Document:

INVESTOR REGISTRATION RIGHTS AGREEMENT

      THIS REGISTRATION RIGHTS AGREEMENT (this  "Agreement"),  dated as of March
8, 2006, by and among COMPLIANCE  SYSTEMS  CORPORATION,  a Delaware  corporation
(the  "Company"),  and the undersigned  investors  listed on Schedule I attached
hereto (each, an "Investor" and collectively, the "Investors").

                                    RECITALS:

      WHEREAS, in connection with the Securities Purchase Agreement by and among
the parties hereto of even date herewith (the "Securities Purchase  Agreement"),
the  Company has agreed,  upon the terms and  subject to the  conditions  of the
Securities  Purchase  Agreement,  to  issue  and sell to the  Investors  secured
convertible debentures (the "Convertible Debentures") which shall be convertible
into that number of shares of the Company's  common stock,  par value $0.001 per
share (the "Common  Stock"),  pursuant to the terms of the  Securities  Purchase
Agreement  for  an  aggregate  purchase  price  of up  to  One  Million  Dollars
($1,000,000).  Capitalized  terms not  defined  herein  shall  have the  meaning
ascribed to them in the Securities Purchase Agreement.

      WHEREAS,  to induce the  Investors  to execute and deliver the  Securities
Purchase  Agreement,  the  Company  has agreed to provide  certain  registration
rights  under  the  Securities  Act of  1933,  as  amended,  and the  rules  and
regulations  there under, or any similar successor  statute  (collectively,  the
"Securities Act"), and applicable state securities laws.

      NOW,  THEREFORE,  for and in  consideration of the premises and the mutual
covenants  contained  herein  and other  good and  valuable  consideration,  the
receipt and  sufficiency of which are hereby  acknowledged,  the Company and the
Investors hereby agree as follows:

1. DEFINITIONS.

      As used in this  Agreement,  the following  terms shall have the following
meanings:

      (a)  "Person"  means  a  corporation,  a  limited  liability  company,  an
association,  a partnership,  an  organization,  a business,  an  individual,  a
governmental or political subdivision thereof or a governmental agency.

      (b) "Register,"  "registered," and "registration"  refer to a registration
effected by preparing and filing one or more Registration Statements (as defined
below) in compliance  with the Securities Act and pursuant to Rule 415 under the
Securities  Act or any successor  rule  providing  for offering  securities on a
continuous  or delayed basis ("Rule 415"),  and the  declaration  or ordering of
effectiveness of such Registration  Statement(s) by the United States Securities
and Exchange Commission (the "SEC").

      (c) "Registrable  Securities" means the shares of Common Stock issuable to
the Investors  upon  conversion of the  Convertible  Debentures  pursuant to the
Securities Purchase Agreement.

<PAGE>

      (d)  "Registration  Statement"  means a registration  statement  under the
Securities Act which covers the Registrable Securities.

2. REGISTRATION.

      (a) Subject to the terms and  conditions  of this  Agreement,  the Company
shall prepare and file, no later than thirty (30) days from the date hereof (the
"Scheduled Filing Deadline"),  with the SEC a registration statement on Form S-1
or SB-2 (or, if the Company is then eligible,  on Form S-3) under the Securities
Act (the "Initial  Registration  Statement")  for the resale by the Investors of
the Registrable Securities,  which includes at least 65,000,000 shares of Common
Stock  underlying  the  Convertible  Debentures.  The  Company  shall  cause the
Registration  Statement  to  remain  effective  until  all  of  the  Registrable
Securities  have been sold.  Prior to the filing of the  Registration  Statement
with the SEC,  the  Company  shall  furnish a copy of the  Initial  Registration
Statement to the  Investors for their review and comment.  The  Investors  shall
furnish  comments on the Initial  Registration  Statement to the Company  within
twenty-four (24) hours of the receipt thereof from the Company.

      (b) Effectiveness of the Initial Registration Statement. The Company shall
use its best  efforts (i) to have the Initial  Registration  Statement  declared
effective by the SEC no later than one hundred  twenty (120) days after the date
filed (the "Scheduled  Effective  Deadline") and (ii) to insure that the Initial
Registration  Statement and any  subsequent  Registration  Statement  remains in
effect until all of the Registrable  Securities  have been sold,  subject to the
terms  and  conditions  of this  Agreement.  It shall  be an  event  of  default
hereunder if the Initial Registration Statement is not declared effective by the
SEC within one hundred twenty (120) days after filing thereof.

      (c) Failure to File or Obtain Effectiveness of the Registration Statement.
In the event the  Registration  Statement is not filed by the  Scheduled  Filing
Deadline  or is not  declared  effective  by the SEC on or before the  Scheduled
Effective  Date,  or if after  the  Registration  Statement  has  been  declared
effective  by the  SEC,  sales  cannot  be  made  pursuant  to the  Registration
Statement  (whether  because  of a failure  to keep the  Registration  Statement
effective,  failure to disclose such information as is necessary for sales to be
made  pursuant to the  Registration  Statement,  failure to register  sufficient
shares of Common  Stock or otherwise  then as partial  relief for the damages to
any holder of Registrable Securities by reason of any such delay in or reduction
of its ability to sell the underlying shares of Common Stock (which remedy shall
not be  exclusive of any other  remedies at law or in equity),  the Company will
pay as  liquidated  damages (the  "Liquidated  Damages")  to the holder,  at the
holder's  option,  either a cash amount or shares of the Company's  Common Stock
within three (3) business  days,  after demand  therefore,  equal to two percent
(2%) of the  liquidated  value  of the  Convertible  Debentures  outstanding  as
Liquidated  Damages for each thirty (30) day period after the  Scheduled  Filing
Deadline or the Scheduled Effective Date as the case may be.

      (d) Liquidated  Damages.  The Company and the Investor hereto  acknowledge
and agree that the sums payable  under  subsection  2(c) above shall  constitute
liquidated  damages and not penalties and are in addition to all other rights of
the  Investor,  including  the  right to call a  default.  The  parties  further
acknowledge  that (i) the amount of loss or  damages  likely to be  incurred  is
incapable or is difficult to precisely  estimate,  (ii) the amounts specified in
such  subsections  bear a  reasonable  relationship  to, and are not  plainly or
grossly  disproportionate  to,  the  probable  loss  likely  to be  incurred  in
connection   with  any  failure  by  the  Company  to  obtain  or  maintain  the
effectiveness  of a  Registration  Statement,  (iii) one of the  reasons for the
Company  and the  Investor  reaching  an  agreement  as to such  amounts was the
uncertainty and cost of litigation regarding the question of actual damages, and
(iv) the Company and the Investor are  sophisticated  business  parties and have
been  represented by  sophisticated  and able legal counsel and negotiated  this
Agreement at arm's length.

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<PAGE>

3. RELATED OBLIGATIONS.

      (a) The Company shall keep the Registration  Statement  effective pursuant
to Rule 415 at all times  until the date on which the  Investor  shall have sold
all the  Registrable  Securities  covered by such  Registration  Statement  (the
"Registration  Period"),  which Registration Statement (including any amendments
or supplements thereto and prospectuses contained therein) shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein,  or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.

