Unassociated Document

Parties

(1)	The several persons whose details are set out in Part 1 of Schedule 1 (“the Sellers”).

(2)	Coda Octopus (UK) Holdings Limited incorporated and registered in England and Wales with company number 5834897 whose registered office is at Castle Farm, Deddington OX15 OTP (the “Buyer”).

(3)	Coda Octopus Group, Inc a Delaware corporation which has its headquarters at 245 Park Avenue, 39^th Floor, New York, NY 10167 as guarantor and indemnifier (the “Guarantor”).

Background

(A)

Martech Systems (Weymouth) Limited is a private company limited by shares having an authorised capital of £12,000,000 divided into 12,000,000 shares of £1 each of which 15,000 have been issued as fully paid. Further particulars of the class of shares within the authorised share capital of the Company are set out in Part 2 of Schedule 1 (Particulars of Company).

(B)

The Sellers are the legal and beneficial owners of, or are otherwise able to procure the transfer of, the legal and beneficial title to the number of Sale Shares set out opposite their respective names in Part 1 of Schedule 1 (Particulars of Sellers) comprising in aggregate the whole of the issued share capital of the Company.

(C)	The Sellers have agreed to sell and the Buyer has agreed to buy the Sale Shares being the entire issued share capital of the Company subject to the terms and conditions of this Agreement.

(D)	The Guarantor is the parent company of the Buyer and has become a party to this Agreement solely for the limited purpose of entering into the guarantee and indemnity obligations set out in clause 13 and 14.

Agreed terms

1.	Interpretation

1.1.	The definitions and rules of interpretation in this clause apply in this Agreement.

Accounts: the audited financial statements of the Company ended on the Accounts Date, including the balance sheet, profit and loss account together with the notes thereon.

Accounts Date: 31 October 2005.

Business: the business activities of the Company which encompasses services for the design and manufacture, installation and other support services of engineering solutions by utilising the application of electronic, software and mechanical expertise and skills entailing small-batch manufacture of primarily electronic equipment and sub-assemblies and which is developed on a bespoke basis and whose client base is mainly in the commercial and government sectors, including defence, security, nuclear and medical/pharmaceutical industries.

Business Day: a day other than a Saturday, Sunday or public holiday when the banks in the City of London are open for business.

Buyer’s Account: such account as the Buyer may notify from time to time.

Buyer’s Auditors: Blick Rothenburg, 12 York Gate Regent’s Park, London, NW1 4QS.

CAA 2001: the Capital Allowances Act 2001.

Cash Consideration: has the meaning set out in clause 3.1(a) of this Agreement.

Claim: a Tax Claim or a Warranty Claim.

Company: Martech Systems (Weymouth) Limited, a company incorporated and registered in England and Wales with company number 2300406 whose registered office is at 14 Albany Road, Granby Industrial Estate, Weymouth, Dorset DT4 9TH further details of which are set out in Part 2 of Schedule 1 (Particulars of Company).

Companies Acts: the Companies Act 1985 and the Companies Act 1989.

Completion Accounts: the accounts of the Company from the Accounts Date to the Completion Date and including the balance sheet and profit and loss account together with the notes thereon prepared in accordance with the provisions set forth in clause 4.

Completion: completion of the sale and purchase of the Sale Shares in accordance with this Agreement.

Completion Date: the date of this Agreement.

Connected: in relation to a person, has the meaning contained in section 839 of the ICTA 1988.

Contingent Consideration Payments: are the payments (comprising Loan Notes and the Contingent Consideration Shares) provided for in clause 3.1.(d) to be made by the Buyer to the Sellers in the proportion set out in the Schedule 9 (Apportionment of Purchase Price) as part of the Purchase Price provided always to the conditions precedent defined in Part 2 of Schedule 2 (Contingent Consideration Payments) being satisfied by the Company.

Contingent Consideration Shares that part of the Purchase Price specified in clause 3.1 (d) of this Agreement which becomes due to be satisfied by way of allotment of unregistered shares of common stock having a par value of US$0.001 each in the capital of the Issuer to be allotted and issued to the Sellers’ in accordance with the provisions set forth in clause 3 and Part 2 of Schedule 2.

Control: in relation to a body corporate, the power of a person to secure that the affairs of the body corporate are conducted in accordance with the wishes of that person:

(a)

by means of the holding of shares, or the possession of voting power, in or in relation to that or any other body corporate; or

(b)

by virtue of any powers conferred by the constitutional or corporate documents, or any other document, regulating that or any other body corporate,

and a Change of Control occurs if a person who controls any body corporate ceases to do so or if another person acquires control of it.

Deferred Consideration: has the meaning set out in clause 3.1 (b) (Purchase Price) and which is payable to each of the Sellers in the proportions set out in the Schedule 8 (Apportionment of Purchase Price Schedule).

Deferred Coda Consideration Shares: that part of the Purchase Price specified in clause 3.1 (c) (Purchase Price) of this Agreement which becomes due to be satisfied by way of allotment of the relevant number of unregistered shares of common stock having a par value of US$0.001 each in the capital of the Issuer and having a market value of £150,000 provided that the conditions set out in Part 1 of Schedule 2 are satisfied.

Director: each person who is a director or shadow director of the Company, the names of whom are set out in Part 2 of Schedule 1 (Particulars of the Company).

Disclosed: fairly disclosed in such manner and with sufficient detail to enable a reasonable buyer to identify the nature and scope of the matter disclosed.

Disclosure Letter: the letter from the Sellers to Buyer of the same date as this Agreement and described as the disclosure letter, including the bundle of documents attached to it (Disclosure Bundle).

Encumbrance: any interest or equity of any person (including any right to acquire, option or right of pre-emption) or any mortgage, charge, pledge, lien, assignment, hypothecation, security, interest, title, retention or any other security agreement or arrangement.

