Document:

Unassociated Document

     

    Exhibit
      10.1

    

    CREDIT
      FACILITY NOTE

    

       Up
      to
      $500,000

    Rochester,
      New York

    

    May
      7,
      2008

    

    FOR
      VALUE
      RECEIVED, on the Maturity Date (as defined below) and as permitted herein,
      DOCUMENT SECURITY SYSTEMS, INC., a corporation formed under the laws of the
      State of New York (the “Borrower”),
      with
      offices at First
      Federal Plaza,
      28
      East
      Main Street, Suite 1525,
      Rochester,
      New York 14614,
      promises to pay to the order of TAIKO III CORP., a New York corporation (the
      “Lender”)
      at
      Lender’s offices or at such other place as the Lender may designate in writing,
      the principal sum of the principal amount of loans (the “Loans”)
      outstanding hereunder, as conclusively evidenced on Schedule
      1
      attached
      hereto plus all accrued and unpaid interest on May 6, 2009 (the “Maturity
      Date”).
      

    

    1.
       
      INTEREST; PREPAYMENT.

    

    (a)
       Interest
      shall accrue on the unpaid principal amount hereof, computed on the basis of
      the
      actual number of days elapsed in a 360-day year, at a rate per annum which
      shall
      be equal to six percent (6.0%) per annum. All payments, including insufficient
      payments, shall be credited, regardless of their designation by Borrower, first
      to collection expenses due hereunder, then to interest due and payable but
      not
      yet paid, and the remainder, if any, to principal. All payments by Borrower
      or
      any endorser of this Note on account of principal, interest or fees hereunder
      shall be made in lawful money of the United States of America, in immediately
      available funds.

    

    (b)
      The
      outstanding principal amount due and payable under this Note, at any time,
      may
      be prepaid by the Borrower, in whole but not in part, at the option of the
      Borrower, subject to the following provisions. In the event that the Borrower
      desires to prepay this Note, it shall provide the Lender with prior written
      notice of such prepayment and shall within five (5) days after providing such
      notice pay to the Lender: (i) the entire principal amount then outstanding;
      (ii)
      all interest accrued thereon to such date of prepayment; and (iii) the amount
      of
      additional interest that would have accrued and been payable had such
      outstanding principal amount remained outstanding until the Maturity Date.
      Upon
      Lender’s receipt of the entire prepayment amount, this Note shall be cancelled
      and of no further force or effect.

    

    (c) In
      the
      event that the Borrower or any of its subsidiaries or other affiliates, at
      any
      time this Note is outstanding, closes on financing, whether debt, equity, or
      otherwise, in which the Borrower raises gross proceeds in an aggregate amount
      of
      at least $2,000,000, the Lender, by providing notice, in writing (the
“Prepayment
      Demand Notice”),
      to
      the Borrower, may demand that the Borrower prepay all, but not less than all
      of
      the outstanding principal amount and all interest accrued thereon. The Lender’s
      right to demand such prepayment hereunder may be exercised by Lender’s providing
      the Prepayment Demand Notice to the Borrower at any time within fifteen (15)
      days after the date that the Borrower provides notice to the Lender that it
      has
      closed on the applicable financing. Upon Lender’s receipt of the outstanding
      principal amount and all accrued interest through and until the date of
      prepayment, this Note shall be cancelled and of no further force or effect.
      The
      Lender’s failure to exercise its rights hereunder with respect to any applicable
      financing, shall not be deemed to be a waiver of its right to exercise such
      rights with respect to future financings. Notwithstanding the foregoing, the
      provisions of this Paragraph 1(c) shall not apply to any financing transaction
      which is pending on the date of this Note.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    2.  
      CREDIT
      FACILITY. The principal amount of the Loans available under this credit
      facility, in the aggregate, shall not exceed Five Hundred Thousand Dollars
      ($500,000). In the event that Borrower at any time desires to draw down on
      this
      credit facility it may request that Lender provide additional Loans by providing
      written notice, in the form of Exhibit
      A
      annexed
      hereto (the “Loan
      Notice”)
      to
      Lender not less than two (2) business days prior to the date for provision
      of
      such Loans. The funds provided to Borrower, with respect to each such Loan
      provided pursuant to this credit facility shall be used by Borrower only for
      the
      purposes specifically provided in the Loan Notice which have been approved
      by
      Lender (the “Permitted Uses”).
      In
      the event that Lender has not pre-approved, in writing, the use of funds
      pursuant to this credit facility for any purpose set forth in a Loan Notice,
      then Borrower’s right to draw down a Loan for such purpose shall be subject to
      Lender’s approval, which may be withheld for any reason or no reason. Lender is
      hereby authorized by Borrower to enter and record on Schedule
      1
      attached
      hereto the amount of each Loan made under this credit facility and each payment
      of principal thereon without any further authorization on the part of Borrower
      or any endorser of this Note. The entry of a Loan on said schedule shall be
      prima facie and presumptive evidence of the entered Loan and its conditions.
      Lender's failure to make an entry, however, shall not limit or otherwise affect
      the obligations of Borrower or any endorser or guarantor of this Note.

    

    3.  
      REPRESENTATIONS
      AND WARRANTIES. Borrower represents and warrants to Lender that:

    

    (a) Borrower
      is a corporation duly incorporated, validly existing, and in good standing
      under
      the laws of the jurisdiction of its incorporation, has the corporate power
      and
      authority to own its assets and to transact the business in which it is now
      engaged or proposes to be engaged, is duly qualified as a foreign corporation
      and is in good standing under the laws of each other jurisdiction in which
      such
      qualification is required, except where the failure to so qualify or be in
      good
      standing would not have a material adverse effect on the assets, liabilities,
      financial condition or results of operations of the Borrower (a “Material
      Adverse Effect”).

    

    (b) Borrower
      has full power and authority to execute and deliver this Note, the Registration
      Rights Agreement in the form annexed hereto as Exhibit
      B
      (the
“Registration
      Rights Agreement”)
      and
      any other agreements entered into between Borrower and Lender in connection
      with
      the Loans contemplated hereunder (collectively, the “Loan
      Documents”)
      and to
      incur the obligations provided for herein and therein, all of which have been
      duly authorized by all proper and necessary corporate action. No consent or
      approval of stockholders or of any governmental or administrative authority,
      instrumentality, or agency is required as a condition to the validity of this
      Note or any of the other Loan Documents.

     

    
      
        
        

      

      
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    (c) This
      Note
      and the and the other Loan Documents are each legal, valid, and contain binding
      obligations of Borrower enforceable against Borrower in accordance with each
      of
      their terms, except as enforcement may be limited by bankruptcy, insolvency,
      moratorium or other similar laws relating to creditors' rights generally and
      except that the availability of equitable remedies, including specific
      performance, is subject to the discretion of the court before which any
      proceeding therefor may be brought.

    

    (d) The
      execution, delivery and performance of this Note and the other Loan Documents
      by
      Borrower does not (i) violate any of the provisions of Borrower’s Certificate of
      Incorporation or by-laws or any judgment, decree, order or award of any court,
      governmental body or arbitrator or any applicable law, rule or regulation
      applicable to Borrower or (ii) conflict with, or constitute a default (or an
      event that with notice or lapse of time or both would become a default) under,
      or give to others any rights of termination, amendment, acceleration or
      cancellation (with or without notice, lapse of time or both) of, any agreement,
      credit facility, debt or other instrument (evidencing Borrower’s debt or
      otherwise) or other understanding to which Borrower is a party or by which
      any
      property or asset of Borrower is bound or affected other than the Fagenson
      Credit Agreement (as defined below) and the White Credit Agreement (as defined
      below). No consent (including, without limitation, from shareholders or
      creditors of Borrower) is required for Borrower to enter into and perform its
      obligations hereunder other than from the Fagenson Credit Agreement and the
      White Credit Agreement. For purposes hereof, the “Fagenson Credit Agreement”
shall mean that certain Credit Agreement, dated January 4, 2008, between
      Borrower and Fagenson & Co., Inc. and the “White Credit Agreement” shall
      mean that certain Credit Agreement, dated January 4, 2008, between Borrower
      and
      Patrick White.

    

    (e) SEC
      Reports; Financial Statements. Borrower has made available to Lender, or such
      is
      available on the Securities and Exchange Commission’s (“SEC”) EDGAR database, a
      true and complete copy of each statement, report, registration statement (with
      the prospectus in the form filed pursuant to Rule 424(b) of the Securities
      Act
      of 1933, as amended (the “Securities Act”)), definitive proxy statement, and
      other filings filed with the SEC by Borrower (collectively, the “SEC Reports”).
      Borrower has timely filed all forms, statements and documents required to be
      filed by it with the SEC and is current in its reporting requirements under
      the
      Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the date
      hereof. All documents required to be filed as exhibits to the SEC Reports have
      been so filed, and all material contracts so filed as exhibits are in full
      force
      and effect, except those that have expired in accordance with their terms,
      and
      Borrower is not in material default thereunder. As of their respective filing
      dates, the SEC Reports complied in all material respects with the requirements
      of the Exchange Act and the Securities Act and none of the SEC Reports contained
      any untrue statement of a material fact or omitted to state a material fact
      required to be stated therein or necessary to make the statements made therein,
      in light of the circumstances in which they were made, not misleading, except
      to
      the extent corrected by subsequently filed SEC Reports.  The
      consolidated financial statements of Borrower and its subsidiaries, including
      the notes thereto, included in the SEC Reports (the “Financial Statements”) were
      complete and correct in all material respects as of their respective dates,
      complied as to form in all material respects with applicable accounting
      requirements and with the published rules and regulations of the SEC with
      respect thereto as of their respective dates, and have been prepared in
      accordance with generally accepted accounting principles (“GAAP”) applied on a
      basis consistent throughout the periods indicated and consistent with each
      other
      (except as may be indicated in the notes thereto or, in the case of unaudited
      statements included in Quarterly Reports on Form 10-Q, as permitted by Form
      10-Q). The Financial Statements fairly present the financial condition and
      operating results of Borrower at the dates and during the periods indicated
      therein (subject, in the case of unaudited statements, to normal, recurring
      year-end adjustments).

     

    
      
        
        

      

      
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    (f) Capitalization.
      The authorized capital stock of Borrower and the number of shares of each class
      and series of capital stock of Borrower issued and outstanding is as reported
      in
      the most recently filed SEC Report. 

    

    (g)  Absence
      of Certain Changes.
       Since
      December 31, 2007 (the “Balance Sheet Date”), the Borrower and its subsidiaries
      have conducted their respective businesses in the ordinary course consistent
      with past practice and there has not occurred: (i) any change, event or
      condition (whether or not covered by insurance) that has resulted in, or is
      reasonably likely to result in, or to the best of the Borrower’s knowledge any
      event beyond the Borrower’s control that is reasonably likely to result in, a
      Material Adverse Effect to Borrower (ii) any acquisition, sale or transfer
      of
      any material asset of the Borrower or any of its subsidiaries other than in
      the
      ordinary course of business and consistent with past practice; (iii) any change
      in accounting methods or practices (including any change in depreciation or
      amortization policies or rates) by Borrower or any revaluation by Borrower
      of
      any of its assets or the assets of any of its subsidiaries; (iv) any
      declaration, setting aside, or payment of a dividend or other distribution
      with
      respect to the shares of its capital stock, or any direct or indirect
      redemption, purchase or other acquisition by Borrower of any shares of its
      capital stock; or (v) any material contract entered into by Borrower or any
      of
      its subsidiaries, other than in the ordinary course of business, or any
      amendment or termination of, or default under, any material agreement to which
      Borrower or any of its subsidiaries is a party or by which it is bound other
      than as reported in the SEC Reports. None of the Borrower nor any of its
      subsidiaries has agreed, since the Balance Sheet Date, to do any of the things
      described in the preceding clauses (i) through (v).

     

    (h)  Absence
      of Undisclosed Liabilities.
      None of
      the Borrower nor any of its subsidiaries has any material obligations or
      liabilities of any nature (matured or unmatured, fixed or contingent) other
      than
      (i) those set forth or adequately provided for in the Financial Statements
      as of
      the Balance Sheet Date (the “Balance Sheet”), (ii) those incurred in the
      ordinary course of business and not required to be set forth in the Balance
      Sheet under GAAP, (iii) those incurred in the ordinary course of business since
      the Balance Sheet date and not reasonably likely to have a Material Adverse
      Effect on the Borrower, (iv) those incurred in connection with this Note and/or
      any of the other Loan Documents; and (v) those incurred pursuant to the Fagenson
      Credit Agreement and the White Credit Agreement.

    

    (i)  Compliance
      with Legal Requirements.
      Borrower and each of its subsidiaries is in compliance with all applicable
      material federal, state, local, municipal, foreign, international, multinational
      or other laws, statutes, constitutions, principles of common law, resolutions,
      ordinances, codes, edicts, decrees, rules, regulations, rulings or requirements
      issued, enacted, adopted, promulgated, implemented or otherwise put into effect
      by or under the authority of any governmental body (“Legal Requirements”),
      except where the failure to do so would not have a Material Adverse Effect.
      None
      of Borrower nor any of its subsidiaries has received any notice or other
      communication from any person or entity regarding any actual or possible
      violation of, or failure to comply with, any Legal Requirement, except where
      such actual or possible violation would not have a Material Adverse Effect.
      Borrower and/or its subsidiaries, as applicable, have obtained all material
      permits, certificates and licenses required by any Legal Requirement for the
      conduct of its respective business and the ownership of its respective assets.
      None of Borrower nor any of its subsidiaries is in violation of any such permit,
      certificate or license, and no Legal Proceedings (defined hereafter) are pending
      or, to the knowledge of Borrower, threatened to revoke or limit any such permit,
      certificate or license, except where the failure to do so would have a Material
      Adverse Effect.

     

    
      
        
        

      

      
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    (j)  Legal
      Proceedings. Except as disclosed in the SEC Reports, there is no pending or
      threatened action, suit, litigation, arbitration, proceeding (including any
      civil, criminal, administrative, investigative or appellate proceeding),
      hearing, inquiry, audit, examination or investigation commenced, brought,
      conducted or heard by or before, or otherwise involving, any court or other
      governmental body or any arbitrator or arbitration panel (collectively, “Legal
      Proceedings”), and to the Borrower’s knowledge, no person or entity has
      threatened to commence any Legal Proceeding, that (i) involves or affects
      Borrower, any of its subsidiaries, or any of their respective assets owned
      or
      used by any of them, or (ii) that challenges the provisions of the Loans
      contemplated hereunder or any of the other transactions contemplated by the
      Loan
      Documents, except where any of the foregoing would not have a Material Adverse
      Effect. There is no writ, decree, permanent injunction, order or similar action
      in which Borrower or any of its subsidiaries is named or to which any of the
      assets of Borrower or any of its subsidiaries are subject.

     

    (k)  Registration
      Rights. Except as disclosed in the SEC Reports, no person or entity has any
      right to cause Borrower to effect the registration under the Securities Act
      of
      any securities of Borrower. 