      (b) The  Company  shall  prepare  and file  with  the SEC such  amendments
(including   post-effective   amendments)  and  supplements  to  a  Registration
Statement  and  the  prospectus  used  in  connection  with  such   Registration
Statement,  which  prospectus  is to be filed  pursuant to Rule 424  promulgated
under  the  Securities  Act,  as may be  necessary  to  keep  such  Registration
Statement  effective at all times during the  Registration  Period,  and, during
such period,  comply with the  provisions of the  Securities Act with respect to
the  disposition of all  Registrable  Securities of the Company  covered by such
Registration  Statement  until such time as all of such  Registrable  Securities
shall  have  been  disposed  of in  accordance  with  the  intended  methods  of
disposition by the seller or sellers  thereof as set forth in such  Registration
Statement. In the case of amendments and supplements to a Registration Statement
which are required to be filed pursuant to this Agreement (including pursuant to
this Section  3(b)) by reason of the  Company's  filing a report on Form 10-KSB,
Form 10-QSB or Form 8-K or any analogous  report under the  Securities  Exchange
Act of 1934, as amended (the "Exchange Act"), the Company shall incorporate such
report by reference into the  Registration  Statement,  if applicable,  or shall
file such  amendments or  supplements  with the SEC on the same day on which the
Exchange Act report is filed which  created the  requirement  for the Company to
amend or supplement the Registration Statement.

      (c)  The  Company  shall  furnish  to  each  Investor  whose   Registrable
Securities are included in any Registration  Statement,  without charge,  (i) at
least one (1) copy of such Registration  Statement as declared  effective by the
SEC and any amendment(s) thereto,  including financial statements and schedules,
all  documents  incorporated  therein  by  reference,   all  exhibits  and  each
preliminary prospectus, (ii) ten (10) copies of the final prospectus included in
such Registration  Statement and all amendments and supplements thereto (or such
other number of copies as such Investor may  reasonably  request) and (iii) such
other  documents as such  Investor may  reasonably  request from time to time in
order to facilitate the disposition of the Registrable  Securities owned by such
Investor.

                                       3
<PAGE>

      (d) The Company shall use its best efforts to (i) register and qualify the
Registrable  Securities  covered by a  Registration  Statement  under such other
securities or "blue sky" laws of such  jurisdictions in the United States as any
Investor reasonably requests, (ii) prepare and file in those jurisdictions, such
amendments  (including  post-effective   amendments)  and  supplements  to  such
registrations   and   qualifications   as  may  be  necessary  to  maintain  the
effectiveness  thereof  during the  Registration  Period,  (iii) take such other
actions as may be necessary to maintain such registrations and qualifications in
effect at all times  during  the  Registration  Period,  and (iv) take all other
actions reasonably necessary or advisable to qualify the Registrable  Securities
for sale in such jurisdictions; provided, however, that the Company shall not be
required  in  connection  therewith  or as a  condition  thereto to (w) make any
change to its articles of incorporation  or by-laws,  (x) qualify to do business
in any jurisdiction  where it would not otherwise be required to qualify but for
this  Section  3(d),  (y)  subject  itself  to  general  taxation  in  any  such
jurisdiction,  or (z) file a general  consent  to service of process in any such
jurisdiction.  The  Company  shall  promptly  notify  each  Investor  who  holds
Registrable  Securities of the receipt by the Company of any  notification  with
respect to the suspension of the  registration  or  qualification  of any of the
Registrable  Securities  for sale under the securities or "blue sky" laws of any
jurisdiction  in the  United  States  or its  receipt  of  actual  notice of the
initiation or threat of any proceeding for such purpose.

      (e) As  promptly  as  practicable  after  becoming  aware of such event or
development,  the Company shall notify each Investor in writing of the happening
of any event as a result  of which the  prospectus  included  in a  Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omission to state a material fact required to be stated  therein or necessary to
make the statements therein, in light of the circumstances under which they were
made,  not  misleading  (provided that in no event shall such notice contain any
material, nonpublic information), and promptly prepare a supplement or amendment
to such Registration Statement to correct such untrue statement or omission, and
deliver ten (10) copies of such  supplement or amendment to each  Investor.  The
Company  shall  also  promptly  notify  each  Investor  in  writing  (i)  when a
prospectus or any  prospectus  supplement or  post-effective  amendment has been
filed,  and when a Registration  Statement or any  post-effective  amendment has
become effective  (notification of such effectiveness shall be delivered to each
Investor  by  facsimile  on the  same  day of such  effectiveness),  (ii) of any
request by the SEC for amendments or supplements to a Registration  Statement or
related prospectus or related information, and (iii) of the Company's reasonable
determination that a post-effective  amendment to a Registration Statement would
be appropriate.

      (f) The Company  shall use its best efforts to prevent the issuance of any
stop order or other suspension of effectiveness of a Registration  Statement, or
the suspension of the  qualification  of any of the  Registrable  Securities for
sale in any  jurisdiction  within the United  States of America  and, if such an
order or  suspension  is  issued,  to obtain  the  withdrawal  of such  order or
suspension at the earliest possible moment and to notify each Investor who holds
Registrable  Securities  being  sold  of the  issuance  of  such  order  and the
resolution  thereof or its receipt of actual notice of the  initiation or threat
of any proceeding for such purpose.

      (g) At the reasonable  request of any Investor,  the Company shall furnish
to such Investor, on the date of the effectiveness of the Registration Statement
and  thereafter  from time to time on such dates as an Investor  may  reasonably
request (i) a letter, dated such date, from the Company's  independent certified
public  accountants in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
and (ii) an opinion,  dated as of such date, of counsel representing the Company
for purposes of such Registration  Statement, in form, scope and substance as is
customarily  given  in  an  underwritten  public  offering,   addressed  to  the
Investors.

                                       4
<PAGE>

      (h) The Company shall make  available  for  inspection by (i) any Investor
and (ii) one (1) firm of accountants  or other agents  retained by the Investors
(collectively,  the "Inspectors") all pertinent financial and other records, and
pertinent corporate documents and properties of the Company  (collectively,  the
"Records"), as shall be reasonably deemed necessary by each Inspector, and cause
the Company's officers,  directors and employees to supply all information which
any Inspector may reasonably  request;  provided,  however,  that each Inspector
shall agree, and each Investor hereby agrees,  to hold in strict  confidence and
shall not make any disclosure (except to an Investor) or use any Record or other
information which the Company  determines in good faith to be confidential,  and
of which determination the Inspectors are so notified, unless (a) the disclosure
of such Records is necessary to avoid or correct a  misstatement  or omission in
any  Registration  Statement or is otherwise  required under the Securities Act,
(b) the release of such Records is ordered  pursuant to a final,  non-appealable
subpoena or order from a court or government body of competent jurisdiction,  or
(c) the  information  in such Records has been made  generally  available to the
public other than by disclosure  in violation of this or any other  agreement of
which the Inspector and the Investor has knowledge. Each Investor agrees that it
shall,  upon learning that disclosure of such Records is sought in or by a court
or  governmental  body of competent  jurisdiction  or through other means,  give
prompt notice to the Company and allow the Company, at its expense, to undertake
appropriate  action to prevent  disclosure  of, or to obtain a protective  order
for, the Records deemed confidential.

      (i) The Company  shall hold in confidence  and not make any  disclosure of
information concerning an Investor provided to the Company unless (i) disclosure
of such  information  is necessary  to comply with  federal or state  securities
laws, (ii) the disclosure of such information is necessary to avoid or correct a
misstatement  or omission in any  Registration  Statement,  (iii) the release of
such   information   is  ordered   pursuant  to  a  subpoena  or  other   final,
non-appealable   order  from  a  court  or   governmental   body  of   competent
jurisdiction,  or (iv) such information has been made generally available to the
public other than by  disclosure  in  violation  of this  Agreement or any other
agreement.  The Company agrees that it shall,  upon learning that  disclosure of
such  information  concerning  an  Investor  is  sought  in  or  by a  court  or
governmental body of competent  jurisdiction or through other means, give prompt
written  notice to such  Investor  and allow such  Investor,  at the  Investor's
expense, to undertake  appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.

