Exhibit10.1

    


    Dated:
      October ___, 2007

     

    NEITHER
      THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS CONVERTIBLE
      HAVE
      BEEN REGISTERED WITH THE U.S. 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.

     

    No.
      _______$_____________

     

    COMPLIANCE
      SYSTEMS CORPORATION

     

    Secured
      Convertible Debenture

     

    Due:
      October 31, 2010

     

    This
      Secured Convertible Debenture (the “Debenture”)
      is
      issued by COMPLIANCE
      SYSTEMS CORPORATION, a
      Nevada
      corporation (the “Company”),
      to
_______________________
      (the
      “Holder”),
      pursuant to that certain Subscription Agreement, of even date herewith, by
      and
      between the Company and the Holder (the “Subscription Agreement”).
      The
      Company entered into subscription agreements with several subscribers
      (collectively, the “Subscribers”)
      identical to the terms of the Subscription Agreement on or about the date of
      the
      Subscription Agreement and such subscription is collectively referred to herein
      as the “Subscription”.
      

     

    FOR
      VALUE RECEIVED,
      the
      Company hereby promises to pay to the Holder or its successors and assigns
      the
      principal sum of ___________________ ($________) on or before October 31, 2010
      (the “Maturity
      Date”)
      in
      accordance with the following terms:

     

    Section
      1. General
      Terms

     

    (a) Interest.
      No
      interest shall accrue on the outstanding principal balance hereof. 

     

    (b)  Security.
      The
      Debenture is
      secured by (i) the
      Pledged Collateral (as this term is defined in that certain Security Agreement,
      by and among the Company and the Subscribers made a party thereto) and the
      UCC-1
      filed with New York Department of State Filing No.: ___________________ and
      the
      UCC-1 filed with Nevada Secretary of State Filing No.: ___________________,
      (ii)
      the
      Pledged Collateral (as this term is defined in the Subsidiary Security
      Agreement, by an between Telephone Blocking Services Corporation and
      the
      Subscribers made a party thereto) and the UCC-1 filed with New York Department
      of State Filing No.: _______________, (iii)
      the
      Pledged Collateral (as this term is defined in the Subsidiary Security
      Agreement, by and between Callcenter Tools, Inc. and the Subscribers made a
      party thereto) and the UCC-1 filed with New York Department of State, Filing
      No.: ________________, (iv) the Pledged Collateral (as this term is defined
      in
      the Subsidiary Security Agreement, by and between Jasmin Communications, Inc.
      and the Subscribers made a party thereto) and the UCC-1 filed with New York
      Department of State Filing No.: _________________, (v) the Pledged Collateral
      (as this term is defined in the Subsidiary Security Agreement, by and between
      Call Compliance.com, Inc. and the Subscribers made a party thereto) and the
      UCC-1 filed with Delaware Secretary of State Filing No.: ________________,
      (vi)
      the Pledged Collateral (as this term is defined in the Subsidiary Security
      Agreement, by and between Call Compliance, Inc. and the Subscribers made a
      party
      thereto) and the UCC-1 filed with New York Department of State Filing No.:
      _________________ and
      (vii)
      the Patent Collateral (as this term is defined in the Security Agreement
      (Patent) by and between the Company and the Subscribers made a party
      thereto).

     

    Section
      2. Events
      of Default.

     

    (a) An
      “Event
      of Default”,
      wherever used herein, means any one of the following events (whatever the reason
      and whether it shall be voluntary or involuntary or effected by operation of
      law
      or pursuant to any judgment, decree or order of any court, or any order, rule
      or
      regulation of any administrative or governmental body):

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (i)  Any
      default in the payment of the principal or other charges in respect of this
      Debenture, free of any claim of subordination, as and when the same shall become
      due and payable on the Maturity Date, by acceleration or otherwise;

     

