second Company Conversion Period, USD 2.90;
                and

            

    

     

    
      	
              (3)

            	
              During
                the Final Company Conversion Period, USD
                3.50.

            

    

     

    “OTCBB”
means
      the OTC Bulletin Board which provides a quotation service for the Common Stock
      under the symbol “CDOC”;

    

    “Second
      Company Conversion Period”
means
      the period from 22 February 2011 to 21 February 2012 (both dates
      inclusive).

    

    
      	2	
              Noteholders’
                right to convert

            

    

    

    
      	2.1	
              At
                any time whilst any of the Notes remains due and outstanding, a Noteholder
                Majority or the Noteholders (acting under an Extraordinary Resolution
                of
                the Noteholders in terms of the Conditions) may serve notice on COGI
                (in
                the form set out in Schedule 5 to the Loan Note Instrument) requiring
                that
                the Convertible Balance is converted into Common
                Stock.

            

    

    

    
      	2.2	
              Any
                such notice shall specify the date upon which the conversion is to
                take
                place (being not earlier than 14 days after the date such notice
                is
                served) and full details of the person(s) to whom the certificate(s)
                representing the Common Stock arising from the conversion is to be
                issued.

            

    

    

    
      	2.3	
              The
                number of units of Common Stock to be issued upon any conversion
                in terms
                of this Paragraph 2 (the “Noteholder Conversion Shares”) shall be the
                Convertible Balance divided by the Conversion Price, rounded up or
                down to
                the nearest whole unit of Common Stock. As between the Noteholders
                the
                Conversion Shares shall be allocated, as closely as possible, pro
                rata in
                accordance with the Nominal Amount of Notes held by each Noteholder,
                rounded up or down to the nearest whole unit of Common
                Stock.

            

    

    
      
         

      

      
        35

        
          

        

      

      
         

      

    

     

    
      	2.4	
              If
                any Certificates are not delivered to COGI with the notice referred
                to in
                Paragraph 2.1, then the relevant Noteholders will be required to
                indemnify
                COGI and the Registrar (in terms reasonably acceptable to COGI and
                the
                Registrar) in relation to those certificates not so delivered, which
                Certificates will be deemed to have been automatically cancelled
                immediately upon the issue of the certificates for the Common Stock
                arising from the Conversion.

            

    

    

    
      	3	
              Company’s
                right to convert

            

    

    

    
      	3.1	
              Subject
                to Paragraph 3.4, at any time during the period commencing on the
                first
                day of the First Company Conversion Period and ending on the last
                day of
                the Final Company Conversion Period COGI may serve notice on the
                Noteholders requiring that the Convertible Balance is converted into
                Common Stock.

            

    

    

    
      	3.2	
              Any
                such notice, in the case of a conversion due to the circumstances
                detailed
                in Paragraph 3.4(a), shall state that the conversion shall take place
                forthwith upon the conditions in Paragraph 3.5 being fulfilled and
                shall
                require the Noteholders to provide, no later than 3 Business Days
                before
                the date of conversion, the relevant Certificates and full details
                of the
                person(s) to whom the certificate(s) representing the Common Stock
                arising
                from the conversion is to be issued. Any such notice, in the case
                of a
                conversion due to the circumstances detailed in Paragraph 3.4 (b),
                shall
                specify the date upon which the conversion is to take place (being
                not
                earlier than 14 days after the date such notice is served) and shall
                require the Noteholders to provide, no later than 3 business days
                before
                the date of conversion, the relevant Certificates and full details
                of the
                person(s) to whom the certificate(s) representing the Common Stock
                arising
                from the conversion is to be
                issued.

            

    

    

    
      	3.3	
              The
                number of units of Common Stock to be issued upon any conversion
                in terms
                of this Paragraph 3 (the “Company Conversion Shares”) shall be the
                Convertible Balance divided by the Conversion Price, rounded up or
                down to
                the nearest whole unit of Common Stock. As between the Noteholders
                COGI
                Conversion Shares shall be allocated, as closely as possible, pro
                rata in
                accordance with the Nominal Amount of Notes held by each Noteholder,
                rounded up or down to the nearest whole unit of Common
                Stock.

            

    

    
      
         

      

      
        36

        
          

        

      

      
         

      

    

     

    
      	3.4	
              COGI
                may only serve notice under Paragraph 3.1 if
                either:

            

    

    

    
      	
            	(a)	
              at
                the time of service of the notice a Listing is proposed and the price
                at
                which the units of Common Stock are to be listed is at least the
                Minimum
                Stock Price applicable to the date upon which the notice is served;
                or

            

    

    

    
      	
            	(b)	
              the
                daily volume weighted average price of the Common Stock as quoted
                on OTCBB
                or any other US National Exchange which COGI’s securities are then listed
                has, for at least 40 consecutive trading days ending on the date
                of
                service of the notice, closed at no less than the Minimum Stock Price
                applicable to the date upon which the notice is
                served.