      (j) The  Company  shall  use its best  efforts  either  to  cause  all the
Registrable  Securities covered by a Registration  Statement (i) to be listed on
each securities  exchange on which securities of the same class or series issued
by the Company  are then  listed,  if any,  if the  listing of such  Registrable
Securities  is then  permitted  under  the  rules of such  exchange  or (ii) the
inclusion for quotation on the National Association of Securities Dealers,  Inc.
OTC Bulletin Board for such  Registrable  Securities.  The Company shall pay all
fees and  expenses in  connection  with  satisfying  its  obligation  under this
Section 3(j).

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<PAGE>

      (k) The Company shall  cooperate  with the Investors who hold  Registrable
Securities being offered and, to the extent applicable, to facilitate the timely
preparation  and delivery of certificates  (not bearing any restrictive  legend)
representing the Registrable Securities to be offered pursuant to a Registration
Statement and enable such  certificates to be in such  denominations or amounts,
as the case may be, as the Investors may  reasonably  request and  registered in
such names as the Investors may request.

      (l) The  Company  shall  use its best  efforts  to cause  the  Registrable
Securities  covered by the  applicable  Registration  Statement to be registered
with or approved by such other  governmental  agencies or  authorities as may be
necessary to consummate the disposition of such Registrable Securities.

      (m) The Company shall make generally  available to its security holders as
soon as  practical,  but not later than  ninety (90) days after the close of the
period  covered  thereby,  an earnings  statement  (in form  complying  with the
provisions  of Rule 158 under the  Securities  Act) covering a twelve (12) month
period  beginning not later than the first day of the Company's  fiscal  quarter
next following the effective date of the Registration Statement.

      (n) The Company  shall  otherwise  use its best efforts to comply with all
applicable  rules and regulations of the SEC in connection with any registration
hereunder.

      (o) Within two (2)  business  days after a  Registration  Statement  which
covers  Registrable  Securities  is declared  effective  by the SEC, the Company
shall deliver,  and shall cause legal counsel for the Company to deliver, to the
transfer  agent for such  Registrable  Securities  (with copies to the Investors
whose  Registrable  Securities  are  included  in such  Registration  Statement)
confirmation that such Registration Statement has been declared effective by the
SEC in the form attached hereto as Exhibit A.

      (p) The  Company  shall take all other  reasonable  actions  necessary  to
expedite and facilitate  disposition by the Investors of Registrable  Securities
pursuant to a Registration Statement.

4. OBLIGATIONS OF THE INVESTORS.

      Each Investor  agrees that, upon receipt of any notice from the Company of
the  happening  of any event of the kind  described in Section 3(f) or the first
sentence of 3(e),  such Investor will  immediately  discontinue  disposition  of
Registrable  Securities pursuant to any Registration  Statement(s) covering such
Registrable  Securities  until  such  Investor's  receipt  of the  copies of the
supplemented  or amended  prospectus  contemplated by Section 3(e) or receipt of
notice that no supplement or amendment is required.  Notwithstanding anything to
the contrary,  the Company shall cause its transfer agent to deliver  unlegended
certificates  for  shares of Common  Stock to a  transferee  of an  Investor  in
accordance  with the terms of the  Securities  Purchase  Agreement in connection
with any sale of  Registrable  Securities  with respect to which an Investor has
entered  into a contract  for sale prior to the  Investor's  receipt of a notice
from the Company of the happening of any event of the kind  described in Section
3(f) or the  first  sentence  of 3(e) and for  which  the  Investor  has not yet
settled.

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<PAGE>

5. EXPENSES OF REGISTRATION.

      All  expenses  incurred  in  connection  with  registrations,  filings  or
qualifications pursuant to Sections 2 and 3, including,  without limitation, all
registration,  listing and qualifications fees,  printers,  legal and accounting
fees shall be paid by the Company.

6. INDEMNIFICATION.

      With  respect  to   Registrable   Securities   which  are  included  in  a
Registration Statement under this Agreement:

      (a) To the fullest  extent  permitted by law, the Company will, and hereby
does,  indemnify,  hold  harmless  and  defend  each  Investor,  the  directors,
officers, partners,  employees, agents,  representatives of, and each Person, if
any, who controls any Investor  within the meaning of the  Securities Act or the
Exchange  Act (each,  an  "Indemnified  Person"),  against any  losses,  claims,
damages,  liabilities,  judgments, fines, penalties,  charges, costs, reasonable
attorneys'  fees,  amounts  paid in  settlement  or  expenses,  joint or several
(collectively,  "Claims") incurred in investigating,  preparing or defending any
action, claim, suit, inquiry, proceeding, investigation or appeal taken from the
foregoing  by or  before  any  court or  governmental,  administrative  or other
regulatory  agency,  body or the SEC, whether pending or threatened,  whether or
not an indemnified party is or may be a party thereto  ("Indemnified  Damages"),
to which any of them may become  subject  insofar as such  Claims (or actions or
proceedings,  whether commenced or threatened,  in respect thereof) arise out of
or are based upon:  (i) any untrue  statement or alleged  untrue  statement of a
material  fact  in a  Registration  Statement  or any  post-effective  amendment
thereto  or in any  filing  made in  connection  with the  qualification  of the
offering  under the securities or other "blue sky" laws of any  jurisdiction  in
which Registrable Securities are offered ("Blue Sky Filing"), or the omission or
alleged  omission  to state a material  fact  required  to be stated  therein or
necessary  to make the  statements  therein  not  misleading;  (ii)  any  untrue
statement or alleged untrue  statement of a material fact contained in any final
prospectus  (as  amended or  supplemented,  if the Company  files any  amendment
thereof or supplement  thereto with the SEC) or the omission or alleged omission
to state  therein  any  material  fact  necessary  to make the  statements  made
therein,  in light of the circumstances  under which the statements therein were
made, not misleading; or (iii) any violation or alleged violation by the Company
of the  Securities  Act, the Exchange  Act,  any other law,  including,  without
limitation,  any state  securities  law, or any rule or  regulation  there under
relating  to the  offer  or sale of the  Registrable  Securities  pursuant  to a
Registration  Statement (the matters in the foregoing  clauses (i) through (iii)
being,  collectively,  "Violations").  The Company shall reimburse the Investors
and each such controlling  person promptly as such expenses are incurred and are
due and  payable,  for any  legal  fees or  disbursements  or  other  reasonable
expenses incurred by them in connection with investigating or defending any such
Claim.   Notwithstanding   anything  to  the  contrary   contained  herein,  the
indemnification agreement contained in this Section 6(a): (x) shall not apply to
a Claim by an Indemnified  Person arising out of or based upon a Violation which
occurs in reliance upon and in conformity with information  furnished in writing
to the Company by such  Indemnified  Person expressly for use in connection with
the preparation of the Registration  Statement or any such amendment  thereof or
supplement thereto; (y) shall not be available to the extent such Claim is based
on a  failure  of the  Investor  to  deliver  or to  cause to be  delivered  the
prospectus  made  available by the Company,  if such  prospectus was timely made
available by the Company  pursuant to Section  3(c);  and (z) shall not apply to
amounts paid in settlement of any Claim if such  settlement is effected  without
the  prior  written  consent  of  the  Company,   which  consent  shall  not  be
unreasonably  withheld.  Such  indemnity  shall  remain in full force and effect
regardless of any investigation  made by or on behalf of the Indemnified  Person
and shall  survive the transfer of the  Registrable  Securities by the Investors
pursuant to Section 9 hereof.