    (ii)  The
      Company or any subsidiary of the Company shall commence, or there shall be
      commenced against the Company or any subsidiary of the Company under any
      applicable bankruptcy or insolvency laws as now or hereafter in effect or any
      successor thereto, or the Company or any subsidiary of the Company commences
      any
      other proceeding under any reorganization, arrangement, adjustment of debt,
      relief of debtors, dissolution, insolvency or liquidation or similar law of
      any
      jurisdiction whether now or hereafter in effect relating to the Company or
      any
      subsidiary of the Company or there is commenced against the Company or any
      subsidiary of the Company any such bankruptcy, insolvency or other proceeding
      which remains undismissed for a period of sixty-one (61) days; or the Company
      or
      any subsidiary of the Company is adjudicated insolvent or bankrupt; or any
      order
      of relief or other order approving any such case or proceeding is entered;
      or
      the Company or any subsidiary of the Company suffers any appointment of any
      custodian, private or court appointed receiver or the like for it or any
      substantial part of its property which continues undischarged or unstayed for
      a
      period of sixty-one (61) days; or the Company or any subsidiary of the Company
      makes a general assignment for the benefit of creditors; or the Company or
      any
      subsidiary of the Company shall fail to pay, or shall state that it is unable
      to
      pay, or shall be unable to pay, its debts generally as they become due; or
      the
      Company or any subsidiary of the Company shall call a meeting of its creditors
      with a view to arranging a composition, adjustment or restructuring of its
      debts; or the Company or any subsidiary of the Company shall by any act or
      failure to act expressly indicate its consent to, approval of or acquiescence
      in
      any of the foregoing; or any corporate or other action is taken by the Company
      or any subsidiary of the Company for the purpose of effecting any of the
      foregoing;

     

    (iii)  The
      Company or any subsidiary of the Company shall default in any of its obligations
      under any other debenture or any mortgage, credit agreement or other facility,
      indenture agreement, factoring agreement or other instrument under which there
      may be issued, or by which there may be secured or evidenced any indebtedness
      for borrowed money or money due under any long term leasing or factoring
      arrangement of the Company or any subsidiary of the Company in an amount
      exceeding One Hundred Thousand Dollars ($100,000) which is not cured within
      the
      time prescribed, whether such indebtedness now exists or shall hereafter be
      created and such default shall result in such indebtedness becoming or being
      declared due and payable prior to the date on which it would otherwise become
      due and payable;

     

    (iv)  The
      Common Stock shall cease to be quoted for trading or listing for trading on
      any
      of (a) the American Stock Exchange, (b) New York Stock Exchange, (c) the Nasdaq
      National Market, (d) the Nasdaq Capital Market, or (e) the Nasdaq OTC Bulletin
      Board (“OTC”)
      (each,
      a “Primary
      Market”)
      and
      shall not again be quoted or listed for trading on any Primary Market within
      five (5) Trading Days of such delisting;

     

    (v)  The
      Company or any subsidiary of the Company shall be a party to any Change of
      Control Transaction (as defined in Section
      6);
      

     

    (vi)  The
      Company shall fail for any reason to deliver Common Stock certificates to a
      Holder prior to the fifth (5th)
      Trading
      Day after the Conversion Date; 

     

    (vii)  The
      Company shall fail to observe or perform any other covenant, agreement or
      warranty contained in, or otherwise commit any breach or default of any
      provision of this Debenture (except as may be covered by Section
      2(a)(i) through 2(a)(vi)
      hereof);

     

    (b) During
      the time that any portion of this Debenture is outstanding, if any Event of
      Default has occurred, the full principal amount of this Debenture shall become,
      at the Holder's election, immediately due and payable in cash, provided
      however,
      the
      Holder may request (but shall have no obligation to request) payment of such
      amounts in Common Stock of the Company. Furthermore, in addition to any other
      remedies, the Holder shall have the right (but not the obligation) to convert
      this Debenture at any time after an Event of Default at the Conversion Price
      then in-effect. The Holder need not provide, and the Company hereby waives
      any
      presentment, demand, protest or other notice of any kind, and the Holder may
      immediately and without expiration of any grace period enforce any and all
      of
      its rights and remedies hereunder and all other remedies available to it under
      applicable law. Such declaration may be rescinded and annulled by the Holder
      at
      any time prior to payment hereunder. No such rescission or annulment shall
      affect any subsequent Event of Default or impair any right consequent thereon.
      Except with respect to the limitation set forth in Section 4(b)(i) hereof,
      upon
      an Event of Default, notwithstanding any other provision of this Debenture,
      the
      Holder shall have no obligation to comply with or adhere to any limitations,
      if
      any, on the conversion of this Debenture or the sale of the Underlying Shares.
      

     

    Section
      3. [Reserved].

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Section
      4. Conversion.

     

    (a) Automatic
      Conversion.

     

    (i) This
      Debenture shall automatically convert into shares of Common Stock on such date
      that is the earlier of (A) five (5) days following the Keystone Date (as defined
      below) and (B) October 31, 2010. The number of shares of Common Stock issuable
      upon conversion hereunder shall equal the quotient obtained by dividing (x)
      the
      outstanding principal amount of this Debenture by (y) the Conversion Price
      (as
      defined in Section
      4(c)(i)).
      The
      Company shall deliver Common Stock certificates to the Holder prior to the
      Fifth
      (5th)
      Trading
      Day after the Conversion Date.