     

    4.  
      EVENTS
      OF
      DEFAULT. 

    

    (a) “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 and accrued interest on this Note when
      such payment becomes due and payable, under the terms of this Note, and such
      default shall not have been remedied in full within five (5) business days
      after
      the date on which notice of such failure or breach shall have been
      delivered;

    

    (ii)
       Borrower
      shall fail to observe or perform any other material obligation or shall breach
      any material term or provision of this Note or any of the other Loan Documents
      and such failure or breach shall not have been remedied within five (5) business
      days after the date on which notice of such failure or breach shall have been
      delivered;

     

    
      
        
        

      

      
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    (iii)
       Borrower
      shall commence, or there shall be commenced against Borrower or any subsidiary
      of Borrower a case under any applicable bankruptcy or insolvency laws as now
      or
      hereafter in effect or any successor thereto, or Borrower or any subsidiary
      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 Borrower
      or any subsidiary, or there is commenced against Borrower or any subsidiary
      any
      such bankruptcy, insolvency or other proceeding which remains undismissed for
      a
      period of 60 days; or Borrower or any subsidiary is adjudicated insolvent or
      bankrupt; or any order of relief or other order approving any such case or
      proceeding is entered; or Borrower or any subsidiary suffers any appointment
      of
      any custodian or the like for it or any substantial part of its property which
      continues undischarged or unstayed for a period of 60 days; or Borrower or
      any
      subsidiary makes a general assignment for the benefit of creditors; or Borrower
      or any subsidiary 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 Borrower
      or
      any subsidiary shall call a meeting of its creditors with a view to arranging
      a
      composition, adjustment or restructuring of its debts; or Borrower or any
      subsidiary 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 Borrower or any subsidiary for the purpose of effecting
      any
      of the foregoing;

    

    (iv)
       Borrower
      or any subsidiary shall default in any of its respective obligations in excess
      of $50,000 under any other note 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 Borrower or any subsidiary, 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 and such default shall not
      have
      been remedied in full within the applicable cure periods provided;

    

    (v) Borrower
      (A) shall be a party to any Change of Control Transaction (as defined below)
      or
      (B) shall agree to sell or dispose all or in excess of 40% of its assets in
      one
      or more transactions (whether or not such sale would constitute a Change of
      Control Transaction). “Change
      of Control Transaction”
means
      the occurrence of any 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 Borrower, by contract or otherwise)
      of in excess of 40% of the voting securities of Borrower, (B) a replacement
      at
      one time or over time of more than one-half of the members of Borrower's board
      of directors 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
      of
      Borrower with or into another entity that is not wholly-owned by Borrower or
      the
      consolidation or sale of 40% or more of the assets of Borrower in one or a
      series of related transactions, or (D) the execution by Borrower of an agreement
      to which Borrower is a party or by which it is bound, providing for any of
      the
      events set forth in (A), (B) or (C) immediately preceding;

     

    
      
        
        

      

      
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    (vi) Any
      funds
      advanced by Lender to the Borrower pursuant to a Loan under this credit facility
      are used by the Borrower for any purpose other than a Permitted Use, without
      the
      express written consent of Lender.

    

    (b) Acceleration
      upon and Event of Default.
      If any
      Event of Default occurs, the full principal amount of this Note shall become,
      at
      Lender’s election, immediately due and payable in cash. The Lender need not
      provide and Borrower hereby waives any presentment, demand, protest or other
      notice of any kind, and Lender 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 Lender 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.

    

    (c) Right
      to Convert upon Default; Registration Rights.

    

    (i) Upon
      an
      Event of Default, Lender shall have the right, in its sole and absolute
      discretion, at any time within sixty (60) days after the occurrence of such
      Event of Default (the “Conversion
      Election Period”)
      to
      convert (a “Conversion”)
      all or
      any portion of the outstanding principal amount of this Note and all accrued
      interest thereon (collectively, the “Convertible
      Amount”)
      into
      such number of shares of Borrower’s common stock, par value $.02 per share (the
“Conversion
      Shares”)
      determined as provided in paragraph (ii) below.

    

    (ii) In
      the
      event that Lender desires to effect a Conversion pursuant to the provisions
      of
      this Section
      4(c),
      Lender
      shall deliver written notice to Borrower, in the form of Exhibit
      C
      annexed
      hereto (the “Conversion
      Notice”),
      which
      Conversion Notice shall include, among other information, the Convertible
      Amount. The number of Conversion Shares issuable to Lender shall be equal to
      the
      quotient obtained by dividing the Convertible Amount by the Conversion Price.
      For the purposes hereof the “Conversion
      Price”
shall
      be equal to sixty-seven percent (67%) of the average closing price of the Common
      Stock, as reported on the American Stock Exchange or any other exchange or
      quotation system on which the Common Stock is then traded or quoted, for the
      ten
      (10) consecutive trading days prior to the date of the Conversion Notice;
provided,
      however,
      that
      the Conversion Price shall not be less than Two Dollars ($2.00) nor more than
      Five Dollars ($5.00). In the event that on the date of the Conversion Notice
      the
      Common Stock is not traded on a national securities exchange, quoted on any
      of
      the Nasdaq markets or on the OTC Bulletin Board, or the market value is not
      otherwise readily determinable, then the Conversion Price shall be determined
      in
      good faith by Borrower’s board of directors based on a value equal to
      sixty-seven percent (67%) of fair market value;
      provided, however,
      that
      the Conversion Price shall not be less than Two Dollars ($2.00) nor more than
      Five Dollars ($5.00). A certificate for the Conversion Shares shall be delivered
      to Lender promptly after delivery of the Conversion Notice by Lender and any
      other documents that are reasonably requested by Borrower.

     

    
      
        
        

      

      
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    (iii) Any
      portion of the outstanding principal amount and/or accrued interest thereon
      that
      is not converted by Lender to Conversion Shares, pursuant to the provisions
      of
      this Section
      4(c),
      shall
      continue to be due and payable to Lender, and Lender shall have all rights
      and
      remedies available to it for the collection of such unpaid amounts.

    

    (iv) The
      Conversion Shares shall be entitled such registration rights as set forth in
      the
      Registration Rights Agreement.

    

    5.  
      Negative
      Covenants.
       So
      long
      as any portion of this Note is outstanding, unless Borrower has obtained
      Lender’s prior written consent, Borrower will not and will not permit any of its
      subsidiaries to directly or indirectly:

    

    (a)  other
      than Permitted Indebtedness (defined hereafter), enter into, create, incur,
      assume, guarantee or suffer to exist any indebtedness for borrowed money of
      any
      kind, including but not limited to, a guarantee, on or with respect to any
      of
      its property or assets now owned or hereafter acquired or any interest therein
      or any income or profits therefrom;

    

    (b) other
      than Permitted Liens (defined hereafter), enter into, create, incur, assume
      or
      suffer to exist any liens of any kind, on or with respect to any of its property
      or assets now owned or hereafter acquired or any interest therein or any income
      or profits therefrom;

    

    (c) amend
      its
      certificate of incorporation, bylaws so as to materially adversely affect any
      rights of Lender;

    

    (d) repay,
      repurchase or offer to repay, repurchase or otherwise acquire any of its own
      securities;
      

    

    (e) repay,
      repurchase or offer to repay, repurchase or otherwise acquire any indebtedness,
      other than regularly scheduled interest payments as such terms are in effect
      as
      of the date of issuance of this Note (the “Note
      Issuance Date”);
      provided,
      however,
      that no
      regularly scheduled principal and interest payments may be made if, at the
      time
      such payment is due or is otherwise made or after giving effect to such payment,
      an event constituting, or that with the passage of time and without being cured
      would constitute, an Event of Default has occurred and is
      continuing;

    

    (f) pay
      cash
      dividends or distributions on any equity securities of Borrower; or

    

    (g) enter
      into any agreement with respect to any of the foregoing.

    

    “Permitted
      Indebtedness” shall mean (i) any indebtedness existing on the Note Issuance Date
      as disclosed in the SEC Reports or otherwise disclosed in Schedule 2 annexed
      hereto, including indebtedness incurred pursuant to the Fagenson Credit
      Agreement and the White Credit Agreement; (ii) any debt
      financing that is used to acquire, directly or indirectly, substantially all
      of
      the capital stock or assets of an unrelated entity via purchase, merger, reverse
      merger or by any other means;
      and
      (iii) any indebtedness incurred in the ordinary course of the Borrower’s
      business.

     

    
      
        
        

      

      
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    “Permitted
      Lien”
shall
      mean the individual and collective reference to the following: (i) liens for
      taxes, assessments and other governmental charges or levies not yet due or
      liens
      for taxes, assessments and other governmental charges or levies being contested
      in good faith and by appropriate proceedings for which adequate reserves (in
      the
      good faith judgment of the management of Borrower) have been established in
      accordance with GAAP; (ii) liens imposed by law which were incurred in the
      ordinary course of business, such as carriers’, warehousemen’s and mechanics’
liens, statutory landlords’ liens, and other similar liens arising in the
      ordinary course of business, and (x) which do not individually or in the
      aggregate materially detract from the value of such property or assets or
      materially impair the use thereof in the operation of the business of Borrower
      and its consolidated subsidiaries or (y) which are being contested in good
      faith
      by appropriate proceedings, which proceedings have the effect of preventing
      the
      forfeiture or sale of the property or asset subject to such lien; (iii) liens
      created in connection with any indebtedness described in clause (ii) of the
      definition of Permitted Indebtedness above; and (iv) liens created in connection
      with the indebtedness incurred by the Borrower pursuant to the credit facilities
      provided under the Fagenson Credit Agreement and the White Credit
      Agreement.

     

    6.  
      MISCELLANEOUS

    

    (a) Governing
      Law.
      This
      Note shall be governed by, and construed in accordance with, the laws of the
      State of New York, without regard to its rules on conflicts of
      laws.

    

    (b) Attorneys
      Fees and Expenses.
      In the
      event that Lender is required to enforce any of its rights under this Note,
      Borrower shall pay all expenses incurred by Lender in connection therewith
      including, without limitation, the payment of reasonable attorneys’
fees.

    

    (c) Notices,
      etc.
      All
      notices and other communications provided for under this Note shall be in
      writing and mailed or transmitted or delivered, if to Borrower, at Borrower's
      address indicated in the preamble hereto and if to Lender, at its then current
      principal place of business, or, as to each party, at such other address as
      shall be designated by such party in a written notice to the other party
      complying as to delivery with the terms of this Section
      6(c).
      Except
      as otherwise provided in this Note, all such notices and communications shall
      be
      effective (i) on receipt if delivered by hand; (ii) one (1) business day after
      delivered to a nationally recognized overnight carrier; or (iii) three (3)
      business days following deposit, postage fully paid, in the mails by certified
      mail. 

    

    (d)
       No
      Waiver.
      No
      failure or delay on the part of Lender in exercising any right, power, or remedy
      hereunder shall operate as a waiver thereof; nor shall any single or partial
      exercise of any such right, power, or remedy preclude any other or further
      exercise thereof or the exercise of any other right, power, or remedy hereunder.
      The rights and remedies provided herein are cumulative, and are not exclusive
      of
      any other rights, powers, privileges, or remedies, now or hereafter existing,
      at
      law or in equity or otherwise.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    (e) Amendments.
      No
      amendment, modification, or waiver of any provision of this Note nor consent
      to
      any departure by Borrower therefrom shall be effective unless the same shall
      be
      in writing and signed by Lender and then such waiver or consent shall be
      effective only in the specific instance and for the specific purpose for which
      given. 

    

    (f) Successors
      and Assigns.
      This
      Note shall be binding upon Borrower and its heirs, legal representatives,
      successors and permitted assigns and the terms hereof shall inure to the benefit
      of Lender and its successors and assigns, including subsequent holders hereof.
      Lender may assign this Note in its sole and absolute discretion, and the
      assignee will thereby assume the status of Lender pursuant to this Note and
      all
      rights and obligations thereof. Borrower may not assign its rights or
      obligations under this Note without the prior written consent of Lender, which
      consent may be withheld for any reason or no reason in the Lender’s sole and
      absolute discretion.

    

    (g) Severability.
      The
      provisions of this Note are severable, and if any provision shall be held
      invalid or unenforceable in whole or in part in any jurisdiction, then such
      invalidity or unenforceability shall not in any manner affect such provision
      in
      any other jurisdiction or any other provision of this Note in any
      jurisdiction.

    

    (h) Entire
      Agreement.
      This
      Note, along with the other Loan Documents, set forth the entire agreement of
      Borrower and Lender with respect to the terms contained herein and may be
      modified only by a written instrument executed by Borrower and
      Lender.

     

    (i) Headings.
      The
      headings herein are for convenience only and shall not limit or define the
      meaning of the provisions of this Note.

    

    (j) Waiver
      of Right to Trial by Jury.
      BORROWER HEREBY IRREVOCABLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION,
      PROCEEDING, CLAIM, OR COUNTERCLAIM, WHETHER IN CONTRACT OR TORT, AT LAW OR
      IN
      EQUITY, IN ANY MANNER CONNECTED WITH THIS NOTE OR ANY TRANSACTIONS HEREUNDER.
      

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    

    IN
      WITNESS WHEREOF, Borrower and Lender have caused this Note to be executed and
      delivered as of the day and year and at the place first above
      written.

    

    
      	 	 	 
	 	
              BORROWER:

               

              DOCUMENT SECURITY SYSTEMS, INC.

            
	 
 	 
 	 
 
	 	By:  	/s/
              Patrick White 
	 	
              
Name:
              Patrick White
	 	Title:
              Chief Executive Officer 

    
      	 	 	 
	 	
              LENDER:

               

              TAIKO III CORP.

            
	 
 	 
 	 
 
	 	By:  	/s/
              Robert T. Girards 
	 	
              
Name:
              Robert T. Girards
	 	Title:
              President 

    

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    

    SCHEDULE
      1 TO CREDIT FACILITY NOTE

    

    LOANS

     

     

     

    
 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    SCHEDULE
      2 TO CREDIT FACILTY NOTE

    

    PERMITTED
      INDEBTEDNESS

    

    None.

     

     

     

    
 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    EXHIBIT
      A TO CREDIT FACILITY NOTE

    

    FORM
      OF LOAN NOTICE

     

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    Loan
      Notice

    

    Pursuant
      to the Credit Facility Note dated May 7, 2008 (the “Note”), Document Security
      Systems, Inc. hereby requests that Taiko III Corp. advance funds pursuant to
      the
      Note as follows:

    

    Date
      of
      request: ___________ ___, 200_

    

    Date
      receipt of funds is requested: ____________ ___, 200_

    (Must
      be
      at least two business days from date of request): 

    

    Amount
      requested: $____________________

    

      
        	
                Individual
                  or entity that shall receive funds: 

              	
                                            

              
	
                Address
                  of such individual or entity: 

              	
                                            

              
	
                 

              	
                                            

              
	 	
                                            

              
	
                Contact
                  person of entity:

              	
                                            

              

      

    

    
Purpose(s)
      for which the funds are requested:

    

    

    
      	 	 	 
	 	DOCUMENT
              SECURITY SYSTEMS, INC.
	 
 	 
 	 
 
	 	By:  	 
	 	
              
Name:
	 	Title: 

    

    
 

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    

    EXHIBIT
      B TO CREDIT FACILITY NOTE

    

    FORM
      OF REGISTRATION RIGHTS AGREEMENT

     

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    REGISTRATION
      RIGHTS AGREEMENT

    

    This
      Registration Rights Agreement (this “Agreement”)
      is
      made and entered into as of _______ ___, 200___, between DOCUMENT SECURITY
      SYSTEMS, INC., a New York corporation (the “Company”),
      and
      TAIKO III CORP., a New York corporation (the “Lender”).

     

    This
      Agreement is made pursuant to the Credit Facility Note, dated as of May 7,
      2008,
      between the Company and the Lender (the “Note”).

    

    The
      Company and the Holder hereby agree as follows:

    

    1.
       Definitions

    

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

    

    “Advice”
shall
      have the meaning set forth in Section
      6(d).

    

    “Commission”
means
      the United States Securities and Exchange Commission.

    

    “Common
      Stock”
means
      the Company’s shares of common stock, par value $0.02 per share.

    

    “Demand
      Notice”
shall
      have the meaning set forth in Section
      2(a).

    

    “Demand
      Registration Statement”
shall
      have the meaning set forth in Section
      2(a).

    

    “Effective
      Date”
means
      the date that any Registration Statement is declared effective by the
      Commission.

    

    “Effectiveness
      Period”
shall
      have the meaning set forth in Section
      2(a).

    

    “Effectiveness
      Date”
means,
      with respect to the initial Demand Registration Statement required to be filed
      pursuant to Section
      2(a),
      if any,
      the 150th
      calendar
      day following the date of the Demand Notice described in Section
      2(a),
      and
      with respect to any Follow-up Registration Statements which may be required
      pursuant to Section
      2(c),
      the
      90th
      calendar
      day following the date on which a Follow-up Registration Statement is required
      to be filed hereunder; provided,
      however,
      that in
      the event the Company is notified by the Commission that one or more of the
      above Registration Statements will not be reviewed or is no longer subject
      to
      further review and comments, the Effectiveness Date as to such Registration
      Statement shall be the fifth Trading Day following the date on which the Company
      is so notified if such date precedes the dates otherwise required
      above.

    

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

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    “Filing
      Date”
means,
      with respect to the initial Demand Registration Statement required to be filed
      pursuant to Section
      2(a),
      the
      45th
      calendar
      day following the date of the Demand Notice described in Section
      2(a)
      hereof
      and, with respect to any Follow-up Registration Statements which may be required
      pursuant to Section
      2(c),
      the
      earliest practical date on which the Company is permitted by SEC Guidance to
      file such Follow-up Registration Statement related to the Registrable
      Securities.