Event: has the meaning given in Schedule 5 (Tax covenant).

Executive Directors: mean the persons named in Part 1b of Schedule 1 (Particulars of Sellers) and who are to enter into new service agreement with the Company.

Financial Year: means the financial period of the Company commencing on the 1^st November and ending on the 31 October unless the context requires otherwise.

FSMA: the Financial Services and Markets Act 2000.

Group: in relation to a company (wherever incorporated) that company, any company of which it is a Subsidiary (its holding company) and any other Subsidiaries of any such holding company; and each company in a group is a member of the group.

Unless the context otherwise requires, the application of the definition of Group to any company at any time will apply to the company as it is at that time.

ICTA 1988: the Income and Corporation Taxes Act 1988.

IHTA 1984: the Inheritance Tax Act 1984.

Issuer: The corporation in whose capital the Deferred Coda Consideration Shares and the Contingent Consideration Shares are to be issued and which is Coda Octopus Group Inc, a Delaware Corporation, having its headquarters at 245 Park Avenue, 39^th Floor, New York, NY 10167.

Intellectual Property Rights: has the meaning given in paragraph 19.1 of Part 2.1 of Schedule 4 (Warranties).

Lease: the underlease dated 16 September 1999 between (1) David Jones (2) the Company and (3) the Surety defined in the said Lease and which is produced in the agreed form.

Leasehold Property: the Leasehold Property at 14 Albany Road (Plot 33), Granby Industrial Estate, Weymouth, Dorset, the details of which are fully described in the Lease which is produced in the agreed form.

Loan Noteholder: has the meaning set out in the Loan Note Instrument.

Loan Note Instrument: the instrument constituting the loan notes in the agreed form.

Loan Notes: comprising the Initial Loan Notes and the Deferred Loan Notes (as is defined in the Loan Note Instrument) in the agreed form constituted and subject to the terms of the Loan Note Instrument.

Management Accounts: the unaudited balance sheet and the unaudited profit and loss account of the Company (including any notes thereon) for the period of since the Accounts Date up to the Management Accounts Date.

Management Accounts Date: 16 June 2006

New Insurance Policies: means the insurance policies with a reputable insurer to cover product liability and professional indemnity liability in accordance with the provisions set forth in clause 11.

New Lease: means the grant of the lease for the Leasehold Property in the agreed form.

Non-Warrantors: means Mrs Elizabeth Short, Mrs. Janice Brookes and Mrs. Jennifer Pegrum.

Pension Scheme: the Scottish Widows executive pension plan established with effect from 28 July 1998 and which is approved under Chapter I of Part XIV of ICTA 1988 and the Martech Stakeholder Pension Plan with legal and general.

Previously-owned Land and Buildings: has the meaning given in paragraph 23.1 of Part 2.1 of Schedule 4 (Warranties).

Purchase Price: the purchase price for the Sale Shares to be paid by the Buyer to the Sellers in accordance with clause 3 (Purchase price).

Sale Shares: the entire issued share capital in the Company being 15,000 Ordinary Shares comprising 2,500 “A” Ordinary Shares, 2,500 ”B” Ordinary Shares, 2,500 “C” Ordinary Shares, 2,500 “D” Ordinary Shares, 2,500 “E” Ordinary Shares, 2,500 “F” Ordinary Shares of £1 each in the Company, all of which have been issued and are fully paid

Sellers’ Accountants: Coyne, Butterworth & Chalmers, Lupins Business Centre, 1-3 Greenhill, Weymouth, Dorset. DT4 7SP

Sellers’ Solicitors: Stuart Hodge Corporate Lawyers, 3 Temple Row West, Birmingham, B2 5NY.

Sellers’ Solicitors Account: Stuart Hodge Corporate Lawyers Client Account with Barclays Bank plc, Sort Code 20-23-55, Account Number 20972215.

Service Agreements: the agreements between the Company and each of the Executive Directors in the agreed form.

Subsidiary: in relation to a company wherever incorporated (a holding company) means a "subsidiary" as defined in section 736 of the Companies Act 1985 and any other company which is a subsidiary (as so defined) of a company which is itself a subsidiary of such holding company. Unless the context otherwise requires, the application of the definition of Subsidiary to any company at any time will apply to the company as it is at that time.

“Surrender” is the surrender of the Lease Property on the Completion Date in substantially the same form as is set forth Schedule 14 (Deed of Surrender)

Tax or Taxation: has the meaning given in Schedule 5 (Tax covenant).

Tax Covenant: the tax covenant as set out in Schedule 5 (Tax covenant).

Tax Claim: has the meaning given in Schedule 5 (Tax covenant).

Taxation Authority: has the meaning given in Schedule 5 (Tax covenant).

Taxation Statute: has the meaning given in Schedule 5 (Tax covenant).

TCGA 1992: the Taxation of Chargeable Gains Act 1992.

TMA 1970: the Taxes Management Act 1970.

Transaction: the transaction contemplated by this Agreement or any part of that transaction.

UK GAAP: generally accepted accounting principles in the UK

UITF: Urgent Issues Task Force 40

VATA 1994: the Value Added Tax Act 1994.

Warranties: the warranties in clause 6 (Warranties) and Schedule 4 (Warranties).

Warrantors: those persons whose names are set out in Part 1b of Schedule 1.

1.2	Clause and schedule headings do not affect the interpretation of this Agreement.

1.3	A person includes a corporate or unincorporated body.

1.4	Words in the singular include the plural and in the plural include the singular.

1.5	A reference to one gender includes a reference to the other gender.

1.6

A reference to a particular law is a reference to it as it is in force for the time being taking account of any amendment, extension, or re-enactment and includes any subordinate legislation for the time being in force made under it except to the extent that any legislation or subordinate legislation made or enacted after the date of this Agreement would create or increase a liability of either party under this Agreement.