     

    (ii) Notwithstanding
      anything to the contrary contained herein, if on the Conversion Date: (1) the
      number of shares of Common Stock at the time authorized, unissued and unreserved
      for all purposes, or held as treasury stock, is insufficient to pay the
      outstanding principal amount hereunder in shares of Common Stock; (2) the Common
      Stock is not listed or quoted for trading on the a Primary Market; or (3) the
      Company has failed to timely satisfy the conversion; then, at the option of
      the
      Holder, the Company, in lieu of delivering shares of Common Stock pursuant
      to
Section
      4(a)(i),
      shall
      deliver, within three (3) Trading Days of the Conversion Date, an amount in
      cash
      equal to the sum of (A) the outstanding principal amount plus (B) a premium
      on
      such amount at the rate of ten percent (10%) per annum from the date of
      this Debenture until the date that such cash payment is made.

     

    Further,
      if the Company shall not have delivered any cash due in respect of conversion
      of
      this Debenture by the fifth (5th)
      Trading
      Day after the Conversion Date, the Holder may, by notice to the Company, require
      the Company to issue shares of Common Stock pursuant to Section
      4(c),
      except
      that for such purpose the Conversion Price applicable thereto shall be the
      lesser of the Conversion Price on the Conversion Date and the Conversion Price
      on the date of such Holder demand. Any such shares will be subject to the
      provisions of this Section.

     

    (b) Keystone
      Date.
      Notwithstanding anything to the contrary set forth herein, the parties hereto
      hereby acknowledge and agree that the Company shall not effect a conversion
      of
      this Debenture, and the Holder shall not have the right to convert any portion
      of this Debenture prior to the full and complete conversion by YA Global
      Investments, L.P. or by any of its affiliates, including, without limitation,
      Montgomery Equity Partners, Ltd. (collectively, “YA
      Global”)
      of all
      amounts owed under all outstanding convertible debentures previously issued
      by
      the Company to YA Global (the “Keystone
      Date”).

     

    (c) Conversion
      Price and Adjustments to Conversion Price.

     

    (i) The
      Company and the Holder hereby acknowledge and agree that the conversion price
      in
      effect on the Conversion Date shall be equal to the volume weighted average
      conversion price per share of all YA Global conversions of any and all
      convertible debentures previously issued to YA Global (the “Conversion
      Price”).
      The
      Conversion Price may be adjusted pursuant to the other terms of this
      Debenture.

     

    (ii) If
      the
      Company, at any time while this Debenture is outstanding, shall (a) pay a
      Common Stock dividend or otherwise make a distribution or distributions on
      shares of its Common Stock or any other equity or equity equivalent securities
      payable in shares of Common Stock but excluding distributions and dividends
      payable in shares of preferred stock, (b) subdivide outstanding shares of Common
      Stock into a larger number of shares, (c) combine (including by way of reverse
      stock split) outstanding shares of Common Stock into a smaller number of shares,
      or (d) issue by reclassification of shares of the Common Stock any shares of
      capital stock of the Company, then the Conversion Price shall be multiplied
      by a
      fraction of which the numerator shall be the number of shares of Common Stock
      (excluding treasury shares, if any) outstanding before such event and of which
      the denominator shall be the number of shares of Common Stock outstanding after
      such event. Any adjustment made pursuant to this Section shall become effective
      immediately after the record date for the determination of stockholders entitled
      to receive such dividend or distribution and shall become effective immediately
      after the effective date in the case of a subdivision, combination or
      re-classification.

     