    

    “Follow-up
      Registration Statements”
shall
      have meaning set forth in Section
      2(c).

    

    “Holder”
or
      “Holders”
means
      the holder or holders, as the case may be, from time to time of Registrable
      Securities.

    

    “Indemnified
      Party”
shall
      have the meaning set forth in Section
      5(c).

    

    “Indemnifying
      Party”
shall
      have the meaning set forth in Section
      5(c).

    

    “Losses”
shall
      have the meaning set forth in Section
      5(a).

    

    “Majority-in-Interest”
means
      Holders holding, in the aggregate, at least a majority of the Registrable
      Securities.

    

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

    

    “Plan
      of Distribution”
shall
      have the meaning set forth in Section
      2(g).
      

    

    “Proceeding”
means
      an action, claim, suit, investigation or proceeding (including, without
      limitation, an informal investigation or partial proceeding, such as a
      deposition), whether commenced or threatened.

    

    “Prospectus”
means
      the prospectus included in a Registration Statement (including, without
      limitation, a prospectus that includes any information previously omitted from
      a
      prospectus filed as part of an effective registration statement in reliance
      upon
      Rule 430A promulgated by the Commission pursuant to the Securities Act), as
      amended or supplemented by any prospectus supplement, with respect to the terms
      of the offering of any portion of the Registrable Securities covered by a
      Registration Statement, and all other amendments and supplements to the
      Prospectus, including post-effective amendments, and all material incorporated
      by reference or deemed to be incorporated by reference in such
      Prospectus.

    

    “Registrable
      Securities”
means
      (i) the shares of Common Stock issued by the Company pursuant to the conversion
      rights under the Note and (ii) any securities issued or issuable upon any stock
      split, dividend or other distribution, recapitalization or similar event with
      respect to the foregoing. 

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    “Registration
      Statement”
means
      any registration statement in which the Registrable Securities are required
      to
      be included, pursuant to the provisions of this Agreement, and any additional
      registration statements contemplated by Section
      2(c),
      including (in each case) the Prospectus, amendments and supplements to such
      registration statement or Prospectus, including pre- and post-effective
      amendments, all exhibits thereto, and all material incorporated by reference
      or
      deemed to be incorporated by reference in such registration
      statement.

    

    “Rule
      415”
means
      Rule 415 promulgated by the Commission pursuant to the Securities Act, as such
      Rule may be amended or interpreted from time to time, or any similar rule or
      regulation hereafter adopted by the Commission having substantially the same
      purpose and effect as such Rule.

    

    “Rule
      424”
means
      Rule 424 promulgated by the Commission pursuant to the Securities Act, as such
      Rule may be amended or interpreted from time to time, or any similar rule or
      regulation hereafter adopted by the Commission having substantially the same
      purpose and effect as such Rule.

    

    “Selling
      Shareholder Questionnaire”
shall
      have the meaning set forth in Section
      3(a).

    

    “SEC
      Guidance”
means
      (i) any publicly-available written or oral guidance, comments, requirements
      or
      requests of the Commission staff and (ii) the Securities Act.

    

    “Securities
      Act”
means
      the Securities Act of 1933, as amended.

     

    ARTICLE
      I.  

     

    “Trading
      Day”
means
      a
      day on which the New York Stock Exchange and/or the American Stock Exchange
      is
      open for trading.

    

    “Trading
      Market”
means
      the following markets or exchanges on which the Common Stock is listed or quoted
      for trading on the date in question: the American Stock Exchange, the Nasdaq
      Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market,
      the
      New York Stock Exchange or the OTC Bulletin Board.

    

    2. Registration.

     

    (a) Demand
      Registration Rights. Commencing on the date that the Registrable Securities
      are initially issued, the Holders shall have the right, by written notice to
      the
      Company, signed by Holders holding a Majority-in-Interest of the then
      outstanding Registrable Securities (“Demand Notice”), to request the Company to
      register for resale all of the Registrable Securities included by the Holders
      in
      the Demand Notice under and in accordance with the provisions of the Securities
      Act for an offering to be made on a continuous basis pursuant to Rule 415 by
      filing with the Commission a Registration Statement covering the resale of
      such
      Registrable Securities (“Demand Registration Statement”).  The Demand
      Registration Statement required hereunder shall be filed on Form S-3 (except
      if
      the Company is not then eligible to register for resale the Registrable
      Securities on Form S-3, then such Registration Statement will be on Form S-1
      or
      another appropriate form) by the applicable Filing Date. The Company shall
      use
      commercially reasonable efforts to cause the Demand Registration Statement
      to be
      declared effective under the Securities Act after the filing thereof, and in
      any
      event no later than the applicable Effectiveness Date, and shall keep the Demand
      Registration Statement continuously effective under the Securities Act until
      the
      earlier of (i) three (3) years after the Effective Date, (ii) such time as
      all
      of the Registrable Securities covered by such Registration Statement have been
      publicly sold by the Holders, or (iii) such time as all of the Registrable
      Securities covered by such Registration Statement may be sold by the Holders
      pursuant to Rule 144, as determined by the counsel to the Company pursuant
      to a
      written opinion letter to such effect, addressed and acceptable to the Company's
      transfer agent and the Holders (the time from the effectiveness of a
      Registration Statement until the earlier of “(i)”, “(ii)” or “(iii)”, the
“Effectiveness Period”). By 5:00 p.m. (New York City time) on the business day
      immediately following the Effective Date of such Registration Statement, the
      Company shall file with the Commission in accordance with Rule 424 under the
      Securities Act the final Prospectus to be used in connection with sales pursuant
      to such Registration Statement (whether or not such filing is technically
      required under such Rule). 

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    

    (b) Restrictions
      on Demand Registration. The Company may postpone for up to thirty (30) days
      the filing or the effectiveness of a Demand Registration Statement if the
      Company reasonably determines that such Demand Registration Statement would
      have
      a material adverse effect on any proposal or plan by the Company or any of
      its
      subsidiaries to engage in any acquisition of assets (other than in the ordinary
      course of business) or any merger, consolidation, tender offer, reorganization
      or similar transaction; provided,
      however,
      that in
      such event, the Holders shall be entitled to withdraw such request and, if
      such
      request is withdrawn, such request for demand registration shall not count
      as a
      request for demand registration under Section 2(a) above and the Company shall
      pay all Registration Expenses (as defined in Section 4(a) below) in connection
      with such registration. The Company may delay the filing or effectiveness of
      a
      Demand Registration Statement hereunder only once in any twelve-month period.
      Except as otherwise provided in this Section 2(b) and any obligation the Company
      may have to file Follow-up Registration Statements, pursuant to Section 2(c),
      the Holders shall be limited to one (1) Demand Registration Statement under
      this
      Section 2. provided that the Company maintains the effectiveness of such Demand
      Registration Statement for the applicable Effectiveness Period.

     

    (c) Continuing
      Demand Registration Rights. If all of the Registrable Securities to be
      included in the Demand Registration Statement filed pursuant to Section 2(a)
      cannot be so included due to SEC Guidance, and there is not an effective
      Registration Statement otherwise covering the Registrable Securities that were
      not included in the Demand Registration Statement due to SEC Guidance, then
      the
      Company shall prepare and file by the applicable Filing Date for such
      Registration Statement(s), such number of additional Registration Statements
      (“Follow-up Registration Statements”) as may be necessary in order to ensure
      that all Registrable Securities included by the Holders in the Demand Notice
      are
      covered by an existing and effective Registration Statement. Accordingly, for
      example, if shares included in the initial Demand Registration Statement filed
      under Section 2(a) are removed from such Registration Statement filed under
      Section 2(a) due to SEC Guidance, and SEC Guidance again require shares to
      be
      removed for such newly filed Registration Statement under this Section 2(c),
      then the Company will prepare and file additional Registration Statements until
      such time as all such required shares are covered by effective Registration
      Statements. Any Follow-up Registration Statements to be filed under this Section
      shall be for an offering to be made on a continuous basis pursuant to Rule
      415,
      on Form S-3 (except if the Company is not then eligible to register for resale
      the Registrable Securities on Form S-3, then such Follow-up Registration
      Statement will be on Form S-1 or another appropriate form). The Company shall
      cause such Follow-up Registration Statements to be declared effective under
      the
      Securities Act as promptly as possible after the filing thereof, and in any
      event no later than the applicable Effectiveness Date, and shall keep such
      Registration Statements continuously effective under the Securities Act during
      the Effectiveness Period applicable to each such Follow-up Registration
      Statement. By 5:00 p.m. (New York City time) on the business day immediately
      following the Effective Date of such Follow-up Registration Statement, the
      Company shall file with the Commission in accordance with Rule 424 under the
      Securities Act the final Prospectus to be used in connection with sales pursuant
      to such Follow-up Registration Statement (whether or not such filing is
      technically required under such Rule).

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    

    (d)  Company’s
      Failure to Comply with Certain Obligations.
      If: (i)
      any Registration Statement required to be filed pursuant to Section
      2(a)
      or
Section
      2(c)
      is not
      filed on or prior to the applicable Filing Date; (ii) any Registration Statement
      required to be filed pursuant to Section
      2(a)
      or
Section
      2(c)
      is not
      declared effective by the Commission by the Effectiveness Date; (iii) after
      the
      Effective Date of a Registration Statement, such Registration Statement ceases
      for any reason to remain continuously effective as to all Registrable Securities
      included in such Registration Statement, or the Holders are otherwise not
      permitted to utilize the Prospectus therein to resell such Registrable
      Securities, for more than twenty (20) consecutive calendar days or more than
      an
      aggregate of thirty (30) calendar days (which need not be consecutive calendar
      days) during any 12-month period; or (iv) the Company shall fail for any reason
      to satisfy the current public information requirements under Rule 144 as to
      the
      applicable Registrable Securities (any such failure or breach being referred
      to
      as an “Event”,
      and
      for purposes of clause (i), (ii) and (iv) the date on which such Event occurs,
      and for purpose of clause (iii) the date on which such 20 or 30 calendar day
      period, as applicable, is exceeded being referred to as “Event
      Date”),
      then,
      in addition to any other rights the Holders may have hereunder or under
      applicable law, on each such Event Date and on each monthly anniversary of
      each
      such Event Date (if the applicable Event shall not have been cured by such
      date)
      until the applicable Event is cured, the Company shall pay to each Holder an
      amount in cash, as partial liquidated damages and not as a penalty, equal to
      one
      percent (1%) of the amount of principal and interest converted pursuant to
      the
      Note (the “Conversion
      Amount”)
      which
      is applicable to any such unregistered Registrable Securities then held by
      such
      Holder. The parties agree that the maximum aggregate liquidated damages payable
      to a Holder under this Agreement shall be 10% of the aggregate Conversion Amount
      pursuant to the Note. If the Company fails to pay any partial liquidated damages
      pursuant to this Section
      2(d)
      in full
      within seven (7) days after the date payable, the Company will pay interest
      thereon at a rate of eighteen percent (18%) per annum (or such lesser maximum
      amount that is permitted to be paid by applicable law) to the Holders, accruing
      daily from the date such partial liquidated damages are due until such amounts,
      plus all such interest thereon, are paid in full. The partial liquidated damages
      pursuant to the terms hereof shall apply on a daily pro rata basis for any
      portion of a month prior to the cure of an Event.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    (e) Piggyback
      Registration Rights. If, at any time after the Registrable Securities are
      initially issued there is not an effective Registration Statement covering
      all
      of the Registrable Securities, the Company shall determine to prepare and file
      with the Commission a Registration Statement relating to an offering for its
      own
      account or the account of others under the Securities Act of any of its equity
      securities, other than on Form S-4 or Form S-8 (each as promulgated under the
      Securities Act) or their then equivalents relating to equity securities to
      be
      issued solely in connection with any acquisition of any entity or business
      or
      equity securities issuable in connection with stock option or other employee
      benefit plans, then the Company shall send to the Holders a written notice
      of
      such determination at least twenty (20) days prior to the filing of any such
      Registration Statement and shall include in such Registration Statement all
      Registrable Securities for resale and offer on a continuous basis pursuant
      to
      Rule 415; provided, however, that (i) if, at any time after giving written
      notice of its intention to register any securities and prior to the effective
      date of the Registration Statement filed in connection with such registration,
      the Company determines for any reason not to proceed with such registration,
      the
      Company will be relieved of its obligation to register any Registrable
      Securities in connection with such registration, (ii) in case of a determination
      by the Company to delay registration of its securities, the Company will be
      permitted to delay the registration of Registrable Securities for the same
      period as the delay in registering such other securities, (iii) the Holders
      are
      subject to confidentiality obligations with respect to any information gained
      in
      this process or any other material non-public information it obtains, (iv)
      the
      Holders are subject to all applicable laws relating to insider trading or
      similar restrictions; and (v) if all of the Registrable Securities of the
      Holders cannot be so included due to any SEC Guidance, then the Company may
      reduce, in accordance with the provisions of Section 2(c) hereof, the number
      of
      securities covered by such Registration Statement to the maximum number which
      would enable the Company to conduct such offering in accordance with the
      provisions of Rule 415.

     

    (f) Cutback
      Provisions. With respect to any Registration described in Section 2(e)
      hereof, in the event all of the Registrable Securities cannot be included in
      a
      Registration Statement due to SEC Guidance or underwriter cutbacks, the Holders
      agree that the Registrable Securities may be removed from such Registration
      Statement as is required by SEC Guidance or underwriter cutbacks prior to
      removal of any securities offered for sale by the Company in connection with
      a
      primary offering of its securities (“Company Securities”). Additionally, unless
      (i) otherwise agreed to by Holders holding a Majority-in-Interest of the then
      outstanding Registrable Securities or (ii) required by any SEC Guidance, all
      securities other than the Company Securities shall be removed from any such
      Registration Statement prior to the removal of any of the Registrable
      Securities.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    (g) Plan
      of Distribution.
      Each
      Registration Statement, including a Follow-up Registration Statement, required
      hereunder shall contain the Plan of Distribution in the form attached hereto
      as
Annex
      A
      (“Plan
      of Distribution”)
      (which
      may be modified to respond to comments, if any, received by the Commission).
           

     

    3.
       Registration
      Procedures.

    

    In
      connection with the Company’s registration obligations hereunder, the Company
      shall:

    

    (a)  Not
      less
      than five (5) Trading Days prior to the applicable Filing Date of each
      Registration Statement and not less than one (1) Trading Day prior to the filing
      of any related Prospectus or any amendment or supplement thereto (including
      any
      document that would be incorporated or deemed to be incorporated therein by
      reference), the Company shall (i) furnish to each Holder copies of all such
      documents proposed to be filed, which documents (other than those incorporated
      or deemed to be incorporated by reference) will be subject to the review of
      such
      Holders, and (ii) cause its officers and directors, counsel and independent
      certified public accountants to respond to such inquiries as shall be necessary,
      in the reasonable opinion of respective counsel to the Holders, to conduct
      a
      reasonable investigation within the meaning of the Securities Act. Each Holder
      agrees to furnish to the Company a completed questionnaire in the form attached
      to this Agreement as Annex
      B
      (a
“Selling
      Shareholder Questionnaire”)
      on, or
      prior to, the earlier of (i) five (5) Trading Days prior to the Filing Date
      or
      (ii) the end of the fourth (4th)
      Trading
      Day following the date on which the Holder receives draft materials in
      accordance with this Section. 

    

    (b)  (i)
      Prepare and file with the Commission such amendments, including post-effective
      amendments, to a Registration Statement and the Prospectus used in connection
      therewith as may be necessary to keep a Registration Statement continuously
      effective as to the applicable Registrable Securities for the Effectiveness
      Period and prepare and file with the Commission such additional Registration
      Statements in order to register for resale under the Securities Act all of
      the
      Registrable Securities; (ii) cause the related Prospectus to be amended or
      supplemented by any required Prospectus supplement (subject to the terms of
      this
      Agreement), and, as so supplemented or amended, to be filed pursuant to Rule
      424; (iii) respond as promptly as reasonably possible to any comments received
      from the Commission with respect to a Registration Statement or any amendment
      thereto and provide as promptly as reasonably possible to the Holder true and
      complete copies of all correspondence from and to the Commission relating to
      a
      Registration Statement (provided that, the Company may excise any information
      contained therein which would constitute material non-public information if
      the
      Holder has not executed a confidentiality agreement with the Company); and
      (iv)
      comply in all material respects with the provisions of the Securities Act and
      the Exchange Act with respect to the disposition of all Registrable Securities
      covered by a Registration Statement during the applicable period in accordance
      (subject to the terms of this Agreement) with the intended methods of
      disposition by the Holder set forth in such Registration Statement as so amended
      or in such Prospectus as so supplemented.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    (c)  If
      during
      the Effectiveness Period, the number of Registrable Securities at any time
      exceeds 100% of the number of shares of Common Stock then registered in a
      Registration Statement, then the Company shall file as soon as reasonably
      practicable an additional Registration Statement covering the resale by the
      Holder of not less than the number of such Registrable Securities. 