1.7	Writing or written includes faxes but not e-mail.

1.8	Documents in agreed form are documents in the form agreed by the parties or on their behalf and initialled by them or on their behalf for identification.

1.9	References to clauses and schedules are to the clauses and schedules of this Agreement; references to paragraphs are to paragraphs of the relevant schedule.

1.10	Unless otherwise expressly provided, the obligations and liabilities of the Sellers and Warrantors under this Agreement are joint and several save that any liability of the Warrantors shall be in accordance with the limitations set out in Schedule 12 (Limitations on Warrantors’ Liability).

1.11	Reference to this Agreement includes this Agreement as amended or varied in accordance with its terms.

2.	Sale and purchase and waiver of pre-emption rights

2.1

On the terms of this Agreement, the Sellers shall sell and the Buyer shall buy, with effect from Completion, the Sale Shares with full title guarantee, free from all Encumbrances and together with all rights that attach (or may in the future attach) to them including, in particular, the right to receive all dividends and distributions declared, made or paid on or after the date of this Agreement.

2.2

Each of the Sellers severally waives any right of pre-emption or other restriction on transfer in respect of the Sale Shares or any of them conferred on him under the articles of association of the Company or otherwise and shall procure the irrevocable waiver of any such right or restriction conferred on any other person who is not a party to this Agreement.

2.3	The Buyer is not obliged to complete the purchase of any of the Sale Shares unless the purchase of all the Sale Shares is completed simultaneously.

3.	Purchase price

3.1	The Purchase Price shall comprise the amounts stated in this clause 3.1 and is:

(a)

Six Hundred and Seventy Five Thousand (675,000) Pounds Sterling (Cash Consideration) payable in cash on Completion subject to the adjustment provisions set out in this Agreement;

(b)

Two Hundred Thousand (200,000) Pounds Sterling (Deferred Cash Consideration) payable on the first anniversary of Completion by the issue of Loan Notes and to which the Guarantee provisions set forth in clause 13 apply;

(c)

the issue of the Deferred Coda Consideration Shares provided that the conditions precedent defined in Part 1 of Schedule 2 are met; and

(d)

the payment of the Contingent Consideration Payments provided that the conditions precedent defined in Part 2 of Schedule 2 are met and to which the Guarantee provisions set forth in clause 13 apply.

3.2	The payments specified in paragraph (a) through to (d) are to be satisfied as follows:

(a)

The Six Hundred and Seventy Five Thousand (675,000) Pounds Sterling is to be paid on Completion in cleared funds to the Sellers’ Solicitors but subject to the adjustment provisions set forth in clause 4;

(b)

The Deferred Cash Consideration is to be paid on the first anniversary of the Completion Date in cleared funds to Sellers’ Solicitors’ Account and for which the Initial Loan Notes are to be issued in accordance with the provisions set forth in the Loan Note Instrument and the obligations of the Buyer in this regard are subject to the Guarantee provisions set forth in clause 13.

(c)

The Deferred Coda Consideration Shares are to be allotted and issued in accordance with the provisions set out in Part 1 of Schedule 2 subject to the conditions precedent being met

(d)

The Contingent Consideration Payments shall be satisfied by the Deferred Loan Notes which shall be issued in accordance with the provisions set forth in the Loan Note Instrument) and the Contingent Consideration Shares in accordance with the provisions set out in Part 2 of Schedule 2 subject to the conditions precedent being met and the obligations of the Buyer in this regard are subject to the Guarantee provisions set forth in clause 13.

3.3

The Cash Consideration is agreed between the parties on the assumption that the Net Assets of the Company (as defined in clause 4) are not less than £333,000 at the Completion Date and the parties agree to review and if necessary adjust the amount of the Cash Consideration on a pound-for- pound basis and pay any adjustment as provided in this clause 3 and clause 4.

3.4	In the event that:

(a)

the Net Assets are an amount greater than £333,000 then subject to the provisions set out in clause 4, an upward adjustment of the Cash Consideration on a pound-for-pound basis in favour of the Sellers shall be made (“Increase Cash Consideration”) and the Increase Cash Consideration calculated in accordance with the provisions set out in clause 4 shall be paid to the Sellers;

(b)

the Net Assets are an amount less than £333,000 then subject to provisions set out in clause 4 a downward adjustment of the Cash Consideration on a pound-for-pound basis in favour of the Buyer shall be made (“Decrease Cash Consideration”) and the Decrease Cash Consideration calculated in accordance with clause 4 shall paid to the Buyer.

3.5	The Purchase Price shall be deemed to be reduced by the amount of any payment made to the Buyer:

(a)

for a breach of any Warranty; or

(b)

under the adjustment provisions in clause 3 and 4; or

(c)

under the Tax Covenant.

4.	adjustment of CASH consideration

4.1

For this purpose "Net Assets" means all assets - (excluding any items representing goodwill or any other intangible assets with the exception of debtors and work-in-progress) less liabilities of the Company as at Completion Date ascertained in accordance with the following provisions of this clause 4.

4.2	The Net Assets shall be ascertained from the Completion Accounts. The Completion Accounts and a statement of Net Assets shall be prepared by the Sellers Accountants and delivered to the Buyer with a copy to the Buyer’s Auditors within twenty (20) Business Days of Completion on the following bases:

(a)

a provision shall be made in the Completion Accounts to cover corporation tax of the Company since the last Accounts Date;

(b)

in accordance with UITF 40 the debtors figure on Completion will recognise work-in-progress;

(c)

all credit card transactions and liabilities relating to same up to and including Completion Date;

(d)

including 50% of the actual cost of the premiums under the New Insurance Policies for the 12 month following Completion (up to an aggregate of £15,500);

(e)

including FRS 21 for any related matters to the extent that they are brought before the parties within 60 Business Days, inclusive, following Completion (but no such matters shall be taken into account in the computation of Net Assets where such FRS21 related matters are brought to the attention of the Parties after 60 Business Days of Completion);

(f)

under the historical cost convention and on bases consistent with those accounting policies and principles in preparing the Accounts ; and

(g)

subject to the foregoing applying the accounting policies and principles adopted by the Company in its most recent audited Accounts and in accordance with UK GAAP.