                                       7
<PAGE>

      (b) In connection with a Registration  Statement,  each Investor agrees to
severally  and not jointly  indemnify,  hold  harmless  and defend,  to the same
extent and in the same manner as is set forth in Section 6(a), the Company, each
of its directors, each of its officers,  employees,  representatives,  or agents
and each Person,  if any,  who  controls  the Company  within the meaning of the
Securities Act or the Exchange Act (each an  "Indemnified  Party"),  against any
Claim or Indemnified Damages to which any of them may become subject,  under the
Securities  Act,  the  Exchange  Act or  otherwise,  insofar  as such  Claim  or
Indemnified Damages arise out of or is based upon any Violation, in each case to
the extent, and only to the extent,  that such Violation occurs in reliance upon
and in  conformity  with  written  information  furnished to the Company by such
Investor expressly for use in connection with such Registration Statement;  and,
subject  to  Section  6(d),  such  Investor  will  reimburse  any legal or other
expenses  reasonably  incurred  by  them in  connection  with  investigating  or
defending  any such  Claim;  provided,  however,  that the  indemnity  agreement
contained in this Section 6(b) and the  agreement  with respect to  contribution
contained  in Section 7 shall not apply to  amounts  paid in  settlement  of any
Claim if such  settlement is effected  without the prior written consent of such
Investor, which consent shall not be unreasonably withheld;  provided,  further,
however, that the Investor shall be liable under this Section 6(b) for only that
amount of a Claim or Indemnified  Damages as does not exceed the net proceeds to
such Investor as a result of the sale of Registrable Securities pursuant to such
Registration  Statement.  Such  indemnity  shall remain in full force and effect
regardless of any  investigation  made by or on behalf of such Indemnified Party
and shall  survive the transfer of the  Registrable  Securities by the Investors
pursuant  to Section  9.  Notwithstanding  anything  to the  contrary  contained
herein,  the  indemnification  agreement  contained  in this  Section  6(b) with
respect to any  prospectus  shall not inure to the  benefit  of any  Indemnified
Party if the untrue  statement  or omission of material  fact  contained  in the
prospectus  was corrected and such new prospectus was delivered to each Investor
prior to such Investor's use of the prospectus to which the Claim relates.

      (c) Promptly after receipt by an Indemnified  Person or Indemnified  Party
under this Section 6 of notice of the  commencement  of any action or proceeding
(including  any  governmental  action or  proceeding)  involving  a Claim,  such
Indemnified  Person or Indemnified Party shall, if a Claim in respect thereof is
to be made against any  indemnifying  party under this Section 6, deliver to the
indemnifying  party  a  written  notice  of the  commencement  thereof,  and the
indemnifying  party shall have the right to  participate  in, and, to the extent
the indemnifying  party so desires,  jointly with any other  indemnifying  party
similarly  noticed,  to assume  control  of the  defense  thereof  with  counsel
mutually  satisfactory to the indemnifying  party and the Indemnified  Person or
the  Indemnified  Party,  as  the  case  may  be;  provided,  however,  that  an
Indemnified  Person or Indemnified  Party shall have the right to retain its own
counsel  with the fees and  expenses  of not more than one (1)  counsel for such
Indemnified  Person or Indemnified  Party to be paid by the indemnifying  party,
if, in the reasonable opinion of counsel retained by the indemnifying party, the
representation  by such counsel of the Indemnified  Person or Indemnified  Party
and the  indemnifying  party would be  inappropriate  due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party  represented  by such counsel in such  proceeding.  The  Indemnified
Party or Indemnified Person shall cooperate fully with the indemnifying party in
connection  with any  negotiation  or defense of any such action or claim by the
indemnifying  party and shall furnish to the indemnifying  party all information
reasonably  available  to the  Indemnified  Party or  Indemnified  Person  which
relates  to such  action  or  claim.  The  indemnifying  party  shall  keep  the
Indemnified  Party or  Indemnified  Person fully apprised at all times as to the
status of the defense or any settlement  negotiations  with respect thereto.  No
indemnifying  party shall be liable for any  settlement of any action,  claim or
proceeding effected without its prior written consent;  provided,  however, that
the indemnifying party shall not unreasonably  withhold,  delay or condition its
consent.  No indemnifying party shall,  without the prior written consent of the
Indemnified  Party or  Indemnified  Person,  consent to entry of any judgment or
enter into any  settlement  or other  compromise  which  does not  include as an
unconditional  term  thereof  the giving by the  claimant or  plaintiff  to such
Indemnified  Party or  Indemnified  Person of a release  from all  liability  in
respect to such claim or litigation.  Following  indemnification as provided for
hereunder,  the  indemnifying  party  shall be  subrogated  to all rights of the
Indemnified Party or Indemnified Person with respect to all third parties, firms
or corporations  relating to the matter for which indemnification has been made.
The  failure  to  deliver  written  notice to the  indemnifying  party  within a
reasonable  time of the  commencement  of any such action shall not relieve such
indemnifying  party of any liability to the  Indemnified  Person or  Indemnified
Party under this Section 6, except to the extent that the indemnifying  party is
prejudiced in its ability to defend such action.

                                       8
<PAGE>

      (d) The  indemnification  required  by  this  Section  6 shall  be made by
periodic  payments of the amount thereof during the course of the  investigation
or defense, as and when bills are received or Indemnified Damages are incurred.

      (e) The indemnity  agreements contained herein shall be in addition to (i)
any cause of action or similar  right of the  Indemnified  Party or  Indemnified
Person against the  indemnifying  party or others,  and (ii) any liabilities the
indemnifying party may be subject to pursuant to the law.

7. CONTRIBUTION.

      To the extent any  indemnification  by an indemnifying party is prohibited
or  limited  by  law,  the  indemnifying   party  agrees  to  make  the  maximum
contribution  with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no seller of Registrable  Securities guilty of fraudulent  misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution  from any seller of  Registrable  Securities  who was not guilty of
fraudulent misrepresentation; and (ii) contribution by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds  received by
such seller from the sale of such Registrable Securities.

                                       9
<PAGE>

8. REPORTS UNDER THE EXCHANGE ACT.

      With a view to making  available to the Investors the benefits of Rule 144
promulgated  under the  Securities  Act or any similar rule or regulation of the
SEC that may at any time permit the Investors to sell  securities of the Company
to the public without registration ("Rule 144") the Company agrees to:

      (a)  make and keep  public  information  available,  as  those  terms  are
understood and defined in Rule 144;

      (b) file with the SEC in a timely  manner all reports and other  documents
required of the Company under the Securities Act and the Exchange Act so long as
the Company  remains  subject to such  requirements  (it being  understood  that
nothing herein shall limit the Company's  obligations  under Section 4(c) of the
Securities  Purchase  Agreement)  and the  filing  of  such  reports  and  other
documents as are required by the applicable provisions of Rule 144; and

      (c) furnish to each  Investor so long as such  Investor  owns  Registrable
Securities,  promptly upon request,  (i) a written statement by the Company that
it has complied with the reporting  requirements of Rule 144, the Securities Act
and the Exchange Act, (ii) a copy of the most recent annual or quarterly  report
of the Company and such other reports and documents so filed by the Company, and
(iii)  such  other  information  as may be  reasonably  requested  to permit the
Investors to sell such securities pursuant to Rule 144 without registration.

9. AMENDMENT OF REGISTRATION RIGHTS.

      Provisions of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and either retroactively
or  prospectively),  only with the written  consent of the Company and Investors
who then  hold at least  two-thirds  (2/3) of the  Registrable  Securities.  Any
amendment or waiver  effected in accordance with this Section 9 shall be binding
upon each Investor and the Company.  No such amendment shall be effective to the
extent  that it  applies to fewer  than all of the  holders  of the  Registrable
Securities.  No consideration shall be offered or paid to any Person to amend or
consent to a waiver or  modification  of any provision of any of this  Agreement
unless the same  consideration  also is  offered  to all of the  parties to this
Agreement.