    (iii) If
      the
      Company, at any time while this Debenture is outstanding, shall issue rights,
      options or warrants to all holders of Common Stock (and not to the Holder)
      entitling them to subscribe for or purchase shares of Common Stock at a price
      per share less than the Conversion Price, then the Conversion Price shall be
      multiplied by a fraction, of which the denominator shall be the number of shares
      of the Common Stock (excluding treasury shares, if any) outstanding on the
      date
      of issuance of such rights, options or warrants (plus the number of additional
      shares of Common Stock offered for subscription or purchase), and of which
      the
      numerator shall be the number of shares of the Common Stock (excluding treasury
      shares, if any) outstanding on the date of issuance of such rights or warrants,
      plus the number of shares which the aggregate offering price of the total number
      of shares so offered would purchase at the Conversion Price. Such adjustment
      shall be made whenever such rights or warrants are issued, and shall become
      effective immediately after the record date for the determination of
      stockholders entitled to receive such rights, options or warrants. However,
      upon
      the expiration of any such right, option or warrant to purchase shares of the
      Common Stock the issuance of which resulted in an adjustment in the Conversion
      Price pursuant to this Section, if any such right, option or warrant shall
      expire and shall not have been exercised, the Conversion Price shall immediately
      upon such expiration be recomputed and effective immediately upon such
      expiration be increased to the price which it would have been (but reflecting
      any other adjustments in the Conversion Price made pursuant to the provisions
      of
      this Section after the issuance of such rights or warrants) had the adjustment
      of the Conversion Price made upon the issuance of such rights, options or
      warrants been made on the basis of offering for subscription or purchase only
      that number of shares of the Common Stock actually purchased upon the exercise
      of such rights, options or warrants actually exercised.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (iv) If
      the
      Company or any subsidiary thereof, as applicable, at any time while this
      Debenture is outstanding, shall issue shares of Common Stock or rights,
      warrants, options or other securities or debt that are convertible into or
      exchangeable for shares of Common Stock (“Common
      Stock Equivalents”)
      entitling any Person to acquire shares of Common Stock, at a price per share
      less than the Conversion Price (if the holder of the Common Stock or Common
      Stock Equivalent so issued shall at any time, whether by operation of purchase
      price adjustments, reset provisions, floating conversion, exercise or exchange
      prices or otherwise, or due to warrants, options or rights per share which
      is
      issued in connection with such issuance, be entitled to receive shares of Common
      Stock at a price per share which is less than the Conversion Price, such
      issuance shall be deemed to have occurred for less than the Conversion Price),
      then, at the sole option of the Holder, the Conversion Price shall be adjusted
      to mirror the conversion, exchange or purchase price for such Common Stock
      or
      Common Stock Equivalents (including any reset provisions thereof) at issue.
      Such
      adjustment shall be made whenever such Common Stock or Common Stock Equivalents
      are issued. The Company shall notify the Holder in writing, no later than one
      (1) business day following the issuance of any Common Stock or Common Stock
      Equivalent subject to this Section, indicating therein the applicable issuance
      price, or of applicable reset price, exchange price, conversion price and other
      pricing terms. No adjustment under this Section shall be made as a result of
      issuances of Excluded Securities.

     

    (v) If
      the
      Company, at any time while this Debenture is outstanding, shall distribute
      to
      all holders of Common Stock (and not to the Holder) evidences of its
      indebtedness or assets or rights or warrants to subscribe for or purchase any
      security, then in each such case the Conversion Price at which this Debenture
      shall thereafter be convertible shall be determined by multiplying the
      Conversion Price in effect immediately prior to the record date fixed for
      determination of stockholders entitled to receive such distribution by a
      fraction of which the denominator shall be the Closing Bid Price determined
      as
      of the record date mentioned above, and of which the numerator shall be such
      Closing Bid Price on such record date less the then fair market value at such
      record date of the portion of such assets or evidence of indebtedness so
      distributed applicable to one outstanding share of the Common Stock as
      determined by the Board of Directors in good faith. In either case the
      adjustments shall be described in a statement provided to the Holder of the
      portion of assets or evidences of indebtedness so distributed or such
      subscription rights applicable to one share of Common Stock. Such adjustment
      shall be made whenever any such distribution is made and shall become effective
      immediately after the record date mentioned above.

     

    (vi) In
      case
      of any reclassification of the Common Stock or any compulsory share exchange
      pursuant to which the Common Stock is converted into other securities, cash
      or
      property, the Holder shall have the right thereafter to, at its option, (A)
      convert the then outstanding principal amount, together with any other amounts
      then owing hereunder in respect of this Debenture into the shares of stock
      and
      other securities, cash and property receivable upon or deemed to be held by
      holders of the Common Stock following such reclassification or share exchange,
      and the Holder of this Debenture shall be entitled upon such event to receive
      such amount of securities, cash or property as the shares of the Common Stock
      of
      the Company into which the then outstanding principal amount, together with
      any
      other amounts then owing hereunder in respect of this Debenture could have
      been
      converted immediately prior to such reclassification or share exchange would
      have been entitled, or (B) require the Company to prepay the outstanding
      principal amount of this Debenture, plus all other amounts due and payable
      thereon. The entire prepayment price shall be paid in cash. This provision
      shall
      similarly apply to successive reclassifications or share exchanges.

     

    (vii) Whenever
      the Conversion Price is adjusted pursuant to Section
      4
      hereof,
      the Company shall promptly mail to the Holder a notice setting forth the
      Conversion Price after such adjustment and setting forth a brief statement
      of
      the facts requiring such adjustment.