4.3

The Buyer bears no responsibility for the costs incurred by the Sellers (including the costs of the Sellers’ Accountants) in preparing the Completion Accounts and the Sellers bear no responsibility for the costs of the Buyer or any member of the Buyer’s Group including the costs of the Buyer’s Auditors in reviewing or agreeing the Completion Accounts.

4.4

Within 14 Business Days of delivery of the documents referred to in 4.2 the Buyer shall notify the Sellers in writing of any item or items they wish to dispute. In the event that the Buyer does not dispute the Completion Accounts and Statement of the Net Assets by such time, they will be deemed to be agreed except that the Buyer has no obligation to agree FRS21 related matters until 65 days following Completion.

4.5	Subject to clause 4.7, if the amount of the Net Assets is not agreed in writing between the Sellers and the Buyer within 30 Business Days of delivery of the Completion Accounts and Statement of Net Assets, the item or items in dispute shall be determined by:

(a)

such firm of chartered accountants as the parties may agree in writing;

(b)

failing agreement on the identity of the firm of chartered accountants within a further 5 Business Days from the expiry of the period of 20 Business Days referred to above, such firm of chartered accountants as may be appointed for this purpose on the application of any party to this Agreement by the President for the time being of the Institute of Chartered Accountants in England and Wales.

4.6

The parties bearing in mind the delay that may ensue from utilising the dispute mechanism provided for in clause 4.5 and also the costs implications of same, shall have an overriding obligation prior to appointing accountants provided for under clause 4.5 to attempt, in good faith, to resolve their differences and agree the item or items relating to the Completion Accounts in dispute.

4.7	The accountant appointed under 4.6 above (the "Accountants") shall act on the following basis:

(a)

the Accountants shall act as experts and not as arbitrators;

(b)

their terms of reference shall be to determine an amount which in their opinion represents the item or items in dispute, as notified to them in writing by either the joint Sellers or the Buyer within 20 Business Days of their appointment;

(c)

the Sellers and the Buyer shall each provide (or procure that relevant third parties provide) the Accountants with all information and/or access to documents and all other necessary assistance which they reasonably require and the Accountants shall be entitled (to the extent they consider it appropriate) to base their opinion on such information and on the accounting and other records of the Company;

(d)

the determination of the Accountants shall (in the absence of manifest error) be conclusive including upon the PCAOB registered accountants appointed for the purposes stated in clause 4.9;

(e)

the Accountants' costs shall be borne equally as between the Seller on the one hand and the Buyer on the other hand; and

(f)

the Accountants shall give written reasons for their decision.

4.8

The amount of any Increase Cash Consideration or Decrease Cash Consideration shall be payable by the party from whom it is due within five (5) Business Days of the Completion Accounts being agreed or determined in accordance with this clause 4 by the parties. Any Increase Cash Consideration shall be paid to the Sellers’ Solicitors’ Account in cleared funds. Any Decrease Cash Consideration shall be paid to the Buyer’s Account in cleared funds.

4.9

The acceptance of the Completion Accounts by the Buyer is subject to their certification by a PCAOB registered accountants at the Buyer’s direction and cost, such certification to be provided within 10 Business Days of agreement or determination of the Completion Accounts in accordance with this clause 4.

5.	Completion

5.1	Completion shall take place immediately on the execution of this Agreement:

(a)

at the offices of the Sellers’ Solicitors; or

(b)

at any other place or time as agreed in writing by the Sellers and the Buyer.

5.2	At Completion the Sellers shall:

(a)

deliver or cause to be delivered the documents and evidence set out in Part 1 of Schedule 3;

(b)

procure that a board meeting of the Company is held at which the matters identified in Part 2 of Schedule 3 are carried out; and

(c)

deliver any other documents referred to in this Agreement as being required to be delivered by them.

5.3	At Completion the Buyer shall:

(a)

pay the Cash Consideration in cleared funds to the Sellers' Solicitors Account (who are irrevocably authorised to receive the Cash Consideration) .

(b)

deliver a certified copy of the resolution adopted by the board of directors of the Buyer authorising the Transaction.

(c)

deliver a certified copy of the resolution adopted by the board of directors of the Issuer authorising that part of the Transaction concerning the allotment and issue of the Deferred Consideration Shares and the Contingent Consideration Shares and entering into the guarantee obligations under this Agreement;

(d)

Allot the Initial Notes to the Sellers in the proportions set opposite their names in Schedule 9 and deliver to the Sellers certificates for the Initial Notes;

(e)

Deliver a copy of resolutions adopted by the board of directors of the Buyer authorising the creation of the Initial Notes;

(f)

deliver to the Sellers the duly executed Loan Note.

5.4

Any payment made in accordance with this Agreement to the Sellers’ Solicitors shall constitute a valid discharge of the Buyer's obligations to make such payment. Similarly any documents required to be delivered to the Sellers in this Agreement by the Buyer and which are delivered to the Sellers’ Solicitors shall constitute a valid discharge of the Buyer’s obligations to deliver such documents.

6.	Warranties

6.1	The Warrantors jointly and severally warrant to the Buyer that, except as Disclosed to the Buyer, each Warranty is true, on the date of this Agreement.

6.2

Warranties qualified by the expression so far as the Warrantors are aware or any similar expression are deemed to be given to the best of the knowledge, information and belief of the Warrantors after they have made reasonable and careful enquiry into the subject of the Warranty (unless the context otherwise admits).