    

    (d)  Notify
      the Holder of Registrable Securities to be sold (which notice shall, pursuant
      to
      clauses (iii) through (vi) hereof, be accompanied by an instruction to suspend
      the use of the Prospectus until the requisite changes have been made) as
      promptly as reasonably possible (and, in the case of (i)(A) below, not less
      than
      one Trading Day prior to such filing) and (if requested by any such Person)
      confirm such notice in writing no later than one Trading Day following the
      day
      (i)(A) when a Prospectus or any Prospectus supplement or post-effective
      amendment to a Registration Statement is proposed to be filed; (B) when the
      Commission notifies the Company whether there will be a “review” of such
      Registration Statement and whenever the Commission comments in writing on such
      Registration Statement; and (C) with respect to a Registration Statement or
      any
      post-effective amendment, when the same has become effective; (ii) of any
      request by the Commission or any other federal or state governmental authority
      for amendments or supplements to a Registration Statement or Prospectus or
      for
      additional information; (iii) of the issuance by the Commission or any other
      federal or state governmental authority of any stop order suspending the
      effectiveness of a Registration Statement covering any or all of the Registrable
      Securities or the initiation of any Proceedings for that purpose; (iv) of the
      receipt by the Company of any notification with respect to the suspension of
      the
      qualification or exemption from qualification of any of the Registrable
      Securities for sale in any jurisdiction, or the initiation or threatening of
      any
      Proceeding for such purpose; (v) of the occurrence of any event or passage
      of
      time that makes the financial statements included in a Registration Statement
      ineligible for inclusion therein or any statement made in a Registration
      Statement or Prospectus or any document incorporated or deemed to be
      incorporated therein by reference untrue in any material respect or that
      requires any revisions to a Registration Statement, Prospectus or other
      documents so that, in the case of a Registration Statement or the Prospectus,
      as
      the case may be, it will not contain any untrue statement of a material fact
      or
      omit to state any 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; and (vi) of the occurrence or existence of any pending
      corporate development with respect to the Company that the Company believes
      may
      be material and that, in the determination of the Company, makes it not in
      the
      best interest of the Company to allow continued availability of a Registration
      Statement or Prospectus, provided that, any and all of such information shall
      remain confidential to the Holder until such information otherwise becomes
      public, unless disclosure by the Holder is required by law; provided,
      further,
      that
      notwithstanding the Holder’s agreement to keep such information confidential,
      the Holder makes no acknowledgement that any such information is material,
      non-public information.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    (e)  Use
      its
      commercially reasonable efforts to avoid the issuance of, or, if issued, obtain
      the withdrawal of (i) any order stopping or suspending the effectiveness of
      a
      Registration Statement, or (ii) any suspension of the qualification (or
      exemption from qualification) of any of the Registrable Securities for sale
      in
      any jurisdiction, at the earliest practicable moment.

    

    (f)  Furnish
      to the Holder, without charge, at least one conformed copy of each such
      Registration Statement and each amendment thereto, including financial
      statements and schedules, all documents incorporated or deemed to be
      incorporated therein by reference to the extent requested by such Person, and
      all exhibits to the extent requested by such Person (including those previously
      furnished or incorporated by reference) promptly after the filing of such
      documents with the Commission; provided, that any such item which is available
      on the EDGAR system need not be furnished in physical form.

    

    (g)  Subject
      to the terms of this Agreement, the Company hereby consents to the use of such
      Prospectus and each amendment or supplement thereto by each of the selling
      Holders in connection with the offering and sale of the Registrable Securities
      covered by such Prospectus and any amendment or supplement thereto, except
      after
      the giving of any notice pursuant to clauses (iii) through (vi) of Section
      3(d).

    

    (h)  Prior
      to
      any resale of Registrable Securities by a Holder, use its commercially
      reasonable efforts to register or qualify or cooperate with the selling Holders
      in connection with the registration or qualification (or exemption from the
      Registration or qualification) of such Registrable Securities for the resale
      by
      the Holder under the securities or Blue Sky laws (as defined in Section
      4(a)
      below)
      of such jurisdictions within the United States as any Holder reasonably requests
      in writing, to keep each registration or qualification (or exemption therefrom)
      effective during the Effectiveness Period and to do any and all other acts
      or
      things reasonably necessary to enable the disposition in such jurisdictions
      of
      the Registrable Securities covered by each Registration Statement; provided,
      that, the Company shall not be required to qualify generally to do business
      in
      any jurisdiction where it is not then so qualified, subject the Company to
      any
      material tax in any such jurisdiction where it is not then so subject, or file
      a
      general consent to service of process in any such jurisdiction.

    

    (i)  If
      requested by a Holder, cooperate with such Holder to facilitate the timely
      preparation and delivery of certificates representing Registrable Securities
      to
      be delivered to a transferee pursuant to the applicable Registration Statement,
      which certificates, to the extent permitted by the Securities Act and the
      agreement with respect to the transfer of the Registrable Securities, (i) shall
      be free of all restrictive legends, and (ii) shall be in such denominations
      and
      registered in such names as such Holder may reasonably request.

    

    (j)  Upon
      the
      occurrence of any event contemplated by Section
      3(d),
      as
      promptly as reasonably possible under the circumstances taking into account
      the
      Company’s good faith assessment of any adverse consequences to the Company and
      its stockholders of the premature disclosure of such event, prepare a supplement
      or amendment, including a post-effective amendment, to a Registration Statement
      or a supplement to the related Prospectus or any document incorporated or deemed
      to be incorporated therein by reference, and file any other required document
      so
      that, as thereafter delivered, neither a Registration Statement nor such
      Prospectus will contain an 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 under which they were made,
      not misleading. If
      the
      Company notifies the Holders in accordance with clauses (iii) through (vi)
      of
      Section 3(d) above to suspend the use of any Prospectus until the requisite
      changes to such Prospectus have been made, then the Holders shall suspend use
      of
      such Prospectus. The Company will use its best efforts to ensure that the use
      of
      the Prospectus may be resumed as promptly as is practicable. The Company shall
      be entitled to exercise its right under this Section 3(k) to suspend the
      availability of a Registration Statement and Prospectus, subject to the payment
      of partial liquidated damages otherwise required pursuant to Section 2(d),
      for a
      period not to exceed sixty (60) calendar days (which need not be consecutive
      days) in any twelve (12) month period.

     

    
      
        
        

      

      
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    (k)  Comply
      with all applicable rules and regulations of the Commission.

    

    (l)  The
      Company may require each selling Holder to furnish to the Company a certified
      statement as to the number of shares of Common Stock beneficially owned by
      such
      Holder and, if required by the Commission, the natural persons thereof that
      have
      voting and dispositive control over the shares. During any periods that the
      Company is unable to meet its obligations hereunder with respect to the
      registration of the Registrable Securities solely because any Holder fails
      to
      furnish such information within three (3) Trading Days of the Company’s request,
      any liquidated damages that are accruing at such time as to the Holder shall
      be
      tolled, and any Event that may otherwise occur solely because of such delay
      shall be suspended as to such Holder only, until such information is delivered
      to the Company.

    

    4.  
      Registration
      Expenses.
      

    

    (a)  All
      fees
      and expenses incident to the performance of or compliance with this Agreement
      by
      the Company (“Registration
      Expenses”)
      shall
      be borne by the Company whether or not any Registrable Securities are sold
      pursuant to a Registration Statement. The fees and expenses referred to in
      the
      foregoing sentence shall include, without limitation, (i) all registration
      and
      filing fees (including, without limitation, fees and expenses of the Company’s
      counsel and auditors) (A) with respect to filings made with the Commission,
      (B)
      with respect to filings required to be made with any Trading Market on which
      the
      Common Stock is then listed for trading, (C) in compliance with applicable
      state
      securities laws (“Blue
      Sky laws”)
      reasonably agreed to by the Company in writing (including, without limitation,
      fees and disbursements of counsel for the Company in connection with Blue Sky
      qualifications or exemptions of the Registrable Securities) and (D) if not
      previously paid by the Company in connection with any filing by the Company,
      with respect to the initial filing that may be required to be made by any broker
      through which a Holder intends to make sales of Registrable Securities with
      the
      FINRA pursuant to NASD Rule 2710, so long as the broker is receiving no more
      than a customary brokerage commission in connection with such sale, (ii)
      printing expenses (including, without limitation, expenses of printing
      certificates for Registrable Securities), (iii) messenger, telephone and
      delivery expenses, (iv) fees and disbursements of counsel for the Company,
      (v)
      Securities Act liability insurance, if the Company so desires such insurance,
      and (vi) fees and expenses of all other Persons retained by the Company in
      connection with the consummation of the transactions contemplated by this
      Agreement. In addition, the Company shall be responsible for all of its internal
      expenses incurred in connection with the consummation of the transactions
      contemplated by this Agreement (including, without limitation, all salaries
      and
      expenses of its officers and employees performing legal or accounting duties),
      the expense of any annual audit and the fees and expenses incurred in connection
      with the listing of the Registrable Securities on any securities exchange as
      required hereunder. In no event shall the Company be responsible for any broker
      or similar commissions or, except as otherwise provided in this Agreement,
      for
      any legal fees or other costs of the Holders.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    (b)  In
      connection with the filing of any Registration Statement in which Registrable
      Securities are included, the Company shall be required to pay fees and
      disbursements of one (1) special legal counsel to represent the Holders, to
      be
      selected by Holders holding a Majority-in-Interest of the Registrable Securities
      included in such Registration Statement; provided, however, that the Company’s
      obligations under this Section
      4(b)
      shall
      not exceed $25,000 with respect to any Registration Statement. 

    

    5.  
      Indemnification.

    

    (a)  Indemnification
      by the Company.
      The
      Company shall, notwithstanding any termination of this Agreement, indemnify
      and
      hold harmless each Holder, the officers, directors, members, partners, agents,
      brokers (including brokers who offer and sell Registrable Securities as
      principal as a result of a pledge or any failure to perform under a margin
      call
      of Common Stock), investment advisors and employees (and any other Persons
      with
      a functionally equivalent role of a Person holding such titles, notwithstanding
      a lack of such title or any other title) of each of them, each Person who
      controls any such Holder (within the meaning of Section 15 of the Securities
      Act
      or Section 20 of the Exchange Act) and the officers, directors, members,
      shareholders, partners, agents and employees (and any other Persons with a
      functionally equivalent role of a Person holding such titles, notwithstanding
      a
      lack of such title or any other title) of each such controlling Person, to
      the
      fullest extent permitted by applicable law, from and against any and all losses,
      claims, damages, liabilities, costs (including, without limitation, reasonable
      attorneys’ fees) and expenses (collectively, “Losses”),
      as
      incurred, arising out of or relating to (1) any untrue or alleged untrue
      statement of a material fact contained in a Registration Statement, any
      Prospectus or any form of prospectus or in any amendment or supplement thereto
      or in any preliminary prospectus, or arising out of or relating to any omission
      or alleged omission of a material fact required to be stated therein or
      necessary to make the statements therein (in the case of any Prospectus or
      supplement thereto, in light of the circumstances under which they were made)
      not misleading or (2) any violation or alleged violation by the Company of
      the
      Securities Act, the Exchange Act or any state securities law, or any rule or
      regulation thereunder, in connection with the performance of its obligations
      under this Agreement, except to the extent, but only to the extent, that (i)
      such untrue statements or omissions are based solely upon information regarding
      such Holder furnished in writing to the Company by such Holder expressly for
      use
      therein, or to the extent that such information relates to such Holder or such
      Holder’s proposed method of distribution of Registrable Securities and was
      reviewed and expressly approved in writing by such Holder expressly for use
      in a
      Registration Statement, such Prospectus or in any amendment or supplement
      thereto (it being understood that the Holder has approved Annex
      A
      hereto
      for this purpose) or (ii) in the case of an occurrence of an event of the type
      specified in Section
      3(d)(iii)-(vi),
      the use
      by such Holder of an outdated or defective Prospectus after the Company has
      notified such Holder in writing that the Prospectus is outdated or defective
      and
      prior to the receipt by such Holder of the Advice contemplated in Section
      6(d).
      The
      Company shall notify the Holders promptly of the institution, threat or
      assertion of any Proceeding arising from or in connection with the transactions
      contemplated by this Agreement of which the Company is aware.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    (b)  Indemnification
      by Holders.
      Each
      Holder shall, severally and not jointly, indemnify and hold harmless the
      Company, its directors, officers, agents and employees, each Person who controls
      the Company (within the meaning of Section 15 of the Securities Act and Section
      20 of the Exchange Act), and the directors, officers, agents or employees of
      such controlling Persons, to the fullest extent permitted by applicable law,
      from and against all Losses, as incurred, to the extent arising out of or based
      solely upon: (x) such Holder’s failure to comply with the prospectus delivery
      requirements of the Securities Act or (y) any untrue or alleged untrue statement
      of a material fact contained in any Registration Statement, any Prospectus,
      or
      in any amendment or supplement thereto or in any preliminary prospectus, or
      arising out of or relating to any omission or alleged omission of a material
      fact required to be stated therein or necessary to make the statements therein
      not misleading (i) to the extent, but only to the extent, that such untrue
      statement or omission is contained in any information so furnished in writing
      by
      such Holder to the Company specifically for inclusion in such Registration
      Statement or such Prospectus or (ii) to the extent that such information relates
      to such Holder’s proposed method of distribution of Registrable Securities and
      was reviewed and expressly approved in writing by such Holder expressly for
      use
      in a Registration Statement (it being understood that the Holder has approved
      Annex
      A
      hereto
      for this purpose), such Prospectus or in any amendment or supplement thereto
      or
      (ii) in the case of an occurrence of an event of the type specified in
Section
      3(d)(iii)-(vi),
      the use
      by such Holder of an outdated or defective Prospectus after the Company has
      notified such Holder in writing that the Prospectus is outdated or defective
      and
      prior to the receipt by such Holder of the Advice contemplated in Section
      6(d).
      In no
      event shall the liability of any selling Holder hereunder be greater in amount
      than the dollar amount of the net proceeds received by such Holder upon the
      sale
      of the Registrable Securities giving rise to such indemnification
      obligation.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    (c)  Conduct
      of Indemnification Proceedings.
      If any
      Proceeding shall be brought or asserted against any Person entitled to indemnity
      hereunder (an “Indemnified
      Party”),
      such
      Indemnified Party shall promptly notify the Person from whom indemnity is sought
      (the “Indemnifying
      Party”)
      in
      writing, and the Indemnifying Party shall have the right to assume the defense
      thereof, including the employment of counsel reasonably satisfactory to the
      Indemnified Party and the payment of all fees and expenses incurred in
      connection with defense thereof; provided, that, the failure of any Indemnified
      Party to give such notice shall not relieve the Indemnifying Party of its
      obligations or liabilities pursuant to this Agreement, except (and only) to
      the
      extent that it shall be finally determined by a court of competent jurisdiction
      (which determination is not subject to appeal or further review) that such
      failure shall have prejudiced the Indemnifying Party.

    

    An
      Indemnified Party shall have the right to employ separate counsel in any such
      Proceeding and to participate in the defense thereof, but the fees and expenses
      of such counsel shall be at the expense of such Indemnified Party or Parties
      unless: (1) the Indemnifying Party has agreed in writing to pay such fees and
      expenses; (2) the Indemnifying Party shall have failed promptly to assume the
      defense of such Proceeding and to employ counsel reasonably satisfactory to
      such
      Indemnified Party in any such Proceeding; or (3) the named parties to any such
      Proceeding (including any impleaded parties) include both such Indemnified
      Party
      and the Indemnifying Party, and counsel to the Indemnified Party shall
      reasonably believe that a material conflict of interest is likely to exist
      if
      the same counsel were to represent such Indemnified Party and the Indemnifying
      Party (in which case, if such Indemnified Party notifies the Indemnifying Party
      in writing that it elects to employ separate counsel at the expense of the
      Indemnifying Party, the Indemnifying Party shall not have the right to assume
      the defense thereof and the reasonable fees and expenses of no more than one
      separate counsel shall be at the expense of the Indemnifying Party). The
      Indemnifying Party shall not be liable for any settlement of any such Proceeding
      effected without its written consent, which consent shall not be unreasonably
      withheld or delayed. No Indemnifying Party shall, without the prior written
      consent of the Indemnified Party, effect any settlement of any pending
      Proceeding in respect of which any Indemnified Party is a party, unless such
      settlement includes an unconditional release of such Indemnified Party from
      all
      liability on claims that are the subject matter of such Proceeding.