10. MISCELLANEOUS.

      (a) A Person is deemed to be a holder of Registrable  Securities  whenever
such Person owns or is deemed to own of record such Registrable  Securities.  If
the Company receives conflicting instructions, notices or elections from two (2)
or more  Persons with respect to the same  Registrable  Securities,  the Company
shall act upon the basis of instructions,  notice or election  received from the
registered owner of such Registrable Securities.

      (b) Any notices,  consents,  waivers or other  communications  required or
permitted to be given under the terms of this  Agreement  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) business 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:

                                       10
<PAGE>

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 Copy to:                   Kirkpatrick & Lockhart Nicholson Graham, LLP
                                201 South Biscayne Boulevard, Suite 2000
                                Miami, Florida 33131
                                Attention:  Clayton E. Parker, Esq.
                                Telephone:  (305) 539-3306
                                Facsimile:  (305) 328-7095

If to an  Investor,  to its  address  and  facsimile  number on the  Schedule of
Investors attached hereto, with copies to such Investor's representatives as set
forth on the  Schedule of Investors or to 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 five (5) days prior to the
effectiveness of such change.  Written  confirmation of receipt (A) given by the
recipient  of  such  notice,  consent,   waiver  or  other  communication,   (B)
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 (C)  provided by a courier or  overnight  courier
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.

      (c)  Failure  of any party to  exercise  any right or  remedy  under  this
Agreement or otherwise,  or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.

      (d) The laws of the State of New Jersey shall govern all issues concerning
the relative  rights of the Company and the Investors as its  stockholders.  All
other  questions   concerning  the  construction,   validity,   enforcement  and
interpretation  of this Agreement  shall be governed by the internal laws of the
State of New Jersey,  without  giving effect to any choice of law or conflict of
law  provision  or  rule  (whether  of the  State  of New  Jersey  or any  other
jurisdiction)  that would cause the application of the laws of any  jurisdiction
other than the State of New Jersey. Each party hereby irrevocably submits to the
non-exclusive  jurisdiction  of the Superior  Courts of the State of New Jersey,
sitting in Hudson County,  New Jersey and federal courts for the District of New
Jersey sitting Newark, New Jersey, for the adjudication of any dispute hereunder
or in  connection  herewith  or with  any  transaction  contemplated  hereby  or
discussed herein, and hereby irrevocably waives, and agrees not to assert in any
suit, action or proceeding,  any claim that it is not personally  subject to the
jurisdiction of any such court,  that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper.  Each party hereby  irrevocably waives personal service of process and
consents  to process  being  served in any such suit,  action or  proceeding  by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof.  Nothing contained herein shall be deemed
to limit in any way any right to serve  process in any manner  permitted by law.
If any  provision of this  Agreement  shall be invalid or  unenforceable  in any
jurisdiction,  such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or the
validity or  enforceability  of any  provision  of this  Agreement  in any other
jurisdiction.  EACH PARTY HEREBY  IRREVOCABLY  WAIVES ANY RIGHT IT MAY HAVE, AND
AGREES  NOT TO  REQUEST,  A JURY  TRIAL  FOR  THE  ADJUDICATION  OF ANY  DISPUTE
HEREUNDER  OR IN  CONNECTION  HEREWITH OR ARISING OUT OF THIS  AGREEMENT  OR ANY
TRANSACTION CONTEMPLATED HEREBY.

                                       11
<PAGE>

      (e) This  Agreement,  the  Irrevocable  Transfer Agent  Instructions,  the
Securities  Purchase  Agreement and related documents  including the Convertible
Debenture  and the  Escrow  Agreement  dated  the date  hereof  by and among the
Company,  the Investors set forth on the Schedule of Investors  attached hereto,
and David Gonzalez,  Esq. (the "Escrow  Agreement")  and the Security  Agreement
dated the date hereof (the "Security Agreement") constitute the entire agreement
among the parties  hereto with respect to the subject matter hereof and thereof.
There are no  restrictions,  promises,  warranties or  undertakings,  other than
those  set  forth or  referred  to  herein  and  therein.  This  Agreement,  the
Irrevocable  Transfer Agent Instructions,  the Securities Purchase Agreement and
related documents including the Convertible Debenture,  the Escrow Agreement and
the Security Agreement  supersede all prior agreements and understandings  among
the parties hereto with respect to the subject matter hereof and thereof.

      (f) This  Agreement  shall inure to the benefit of and be binding upon the
permitted successors and assigns of each of the parties hereto.

      (g) The headings in this  Agreement are for  convenience of reference only
and shall not limit or otherwise affect the meaning hereof.

      (h) This  Agreement  may be executed in  identical  counterparts,  each of
which shall be deemed an original but all of which shall  constitute one and the
same agreement.  This Agreement,  once executed by a party,  may be delivered to
the other party hereto by  facsimile  transmission  of a copy of this  Agreement
bearing the signature of the party so delivering this Agreement.

      (i) Each party shall do and  perform,  or cause to be done and  performed,
all such further acts and things,  and shall  execute and deliver all such other
agreements,  certificates,  instruments  and  documents,  as the other party may
reasonably  request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby.

The language used in this Agreement will be deemed to be the language  chosen by
the parties to express their mutual  intent and no rules of strict  construction
will be applied against any party.

                                       12
<PAGE>

      (j) This  Agreement is intended for the benefit of the parties  hereto and
their respective  permitted  successors and assigns,  and is not for the benefit
of, nor may any provision hereof be enforced by, any other Person.

        [SIGNATURE PAGE FOLLOWS; REMAINDER OF PAGE INTENTIONALLY BLANK]

                                       13
<PAGE>

      IN WITNESS  WHEREOF,  the parties have caused this  Investor  Registration
Rights Agreement to be duly executed as of day and year first above written.

                                         COMPANY:
                                         COMPLIANCE SYSTEMS CORPORATION

                                         By:____________________________
                                         Name:  Dean Garfinkel
                                         Title: Chairman

                                       14
<PAGE>

                                   SCHEDULE I

                              SCHEDULE OF INVESTORS

                                                           Address/Facsimile
        Name                     Signature                Number of Investors
-------------------  -------------------------------  --------------------------

Montgomery Equity     By:  Yorkville Advisors, LLC    101 Hudson Street
Partners, Ltd.                                          Suite 3700
                      Its:  General Partner           Jersey City, NJ  07303
                                                      Facsimile:  (201) 985-8266

                     By:____________________________
                      Name:  Mark Angelo
                      Its:  Portfolio Manager

With a copy to:       David Gonzalez, Esq.            101 Hudson Street
                                                        Suite 3700
                                                      Jersey City, NJ 07302
                                                      Facsimile: (201) 985-8266

<PAGE>

                                    EXHIBIT A

                         FORM OF NOTICE OF EFFECTIVENESS
                            OF REGISTRATION STATEMENT

Attention:

      Re:   COMPLIANCE SYSTEMS CORPORATION

Ladies and Gentlemen:

      We are counsel to Compliance Systems  Corporation,  a Delaware corporation
(the  "Company"),  and have  represented  the  Company in  connection  with that
certain  Securities  Purchase  Agreement (the "Securities  Purchase  Agreement")
entered  into  by  and  among  the  Company  and  the  investors  named  therein
(collectively,  the  "Investors")  pursuant to which the  Company  issued to the
Investors  shares of its Common  Stock,  par value $0.001 per share (the "Common
Stock"). Pursuant to the Purchase Agreement, the Company also has entered into a
Registration  Rights  Agreement with the Investors  (the "Investor  Registration
Rights Agreement")  pursuant to which the Company agreed, among other things, to
register  the  Registrable  Securities  (as defined in the  Registration  Rights
Agreement) under the Securities Act of 1933, as amended (the "Securities  Act").
In  connection  with the Company's  obligations  under the  Registration  Rights
Agreement,  on ____________ ____, the Company filed a Registration  Statement on
Form ________ (File No.  333-_____________) (the "Registration  Statement") with
the  Securities  and  Exchange  SEC  (the  "SEC")  relating  to the  Registrable
Securities  which names each of the  Investors  as a selling  stockholder  there
under.