6.3	Each of the Warranties is separate and, unless otherwise specifically provided, is not limited by reference to any other Warranty or any other provision in this Agreement.

6.4

The Sellers agree that any information supplied by the Company or by or on behalf of any of the employees, directors, agents or officers of the Company (“Officers”) to the Buyers or their advisers in connection with the Warranties, the information Disclosed in the Disclosure Letter or otherwise shall not constitute a warranty, representation or guarantee as to the accuracy of such information in favour of the Sellers, and the Sellers hereby undertake to the Buyer and to the Company and each Officer that they waive any and all claims which they might otherwise have against any of them in respect of such claims.

7.	Limitations on claims

The provisions of Schedule 12 (Limitations on Warrantors’ Liability) shall apply to limit the liability of the Warrantors under this Agreement.

8.	Leasehold property

The Sellers shall procure the that the Company at Completion enters into the Deed of Surrender and the New Lease.

9.	Service Agreements

On Completion each of the Executive Directors is to enter into a Service Agreement.

10.

Tax covenant

The provisions of Schedule 5 (Tax covenant) apply in this Agreement.

11.

NEW Insurance POLICIES

11.1	As soon as practicably possible following Completion (and in any event within 20 Business Days following Completion), the parties agree that the New Insurance Policies shall be effected.

11.2	The insurance coverage shall have full force and effect to cover the contractual obligations of the Company assumed under contracts prior to Completion and for which the contractual obligations to maintain such insurance in force is still valid and subsisting.

12.

Restrictions on Warrantors

12.1	Each of the Warrantors severally covenants with the Buyer that he shall not:

(a)

at any time during the period of 3 years beginning with the Completion Date, in any geographic areas in which any business of the Company was carried on at the Completion Date, carry on or be employed, engaged or interested in any business which would be in competition with any part of the Business as the Business was carried on at the Completion Date; or

(b)

at any time during the period of 3 years beginning with the Completion Date, except for the benefit of the Company, deal with any person who is or has agreed to become at the Completion Date, or who has been at any time during the period of 12 months immediately preceding that date, a client or customer of the Company; or

(c)

at any time during the period of 3 years beginning with the Completion Date, except for the benefit of the Company canvass, solicit or otherwise seek the custom of any person who is at the Completion Date, or who has been at any time during the period of 12 months immediately preceding that date, a client or customer of the Company; or

(d)

at any time during the period of 3 years beginning with the Completion Date:

(i)

offer employment to, enter into a contract for the services of, or attempt to entice away from the Company any individual who is at the time of the offer or attempt, and was at the Completion Date, employed or directly or indirectly engaged in an executive or managerial position with the Company; or

(ii)

procure or facilitate the making of any such offer or attempt by any other person; or

(e)

at any time during the period of three years beginning with the Completion Date, use in the course of any business:

(i)

any trade or service mark, business or domain name, design or logo which, at Completion, was or had been used by the Company; or

(ii)

anything which is, in the reasonable opinion of the Buyer, capable of confusion with such words, mark, name, design or logo; or

(f)

at any time during a period of three years beginning with the Completion Date, except for the benefit of the Company, solicit or entice away from the Company any supplier to the Company who had supplied goods and/or services to the Company during the 12 months immediately preceding the Completion Date, if that solicitation or enticement causes or would cause such supplier to cease supplying, or materially reduce its supply of, those goods and/or services to the Company.

12.2

The covenants in clause 12 are intended for the benefit of the Buyer and the Company and apply to actions carried out by the Warrantors in any capacity except for such actions taken by the Warrantors which are taken solely for the benefit of the Buyer and the Company pursuant to the terms of the service agreements entered into pursuant to clause 9.

12.3

Each of the covenants in clause 12 is a separate undertaking by each Warrantor in relation to himself and his interests and shall be enforceable by the Buyer separately and independently of its right to enforce any one or more of the other covenants contained in clause 12. Each of the covenants in clause 12 is considered fair and reasonable by the parties, but if any restriction is found to be unenforceable, such clause would be valid if any part of it were deleted or the period or area of application reduced, the restriction shall apply with such modifications as may be necessary to make it valid and enforceable.

13.

Guarantee

13.1.

In consideration of the Sellers entering into this Agreement, the Guarantor unconditionally and irrevocably guarantees, as a primary obligation to the Sellers, the due and punctual payment by the Buyer of all monies payable under clause 3(1)(b) and (d) for which the conditions precedent for making such payments are set forth in Schedule 2 (the “Guaranteed Amounts”).

13.2.

If the Buyer defaults on the payment when due of any amount payable to the Sellers in respect of the Guaranteed Amounts within the meaning of this Agreement, the Guarantor shall immediately on demand by the Sellers pay that amount to the Sellers in the manner prescribed in this agreement as if it were the Buyer.

13.3.

As an independent and primary obligation, without prejudice to clause 13.1 the Guarantor unconditionally and irrevocably agrees to indemnify and keep indemnified the Sellers from and against all and any losses, costs, claims, liabilities, damages, demands and expenses suffered or incurred by the Seller and arising from failure of the Buyer to comply with any of its obligations, or discharge any of its liabilities, in respect of the Guaranteed Amounts.

14.

Confidentiality and announcements

14.1

Each of the Sellers severally undertakes to the Buyer to keep confidential the terms of this Agreement and all information which they have acquired about the Company and the Buyer’s Group (as such Group is constituted immediately before Completion) and, in the case of the Buyer, all information which it has acquired about the Company and to use the information only for the purposes contemplated by this Agreement.

14.2	The Buyer and Guarantor undertake to each of the Sellers to keep confidential the terms of this Agreement and all information that it has acquired about that Seller and to use the information only for the purposes contemplated by this Agreement.