            

    

    

    
      	
              3.5

            	
              Any
                conversion notice served in the case of a proposed Listing (as referred
                to
                in Paragraph 3.4 (a)) shall be conditional upon (1) the Listing being
                completed and (2) the relevant Minimum Stock Price being achieved
                in the
                Listing. If both these conditions are not met then, without prejudice
                to
                the right of COGI to serve a conversion notice at any later date,
                the
                notice shall be deemed to have been withdrawn and the Notes shall
                not be
                converted at such time unless the majority of Noteholders agree to
                waive
                the Minimum Stock Price criterion.

            

    

    

    
      	
              3.6

            	
              If
                any Certificates are not delivered to COGI in accordance with Paragraph
                3.2, then the relevant Noteholders will be required to indemnify
                COGI and
                the Registrar (in terms reasonably acceptable to COGI and the Registrar)
                in relation to those certificates not so delivered and which will
                be
                deemed to have been automatically cancelled immediately upon the
                issue of
                the certificates for the Common Stock arising from the
                Conversion.

            

    

    

    
      	
              4

            	
              Interest

            

    

    

    On
      the
      date of any conversion in terms of either Paragraph 2 or Paragraph 3 COGI shall
      pay to the Noteholders all interest accrued on the Notes from the last date
      of
      payment to the date of conversion.

    

    
      	5	
              Termination
                of Rights

            

    

     

    On
      the
      date of an optional conversion pursuant to Paragraphs 2 or 3 above, all rights
      with respect to the Notes so converted shall terminate, except only the rights
      of holders thereof to (i) receive certificates for the number of shares of
      Common Stock into which such shares of the Notes have been converted, (ii)
      exercise the rights to which they are entitled as holders of Common Stock,
      (iii)
      receive accrued and unpaid interest or principal in relation to the Notes and
      (iv) receive amounts due to the Noteholders pursuant to Clause 3.14 of the
      Instrument (Indemnity). 

    
      
         

      

      
        37

        
          

        

      

      
         

      

    

    SCHEDULE
      4

     

    The
      Legend

     

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

    
      
         

      

      
        38

        
          

        

      

      
         

      

    

    SCHEDULE
      5

     

    Form
      of Notice of Conversion

     

    Issued
      pursuant to Paragraph 2.1 of Schedule 3 to the Loan Note Instrument (the
“Instrument”)
      issued
      on 21 February 2008 by Coda Octopus Group, Inc. (“COGI”) in respect of USD
      12,000,000 of secured, convertible loan notes. Terms and expressions defined
      in
      the Instrument or any of its Schedules shall have the same meaning when used
      in
      this notice.

     

    We
      [ ] of
      [ ], [ ] of [ ] and [ ] of [ ] being the [holders of Notes having an aggregate
      Nominal Amount of not less than 75% of the Notes Outstanding, acting pursuant
      to
      an Extraordinary Resolution of Noteholders held pursuant to Condition 10 (a
      certified copy of which Extraordinary Resolution is attached
      hereto)]/[Noteholder Majority] HERBY REQUIRE conversion of the Convertible
      Balance into Common Stock of COGI all in accordance with Paragraph 2.1 of
      Schedule 3 to the Instrument, such conversion to take effect on [
      ].

     

    Alt
      1

     

    We
      enclose the Certificates for all Notes currently in issue. Please issue and
      deliver stock certificates for the Common Stock arising on conversion of any
      Note to the registered holder of the relevant Note.

     

    Alt
      2

     

    We
      enclose the Certificates for all Notes currently in issue. Please issue and
      deliver stock certificates for the Common Stock arising on conversion of any
      Note to the following nominee of the relevant Noteholder.

     

    
      	
              Serial
                Number

            	
              Nominee
                for Noteholder

            

    

     

     

     

    Yours
      faithfully

     

    

      
        	
                Authorised
                  Signatory for [

              	 	
                ]

              
	 	 	 
	
                Authorised
                  Signatory for [ 

              	 	
                ]

              
	 	 	 
	
                Authorised
                  Signatory for [ 

              	 	
                ]

              

      

    

    
      
         

      

      
        39

        
          

        

      

      
         

      

    

     

    In
      Witness
      of which
      this deed has been duly executed

    
 

     

    
      	
              EXECUTED
                (but
                not delivered until the date hereof) as a deed by CODA
                OCTOPUS GROUP, Inc. acting
                by any two directors:

            	 	
              )

              )

              )

              )

              )

            
	 	 	 
	 	 	 
	
              Director

            	 	 
	 	 	 
	 	 	 
	
              Director

            	 	 

    

    

    
      
         

      

      
        40

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