    

    Subject
      to the terms of this Agreement, all reasonable fees and expenses of the
      Indemnified Party (including reasonable fees and expenses to the extent incurred
      in connection with investigating or preparing to defend such Proceeding in
      a
      manner not inconsistent with this Section) shall be paid to the Indemnified
      Party, as incurred, within ten Trading Days of written notice thereof to the
      Indemnifying Party; provided, that, the Indemnified Party shall promptly
      reimburse the Indemnifying Party for that portion of such fees and expenses
      applicable to such actions for which such Indemnified Party is judicially
      determined not to be entitled to indemnification hereunder.

    

    (d)  Contribution.
      If the
      indemnification under
      Section 5(a)
      or
Section
      5(b)
      is
      unavailable to an Indemnified Party or insufficient to hold an Indemnified
      Party
      harmless for any Losses, then each Indemnifying Party shall contribute to the
      amount paid or payable by such Indemnified Party, in such proportion as is
      appropriate to reflect the relative fault of the Indemnifying Party and
      Indemnified Party in connection with the actions, statements or omissions that
      resulted in such Losses as well as any other relevant equitable considerations.
      The relative fault of such Indemnifying Party and Indemnified Party shall be
      determined by reference to, among other things, whether any action in question,
      including any untrue or alleged untrue statement of a material fact or omission
      or alleged omission of a material fact, has been taken or made by, or relates
      to
      information supplied by, such Indemnifying Party or Indemnified Party, and
      the
      parties’ relative intent, knowledge, access to information and opportunity to
      correct or prevent such action, statement or omission. The amount paid or
      payable by a party as a result of any Losses shall be deemed to include, subject
      to the limitations set forth in this Agreement, any reasonable attorneys’ or
      other fees or expenses incurred by such party in connection with any Proceeding
      to the extent such party would have been indemnified for such fees or expenses
      if the indemnification provided for in this Section was available to such party
      in accordance with its terms.

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    The
      parties hereto agree that it would not be just and equitable if contribution
      pursuant to this Section
      5(d)
      were
      determined by pro rata allocation or by any other method of allocation that
      does
      not take into account the equitable considerations referred to in the
      immediately preceding paragraph. Notwithstanding the provisions of this
Section
      5(d),
      no
      Holder shall be required to contribute, in the aggregate, any amount in excess
      of the amount by which the net proceeds actually received by such Holder from
      the sale of the Registrable Securities subject to the Proceeding exceeds the
      amount of any damages that such Holder has otherwise been required to pay by
      reason of such untrue or alleged untrue statement or omission or alleged
      omission.

    

    The
      indemnity and contribution agreements contained in this Section
      5
      are in
      addition to any liability that the Indemnifying Parties may have to the
      Indemnified Parties.

    

    6.
       Miscellaneous.

    

    (a)  Remedies.
      In the
      event of a breach by the Company or by a Holder of any of their respective
      obligations under this Agreement, each Holder or the Company, as the case may
      be, in addition to being entitled to exercise all rights granted by law and
      under this Agreement, including recovery of damages, shall be entitled to
      specific performance of its rights under this Agreement. The Company and each
      Holder agree that monetary damages would not provide adequate compensation
      for
      any losses incurred by reason of a breach by it of any of the provisions of
      this
      Agreement and hereby further agrees that, in the event of any action for
      specific performance in respect of such breach, it shall not assert or shall
      waive the defense that a remedy at law would be adequate.

    

    (b)  No
      Piggyback on Demand Registration Statements.
      Except
      as set forth on Annex
      C
      attached
      hereto, neither the Company nor any of its security holders (other than the
      Holders in such capacity pursuant hereto) may include securities of the Company
      in any Demand Registration Statements other than the Registrable
      Securities.

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    (c)  Compliance.
      Each
      Holder covenants and agrees that it will comply with the prospectus delivery
      requirements of the Securities Act as applicable to it in connection with sales
      of Registrable Securities pursuant to a Registration Statement.

    

    (d)  Discontinued
      Disposition.
      Discontinued
      Disposition.
      By its
      acquisition of Registrable Securities, each Holder agrees that, upon receipt
      of
      a notice from the Company of the occurrence of any event of the kind described
      in
      Section 3(d)(iii) through (vi),
      such
      Holder will forthwith discontinue disposition of such Registrable Securities
      under a Registration Statement until it is advised in writing (the “Advice”)
      by the
      Company that the use of the applicable Prospectus (as it may have been
      supplemented or amended) may be resumed. The Company will use its best efforts
      to ensure that the use of the Prospectus may be resumed as promptly as is
      practicable. The Company agrees and acknowledges that any periods during which
      the Holder is required to discontinue the disposition of the Registrable
      Securities hereunder shall be subject to the provisions of Section
      2(d).

    

    (e)  Amendments
      and Waivers.
      The
      provisions of this Agreement, including the provisions of this sentence, may
      not
      be amended, modified or supplemented, and waivers or consents to departures
      from
      the provisions hereof may not be given, unless the same shall be in writing
      and
      signed by the Company and the Holders holding a Majority-in-Interest of the
      then
      outstanding Registrable Securities. If a Registration Statement does not
      register all of the Registrable Securities pursuant to a waiver or amendment
      done in compliance with the previous sentence, then the number of Registrable
      Securities to be registered for each Holder shall be reduced pro rata among
      all
      Holders and each Holder shall have the right to designate which of its
      Registrable Securities shall be omitted from such Registration Statement.
      Notwithstanding the foregoing, a waiver or consent to depart from the provisions
      hereof with respect to a matter that relates exclusively to the rights of a
      Holder or some Holders and that does not directly or indirectly affect the
      rights of other Holders may be given by such Holder or Holders of all of the
      Registrable Securities to which such waiver or consent relates; provided,
      however,
      that
      the provisions of this sentence may not be amended, modified, or supplemented
      except in accordance with the provisions of the first sentence of this
Section
      6(e).
      

    

    (f)  Notices.
      Any and
      all notices or other communications or deliveries required or permitted to
      be
      provided hereunder shall be delivered as set forth in the Note. 

    

    (g)  Successors
      and Assigns.
      This
      Agreement shall inure to the benefit of and be binding upon the successors
      and
      permitted assigns of each of the parties and shall inure to the benefit of
      each
      Holder. The Company may not assign (except by merger) its rights or obligations
      hereunder without the prior written consent of all of the Holders of the then
      outstanding Registrable Securities. Each Holder may assign its respective rights
      hereunder to any Person(s) to whom such Holder transfers any of its Registrable
      Securities.

    

    (h)  No
      Inconsistent Agreements.
      Neither
      the Company nor any of its subsidiaries has entered, as of the date hereof,
      nor
      shall the Company or any of its subsidiaries, on or after the date of this
      Agreement, enter into any agreement with respect to its securities, that would
      have the effect of impairing the rights granted to the Holders in this Agreement
      or otherwise conflicts with the provisions hereof. Except as set forth on
Annex
      C,
      the
      Company has not previously entered into any agreement granting any registration
      rights with respect to any of its securities to any Person that have not been
      satisfied in full.

     

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    (i)  Execution
      and Counterparts.
      This
      Agreement may be executed in two or more counterparts, all of which when taken
      together shall be considered one and the same agreement and shall become
      effective when counterparts have been signed by each party and delivered to
      the
      other party, it being understood that both parties need not sign the same
      counterpart. In the event that any signature is delivered by facsimile
      transmission or by e-mail delivery of a “.pdf” format data file, such signature
      shall create a valid and binding obligation of the party executing (or on whose
      behalf such signature is executed) with the same force and effect as if such
      facsimile or “.pdf” signature page were an original thereof.

    

    (j)  Governing
      Law.
      All
      questions concerning the construction, validity, enforcement and interpretation
      of this Agreement shall be determined in accordance with the provisions of
      the
      Note.

    

    (k)  Cumulative
      Remedies.
      The
      remedies provided herein are cumulative and not exclusive of any other remedies
      provided by law.

    

    (l)  Severability.
      If any
      term, provision, covenant or restriction of this Agreement is held by a court
      of
      competent jurisdiction to be invalid, illegal, void or unenforceable, the
      remainder of the terms, provisions, covenants and restrictions set forth herein
      shall remain in full force and effect and shall in no way be affected, impaired
      or invalidated, and the parties hereto shall use their commercially reasonable
      efforts to find and employ an alternative means to achieve the same or
      substantially the same result as that contemplated by such term, provision,
      covenant or restriction. It is hereby stipulated and declared to be the
      intention of the parties that they would have executed the remaining terms,
      provisions, covenants and restrictions without including any of such that may
      be
      hereafter declared invalid, illegal, void or unenforceable.

    

    (m)  Headings.
      The
      headings in this Agreement are for convenience only, do not constitute a part
      of
      the Agreement and shall not be deemed to limit or affect any of the provisions
      hereof.

    

    (n)  Independent
      Nature of Holders’ Obligations and Rights.
      The
      obligations of each Holder hereunder are several and not joint with the
      obligations of any other Holder hereunder, and no Holder shall be responsible
      in
      any way for the performance of the obligations of any other Holder hereunder.
      Nothing contained herein or in any other agreement or document delivered at
      any
      closing, and no action taken by any Holder pursuant hereto or thereto, shall
      be
      deemed to constitute the Holders as a partnership, an association, a joint
      venture or any other kind of entity, or create a presumption that the Holders
      are in any way acting in concert with respect to such obligations or the
      transactions contemplated by this Agreement. Each Holder shall be entitled
      to
      protect and enforce its rights, including without limitation the rights arising
      out of this Agreement, and it shall not be necessary for any other Holder to
      be
      joined as an additional party in any proceeding for such purpose.

    

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

    

    IN
      WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
      as
      of the date first written above.

     

     

    
      
        	 	 	 
	 	
                DOCUMENT SECURITY SYSTEMS, INC.

              
	 
 	 
 	 
 
	 	By:  	 
	 	
                
Name:
                Patrick White
	 	Title:
                Chief Executive Officer 

      
        	 	 	 
	 	
                TAIKO III CORP.

              
	 
 	 
 	 
 
	 	By:  	 
	 	
                
Name:
                Robert T. Girards
	 	Title:
                President 

      
        
          
          

        

        
          18

          
            

          

        

        
          
          

        

      

    

        

    Annex
      A

    

    Plan
      of Distribution

    

    The
      Holder and any of its pledgees, assignees and successors-in-interest
      (collectively, the “Selling
      Stockholders”)
      may,
      from time to time, sell any or all of their shares of common stock on the
      American Stock Exchange or any other stock exchange, market or trading facility
      on which the shares are traded or in private transactions. These sales may
      be at
      fixed or negotiated prices. A Selling Stockholder may use any one or more of
      the
      following methods when selling shares:

     

    
      	·  	
              ordinary
                brokerage transactions and transactions in which the broker-dealer
                solicits purchasers;

            

    

     

    
      	·  	
              block
                trades in which the broker-dealer will attempt to sell the shares
                as agent
                but may position and resell a portion of the block as principal to
                facilitate the transaction;

            

    

     

    
      	·  	
              purchases
                by a broker-dealer as principal and resale by the broker-dealer for
                its
                account;

            

    

     

    
      	·  	
              an
                exchange distribution in accordance with the rules of the applicable
                exchange;

            

    

     

    
      	·  	
              privately
                negotiated transactions;

            

    

     

    
      	·  	
              broker-dealers
                may agree with the Selling Stockholders to sell a specified number
                of such
                shares at a stipulated price per
                share;

            

    

     

    
      	·  	
              through
                the writing or settlement of options or other hedging transactions,
                whether through an options exchange or
                otherwise;

            

    

     

    
      	·  	
              a
                combination of any such methods of sale;
                or

            

    

     

    
      	·  	
              any
                other method permitted pursuant to applicable law, other than the
                settlement of short sales.

            

    

     

    The
      Selling Stockholders may also sell shares under Rule 144 under the Securities
      Act of 1933, as amended (the “Securities
      Act”),
      if
      available, rather than under this prospectus.

     

    Broker-dealers
      engaged by the Selling Stockholders may arrange for other brokers-dealers to
      participate in sales. Broker-dealers may receive commissions or discounts from
      the Selling Stockholders (or, if any broker-dealer acts as agent for the
      purchaser of shares, from the purchaser) in amounts to be negotiated, but,
      except as set forth in a supplement to this Prospectus, in the case of an agency
      transaction not in excess of a customary brokerage commission in compliance
      with
      FINRA NASD Rule 2440; and in the case of a principal transaction a markup or
      markdown in compliance with NASD IM-2440-1. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    In
      connection with the sale of the common stock or interests therein, the Selling
      Stockholders may enter into hedging transactions with broker-dealers or other
      financial institutions; provided, however, the Selling Stockholders may not
      engage in short sales of the common stock in the course of hedging the positions
      they assume. The Selling Stockholders may not sell shares of the common stock
      short and deliver these securities to close out their short positions, and
      may
      not loan or pledge the common stock to broker-dealers that in turn may sell
      these securities. The Selling Stockholders may enter into option or other
      transactions with broker-dealers or other financial institutions or the creation
      of one or more derivative securities which require the delivery to such
      broker-dealer or other financial institution of shares offered by this
      prospectus, which shares such broker-dealer or other financial institution
      may
      resell pursuant to this prospectus (as supplemented or amended to reflect such
      transaction).

     

    The
      Selling Stockholders and any broker-dealers or agents that are involved in
      selling the shares may be deemed to be “underwriters” within the meaning of the
      Securities Act in connection with such sales. In such event, any commissions
      received by such broker-dealers or agents and any profit on the resale of the
      shares purchased by them may be deemed to be underwriting commissions or
      discounts under the Securities Act. Each Selling Stockholder has informed the
      Company that it does not have any written or oral agreement or understanding,
      directly or indirectly, with any person to distribute the Common Stock. In
      no
      event shall any broker-dealer receive fees, commissions and markups which,
      in
      the aggregate, would exceed eight percent (8%).

     

    The
      Company is required to pay certain fees and expenses incurred by the Company
      incident to the registration of the shares. The Company has agreed to indemnify
      the Selling Stockholders against certain losses, claims, damages and
      liabilities, including liabilities under the Securities Act. 

     

    Because
      Selling Stockholders may be deemed to be “underwriters” within the meaning of
      the Securities Act, they will be subject to the prospectus delivery requirements
      of the Securities Act including Rule 172 thereunder. In addition, any securities
      covered by this prospectus which qualify for sale pursuant to Rule 144 under
      the
      Securities Act may be sold under Rule 144 rather than under this prospectus.
      There is no underwriter or coordinating broker acting in connection with the
      proposed sale of the resale shares by the Selling Stockholders.

     

    We
      agreed
      to keep this prospectus effective until the earlier of (i)
      two
      years after the date is declared effective, (ii) such time as all of the
      securities covered by this prospectus have been publicly sold by the Selling
      Stockholders, or (iii) such time as all of securities covered by this prospectus
      may be sold by the Selling Stockholders pursuant to Rule 144.
      The
      resale shares will be sold only through registered or licensed brokers or
      dealers if required under applicable state securities laws. In addition, in
      certain states, the resale shares may not be sold unless they have been
      registered or qualified for sale in the applicable state or an exemption from
      the registration or qualification requirement is available and is complied
      with.

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    Under
      applicable rules and regulations under the Exchange Act, any person engaged
      in
      the distribution of the resale shares may not simultaneously engage in market
      making activities with respect to the common stock for the applicable restricted
      period, as defined in Regulation M, prior to the commencement of the
      distribution. In addition, the Selling Stockholders will be subject to
      applicable provisions of the Exchange Act and the rules and regulations
      thereunder, including Regulation M, which may limit the timing of purchases
      and
      sales of shares of the common stock by the Selling Stockholders or any other
      person. We will make copies of this prospectus available to the Selling
      Stockholders and have informed them of the need to deliver a copy of this
      prospectus to each purchaser at or prior to the time of the sale (including
      by
      compliance with Rule 172 under the Securities Act).