14.3	Each of the Sellers severally undertakes to each of the other Sellers to keep confidential the terms of this Agreement and all information that they have acquired about that Seller and to use the information only for the purposes contemplated by this Agreement.

14.4	The Buyer or Guarantor is not under an obligation to keep confidential or restrict its use of information about the Company after Completion.

14.5	A party does not have to keep confidential or to restrict its use of:

(a)

information that is or becomes public knowledge other than as a direct or indirect result of a breach of this Agreement; or

(b)

information that it receives from a source not connected with the party to whom the duty of confidence is owed that it acquires free from any obligation of confidence to any other person.

14.6	Any party may disclose any information that it is otherwise required to keep confidential under clause 14:

(a)

to such professional advisers, consultants and employees or officers of its Group as are reasonably necessary to advise on this Agreement, or to facilitate the Transaction, if the disclosing party procures that the people to whom the information is disclosed keep it confidential as if they were that party; or

(b)

with the written consent of all the other parties; or

(c)

with the written consent of one party, if such information relates only to that party; or

(d)

to confirm that the sale has taken place, and the date of the sale (but without otherwise revealing any other items of sale or making any other announcement).

(e)

to the extent that the disclosure is required:

(i)

by law; or

(ii)

by a regulatory body, Taxation Authority or securities exchange within or without the United Kingdom; or

(iii)

to make any filing with, or obtain any authorisation from, a regulatory body, Taxation Authority or securities exchange within or without the United Kingdom; or

(iv)

under any arrangements in place under which negotiations relating to terms and conditions of employment are conducted; or

(v)

to protect the disclosing party’s interest in any legal proceedings,

but shall use reasonable endeavours to consult the other parties and to take into account any reasonable requests they may have in relation to the disclosure before making it.

14.7	Each party shall supply any other party with any information about itself, its Group or this Agreement as such other party may reasonably require for the purposes of satisfying the requirements of a law, regulatory body or securities exchange to which such other party is subject.

14.8	In the event that there is a conflict between the provisions set out in this clause 14 and the Confidentiality Agreement signed between Coda Octopus Group Inc and the Company and the Warrantors dated 22^nd August 2004, the provisions in this clause 14 shall prevail.

15.

Further assurance

The Sellers shall (at the Buyer’s cost and expense) promptly execute and deliver all such documents, and do all such things, as the Buyer may from time to time reasonably require for the purpose of giving full effect to the transfer of title to the Sale Shares.

16.

Assignment

16.1	Except as provided otherwise in this Agreement, no party may assign, or grant any Encumbrance or security interest over, any of its rights under this Agreement or any document referred to in it.

16.2	Each party that has rights under this Agreement is acting on its own behalf.

16.3

The Buyer may assign its rights under this Agreement (or any document referred to in this Agreement) but not its obligations to a member of its Group or to any person to whom it transfers the Sale Shares provided that, if the transferee leaves the Buyer’s Group, it shall, prior to such departure, re-assign or re-transfer such rights to a member of the Buyer’s Group . The Sellers may assign their rights to a Connected Person.

16.4	If there is an assignment:

(a)

the Sellers may discharge their obligations under this Agreement to the assignor until they receive notice of the assignment; and

(b)

the assignee may enforce this Agreement as if it were a party to it, but the Buyer (and, as applicable, the Guarantor) shall remain liable for any obligations under this Agreement.

17.

Whole agreement

17.1

This Agreement, and any documents referred to in it, constitute the whole agreement between the parties and supersede any arrangements, understanding or previous agreement (including the Letter of Intent (and all versions thereof) signed by Coda Octopus Group Inc on 18^th March 2005 and the Sellers and the Letter of Amendment signed between Coda Octopus Group Inc on 20^th February 2006) and the Sellers on 17^th February 2006 relating to the subject matter they cover.

17.2	It is agreed that no party has entered into this Agreement in reliance upon, and each party waives any claims in relation to, any statement, representation, warranty or understanding which is not expressly set out in this Agreement.

17.3	Each of the parties waives:-

(a)

all rights and remedies (including rescission) which, but for this sub-clause, might otherwise be available to him in respect of any such representation, warranty, collateral contract or other assurance; and

(b)

all rights and remedies, other than remedies for breach of contract, available in respect of a breach of this Agreement and/or the documents referred to in it, which, but for this sub-clause, might otherwise be available to it in respect of the falsity of any representation or warranty set out in this Agreement and/or the documents referred to in it.

16.4	Nothing in this clause 16 operates to limit or exclude any liability for fraud.

18.

Variation and waiver

18.1	Any variation of this Agreement shall be in writing and signed by or on behalf of the parties.

18.2	Any waiver of any right under this Agreement is only effective if it is in writing and it applies only to the party to whom the waiver is addressed.

18.3	A party that waives a right in relation to one party, or takes or fails to take any action against that party, does not affect its rights in relation to any other party.

18.4	No failure to exercise or delay in exercising any right or remedy provided under this Agreement or by law constitutes a waiver of such right or remedy or shall prevent any future exercise in whole or in part thereof.

18.5	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.

18.6	Unless specifically provided otherwise, rights arising under this Agreement are cumulative and do not exclude rights provided by law.

19.

Costs

Unless otherwise provided, all costs in connection with the negotiation, preparation, execution and performance of this Agreement, and any documents referred to in it, shall be borne by the party that incurred the costs.

20.

Notice

20.1	A notice given under this Agreement:

(a)

shall be in writing in the English language (or be accompanied by a properly prepared translation into English);

(b)

shall be sent for the attention of the person, and to the address or fax number, specified in clause 20 (or such other address, fax number or person as each party may notify to the others in accordance with the provisions of clause 20); and

(c)

shall be:

(i)

delivered personally; or

(ii)

sent by fax; or

(iii)

sent by pre-paid first-class post or recorded delivery; or

(iv)

(if the notice is to be served by post outside the country from which it is sent) sent by airmail.