      In connection with the foregoing, we advise you that a member of the SEC's
staff has advised us by  telephone  that the SEC has entered an order  declaring
the Registration  Statement effective under the Securities Act at [ENTER TIME OF
EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge,  after
telephonic  inquiry  of a  member  of the  SEC's  staff,  that  any  stop  order
suspending its  effectiveness  has been issued or that any  proceedings for that
purpose  are  pending  before,  or  threatened  by, the SEC and the  Registrable
Securities  are  available for resale under the  Securities  Act pursuant to the
Registration Statement.

                                   Very truly yours,

                                   KIRKPATRICK & LOCKHART NICHOLSON GRAHAM, LLP

                                   By:_________________________________________

cc:   [LIST NAMES OF INVESTORS]INSIDER PLEDGE AND ESCROW AGREEMENT

      THIS INSIDER  PLEDGE AND ESCROW  AGREEMENT (the  "Agreement")  is made and
entered  into as of March 8, 2006  (the  "Effective  Date")  by and  among  DEAN
GARFINKEL (the "Pledgor"),  MONTGOMERY  EQUITY  PARTNERS,  LTD. (the "Pledgee"),
COMPLIANCE SYSTEMS CORPORATION,  a Nevada corporation (the "Company"), and DAVID
GONZALEZ, ESQ., as escrow agent ("Escrow Agent").

                                    RECITALS:

      WHEREAS,  the Company shall issue and sell to the Pledgee,  as provided in
the Securities  Purchase Agreement of even date herewith between the Company and
the  Pledgee  (the  "Securities  Purchase  Agreement"),  and the  Pledgee  shall
purchase  up  to  One  Million  Dollars   ($1,000,000)  of  secured  convertible
debentures  (the  "Convertible  Debentures"),  which shall be  convertible  into
shares of the Company's  common  stock,  par value $0.001 per share (the "Common
Stock") (as converted, the "Conversion Shares"); and

      WHEREAS, to induce the Pledgee to enter into the transaction  contemplated
by the Securities Purchase Agreement,  the Convertible Debentures,  the Investor
Registration  Rights Agreement of even date herewith between the Company and the
Pledgee (the  "Investor  Registration  Rights  Agreement")  and the  Irrevocable
Transfer Agent Instructions among the Company,  the Pledgee, the Transfer Agent,
and the Escrow  Agent (the  "Transfer  Agent  Instructions")  (the  "Transaction
Documents"),  the  Pledgor  has  agreed to  irrevocably  pledge  to the  Pledgee
9,834,170 shares (the "Pledged  Shares") of Common Stock  beneficially  owned by
the Pledgor in accordance with this Agreement.

      NOW,  THEREFORE,  for  and  in  consideration  of  the  mutual  covenants,
agreements, warranties, and representations herein contained, and for other good
and  valuable  consideration,  the  receipt and  sufficiency  of which is hereby
acknowledged, the parties hereto hereby agree as follows:

                              TERMS AND CONDITIONS

1.  OBLIGATIONS  SECURED.  The  obligations  secured  hereby  are  any  and  all
obligations of the Company now existing or hereinafter  incurred to the Pledgee,
whether oral or written and whether arising before,  on or after the date hereof
including,  without limitation,  those obligations of the Company to the Pledgee
under the  Transaction  Documents and any other amounts now or hereafter owed to
the Pledgee by the Company thereunder (collectively, the "Obligations").

2.  PLEDGE AND TRANSFER OF PLEDGED SHARES.  The Pledgor hereby grants to Pledgee
an  irrevocable,  first  priority  security  interest in all  Pledged  Shares as
security for the Company's Obligations. Simultaneously with the execution of the
Transaction  Documents,  the  Pledgor  shall  deliver to the Escrow  Agent stock
certificates  made out in favor of the Pledgor  representing the Pledged Shares,
together with duly executed stock powers or other appropriate transfer documents
with  medallion  bank  guarantees  and  executed  in blank by the  Pledgor  (the
"Transfer Documents"),  and such stock certificates and Transfer Documents shall
be held by the Escrow Agent until the full payment of all Obligations due to the
Pledgee,  including  the  repayment  of all  amounts  owed by the Company to the
Pledgee  under  the  Convertible   Debentures  (whether  outstanding  principal,
interest, legal fees, or any other amounts owed to the Pledgee by the Company).

3.  RIGHTS RELATING  TO PLEDGED  SHARES.  Upon  the occurrence  of an  Event  of
Default (as defined  herein),  the Pledgee shall be entitled to vote the Pledged
Shares,  receive dividends and other distributions  thereon, and enjoy all other
rights and privileges  incident to the ownership of the number of Pledged Shares
actually released from escrow in accordance with Section 6.1 hereof.

4.  RELEASE  OF  PLEDGED  SHARES  FROM  PLEDGE.  Upon  the full  payment  of all
Obligations  due to the Pledgee under the Transaction  Documents,  including the
repayment  of  all  amounts  owed  by  the  Company  to the  Pledgee  under  the
Convertible Debentures (whether outstanding principal, interest, legal fees, and
any other amounts owed to the Pledgee by the Company),  the parties hereto shall
notify the Escrow Agent to such effect in writing. Promptly upon receipt of such
written  notice,  the Escrow  Agent shall  return to the  Pledgor  the  Transfer
Documents and the certificates  representing  the Pledged Shares  (collectively,
the "Pledged Materials"), whereupon any and all rights of Pledgee in the Pledged
Materials shall be terminated.

5.  EVENT OF  DEFAULT.  An "Event of  Default"  shall be deemed to have occurred
under this Agreement upon an Event of Default under the Convertible Debentures.

6.  REMEDIES.

            a. Upon and anytime after the occurrence of an Event of Default, the
Pledgee shall have the right acquire the Pledged  Shares in accordance  with the
following procedure:  (a) the Pledgee shall provide written notice of such Event
of  Default  (the  "Default  Notice")  to the Escrow  Agent,  with a copy to the
Pledgor; (b) in a Default Notice the Pledgee shall specify the number of Pledged
Shares to be issued to the Plegdee, provided however, that the Pledgee shall not
have the right to acquire  such number of Pledged  Shares  which would cause the
Pledgee, together with its affiliates, to beneficially own in excess of 9.99% of
the  outstanding  capital  of  the  Pledgor  (unless  the  Pledgee  waives  such
limitation by providing 65 days'  advance  written  notice);  and (c) as soon as
practicable  after receipt of a Default  Notice,  the Escrow Agent shall deliver
the  specified  number of  Pledged  Shares  along with the  applicable  Transfer
Documents  to the  Pledgor's  Transfer  Agent  with  instructions  to issue such
Pledged Shares to the Pledgee in accordance with the Irrevocable  Transfer Agent
Instructions of even date herewith,  among the Pledgee,  the Pledgor, the Escrow
Agent, and the Transfer Agent.

            b. Upon receipt of the Pledged  Shares  issued to the  Pledgee,  the
Pledgee  shall  have the right to (i) sell the  Pledged  Shares and to apply the
proceeds of such sales, net of any selling commissions,  to the Obligations owed
to the  Pledgee  by the  Pledgor  under the  Transaction  Documents,  including,
without limitation,  outstanding principal,  interest, legal fees, and any other
amounts owed to the Pledgee,  and exercise all other rights and (ii) any and all
remedies of a secured  party with  respect to such  property as may be available
under the Uniform  Commercial  Code as in effect in the State of New Jersey.  To
the extent that the net  proceeds  received by the Pledgee are  insufficient  to
satisfy the  Obligations  in full, the Pledgee shall be entitled to a deficiency
judgment  against  the  Pledgor  for such  amount.  The  Pledgee  shall have the
absolute  right to sell or dispose of the  Pledged  Shares in any manner it sees
fit and shall have no liability to the Pledgor or any other party for selling or
disposing of such Pledged Shares even if other methods of sales or  dispositions
would or allegedly  would result in greater  proceeds  than the method  actually
used.  The Pledgor  shall remain liable for  shortfalls,  if any, that may exist
after the Pledgee has exhausted all remedies hereunder.