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    

    Annex
      B

     

    DOCUMENT
      SECURITY SYSTEMS, INC.

     

    Selling
      Securityholder Notice and Questionnaire

     

    The
      undersigned beneficial owner of common stock (the “Registrable
      Securities”)
      of
      Document Security Systems, Inc., a New York corporation (the “Company”),
      understands that the Company has filed or intends to file with the Securities
      and Exchange Commission (the “Commission”)
      a
      registration statement (the “Registration
      Statement”)
      for
      the registration and resale under Rule 415 of the Securities Act of 1933, as
      amended (the “Securities
      Act”),
      of
      the Registrable Securities, in accordance with the terms of the Registration
      Rights Agreement (the “Registration
      Rights Agreement”)
      to
      which this document is annexed. A copy of the Registration Rights Agreement
      is
      available from the Company upon request at the address set forth below. All
      capitalized terms not otherwise defined herein shall have the meanings ascribed
      thereto in the Registration Rights Agreement.

     

    Certain
      legal consequences arise from being named as a selling securityholder in the
      Registration Statement and the related prospectus. Accordingly, holders and
      beneficial owners of Registrable Securities are advised to consult their own
      securities law counsel regarding the consequences of being named or not being
      named as a selling securityholder in the Registration Statement and the related
      prospectus.

     

    NOTICE

     

    The
      undersigned beneficial owner (the “Selling
      Securityholder”)
      of
      Registrable Securities hereby elects to include the Registrable Securities
      owned
      by it in the Registration Statement.

     

    The
      undersigned hereby provides the following information to the Company and
      represents and warrants that such information is accurate:

     

    QUESTIONNAIRE

     

    1. Name.

     

    
      	 	
              (a)

            	
              Full
                Legal Name of Selling
                Securityholder

            

    

     

    
      	 	 
	 	 

    

     

    
      	 	
              (b)

            	
              Full
                Legal Name of Registered Holder (if not the same as (a) above) through
                which Registrable Securities are
                held:

            

    

     

    
      	 	 
	 	 

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

    
      	 	
              (c)

            	
              Full
                Legal Name of Natural Control Person (which means a natural person
                who
                directly or indirectly alone or with others has power to vote or
                dispose
                of the securities covered by this
                Questionnaire):

            

    

     

    
      	 	 
	 	 

    

    

    2.
      Address for Notices to Selling Securityholder:

    

      
        	 	 
	 	 
	 	 
	
                Telephone:

              	 
	
                Fax:

              	 
	
                Contact
                  Person:

              	 

      

    

     

    3.
      Broker-Dealer Status:

     

    
      	 	
              (a)

            	
              Are
                you a broker-dealer?

            

    

     

    Yes
o      No
o

     

    
      	 	
              (b)

            	
              If
                “yes” to Section 3(a), did you receive your Registrable Securities as
                compensation for investment banking services to the
                Company?

            

    

     

    Yes
o      No
o

     

    
      	 	
              Note:

            	
              If
                “no” to Section 3(b), the Commission’s staff has indicated that you should
                be identified as an underwriter in the Registration
                Statement.

            

    

     

    
      	 	
              (c)

            	
              Are
                you an affiliate of a
                broker-dealer?

            

    

     

    Yes
o      No
o

     

    
      	 	
              (d)

            	
              If
                you are an affiliate of a broker-dealer, do you certify that you
                purchased
                the Registrable Securities in the ordinary course of business, and
                at the
                time of the purchase of the Registrable Securities to be resold,
                you had
                no agreements or understandings, directly or indirectly, with any
                person
                to distribute the Registrable
                Securities?

            

    

     

    Yes
o      No
o

     

    
      	 	
              Note:

            	
              If
                “no” to Section 3(d), the Commission’s staff has indicated that you should
                be identified as an underwriter in the Registration
                Statement.

            

    

     

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    

    4.
      Beneficial Ownership of Securities of the Company Owned by the Selling
      Securityholder.

     

    Except
      as set forth below in this Item 4, the undersigned is not the beneficial or
      registered owner of any securities of the Company other than the securities
      issuable pursuant to the Note.

     

    
      	 	
              (a)

            	
              Type
                and Amount of other securities of the Company beneficially owned
                by the
                Selling Securityholder:

            

    

     

    
      	 	 
	 	 
	 	 

    

     

    5.
      Relationships with the Company:

     

    Except
      as set forth below, neither the undersigned nor any of its affiliates, officers,
      directors or principal equity holders (owners of 5% of more of the equity
      securities of the undersigned) has held any position or office or has had any
      other material relationship with the Company (or its predecessors or affiliates)
      during the past three years.

     

    State
      any
      exceptions here:

     

    
      	 	 
	 	 
	 	 

    

    

     

    The
      undersigned agrees to promptly notify the Company of any inaccuracies or changes
      in the information provided herein that may occur subsequent to the date hereof
      at any time while the Registration Statement remains effective.

     

    By
      signing below, the undersigned consents to the disclosure of the information
      contained herein in its answers to Items 1 through 5 and the inclusion of such
      information in the Registration Statement and the related prospectus
and
      any
      amendments or supplements thereto.
      The
      undersigned understands that such information will be relied upon by the Company
      in connection with the preparation or amendment of the Registration Statement
      and the related prospectus.

     

    IN
      WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice
      and Questionnaire to be executed and delivered either in person or by its duly
      authorized agent.

    
      	 	 	 
	Date:                    	Beneficial
              Owner:                    
	 
 	 
 	 
 
	 	By:  	 
	 	
              
Name:
	 	Title: 

    

     

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    PLEASE
      FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN
      THE ORIGINAL BY OVERNIGHT MAIL, TO:

    

    

     

    

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      C TO CREDIT FACILITY NOTE

    

    FORM
      OF CONVERSION NOTICE

     

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    Conversion
      Notice

    

    Pursuant
      to the Credit Facility Note dated May 7, 2008 (the “Note”), ______________
      hereby requests the conversion of all or a portion of the outstanding principal
      amount of the Note and accrued interest thereon into shares of Document Security
      Systems, Inc. (“Shares”) to be issued to as follows:

    

    Date
      of
      Event of Default: _________ ____, 200_

    

    Date
      of
      Conversion Request: _______ ____, 200_

    

    Total
      Outstanding Principal Amount and Accrued Interest:
      $_________________

    

    Amount
      to
      be Converted: $__________________

    
      

        
          	
                  Name
                    in which Certificate for shares is to be issued: 

                	
                                              

                
	
                  Address
                    of Delivery of Certificate: 

                	
                                              

                
	
                   

                	
                                              

                
	 	
                                              

                
	
                  Contact
                    person of Entity:

                	
                                              

                

        

      

       

    

     

    
      	 	 	 
	 	By:  	 
	 	
              
Name:
	 	Title: 

    

     

     

    
      
        
        

      

      
        6Unassociated Document

    COMPLIANCE
      SYSTEMS CORPORATION

    SECURITIES
      PURCHASE AGREEMENT

     

    This
      Securities Purchase Agreement (this “Agreement”)
      is
      made as of May 6, 2008 by and between Compliance
      Systems Corporation,
      a
      Nevada corporation (the “Company”),
      and
Agile
      Opportunity Fund, LLC,
      a
      Delaware limited liability company (the “Investor”).

    

    In
      consideration of the mutual covenants and agreements set forth herein and for
      other good and valuable consideration, the receipt and sufficiency of which
      are
      hereby acknowledged, and intending to be legally bound hereby, the parties
      hereto agree as follows:

    

    1. Purchase
      and Sale of Securities.

     

    1.1 Sale
      and Issuance of Debentures; Common Stock Issuance;
      Closings. 

     

    (a) Subject
      to the terms and conditions of this Agreement and in reliance on the
      representations and warranties set forth or referred to herein, the Company
      hereby agrees to sell and issue to the Investor, and the Investor hereby agrees
      to purchase from the Company, (i) at the Initial Closing (as hereinafter
      defined), a Secured Convertible Debenture in the original principal amount
      of
      $300,000 (the “Initial
      Debenture Purchase Price”),
      such
      Secured Convertible Debenture to be in the form attached hereto as Exhibit
      A
      (the
“Initial
      Debenture”)
      with a
      maturity date of November 6, 2009 (the “Maturity
      Date”),
      and
      (ii) at the Subsequent Closing (as hereinafter defined), if any, an additional
      Secured Convertible Debenture in the original principal amount of $300,000
      (the
“Additional
      Debenture Purchase Price”),
      such
      Secured Convertible Debenture to be in the form identical to the Initial
      Debenture (including, without limitation, the Maturity Date, but excluding
      the
      issuance date which shall be the date of the issuance of and payment for the
      Additional Debenture) (the “Additional
      Debenture,”
and,
      collectively with the Initial Debenture, the “Debentures”).
      The
      Debentures, including accrued but unpaid interest thereon, will be convertible
      into shares of the common stock, par value $.001 (the “Common
      Stock”),
      of
      the Company, at an initial conversion price of $0.05 per share, subject to
      adjustment as provided therein (the “Common
      Stock Debenture Shares”).
      

     

    (b) In
      connection with the purchase and sale of the Debentures hereunder and in
      addition thereto, the Company agrees to issue to the Investor: (i) at the
      Initial Closing, Three Million (3,000,000) shares of Common Stock, and (ii)
      at
      the Subsequent Closing, if any, an additional Two Million (2,000,000) shares
      of
      Common Stock. All such shares of Common Stock issued pursuant to this Section
      1.1(b) are referred to herein as the “Equity
      Incentive Shares”
and,
      together with the Common Stock Debenture Shares, the “Registrable
      Shares.”

     

    1.2 Initial
      Closing.
      The
      closing of the purchase of the Initial Debenture shall take place at the offices
      of Westerman Ball Ederer Miller & Sharfstein, LLP (“WBEMS”),
      170
      Old Country Road, Fourth Floor, Mineola, New York 11501, simultaneous with
      the
      execution hereof (the “Initial
      Closing”).
      At
      the Initial Closing, (i) the Company will deliver to the Investor the duly
      executed Initial Debenture and one or more stock certificates evidencing the
      number of Equity Incentive Shares registered in the name of Investor to be
      delivered pursuant to Section 1.1(b)(i) hereof against delivery by the Investor
      to the Company of the Initial Debenture Purchase Price therefor by wire transfer
      of immediately available funds in the amount thereof to the Company’s bank
      account at Capital One Bank, 111 East Park Avenue, Long Beach, New York 11561
      (Account Number: 7924030518) (the “Company
      Bank Account”)
      or by
      such other method agreed to in writing by the Investor and the Company, (ii)
      the
      Company shall execute the Security Agreement in favor of the Investor in the
      form of Exhibit
      B
      attached
      hereto (the “Security
      Agreement”)
      and
      such financing statements under the Uniform Commercial Code as may be required
      pursuant thereto and as may be reasonably required by the Investor, (iii) each
      of the Principals shall execute the Pledge Agreement in favor of Investor in
      the
      form of Exhibit
      C
      attached
      hereto (the “Pledge
      Agreement”)
      and
      the Limited Non-Recourse Guaranty (the “Guaranty”)
      in
      favor of the Investor in the form of Exhibit
      D
      attached
      hereto; and (iv) the Company shall pay all fees due to third party agents and
      expenses incurred by the Investor and/or Agile Investments, LLC in connection
      with the transactions hereunder, including, without limitation, the legal fees
      and expenses of WBEMS incurred in connection with the preparation of this
      Agreement and the consummation of the transactions contemplated hereby (not
      to
      exceed $10,000 in total amount) and $9,000 payable to Agile Investments, LLC
      for
      due diligence costs, structuring and monitoring fees.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    1.3 Subsequent
      Closing.
      At a
      closing to be held on any date selected by the Company upon fifteen (15)
      business days prior notice to the Investor (the “Subsequent
      Closing Date”),
      and
      subject to the satisfaction of the conditions set forth in Section
      4
      below,
      the Company will deliver to the Investor the duly executed Additional Debenture
      and one or more stock certificates evidencing the number of Equity Incentive
      Shares registered in the name of Investor to be delivered pursuant to Section
      1.1(b)(ii) hereof against delivery by the Investor to the Company of the
      Additional Debenture Purchase Price therefor by wire transfer of immediately
      available funds in the amount thereof to the Company Bank Account
      or by such other method agreed to in writing by the Investor and the
      Company.

     

    1.4 Defined
      Terms Used in this Agreement.
      In
      addition to the terms defined elsewhere in this Agreement, the following terms
      used in this Agreement shall be construed to have the meanings set forth
      below.

     

    “Approvals”
means,
      collectively, all actions, approvals, consents, waivers, exemptions, Orders,
      authorizations, registrations, declarations, filings and
      recordings.

    

    “Business
      or Condition”
of
      the
      Company means the business, operations, assets, properties, earnings, prospects
      or condition (financial or other) of the Company.

    

    “Governmental
      Body”
means
      any federal, state, municipal, local or other governmental department,
      commission, board, bureau, agency, instrumentality, political subdivision or
      taxing authority, of any country.

    

    “Loan
      Documents”
means
      this Agreement, the Security Agreement, the Pledge Agreement, the Guaranty
      and
      the Debentures, together with any other documents or instruments contemplated
      therein.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

       

    

    “Material
      Adverse Change; Material Adverse Effect; Materially
      Adverse”
in,
      on
      or with respect to, the Company, shall mean a material adverse change in the
      Company’s Business or Condition, a material adverse effect on the Company’s
      Business or Condition or an event which is materially adverse to the Company's
      Business or Condition.

    

    “Order”
means
      any order, writ, injunction, decree, judgment, award, determination, direction
      or demand by a Governmental Body, arbitrator or court.

    

    “Person”
means
      any individual, corporation, association, partnership, joint venture, limited
      liability company, trust or estate, organization, business, government or agency
      or political subdivision thereof, or any other entity.

    

    “Principals”
means
      Barry Brookstein and Dean Garfinkel, collectively.

    

    “Public
      Offering”
means
      any offering by the Company of its capital stock or equity securities to the
      public pursuant to an effective registration statement under the Securities
      Act
      or any comparable statement under any similar federal statute then in
      force.

    

    “Sale
      of the Company”
means
      either (i) the sale, lease, transfer, conveyance or other disposition, in
      one or a series of related transactions, of all or substantially all of the
      assets of the Company or (ii) a transaction or series of transactions
      (including, without limitation, by way of merger, consolidation, or sale of
      equity) the result of which is that the holders of the Company’s outstanding
      voting securities immediately prior to such transactions are after giving effect
      to such transactions no longer, in the aggregate, the “beneficial owners” (as
      such term is defined in Rule 13d-3 and Rule 13d-5 promulgated under
      the Securities Exchange Act), directly or indirectly through one or more
      intermediaries, of more than 50% of the voting power of the outstanding voting
      securities of the Company.

    

    “Securities”
means
      the Debentures and the Registrable Shares, collectively.

     

    “Securities
      Act”
means
      the Securities Act of 1933, as amended.

     

    2. Representations
      and Warranties of the Company.
      The
      Company hereby represents and warrants to the Investor that:

     

    2.1 Organization,
      Good Standing and Qualification.
      The
      Company is a corporation duly organized, validly existing and in good standing
      under the laws of the State of Nevada and has all requisite corporate power
      and
      authority to carry on its business as presently conducted or proposed to be
      conducted. The Company is duly qualified to transact business and is in good
      standing in each jurisdiction in which the failure so to qualify would have
      a
      Material Adverse Effect.

     

    2.2 Capitalization.
      As of
      immediately prior to the Initial Closing, the authorized capital stock of the
      Company consists of
      2,000,000,000 shares of Common Stock, 131,905,995 of which are issued and
      outstanding and 10,000,000 shares of preferred stock, par value $.001 per share
      (the “Preferred
      Stock”),
      5,635,709 of which are issued and outstanding. All of the outstanding shares
      of
      such capital stock of the Company have been duly authorized, are fully paid
      and
      nonassessable. Schedule
      2.2 (a)
      describes all securities exercisable or convertible into Common Stock and (b)
      identifies the holders of Common Stock of record and beneficially and the
      holders and amounts of all other outstanding securities of the Company,
      including, without limitation, any securities convertible or exchangeable into
      shares of Common Stock, in any such case in excess of 5% of the “fully-diluted”
outstanding shares of Common Stock.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

       

    

    2.3 Authorization.
      All
      corporate action on the part of the Company necessary for the authorization,
      execution and delivery of this Agreement and the Security Agreement and the
      authorization, issuance and delivery of the Securities has been taken and all
      of
      the Loan Documents to which the Company is a party, when executed and delivered
      by the Company and assuming due execution and delivery by the Investor, shall
      constitute valid and legally binding obligations of the Company, enforceable
      against the Company in accordance with their terms, except as limited by
      applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
      conveyance, or other laws of general application relating to or affecting the
      enforcement of creditors’ rights generally, and as limited by laws relating
      to the availability of specific performance, injunctive relief, or other
      equitable remedies.