20.2

Any notice to be given to or by all of the Sellers under this Agreement is deemed to have been properly given if it is given to or by the Sellers´ representative named in clause 20.3. Any notice required to be given to or by some only of the Sellers shall be given to or by the Sellers concerned (and in the case of a notice to the Sellers) at their address or fax number as set out in Schedule 1 .

20.3	Unless otherwise notified in writing, the addresses for service of notice are:

(a)

For the Sellers/Warrantors

(i)

name: Stuart Hodge Corporate Lawyers

(ii)

address: 3 Temple Row West, Birmingham, B2 5NY

(iii)

for the attention of: Mark Hodge

(iv)

fax number: 0121 214 2491

(b)

For the Buyer or the Guarantor:

(i)

Name: Coda Octopus (UK) Holdings Limited

(ii)

address: Castle Farm, Deddington OX15 OTP

(iii)

for the attention of: Miss Annmarie Gayle

(iv)

fax number: 0131 554 7143

20.4	A notice is deemed to have been received:

(a)

if delivered personally, at the time of delivery; or

(b)

in the case of fax, at the time of transmission; or

(c)

in the case of pre-paid first class post or recorded delivery 3 Business Days from the date of posting; or

(d)

in the case of airmail, fourteen (14) Business Days from the date of posting; or

(e)

if deemed receipt under the previous paragraphs of clause 20.4 is not within business hours (meaning 9.00 am to 5.30 pm Monday to Friday on a day that is not a public holiday in the place of receipt), when business next starts in the place of receipt.

20.5	To prove service, it is sufficient to prove that the notice was transmitted by fax to the fax number of the party or, in the case of post, that the envelope containing the notice was properly addressed and posted.

21.

Severance

21.1	If any provision of this Agreement (or part of a provision) is found by any court or administrative body of competent jurisdiction to be invalid, unenforceable or illegal, the other provisions shall remain in force.

21.2	If any invalid, unenforceable or illegal provision would be valid, enforceable or legal if some part of it were deleted, the provision shall apply with whatever modification is necessary to give effect to the commercial intention of the parties.

22.

Agreement survives completion

This Agreement (other than obligations that have already been fully performed) remains in full force after Completion.

23.

Third party rights

This Agreement and the documents referred to in it are made for the benefit of the parties and their successors and permitted assigns and are not intended to benefit, or be enforceable by, anyone else.

23.1	Each of the parties represents to the others that their respective rights to agree any amendment, variation, waiver or settlement under this Agreement are not subject to the consent of any person that is not a party to this Agreement.

24.

Counterparts

This Agreement may be executed in any number of counterparts, each of which is an original and which together have the same effect as if each party had signed the same document.

25.

Language

If this Agreement is translated into any language other than English, the English language text shall prevail.

26.

Governing law and jurisdiction

26.1	This Agreement and any disputes or claims arising out of or in connection with its subject matter are governed by and construed in accordance with the law of England and Wales except with respect to any Shares to be issued by the Issuer to the extent that the Issuer is bound by the law of New York.

26.2	The parties irrevocably agree that the courts of England and Wales have exclusive jurisdiction to settle any dispute or claim that arises out of or in connection with this Agreement.

This Agreement has been entered into on the date stated at the beginning of it.

Schedule 1 Number of Sale Shares for each Seller and Warrantors

Part 1a: Particulars of sellers and number of Sale Shares

Seller’s name, address		Number of sale shares
Mr. Colin Richard Pegrum 21 Icen Road Weymouth Dorset DT3 5JL		2,500 Ordinary A Shares

Mr. Barry Granville Brookes 29 Goldcroft Avenue Weymouth Dorset DT4 OET		2,500 Ordinary B Shares

Mr. Lawrence Lucian Short 12 Russell Avenue Weymouth Dorset DT4 9RA		2,500 Ordinary C Shares

Mrs Elizabeth Short 12 Russell Avenue Weymouth Dorset DT4 9RA		2,500 Ordinary D Shares

Mrs. Janice Brookes 29 Goldcroft Avenue Weymouth Dorset DT4 OET		2,500 Ordinary E Shares

Mrs. Jennifer Pegrum 21 Icen Road Weymouth Dorset DT3 5JL		2,500 Ordinary F Shares

Part 1b Particulars of Warrantors

Warrantor’s name, address		Percentage of Claim
Mr. Colin Richard Pegrum 21 Icen Road Weymouth Dorset DT3 5JL		33.33%

Mr. Barry Granville Brookes 29 Goldcroft Avenue Weymouth Dorset DT4 OET		33.33%

Mr. Lawrence Lucian Short 12 Russell Avenue Weymouth Dorset DT4 9RA		33.33%

Part 2: Particulars of Company

Name:		Martech Systems (Weymouth) Limited
Registration number:		02300406

Registered office:		14 Albany Road, Granby Industrial Estate, Weymouth, Dorset, DT4 9^TH

Authorised share capital Amount: Divided into:		12,000,000 £12,000,000 1,000,000 Ordinary “A” Shares of £1 each 1,000,000 Ordinary “B” Shares of £1 each 1,000,000 Ordinary “C” Shares of £1 each 1,000,000 Ordinary “D” Shares of £1 each 1,000,000 Ordinary “E” Shares of £1 each 1,000,000 Ordinary “F” Shares of £1 each 1,000,000 Redeemable Non Preferred Equity Shares £1 each 1,000,000 Redeemable Non Preferred Voting Shares of £1 each 1,000,000 Redeemable Non Preferred Non Voting Shares of £1 each 1,000,000 Redeemable Preference Shares of £1 each 1,000,000 Convertible Deferred Shares of £1 each 1,000,000 Deferred Founder Shares of £1 each