                                       2
<PAGE>

            c. Each right,  power and remedy of the Pledgee provided for in this
Agreement or any other  Transaction  Document shall be cumulative and concurrent
and shall be in  addition  to every  other  such  right,  power or  remedy.  The
exercise or  beginning  of the exercise by the Pledgee of any one or more of the
rights,  powers  or  remedies  provided  for in  this  Agreement  or  any  other
Transaction  Document  or now or  hereafter  existing  at law or in equity or by
statute or otherwise  shall not preclude the  simultaneous  or later exercise by
the  Pledgee of all such other  rights,  powers or  remedies,  and no failure or
delay on the part of the  Pledgee to exercise  any such  right,  power or remedy
shall operate as a waiver thereof.  No notice to or demand on the Pledgor in any
case shall  entitle  it to any other or  further  notice or demand in similar or
other  circumstances  or constitute a waiver of any of the rights of the Pledgee
to any other further action in any circumstances  without demand or notice.  The
Pledgee  shall have the full power to enforce or to assign or contract is rights
under this Agreement to a third party.

7.  REPRESENTATIONS, WARRANTIES AND COVENANTS.

            a. The Pledgor represents, warrants and covenants that:

                  (i) Pledgor is, and at the time when  pledged  hereunder  will
be, the legal,  beneficial and record owner of, and has (and will have) good and
valid  title to, all Pledged  Shares  pledged  hereunder,  subject to no pledge,
lien,  mortgage,  hypothecation,  security  interest,  charge,  option  or other
encumbrance whatsoever;

                  (ii)  Pledgor  has full  power,  authority  and legal right to
pledge all the Pledged Shares pledged pursuant to this Agreement; and

                  (iii)  all the  Pledged  Shares  have  been  duly and  validly
issued,  are fully  paid and  non-assessable  and are  subject  to no options to
purchase or similar rights.

            b. The Pledgor  covenants and agrees to take all reasonable steps to
defend the Pledgee's  right,  title and security  interest in and to the Pledged
Shares and the  proceeds  thereof  against the claims and demands of all persons
whomsoever  (other  than the  Pledgee  and the Escrow  Agent);  and the  Pledgor
covenants  and  agrees  that it will have like  title to and right to pledge any
other  property  at any time  hereafter  pledged to the  Pledgee  as  Collateral
hereunder  and will  likewise  take all  reasonable  steps to  defend  the right
thereto and security interest therein of the Pledgee.

            c. The Pledgor  covenants  and agrees to take no action  which would
violate or be inconsistent with any of the terms of any Transaction Document, or
which  would have the effect of  impairing  the  position  or  interests  of the
Pledgee under any Transaction Document.

                                       3
<PAGE>

            d. The  Pledgor  represents,  warrants  and  covenants  that (i) the
Pledgor has been the beneficial  owner of the Pledged Shares for a period of not
less than two (2) years as computed in accordance  with Rule 144(d)  promulgated
under the  Securities  Act of 1933, as amended,  and (ii) this Agreement is made
with  recourse.  Upon an Event of Default,  the Pledgee  shall be deemed to have
acquired the Pledged  Shares on the date they were acquired by the Pledgor.  The
Pledgor is an "affiliate" of the Company, as such term is defined in Rule 144(a)
promulgated under the Securities Act of 1933, as amended.

8.  CONCERNING THE ESCROW AGENT.

            a. The Escrow  Agent  undertakes  to perform only such duties as are
expressly set forth herein and no implied  duties or  obligations  shall be read
into this Agreement against the Escrow Agent.

            b.  The  Escrow  Agent  may act in  reliance  upon  any  writing  or
instrument  or signature  which it, in good faith,  believes to be genuine,  may
assume the validity and accuracy of any statement or assertion contained in such
a writing or instrument,  and may assume that any person  purporting to give any
writing, notice, advice or instructions in connection with the provisions hereof
has been duly  authorized  to do so. The Escrow Agent shall not be liable in any
manner for the sufficiency or correctness as to form, manner, and execution,  or
validity of any  instrument  deposited in this escrow,  nor as to the  identity,
authority,  or right of any person  executing the same; and its duties hereunder
shall be limited to the safekeeping of such certificates,  monies,  instruments,
or other document received by it as such escrow holder,  and for the disposition
of the same in  accordance  with the written  instruments  accepted by it in the
escrow.

            c. Pledgee and the Pledgor hereby agree, to defend and indemnify the
Escrow Agent and hold it harmless from any and all claims, liabilities,  losses,
actions, suits, or proceedings at law or in equity, or any other expenses, fees,
or charges of any character or nature which it may incur or with which it may be
threatened by reason of its acting as Escrow Agent under this Agreement;  and in
connection  therewith,  to  indemnify  the  Escrow  Agent  against  any  and all
expenses,  including attorneys' fees and costs of defending any action, suit, or
proceeding  or resisting  any claim (and any costs  incurred by the Escrow Agent
pursuant to Sections 6.4 or 6.5 hereof). The Escrow Agent shall be vested with a
lien on all property deposited hereunder, for indemnification of attorneys' fees
and court  costs  regarding  any suit,  proceeding  or  otherwise,  or any other
expenses,  fees, or charges of any character or nature, which may be incurred by
the Escrow Agent by reason of disputes arising between the makers of this escrow
as to the correct interpretation of this Agreement and instructions given to the
Escrow  Agent  hereunder,  or  otherwise,  with the right of the  Escrow  Agent,
regardless of the instructions aforesaid, to hold said property until and unless
said  additional  expenses,  fees, and charges shall be fully paid. Any fees and
costs  charged by the Escrow  Agent for serving  hereunder  shall be paid by the
Pledgor.

                                       4
<PAGE>

            d.  If  any  of the  parties  shall  be in  disagreement  about  the
interpretation  of this Agreement,  or about the rights and obligations,  or the
propriety of any action  contemplated by the Escrow Agent hereunder,  the Escrow
Agent may, at its sole discretion  deposit the Pledged  Materials with the Clerk
of the United  States  District  Court of New  Jersey,  sitting  in Newark,  New
Jersey,  and, upon notifying all parties concerned of such action, all liability
on the part of the Escrow  Agent  shall fully  cease and  terminate.  The Escrow
Agent  shall be  indemnified  by the  Pledgor,  the  Company and Pledgee for all
costs,  including  reasonable  attorneys'  fees in connection with the aforesaid
proceeding,  and shall be fully  protected  in  suspending  all or a part of its
activities  under this Agreement  until a final decision or other  settlement in
the proceeding is received.

            e. The Escrow  Agent may consult with counsel of its own choice (and
the costs of such  counsel  shall be paid by the Pledgor and  Pledgee) and shall
have full and  complete  authorization  and  protection  for any action taken or
suffered by it  hereunder  in good faith and in  accordance  with the opinion of
such  counsel.  The Escrow Agent shall not be liable for any mistakes of fact or
error of judgment, or for any actions or omissions of any kind, unless caused by
its willful misconduct or gross negligence.

            f. The Escrow Agent may resign upon ten (10) days' written notice to
the parties in this  Agreement.  If a successor  Escrow  Agent is not  appointed
within  this ten (10) day  period,  the  Escrow  Agent may  petition  a court of
competent jurisdiction to name a successor.