     

    (viii) If
      (A)
      the Company shall declare a dividend (or any other distribution) on the Common
      Stock; (B) the Company shall declare a special nonrecurring cash dividend on
      or
      a redemption of the Common Stock; (C) the Company shall authorize the granting
      to all holders of the Common Stock rights or warrants to subscribe for or
      purchase any shares of capital stock of any class or of any rights; (D) the
      approval of any stockholders of the Company shall be required in connection
      with
      any reclassification of the Common Stock, any consolidation or merger to which
      the Company is a party, any sale or transfer of all or substantially all of
      the
      assets of the Company, of any compulsory share exchange whereby the Common
      Stock
      is converted into other securities, cash or property; or (E) the Company shall
      authorize the voluntary or involuntary dissolution, liquidation or winding
      up of
      the affairs of the Company; then, in each case, the Company shall cause to
      be
      filed at each office or agency maintained for the purpose of conversion of
      this
      Debenture, and shall cause to be mailed to the Holder at its last address as
      it
      shall appear upon the stock books of the Company, at least twenty (20) calendar
      days prior to the applicable record or effective date hereinafter specified,
      a
      notice stating (x) the date on which a record is to be taken for the purpose
      of
      such dividend, distribution, redemption, rights or warrants, or if a record
      is
      not to be taken, the date as of which the holders of the Common Stock of record
      to be entitled to such dividend, distributions, redemption, rights or warrants
      are to be determined or (y) the date on which such reclassification,
      consolidation, merger, sale, transfer or share exchange is expected to become
      effective or close, and the date as of which it is expected that holders of
      the
      Common Stock of record shall be entitled to exchange their shares of the Common
      Stock for securities, cash or other property deliverable upon such
      reclassification, consolidation, merger, sale, transfer or share exchange,
      provided, that the failure to mail such notice or any defect therein or in
      the
      mailing thereof shall not affect the validity of the corporate action required
      to be specified in such notice. The Holder is entitled to convert this Debenture
      during the 20-day calendar period commencing the date of such notice to the
      effective date of the event triggering such notice.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (ix) In
      case
      of any (1) merger or consolidation of the Company or any subsidiary of the
      Company with or into another Person, or (2) sale by the Company or any
      subsidiary of the Company of more than one-half of the assets of the Company
      in
      one or a series of related transactions, a Holder shall have the right to (A)
      exercise any rights under Section
      2(b),
      (B)
      convert the aggregate amount of this Debenture then outstanding into the shares
      of stock and other securities, cash and property receivable upon or deemed
      to be
      held by holders of Common Stock following such merger, consolidation or sale,
      and such Holder shall be entitled upon such event or series of related events
      to
      receive such amount of securities, cash and property as the shares of Common
      Stock into which such aggregate principal amount of this Debenture could have
      been converted immediately prior to such merger, consolidation or sales would
      have been entitled, or (C) in the case of a merger or consolidation, require
      the
      surviving entity to issue to the Holder a convertible Debenture with a principal
      amount equal to the aggregate principal amount of this Debenture then held
      by
      such Holder, plus all other amounts owing thereon, which such newly issued
      convertible Debenture shall have terms identical (including with respect to
      conversion) to the terms of this Debenture, and shall be entitled to all of
      the
      rights and privileges of the Holder of this Debenture set forth herein and
      the
      agreements pursuant to which this Debentures were issued. In the case of clause
      (C), the conversion price applicable for the newly issued shares of convertible
      preferred stock or convertible Debentures shall be based upon the amount of
      securities, cash and property that each share of Common Stock would receive
      in
      such transaction and the Conversion Price in effect immediately prior to the
      effectiveness or closing date for such transaction. The terms of any such
      merger, sale or consolidation shall include such terms so as to continue to
      give
      the Holder the right to receive the securities, cash and property set forth
      in
      this Section upon any conversion or redemption following such event. This
      provision shall similarly apply to successive such events.

     

    (d) Other
      Provisions.

     

    (i) The
      Company shall at all times reserve and keep available out of its authorized
      Common Stock the full number of shares of Common Stock issuable upon conversion
      of all outstanding amounts under this Debenture; and within three (3) Business
      Days following the receipt by the Company of a Holder's notice that such minimum
      number of Underlying Shares is not so reserved, the Company shall promptly
      reserve a sufficient number of shares of Common Stock to comply with such
      requirement.

     

    (ii) All
      calculations under this Section
      4
      shall be
      rounded up to the nearest $0.001 or whole share.