     

    2.4 Valid
      Issuance of Securities.
      The
      Securities, when issued, sold and delivered in accordance with the terms hereof
      and therein for the consideration expressed herein and therein, will be duly
      and
      validly issued, fully paid and nonassessable and free of restrictions on
      transfer other than restrictions on transfer under applicable state and federal
      securities laws.

     

    2.5 Consents
      and Approvals.
      No
      Approval by, from or with and no other action in respect of, any Governmental
      Body or any other Person (including any trustee or holder of any indebtedness,
      securities or other obligations of the Company) is required (a) for or in
      connection with the valid execution and/or delivery by the Company of
      or the performance by the Company of its obligations under this Agreement
      or the Security Agreement or the consummation by the Company of the transactions
      contemplated hereby, including the offer, issuance, sale and delivery by the
      Company of the Securities, or (b) as a condition to the legality, validity
      or
      enforceability as against the Company of this Agreement or the Security
      Agreement.

     

    2.6 Patents,
      Trademarks, etc.
      The
      Company has no patents, patent rights, patent applications, trademarks,
      trademark applications, service marks, service mark applications, trade names
      and copyrights, except as set forth on Schedule
      2.6.
      To the
      best of the Company's knowledge, no claim is pending nor has the Company
      received notice to the effect that the operations of the Company infringe or
      will infringe upon or conflict with the asserted rights of any other Person
      under any patents, patent applications, trademarks, trademark applications,
      service marks, service mark applications, trade names, copyrights, manufacturing
      processes, formulae, trade secrets and know-how (collectively, “Intellectual
      Property”),
      and
      to the best of the Company’s knowledge, there is no basis for any such claim
      (whether or not pending or threatened). There are no outstanding options,
      licenses, or agreements of any kind relating to the foregoing, nor is the
      Company bound by or a party to any options, licenses, or agreements of any
      kind
      with respect to the Intellectual Property of any other Person, except as set
      forth on Schedule
      2.6.
      The
      Company is not obligated or under any liability whatsoever to make any payments
      by way of royalties, fees or otherwise to any owner of or licensor or other
      claimant to any Intellectual Property, with respect to the conduct of its
      business or otherwise. No claim is pending or, to the Company's knowledge,
      threatened to the effect that any such Intellectual Property owned or licensed
      by the Company, or which the Company otherwise has the right to use, is invalid
      or unenforceable by the Company, and there is no basis for any such claim
      (whether or not pending or, to the Company's knowledge, threatened). The Company
      has used its best efforts to insure that, and to the best of its knowledge,
      all
      technical information developed by and belonging to the Company which has not
      been patented has been kept confidential. The Company has not granted or
      assigned to any other Person any right to manufacture, have manufactured,
      assemble or sell the products or proposed products or to provide the services
      or
      proposed services of the Company.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

       

    

    2.7 Subsidiaries.
      The
      Company does not own or control, directly or indirectly, any interest in any
      other company or subsidiary and is not a participant in any joint venture,
      partnership or similar arrangement, except as set forth on Schedule
      2.7.

     

    2.8 Financial
      Statements.
      The
      Company has made available to the Investor the Company’s audited financial
      statements (including consolidated balance sheet, statements of operations,
      stockholders’ equity and cash flows) as of December 31, 2007 and for the two
      years then ended as included in the Company’s Annual Report on Form 10-KSB, for
      the year ended December 31, 2007, filed with the Securities and Exchange
      Commission (the “SEC”)
      on
      March 28, 2007 (collectively, the “Financial
      Statements”).
      The
      Financial Statements (a) have been prepared in accordance with accounting
      principles generally accepted in the United States of America, (b) are true,
      complete and correct and (c) fairly present in all material respects the
      financial position of the Company as of December 31, 2007 and the results of
      the
      Company’s operations and cash flows for the two years then ended. 

     

    2.9 Disclosure.
      No
      representation or warranty of the Company contained in this Agreement, any
      certificate or document furnished or to be furnished to the Investor at the
      Initial Closing or Subsequent Closing, if any, or the Financial Statements
      contains any untrue statement of a material fact or omits to state a material
      fact necessary in order to make the statements contained herein or therein
      not
      misleading in light of the circumstances under which they were
      made.

     

    3. Representations
      and Warranties of the Investor.
      The
      Investor hereby represents and warrants to the Company that:

     

    3.1 Authorization.
      The
      Investor is a Delaware limited liability company, duly organized, validly
      existing and in good standing under the laws of the jurisdiction of its
      organization with full power and authority to enter into, deliver and perform
      all of Investor’s obligations under this Agreement. This Agreement, when
      executed and delivered by the Investor, will constitute a valid and legally
      binding obligation of the Investor, enforceable in accordance with its terms,
      except as limited by applicable bankruptcy, insolvency, reorganization,
      moratorium, fraudulent conveyance, and any other laws of general application
      affecting enforcement of creditors’ rights generally, and as limited by laws
      relating to the availability of a specific performance, injunctive relief,
      or
      other equitable remedies.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    

    3.2 Investment
      Intent.
      The
      Investor is acquiring the Securities for the Investor’s own account, for
      investment only and not with a view to, or for sale in connection with, a
      distribution thereof or any part thereof, within the meaning of the Securities
      Act, and the rules and regulations promulgated thereunder, or any applicable
      state securities or blue-sky laws, and no one other than the Investor has any
      interest in the Securities or this Agreement;

    

    3.3 Investor
      Status.
      The
      undersigned is an “accredited investor,” as such term is defined under Rule 501
      promulgated under the Securities Act.

    

    3.4 Offering
      Exempt from Registration; Company’s Reliance.
      The
      Company has advised the Investor that:

    

    (a) None
      of
      the Securities have been registered under the Securities Act or under the laws
      of any state on the basis that the issuance thereof is exempt from such
      registration; 

    

    (b) The
      Company’s reliance on the availability of such exemption is, in part, based upon
      the accuracy and truthfulness of the undersigned’s representations contained in
      this Agreement;

    

    (c) As
      a
      result of such lack of registration, none of the Securities may be resold or
      otherwise transferred or disposed without registration pursuant to or an
      exemption therefrom available under the Securities Act and such state securities
      laws; provided that if the foregoing conditions are satisfied, the Securities
      are transferable by the Investor and

    

    (d) In
      furtherance of the provisions of this Section 3.4, each certificate representing
      any of the Securities, shall bear a restrictive legend substantially in the
      following form:

    

    “THE
      SECURITIES REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE
      SECURITIES ACT OF 1933, AS AMENDED. SUCH SECURITIES HAVE BEEN ACQUIRED FOR
      INVESTMENT PURPOSES AND NOT WITH A VIEW TOWARD DISTRIBUTION OR RESALE, AND
      MAY
      NOT BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT
      AN
      EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT
      OF
      1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
      SATISFACTORY TO THE ISSUER OF SUCH INTEREST TO THE EFFECT THAT REGISTRATION
      IS
      NOT REQUIRED UNDER SUCH ACT AND SUCH STATE SECURITIES
      LAWS.”

    

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

       

    

    3.5 Sophistication
      of the Investor.
      The
      Investor has evaluated the merits and risks of purchasing the Interest and
      has
      such knowledge and experience in financial and business matters that the
      undersigned is capable of evaluating the merits and risks of such purchase,
      is
      aware of and has considered the financial risks and hazards of purchasing the
      Securities, and is able to bear the economic risk of purchasing the Interest,
      including the possibility of a complete loss with respect to such
      purchase.

    

    3.6 Access
      to Information.
      The
      undersigned has had access to such information regarding the business and
      finances of the Company and the Securities, the receipt and careful reading
      of
      which is hereby acknowledged by the undersigned, and has been provided the
      opportunity to (a) obtain any additional information which the Company possesses
      or can acquire without unreasonable effort or expense that is necessary to
      verify the accuracy of information provided to Investor and (ii) discuss with
      the Company’s management the business, affairs and financial condition of the
      Company and such other matters with respect to the Company as would concern
      a
      reasonable person considering the transactions contemplated by this Agreement
      and/or concerned with the operations of the Company. 

    

    3.7 No
      Guarantees.
      That it
      never has been represented, guaranteed or warranted to the Investor by the
      Company, or any of its officers, directors, agents, representatives or
      employees, or any other person, expressly or by implication, that:

    

    (a) Any
      gain
      will be realized by Investor from Investor’s investment in the
      Securities;

    

    (b) That
      there will be any approximate or exact length of time that the undersigned
      will
      be required to remain as a holder of the Securities; or

    

    (c) That
      the
      past performance or experience on the part of the Company, its predecessors,
      manager or employees or of any other person, will in any way indicate any future
      results of the Company.

    

    3.8 No
      Other Representations, Warranties, Covenants or Agreements of the
      Company.
      Except
      as set forth in this Agreement, or the documents referred to in this Agreement,
      the Company has not made any representation, warranty, covenant or agreement
      with respect to the matters contained herein.

    

    3.9 High
      Degree of Investment Risk.
      Investor acknowledges and understands that the purchase of the Securities
      involves a high degree of risk and may result in a loss of the entire amount
      invested; that the Company has limited working capital and limited sources
      of
      financing available; that there is no assurance that the Company’s operations
      will be profitable in the future.

    

    3.10 No
      General Solicitation.
      Investor has not received any general solicitation or general advertising
      regarding the purchase of any of the Securities;

    

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

       

    

    3.11 Knowledge
      and Experience.
      Investor, individually and/or together with the undersigned’s professional
      advisors, has such knowledge and experience in financial, tax and business
      matters, including substantial experience in evaluating and investing in
      securities (including the securities of new and speculative companies), so
      as to
      enable the undersigned to use the information made available by the Company
      in
      order to evaluate the merits and risks of and investment in the Company, and
      to
      make an informed investment decision with respect thereto.

    

    3.12 Independent
      Decision.
      Investor is not relying on the Company or on any accounting, tax, legal or
      other
      opinion in the materials reviewed by the undersigned with respect to the
      accounting, financial or tax considerations of Investor relating to investment
      in the Company; Investor has relied solely on the representations, warranties,
      covenants and agreements of the Company in this Agreement and on Investor’s own
      examination and independent investigation in making a decision to acquire the
      Securities.

    

    

    4. Investor’s
      Conditions to Subsequent Closing.
      The
      obligation of the Investor to purchase and pay for the Additional Debenture
      to
      be purchased by it at the Subsequent Closing shall be subject to the achievement
      to the satisfaction of the Investor, prior to or at the date of the Subsequent
      Closing, of each of the following conditions, any of which may be waived in
      writing by the Investor in its sole discretion prior to the date of the
      Subsequent Closing:

     

    4.1 Proceedings
      Satisfactory.
      All
      corporate and other proceedings taken in connection with the authorization,
      issuance and sale of the Securities and the consummation of the transactions
      contemplated by this Agreement and all documents and papers relating thereto
      delivered at the at the Subsequent Closing shall be deemed reasonably
      satisfactory in form, scope and substance to the Investor and its
      counsel.

     

    4.2 Representations
      and Warranties Correct.
      All
      representations and warranties of the Company contained in this Agreement or
      otherwise made by or on behalf of the Company in connection with the
      transactions contemplated hereby shall be true, complete and correct in all
      material respects when made and (except as affected by the consummation of
      such
      transactions) as of the time of the Subsequent Closing with the same force
      and
      effect as though such representations and warranties had been made on and as
      of
      the date of the Subsequent Closing; except, in the case of representations
      and
      warranties made as of a specified date earlier than the Subsequent Closing,
      which shall be deemed to have been made on such earlier date.

     

    4.3 Performance.
      The
      Company and the Principals shall have performed and complied in all material
      respects with all agreements, obligations and conditions contained in the Loan
      Documents to which they are a party.

     

    4.4 Compliance
      Certificates.
      The
      Company shall have delivered to the Investors an Officers' Certificate, dated
      as
      of the Subsequent Closing, certifying that the conditions specified in
Sections
      4.2
      and
4.3
      have
      been fulfilled and certifying as to such other matters in connection herewith
      as
      the Investor may reasonably request.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

       

    

    4.5 Absence
      of Certain Events.
      There
      shall not have occurred any Event of Default under the Debenture or any Material
      Adverse Change in the Business or Condition of the Company since the Initial
      Closing.

     

    4.6 Approvals.
      No
      Approval by, from or with and no other action in respect of, any Governmental
      Body or any other Person (including any trustee or holder of any indebtedness,
      securities or other obligations of the Company) shall be required in connection
      with the consummation of the transactions contemplated hereby to be taken at
      the
      Subsequent Closing, including the issuance of the Securities.

     

    5. Miscellaneous.

     

    5.1 Registration
      Rights.

     

    For
      the
      period commencing on the date of the Initial Closing and terminating on the
      earlier of (a) the second anniversary of the date of the Subsequent Closing
      or
      (b) 42 months following the date of the Initial Closing, each time the Company
      proposes to register any of its securities under the Securities Act, whether
      for
      the Company’s own account or for the account of holders of the Company’s
      securities or both (except with respect to registration statements on Forms
      S-4,
      S-8 or any successor or similar forms or “Rule 145” transactions), the Company
      shall include all of the then unregistered Registrable Shares in the
      registration initiated by the Company, provided
      that the
      holder(s) of such Registerable Shares provide the Company with such information
      and commitments as are customarily required of selling securities holders whose
      securities are being registered for resale in a registration statement filed
      under the Securities Act. If any particular registration to be effected pursuant
      to this Section
      5.1
      shall
      be, in whole or in part, an underwritten public offering of Common Stock for
      the
      account of the Company, the number of Registrable Shares to be included in
      such
      an underwriting on behalf of the Investor may be reduced if, and to the extent
      that, the managing underwriter shall be of the opinion (a written copy of which
      shall be delivered to the Investor) that the inclusion of all of the shares
      requested to be included in such underwriting by the Investor would materially
      and adversely affect the marketing of the Common Stock to be sold by the Company
      under such registration statement. Notwithstanding the immediately preceding
      sentence, no securities of any of the Company’s securityholders (other than the
      Investor) shall be included in such registration unless all of the then
      unregistered shares of Registrable Shares held by the Investor are included
      therein. 

    

    5.2 Advisory
      Fee.
      From
      and after the nine-month anniversary date of the Initial Closing, the Company
      shall pay a quarterly advisory fee to the Investor or its designee equal to
      Three Thousand ($3,000) per quarter payable on the first day of each quarter
      following such nine-month anniversary and shall continue until all of the
      Debentures have been repaid in full or converted into Common Stock Debenture
      Shares.

     

    5.3 Successors
      and Assigns.
      The
      terms and conditions of this Agreement shall inure to the benefit of and be
      binding upon the respective successors and permitted assigns of the parties.
      Nothing in this Agreement, express or implied, is intended to confer upon any
      party other than the parties hereto or their respective successors and assigns
      any rights, remedies, obligations, or liabilities under or by reason of
      this Agreement, except as expressly provided in this Agreement.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

       

    

    5.4 Governing
      Law.
      This
      Agreement and all acts and transactions pursuant hereto and the rights and
      obligations of the parties hereto shall be governed, construed and interpreted
      in accordance with the laws of the State of New York, without giving effect
      to
      principles of conflicts of law.

     

    5.5 Counterparts.
      This
      Agreement may be executed in any number of counterparts, each of which shall
      be
      deemed an original and all of which together shall constitute one
      instrument.

     

    5.6 Titles
      and Subtitles.
      The
      titles and subtitles used in this Agreement are used for convenience only and
      are not to be considered in construing or interpreting this
      Agreement.