9.  CONFLICT  WAIVER.  The Pledgor hereby  acknowledges that the Escrow Agent is
general counsel to the Pledgee, a partner in the general partner of the Pledgee,
and counsel to the Pledgee in connection with the transactions  contemplated and
referred herein.  The Pledgor agrees that in the event of any dispute arising in
connection  with this Agreement or otherwise in connection  with any transaction
or  agreement  contemplated  and  referred  herein,  the Escrow  Agent  shall be
permitted to continue to represent  the Pledgee and the Pledgor will not seek to
disqualify such counsel and waives any objection Pledgor might have with respect
to the Escrow Agent acting as the Escrow Agent pursuant to this Agreement.

10.  NOTICES. Unless otherwise provided herein, all demands, notices,  consents,
service of process,  requests  and other  communications  hereunder  shall be in
writing and shall be  delivered in person or by overnight  courier  service,  or
mailed by certified mail, return receipt requested, addressed:

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 Nicholson Graham, LLP
                                201 South Biscayne Boulevard, Suite 2000
                                Miami, Florida 33131
                                Attention:  Clayton E. Parker, Esq.
                                Telephone:  (305) 539-3306
                                Facsimile:  (305) 328-7095

                                       5
<PAGE>

If to the Pledgee:              Montgomery Equity Partners, Ltd.
                                101 Hudson Street, Suite 3700
                                Jersey City, NJ 07302
                                Attention:  Mark A. Angelo
                                Telephone:  (201) 985-8300
                                Facsimile:  (201) 985-8744

With copy to:                   Montgomery Equity Partners, Ltd.
                                101 Hudson Street, Suite 3700
                                Jersey City, NJ 07302
                                Attention:  David Gonzalez, Esq.
                                Telephone:  (201) 985-8300
                                Facsimile:  (201) 985-1964

If to the Pledgor, to:          Dean Garfinkel
                                c/o Compliance Systems Corporation
                                90 Pratt Oval
                                Glen Cove, NY 11542
                                Telephone:  (516) 656-5155
                                Facsimile:  (516) 676-2420

Any such notice  shall be  effective  (a) when  delivered,  if delivered by hand
delivery or overnight courier service, or (b) five (5) days after deposit in the
United States mail, as applicable.

11.  BINDING EFFECT. All of the covenants and obligations contained herein shall
be binding upon and shall inure to the benefit of the respective parties,  their
successors and assigns.

12.  GOVERNING LAW; VENUE; SERVICE OF PROCESS.  The validity, interpretation and
performance of this Agreement shall be determined in accordance with the laws of
the State of New Jersey  applicable to contracts made and to be performed wholly
within that state  except to the extent that  Federal law  applies.  The parties
hereto agree that any  disputes,  claims,  disagreements,  lawsuits,  actions or
controversies  of any type or nature  whatsoever  that,  directly or indirectly,
arise from or relate to this Agreement,  including,  without limitation,  claims
relating to the  inducement,  construction,  performance  or termination of this
Agreement,  shall be  brought  in the state  superior  courts  located in Hudson
County, New Jersey or Federal district courts located in Newark, New Jersey, and
the parties  hereto  agree not to challenge  the  selection of that venue in any
such proceeding for any reason,  including,  without limitation,  on the grounds
that such venue is an inconvenient  forum. The parties hereto specifically agree
that  service  of process  may be made,  and such  service  of process  shall be
effective if made, pursuant to Section 8 hereto.

13.  ENFORCEMENT  COSTS. If any legal action or other  proceeding is brought for
the enforcement of this  Agreement,  or because of an alleged  dispute,  breach,
default  or   misrepresentation  in  connection  with  any  provisions  of  this
Agreement,  the  successful or prevailing  party or parties shall be entitled to
recover  reasonable  attorneys'  fees,  court costs and all expenses even if not
taxable as court costs (including,  without limitation, all such fees, costs and
expenses  incident  to  appeals),  incurred  in that  action or  proceeding,  in
addition to any other relief to which such party or parties may be entitled.

                                       6
<PAGE>

14.  REMEDIES CUMULATIVE.  No remedy herein conferred upon any party is intended
to be  exclusive  of any other  remedy,  and each and every such remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law, in equity, by statute, or otherwise.  No single or
partial  exercise  by any party of any right,  power or remedy  hereunder  shall
preclude any other or further exercise thereof.

15.  COUNTERPARTS.  This Agreement may be executed in one or more  counterparts,
each of which  shall be  deemed an  original,  but all of which  together  shall
constitute the same instrument.

16.  NO PENALTIES.  No provision of this  Agreement  is to be  interpreted  as a
penalty upon any party to this Agreement.

17.  JURY  TRIAL.  EACH  OF  THE  PLEDGEE  AND  THE  PLEDGOR  HEREBY  KNOWINGLY,
VOLUNTARILY AND  INTENTIONALLY  WAIVES THE RIGHT WHICH IT MAY HAVE TO A TRIAL BY
JURY OF ANY CLAIM,  DEMAND,  ACTION OR CAUSE OF ACTION BASED HEREON,  OR ARISING
OUT OF,  UNDER OR IN ANY WAY  CONNECTED  WITH THE DEALINGS  BETWEEN  PLEDGEE AND
PLEDGOR, THIS PLEDGE AND ESCROW AGREEMENT OR ANY DOCUMENT EXECUTED IN CONNECTION
HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,  STATEMENTS (WHETHER ORAL
OR WRITTEN) OR ACTIONS OF ANY PARTY  HERETO OR THERETO IN EACH CASE  WHETHER NOW
EXISTING  OR  HEREAFTER  ARISING,  AND  WHETHER  IN  CONTRACT,  TORT,  EQUITY OR
OTHERWISE.

         [SIGNATURE PAGE FOLLOWS; REMAINDER OF PAGE INTENTIONALLY BLANK]

                                       7
<PAGE>

      IN WITNESS  WHEREOF,  the parties  hereto have duly  executed this Insider
Pledge and Escrow Agreement as of the date first above written.

                              PLEDGEE:
                              MONTGOMERY EQUITY PARTNERS, LTD.

                              By:
                                 -----------------------------
                              Name:  Mark Angelo
                              Title: Portfolio Manager

        FOR  VALUE  RECEIVED,   the  Pledgor  hereby  unconditionally  and
absolutely  guarantees  the  Company's Obligations (as defined above). This
Agreement is made with recourse.

         BY: _______________________________
         NAME:  DEAN GARFINKEL

                              PLEDGOR:

                              By:
                                 -----------------------------
                              Name: Dean Garfinkel

                              COMPLIANCE SYSTEMS CORPORATION

                              By:
                                 -----------------------------
                              Name:  Dean Garfinkel
                              Title: Chairman

                              ESCROW AGENT

                              By:
                                 -----------------------------
                              Name: David Gonzalez, Esq.

      FOR VALUE  RECEIVED,  the Pledgor  hereby  unconditionally  and absolutely
guarantees the Company's  Obligations (as defined above). This Agreement is made
with recourse.

      BY:
         -----------------------------
      NAME:  DEAN GARFINKEL

                                       8
<PAGE>

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