Issued share capital Amount: Divided into:		15,000 £15,000 2,500 “A” Ordinary Shares 2,500 “B” Ordinary Shares 2,500 “C” Ordinary Shares 2,500 “D” Ordinary Shares 2500 “E” Ordinary Shares 2500 “F” Ordinary Shares

Registered shareholders (and number of Sale Shares held):		Colin Richard Pegrum -2,500 Barry Granville Brookes - 2,500 Lawrence Lucian Short - 2,500 Jennifer Pegrum - 2,500 Janice Brookes 2,500 Elizabeth Short 2,500

Directors and shadow directors:		Barry Granville Brookes Colin Richard Pegrum Lawrence Lucian Short

Secretary:		Colin Richard Pegrum

Auditor		Coyne, Butterworth & Chalmers Chartered Accountants Lupins Business Centre 1-3 Greenhill, Weymouth, Dorset DT4 7SP

Registered Charges		None

5. Tax Covenant		74
1.	Interpretation	74
2.	Covenant	77
3.	Payment date and interest	78
4.	Exclusions	79
5.	Savings	81
6.	Recovery from third parties	81
7.	Corporation tax returns	82
8.	Conduct of tax claims	83
9.	Grossing up	85
10.	Costs and expenses	85

6. Intellectual Property Rights		86

Part 1.	Registered intellectual property rights	86

Part 2.	Material unregistered intellectual property rights	86

Part 3.	Intellectual property rights licensed from third parties	86

Part 4.	Intellectual property rights licensed to third parties	86

7. Information Technology		86

Part 1.	Particulars of IT system	86

Part 2.	Particulars of IT contracts	86

8. Apportionment of Purchase Price		88

9. Limitation of Warrantors' Liability		89

1248		TLD Card Sorting Machine
1249		TLD Card Reception Machine
1302		Design/Manufacture 2 off Battery & Charger Trays
1325		Upgrade BTID for Ethernet Capability
1328		Design & Manufacture Evaluation POD
1330		Design & Manufacture 2 Radar Interface Units
1336		Divex Temperature and Pressure sensors

W	Signature
I	Name
T	Address
N
E
S
S	Occupation

W	Signature
I	Name
T	Address
N
E
S
S	Occupation

W	Signature
I	Name
T	Address
N
E
S
S	Occupation

Clause
1.	Interpretation	6
2.	Sale and purchase and waiver of pre-emption rights	11
3.	Purchase price	12
4.	adjustment of Cash consideration	13
5.	Completion	16
6.	Warranties	17
7.	Limitations on claims	17
8.	Leasehold Property	17
9.	Service Agreements	18
10.	Tax covenant	18
11.	Indemnities	18
12.	Restrictions on Sellers	18
13.	Confidentiality and announcements	20
14.	Further assurance	22
15.	Assignment	22
16.	Whole agreement	22
17.	Variation and waiver	23
18.	Costs	23
19.	Notice	23
20.	Severance	25
21.	Agreement survives completion	25
22.	Third party rights	25
24.	Counterparts	25
25.	Language	25
26.	Governing law and jurisdiction	26

Schedules
1.	NUMBER OF SALE SHARES FOR EACH SHAREHOLDER AND WARRANTOR

Part 1:	Particulars of sellers and number of Sale Shares	27
Part 2:	Particulars of Company	29

2.	Deferred Coda Consideration Shares & Contingent Consideration Payments

Part 1.	Deferred Coda Consideration Shares	31
Part 2.	Contingent Consideration payments	37

3.	Completion	46

Part 1:	What the Sellers shall deliver to the Buyer at Completion	46

Part 2:	Matters for the board meetings at Completion	47

4. Warranties		49

1.	GENERAL WARRANTIES

1.	Power to sell the company	49
2.	Shares in the company	49
3.	Constitutional and corporate documents	50
4.	Information	50
6.	Licences and consents	50
7.	Insurance	51
8.	Power of attorney	51
9.	Disputes and investigations	51
10.	Defective products and services	52
11.	Customers and suppliers	52
12.	Competition	53
13.	Contracts	53
14.	Transactions with sellers	54
15.	Finance and guarantees	55
16.	Insolvency	56
17.	Assets	57
18.	Condition of plant and equipment and stock in trade	58
19.	Environment and health and safety	58
20.	Intellectual property	59
21.	Information technology	61
22.	Data protection	62
23.	Employment	63
24.	Property	65
25.	Accounts	66
26.	Financial and other records	67
27.	Changes since accounts date	67
28.	Effect of sale on sale shares	68
29.	Retirement benefits	69
2	TAX WARRANTIES

1.	General	69
2.	Chargeable gains	71
3.	Capital allowances	71
4.	Distributions	71
5.	Loan relationships	71
6.	Close companies	72
9.	Company residence and overseas interests	72
10.	Anti-avoidance	72
11.	Inheritance tax	72
12.	VAT	73
13.	Stamp duty and stamp duty land tax	73

EXECUTED AS A DEED by		)
COLIN RICHARD PEGRUM in the		)
Presence of:		)

EXECUTED AS A DEED by		)
BARRY GRANVILLE BROOKES in		)
the presence of:

EXECUTED AS A DEED by		)
LAWRENCE LUCIAN SHORT		)
in the presence of:

EXECUTED AS A DEED by			)
JENNIFER PEGRUM			)
in the presence of:			)

EXECUTED AS A DEED by		)
JANICE BROOKES		)
In the presence of:

EXECUTED AS A DEED by		)
ELIZABETH SHORT		)
In the presence of:

EXECUTED AS A DEED	)
For on behalf of:	)
CODA OCTOPUS (UK)
HOLDINGS LIMITED

EXECUTED AS A DEED	)
For on behalf of:	)
CODA OCTOPUS GROUP, Inc