     

    (iiii) The
      Company covenants that it will at all times reserve and keep available out
      of
      its authorized and unissued shares of Common Stock solely for the purpose of
      issuance upon conversion of this Debenture as herein provided, free from
      preemptive rights or any other actual contingent purchase rights of persons
      other than the Holder, not less than such number of shares of the Common Stock
      as shall (subject to any additional requirements of the Company as to
      reservation of such shares set forth in this Debenture) be issuable (taking
      into
      account the adjustments and restrictions set forth herein) upon the conversion
      of the outstanding principal amount of this Debenture. The Company covenants
      that all shares of Common Stock that shall be so issuable shall, upon issue,
      be
      duly and validly authorized, issued and fully paid, nonassessable.

     

    (iv) Upon
      the
      conversion hereunder, the Company shall not be required to issue stock
      certificates representing fractions of shares of the Common Stock, but may
      if
      otherwise permitted, make a cash payment in respect of any final fraction of
      a
      share based on the Closing Bid Price at such time. If the Company elects not,
      or
      is unable, to make such a cash payment, the Holder shall be entitled to receive,
      in lieu of the final fraction of a share, one whole share of Common
      Stock.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (v) The
      issuance of certificates for shares of the Common Stock on conversion of this
      Debenture shall be made without charge to the Holder thereof for any documentary
      stamp or similar taxes that may be payable in respect of the issue or delivery
      of such certificate, provided that the Company shall not be required to pay
      any
      tax that may be payable in respect of any transfer involved in the issuance
      and
      delivery of any such certificate upon conversion in a name other than that
      of
      the Holder of such Debenture so converted and the Company shall not be required
      to issue or deliver such certificates unless or until the person or persons
      requesting the issuance thereof shall have paid to the Company the amount of
      such tax or shall have established to the satisfaction of the Company that
      such
      tax has been paid.

     

    (vi) Nothing
      herein shall limit a Holder's right to pursue actual damages or declare an
      Event
      of Default pursuant to Section
      2
      herein
      for the Company 's failure to deliver certificates representing shares of Common
      Stock upon conversion within the period specified herein and such Holder shall
      have the right to pursue all remedies available to it at law or in equity
      including, without limitation, a decree of specific performance and/or
      injunctive relief, in each case without the need to post a bond or provide
      other
      security. The exercise of any such rights shall not prohibit the Holder from
      seeking to enforce damages pursuant to any other Section hereof or under
      applicable law. 

     

    Section
      5. Notices.
       Any
      notices, consents, waivers or other communications required or permitted to
      be
      given under the terms hereof must be in writing and will be deemed to have
      been
      delivered: (i) upon receipt, when delivered personally; (ii) upon receipt,
      when
      sent by facsimile (provided confirmation of transmission is mechanically or
      electronically generated and kept on file by the sending party); or (iii) one
      (1) Trading Day after deposit with a nationally recognized overnight delivery
      service, in each case properly addressed to the party to receive the same.
      The
      addresses and facsimile numbers for such communications shall be:

    


    
      	
              If
                to the Company, to:

            	
              Compliance
                Systems Corporation

            
	 	
              90
                Pratt Oval

            
	 	
              Glen
                Cove, NY 11542

            
	 	
              Attention: Dean
                Garfinkel

            
	 	
              Telephone: (516)
                656-5155

            
	 	
              Facsimile: (516)
                676-2420

            
	 	 
	
              With
                a copy to: 

            	
              Kirkpatrick
                & Lockhart Preston Gates Ellis LLP

            
	 	
              200
                South Biscayne Boulevard, Suite 2000

            
	 	
              Miami,
                Florida 33131

            
	 	
              Attention: Clayton
                E. Parker, Esq.

            
	 	
              Telephone: (305)
                539-3306

            
	 	
              Facsimile: (305)
                328-7095

            


    

    


    
      	
              If
                to the Holder:

            	
              To
                the address set forth on Exhibit
                A
                attached hereto.

            


    

    


    or
      at
      such other address and/or facsimile number and/or to the attention of such
      other
      person as the recipient party has specified by written notice given to each
      other party three (3) Business Days prior to the effectiveness of such change.
      Written confirmation of receipt (i) given by the recipient of such notice,
      consent, waiver or other communication, (ii) mechanically or electronically
      generated by the sender's facsimile machine containing the time, date, recipient
      facsimile number and an image of the first page of such transmission or (iii)
      provided by a nationally recognized overnight delivery service, shall be
      rebuttable evidence of personal service, receipt by facsimile or receipt from
      a
      nationally recognized overnight delivery service in accordance with clause
      (i),
      (ii) or (iii) above, respectively.

     

    Section
      6. Definitions.
      For the
      purposes hereof, the following terms shall have the following
      meanings:

     

    “Approved
      Stock Plan”
means
      a
      stock option plan that has been approved by the Board of Directors of the
      Company prior to the date of the Subscription Agreement, pursuant to which
      the
      Company’s securities may be issued only to any employee, officer or director for
      services provided to the Company.

