I found a walkthrough by Tami Meyers that we apparently used and it says the following:
"A little man, Chepito, will come walking by.
Talk to him as soon as Manny turns his head towards him.
End the conversation.
When Chepito walks away follow and press the 'u' key to grab him. Glottis will pick him up. You all walk off to a sub where an octopus is grabbing people and stuffing them inside."
Hope this is the answer.