     

    “Business
      Day”
means
      any day except Saturday, Sunday and any day which shall be a federal legal
      holiday in the United States or a day on which banking institutions are
      authorized or required by law or other government action to close.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    “Change
      of Control Transaction”
means
      the occurrence of (a) an acquisition after the date hereof by an individual
      or
      legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the
      Exchange Act) of effective control (whether through legal or beneficial
      ownership of capital stock of the Company, by contract or otherwise) of in
      excess of fifty percent (50%) of the voting securities of the Company (except
      that the acquisition of voting securities by the Holder shall not constitute
      a
      Change of Control Transaction for purposes hereof), (b) a replacement at one
      time or over time of more than one-half of the members of the board of directors
      of the Company which is not approved by a majority of those individuals who
      are
      members of the board of directors on the date hereof (or by those individuals
      who are serving as members of the board of directors on any date whose
      nomination to the board of directors was approved by a majority of the members
      of the board of directors who are members on the date hereof), (c) the merger,
      consolidation or sale of fifty percent (50%) or more of the assets of the
      Company or any subsidiary of the Company in one or a series of related
      transactions with or into another entity, or (d) the execution by the Company
      of
      an agreement to which the Company is a party or by which it is bound, providing
      for any of the events set forth above in (a), (b) or (c).

     

    “Closing
      Bid Price”
means
      the price per share in the last reported trade of the Common Stock on a Primary
      Market or on the exchange which the Common Stock is then listed as quoted by
      Bloomberg, LP.

     

    “Commission”
means
      the U.S. Securities and Exchange Commission.

     

    “Common
      Stock”
means
      the common stock, par value $0.001, of the Company and stock of any other class
      into which such shares may hereafter be changed or reclassified.

     

    “Conversion
      Date”
shall
      mean the Maturity Date or the date upon which the Holder is otherwise entitled
      to effectuate a conversion of this Debenture into shares of the Company’s Common
      Stock as outlined herein.

     

    “Exchange
      Act”
means
      the Securities Exchange Act of 1934, as amended.

     

    “Excluded
      Securities”
means,
      (a) shares issued or deemed to have been issued by the Company pursuant to
      an
      Approved Stock Plan (b) shares of Common Stock issued or deemed to be issued
      by
      the Company upon the conversion, exchange or exercise of any right, option,
      obligation or security outstanding on the date prior to date of the Subscription
      Agreement, provided that the terms of such right, option, obligation or security
      are not amended or otherwise modified on or after the date of the Subscription
      Agreement, and provided that the conversion price, exchange price, exercise
      price or other purchase price is not reduced, adjusted or otherwise modified
      and
      the number of shares of Common Stock issued or issuable is not increased
      (whether by operation of, or in accordance with, the relevant governing
      documents or otherwise) on or after the date of the Subscription Agreement,
      and
      (c) the shares of Common Stock issued or deemed to be issued by the Company
      upon conversion of this Debenture.

     

    “Original
      Issue Date”
shall
      mean the date of the first issuance of this Debenture regardless of the number
      of transfers and regardless of the number of instruments, which may be issued
      to
      evidence such Debenture.

     

    “Person”
means
      a
      corporation, an association, a partnership, organization, a business, an
      individual, a government or political subdivision thereof or a governmental
      agency.

     

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

     

    “Trading
      Day”
means
      a
      day on which the shares of Common Stock are quoted on the OTC or quoted or
      traded on such Primary Market on which the shares of Common Stock are then
      quoted or listed; provided, that in the event that the shares of Common Stock
      are not listed or quoted, then Trading Day shall mean a Business
      Day.

     

    “Underlying
      Shares”
means
      the shares of Common Stock issuable upon conversion of this Debenture in
      accordance with the terms hereof.

     

    Section
      7. Except
      as
      expressly provided herein, no provision of this Debenture shall alter or impair
      the obligations of the Company, which are absolute and unconditional, to pay
      the
      principal and other charges (if any) on, this Debenture at the time, place,
      and
      rate, and in the coin or currency, herein prescribed. This Debenture is a direct
      obligation of the Company. This Debenture ranks junior to all other debentures
      previously issued to YA Global and ranks pari passu with all other debentures
      issued in connection with the Subscription. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Section
      8. This
      Debenture shall not entitle the Holder to any of the rights of a stockholder
      of
      the Company, including without limitation, the right to vote, to receive
      dividends and other distributions, or to receive any notice of, or to attend,
      meetings of stockholders or any other proceedings of the Company, unless and
      to
      the extent converted into shares of Common Stock in accordance with the terms
      hereof.

     

    Section
      9. If
      this
      Debenture is mutilated, lost, stolen or destroyed, the Company shall execute
      and
      deliver, in exchange and substitution for and upon cancellation of the mutilated
      Debenture, or in lieu of or in substitution for a lost, stolen or destroyed
      Debenture, a new Debenture for the principal amount of this Debenture so
      mutilated, lost, stolen or destroyed but only upon receipt of evidence of such
      loss, theft or destruction of such Debenture, and of the ownership hereof,
      and
      indemnity, if requested, all reasonably satisfactory to the
      Company.

     

    Section
      10. No
      indebtedness of the Company is senior to this Debenture in right of payment,
      whether with respect to interest, damages or upon liquidation or dissolution
      or
      otherwise except all debentures previously issued by the Company to YA Global.
      

     

    Section
      11. This
      Debenture shall be governed by and construed in accordance with the laws of
      the
      State of New York, without giving effect to conflicts of laws thereof. Each
      of
      the parties consents to the jurisdiction of the federal or state courts in
      Nassau County, New York in connection with any dispute arising under this
      Debenture and hereby waives, to the maximum extent permitted by law, any
      objection, including any objection based on forum non conveniens
      to the
      bringing of any such proceeding in such jurisdictions. 

     

    Section
      12. If
      the
      Company fails to strictly comply with the terms of this Debenture, then the
      Company shall reimburse the Holder promptly for all fees, costs and expenses,
      including, without limitation, attorneys’ fees and expenses incurred by the
      Holder in any action in connection with this Debenture, including, without
      limitation, those incurred: (i) during any workout, attempted workout, and/or
      in
      connection with the rendering of legal advice as to the Holder’s rights,
      remedies and obligations, (ii) collecting any sums which become due to the
      Holder, (iii) defending or prosecuting any proceeding or any counterclaim to
      any
      proceeding or appeal; or (iv) the protection, preservation or enforcement of
      any
      rights or remedies of the Holder.

     

    Section
      13. Any
      waiver by the Holder of a breach of any provision of this Debenture shall not
      operate as or be construed to be a waiver of any other breach of such provision
      or of any breach of any other provision of this Debenture. The failure of the
      Holder to insist upon strict adherence to any term of this Debenture on one
      or
      more occasions shall not be considered a waiver or deprive that party of the
      right thereafter to insist upon strict adherence to that term or any other
      term
      of this Debenture. Any waiver must be in writing.

     

    Section
      14. If
      any
      provision of this Debenture is invalid, illegal or unenforceable, the balance
      of
      this Debenture shall remain in effect, and if any provision is inapplicable
      to
      any person or circumstance, it shall nevertheless remain applicable to all
      other
      persons and circumstances. The Company covenants (to the extent that it may
      lawfully do so) that it shall not at any time insist upon, plead, or in any
      manner whatsoever claim or take the benefit or advantage of, any stay, extension
      or usury law or other law which would prohibit or forgive the Company from
      paying all or any portion of the principal on this Debenture as contemplated
      herein, wherever enacted, now or at any time hereafter in force, or which may
      affect the covenants or the performance of this indenture, and the Company
      (to
      the extent it may lawfully do so) hereby expressly waives all benefits or
      advantage of any such law, and covenants that it will not, by resort to any
      such
      law, hinder, delay or impeded the execution of any power herein granted to
      the
      Holder, but will suffer and permit the execution of every such as though no
      such
      law has been enacted.

     

    Section
      15. Whenever
      any payment or other obligation hereunder shall be due on a day other than
      a
      Business Day, such payment shall be made on the next succeeding Business
      Day.

     

    Section
      16. This
      Debenture is exchangeable for an equal aggregate principal amount of Debentures
      of different authorized denominations, as requested by the Holder surrendering
      the same. No service charge will be made for such registration of transfer
      or
      exchange.

     

    Section
      17. THE
      PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT ANY
      OF
      THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON
      OR
      ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION
      DOCUMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL
      OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT
      FOR
      THE PARTIES’ ACCEPTANCE OF THIS AGREEMENT.

     


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF,
      the
      Company has caused this Secured Convertible Debenture to be duly executed by
      a
      duly authorized officer as of the date set forth above.

     

    
      	 	 	
              COMPANY:

            
	 	 	
              COMPLIANCE
                SYSTEMS CORPORATION 

            
	 	 	 
	 	By:	
                    

            
	 	 	
              Name: Dean
                Garfinkel

            
	 	 	
              Title: Chairman