     

    5.7 Notices.
      Any
      notice required or permitted by this Agreement shall be in writing and shall
      be
      deemed sufficient upon delivery, when delivered personally (against written
      receipt therefor), one business day following the business day on which such
      notice is forwarded by overnight courier, or two business days following the
      business day of deposit in the U.S. mail, as certified or registered mail,
      with
      postage prepaid, addressed to the party to be notified at such party’s address
      as set forth on the signature page hereto, or as subsequently modified by
      written notice, and, if to the Investor, with a copy to Westerman Ball Ederer
      Miller and Sharfstein, LLP, 170 Old Country Road, Suite 400, Mineola, New
      York 11501, Attn: Alan Ederer, Esq. and, if to the Company, with a copy to
      Moritt Hock Hamroff & Horowitz, 400 Garden City Plaza, Garden City, New
      York, 11530
      Attn:
      Dennis O’Rourke, Esq.

     

    5.8 Confidentiality.
      This
      Agreement is confidential, and none of its provisions or terms shall be
      disclosed to anyone who is not an Investor or an officer or director of the
      Company or their agents, advisers or legal counsel, unless required by
      law.

     

    5.9 Entire
      Agreement.
      This
      Agreement constitutes the entire agreement between the parties hereto pertaining
      to the subject matter hereof, and any and all other written or oral agreements
      relating to the subject matter hereof existing between the parties hereto are
      expressly canceled.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

       

    

    IN
      WITNESS WHEREOF,
      the
      parties have duly executed this Securities Purchase Agreement as of the date
      first written above.

     

    COMPLIANCE
      SYTSTEMS CORPORATION

     

    

    By:
      /s/
      Dean
      Garfinkel                                                                      
 

    Name:
      Dean Garfinkel 

    Title:
      President

     

    Address:

    90
      Pratt
      Oval

    Glen
      Cove, New York 11542

    

    

    

    AGILE
      OPPORTUNITY FUND, LLC

    By:
      AGILE
      INVESTMENTS, LLC, Managing Member 

     

     

    By:
      /s/
      David I.
      Propis                                                                      
 

    Name:
      David I. Propis

    Title:
      Managing Member

    

    Address:

    1175
      Walt
      Whitman Road, Suite 100A

    Melville,
      NY 11747

    

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

        
        

      

    

    SCHEDULE
      2.2

    Capitalization

    

    
      	(a)	
              Securities
                Exercisable or Convertible into Common Stock.

            

    

    

    
      	 	
              (i)

            	
              The
                Company has outstanding a series of warrants entitling the holders
                of such
                warrants to purchase an aggregate of 1,901,272 shares of Common Stock
                at a
                purchase price of $0.46 per share. These warrants expire on September
                30,
                2008.

            

    

    
      	 	
              (ii)

            	
              The
                Company has outstanding warrants entitling the holder of such warrants
                to
                purchase 819,514 shares of Common Stock at a purchase price of $0.31
                per
                share. These warrants expire on June 1,
                2010.

            

    

    
      	 	
              (iii)

            	
              On
                January 4, 2008, the Company granted employees of the Company options
                to
                purchase an aggregate of 45,000,000 shares of Common Stock at a purchase
                price of $0.026 per share. These options expire on January 3,
                2013.

            

    

    
      	 	
              (iv)

            	
              The
                Company has outstanding a total of 2,500,000 shares of Series A Senior
                Convertible Voting Non-Redeemable Preferred Stock. Each share of
                such
                class has a liquidation preference of $1.00 and is convertible, at
                the
                option of its record owner, into 100 shares of Common
                Stock.

            

    

    
      	 	
              (v)

            	
              The
                Company has outstanding a total of 1,250,000 shares of Series B Senior
                Subordinated Convertible Voting Redeemable Preferred Stock. Each
                share of
                such class has a liquidation preference of $1.00 and is convertible,
                at
                the option of its record owner, into 100 shares of Common
                Stock.

            

    

    
      	 	
              (iv)

            	
              The
                Company has outstanding a total of 1,885,709 shares of Series C Senior
                Subordinated Convertible Voting Redeemable Preferred Stock. Each
                share of
                such class has a liquidation preference of $1.00 and is convertible,
                at
                the option of its record owner, into 100 shares of Common Stock.
                The
                Company has irrevocably waived its right to redeem the Series C Preferred
                Stock.

            

    

    

    
      	(b)	
              Beneficial
                Ownership Table.

            

    

    

    The
      following tables set forth information with respect to the beneficial ownership
      of shares of each class of the Company’s equity securities as of April 30, 2008,
      by each person known by the Company to beneficially own 5% or more of the
      outstanding shares of such class of stock, based on filings with the Securities
      and Exchange Commission and certain other information Except as otherwise
      indicated in the notes to the following table, the Company believes that all
      listed shares are beneficially owned, and investment and voting power is held
      by, the persons named as the owner of such shares. The tables do not reflect
      the
      issuance of any securities pursuant to the Securities Purchase
      Agreement.

    

    Series
      A Senior Convertible Voting Non-Redeemable Preferred
      Stock:

    

      
        	 	
                Amount
                  and Nature of 

              	
                Percentage

              
	
                Name
                  and Address of Stockholder 

              	
                Beneficial
                  Ownership

              	
                of
                  Class

              
	
                Barry
                  Brookstein

              	
                200,000
                  (1) 

              	
                8.0%

              

      

    

    __________

    
      	
              (1)

            	
              Does
                not include 262,500 shares of Series A Preferred Stock pledged to
                Mr.
                Brookstein to secure loans made by Mr. Brookstein to the
                pledgors.

            

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    Series
      B Senior Subordinated Convertible Voting Redeemable Preferred
      Stock:

     

    
      	 	
              Amount
                and Nature of 

            	
              Percentage

            
	
              Name
                and Address of Stockholder 

            	
              Beneficial
                Ownership

            	
              of
                Class

            
	
              Barry
                Brookstein

            	
              1,250,000(2)

            	
              100.0%

            

    

    __________

    
      	
              (2)

            	
              Includes
                750,000 shares of Series B Preferred Stock owned by a company in
                which Mr.
                Brookstein serves as an executive officer and director and holds
                a
                majority of its outstanding stockholder voting
                power.

            

    

    

    Series
      C Senior Subordinated Convertible Voting Redeemable Preferred
      Stock:

     

    
      	 	
              Amount
                and Nature of 

            	
              Percentage

            
	
              Name
                and Address of Stockholder 

            	
              Beneficial
                Ownership

            	
              of
                Class

            
	
              Barry
                Brookstein

            	
              857,593(3)

            	
              45.5%

            
	Dean
              Garfinkel	
              466,750

            	
              24.8%

            

    

    __________

    
      	(3)	
              Includes
                (a) 450,601 shares of Series C Preferred Stock owned by a company
                in which
                Mr. Brookstein serves as an executive officer and director and holds
                a
                majority of its outstanding stockholder voting
                power.

            

    

    

    Common
      Stock:

     

    
      
        	
                 

              	
                Amount
                  and Nature of 

              	
                Percentage

              
	
                Name
                  and Address of Stockholder 

              	
                Beneficial
                  Ownership

              	
                of
                  Class

              
	
                Barry
                  Brookstein

              	
                251,755,131(4)

              	
                67.6%

              
	
                Dean Garfinkel

              	
                76,076,397(5)

              	
                38.2

              

      

    

    __________

    
      	(4)	
              Includes
                (a) 63,512 shares of our common stock owned by Mr. Brookstein’s minor
                children for which Mr. Brookstein has custodial control, (b) 10,000,000
                shares of Common Stock issuable upon exercise of an option granted
                to Mr.
                Brookstein in January 2008, which shares are purchasable within the
                next
                60 days, (c) 20,000,000 shares of Common Stock issuable upon conversion
                of
                the 200,000 shares of Series A Preferred Stock beneficially owned
                by Mr.
                Brookstein, which shares are convertible within the next 60 days,
                (d)
                125,000,000 shares of Common Stock issuable upon conversion of the
                1,250,000 shares of Series B Preferred Stock beneficially owned by
                Mr.
                Brookstein, which shares are convertible within the next 60 days,
                and (e)
                85,759,300 shares of Common Stock issuable upon conversion of the
                857,593
                shares of Series C Preferred Stock beneficially owned by Mr. Brookstein,
                which shares are convertible within the next 60
                days.

            

    

    
      	(5)	
              Includes
                (a) 127,024 shares of Common Stock owned by Mr. Garfinkel’s minor children
                for which Mr. Garfinkel has custodial control, (b) 20,000,000 shares
                of
                Common Stock issuable upon exercise of an option granted to Mr. Garfinkel
                in January 2008, which shares are purchasable within the next 60
                days, (c)
                46,675,000 shares of Common Stock issuable upon conversion of the
                466,750
                shares of Series C Preferred Stock beneficially owned by Mr. Garfinkel,
                which shares are convertible within the next 60 days and (d) 819,514
                shares of Common Stock issuable upon exercise of warrants owned by
                Mr.
                Garfinkel, which shares are purchasable within the next 60
                days.

            

    

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

        
        

      

    

    
      	
              Compliance
                Systems Corporation & Subsidiaries 

            
	
              Listing
                of Trademarks &
Patents

            

    

     

     

     

    
      	
              Trademark

            	
              Registration
                #

            	
              Registration
                Date

            	
              Country

            
	
              CALLCOMPLIANCE
                and design

            	
              2734814

            	
              7/8/2003

            	
              USA

            
	
              CALLCOMPLIANCE.COM

            	
              2424803

            	
              1/30/2001

            	
              USA

            
	
              CAMPAIGN
                LIST CONTROLLER

            	
              2920207

            	
              1/18/2005

            	
              USA

            
	
              CAMPAIGN
                LIST MANAGER

            	
              2805977

            	
              1/13/2004

            	
              USA

            
	
              DIALBLOCK

            	
              2750294

            	
              8/12/2003

            	
              USA

            
	
              TELEBLOCK

            	
              2422993

            	
              1/23/2001

            	
              USA

            
	
              TELEGUIDE

            	
              2424804

            	
              1/30/2001

            	
              USA

            
	
              TELESTOP

            	
              2422992

            	
              1/23/2001

            	
              USA

            

    

     

    
      	 	 	 	 
	
              Patent
                Rights

            
	
              Call
                Compliance Patents & Applications

               

               

               

            
	
              U.S.
                Patent Number

            	
              6,330,317

            	 	 
	
              Issued:

            	
              December
                11, 2001

            	 	 
	
              Title:

            	
              Call
                Blocking System 

            	 	 
	
              Expiration:

            	
              November
                9, 2019

            	 	 

    

    

    Summary
      of Patent:

    

    The
      system reviews outgoing calls by a telemarketer, compares it to the general
      do-not-call lists and the specific customer company do-not-call list and
      override permitted call list to make a determination if the call should be
      completed. The review of the originating/destination pair is performed by a
      general purpose computer in a central location that is connected to all the
      major telephone carriers’ switch cluster location and operated by a service
      provider. 

     

    
      	
              Greek
                Patent Number

            	
              1005208

            	 	 
	
              Issued:

            	
              May
                4 ,2006

            	 	 
	
              Title:

            	 	 
	
              Expiration:

            	
              April
                12,, 2025

            	 	 

    

    

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

          
          

        

      

    

     

    SCHEDULE
      2.7

    

    SUBSIDIARIES

     

    Call
      Compliance Inc.

    Jasmin
      Communications Inc.

    Call
      Center Tools Inc.

    Call
      Compliance.com Inc.

    Telephone
      Blocking Services Corporation

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

        
        

      

    

    EXHIBIT
      A

    

    FORM
      OF SECURED CONVERTIBLE DEBENTURE

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    NEITHER
      THIS DEBENTURE NOR ANY SHARES OF STOCK ISSUABLE UPON CONVERSION OF THIS
      DEBENTURE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
      (THE
“ACT”), OR UNDER THE SECURITIES LAWS OF ANY STATE. NEITHER THIS DEBENTURE NOR
      ANY SHARES OF STOCK ISSUABLE UPON CONVERSION OF THIS DEBENTURE MAY BE SOLD,
      OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION
      STATEMENT IN EFFECT WITH RESPECT TO THIS DEBENTURE OR SHARES OF STOCK ISSUABLE
      UPON CONVERSION OF THIS DEBENTURE UNDER SUCH ACT UNLESS SUCH REGISTRATION IS
      NOT
      REQUIRED PURSUANT TO A VALID EXEMPTION THEREFROM UNDER THE ACT.

    

    COMPLIANCE
      SYSTEMS CORPORATION

    SECURED
      CONVERTIBLE DEBENTURE

    

    
      	$300,000.00	
              _____________,
                2008

            

    

     

    FOR
      VALUE
      RECEIVED, the undersigned Compliance
      Systems Corporation,
      a
      Nevada corporation (referred to herein as “Borrower”
or
      the
“Company”),
      promises to pay to the order of Agile
      Opportunity Fund, LLC, its
      successors or assigns (the “Lender”),
      the
      principal sum of Three Hundred Thousand Dollars ($300,000.00) or such lesser
      principal amount as is then outstanding on November 6, 2009 (the “Maturity
      Date”),
      and
      interest thereon at a rate equal to fifteen percent (15%) per annum (the
“Interest
      Rate”).
      Interest shall be payable on the last day of each calendar month prior to the
      Maturity Date with the first interest payment to be made on ____________, 200_.
      Borrower shall pay the principal balance then outstanding under this Secured
      Convertible Debenture (this “Debenture”)
      plus
      accrued but unpaid interest in full on the Maturity Date along with payment
      of
      any other amounts due hereunder or under the other Loan Documents (as defined
      below). The Borrower acknowledges that in addition to the interest due
      hereunder, Lender shall be entitled to an additional payment, on the Maturity
      Date or whenever the principal of this Debenture is paid (including in
      connection with any earlier redemption), such that Lender’s annualized rate of
      return on such principal payment shall be equal to thirty (30%) percent.
      Notwithstanding any other provision hereof, interest paid or becoming due
      hereunder and any other payments hereunder which may constitute interest shall
      in no event exceed the maximum rate permitted by applicable law. 

    

    Interest
      and any other amounts due hereunder are payable in lawful money of the United
      States of America to the Lender at the address set forth in that certain
      Securities Purchase Agreement executed by the Borrower and the Lender dated
      as
      of May 6, 2008, as amended from time to time (the “Securities
      Purchase Agreement”)
      and
      pursuant to which this Debenture is issued. The terms and conditions of the
      Securities Purchase Agreement and all other documents and instruments delivered
      in connection therewith (collectively, the “Loan
      Documents”)
      are
      incorporated by reference herein and made a part hereof. All capitalized terms
      not otherwise defined herein shall have the respective meanings as set forth
      in
      the Securities Purchase Agreement.

    

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

       

      Section
        1. Conversion.

    

    

    (a) At
      any
      time from the original issue date hereof through the date that this Debenture
      is
      paid in full, Lender shall have the right, in its sole discretion, to convert
      the principal balance of this Debenture then outstanding plus accrued but unpaid
      interest, in whole or in part, into shares (each, a “Conversion
      Share”)
      of
      Common Stock at a conversion price equal to $0.05 per Conversion Share, subject
      to adjustment as provided in Section 2 herein (the “Conversion
      Price”).

    

    (b) Lender
      may convert this Debenture at the then applicable Conversion Price by the
      surrender of this Debenture (properly endorsed) to the Company at the principal
      office of the Borrower, together with the form of Notice of Conversion attached
      hereto as Annex
      A
      (a
“Notice
      of Conversion”)
      duly
      completed, dated and executed, specifying therein the principal amount of
      Debenture and/or outstanding interest to be converted. The “Conversion Date”
shall be the date that such Notice of Conversion and this Debenture is duly
      provided to Borrower hereunder (or, at Lender's option, the next interest
      payment date with respect to Lender's conversion of any scheduled interest
      payment). 

    

    (c) On
      the
      date of receipt by the Company of the duly completed, dated and executed Notice
      of Conversion and this Debenture in accordance with Section 1(b) with respect
      to
      a conversion of any portion of this Debenture, the Lender (and any person(s)
      receiving Conversion Shares in lieu of the Lender) shall be deemed to have
      become the holder of record for all purposes of the Conversion Shares to which
      such valid conversion relates.

    

    (d) As
      soon
      as practicable, but not in excess of five business days, after the valid
      conversion of any portion of this Debenture, the Company, at the Company’s
      expense (including the payment by Company of any applicable issuance and similar
      taxes, will cause to be issued in the name of and delivered to the Lender
      (and/or such other person(s) identified in the Notice of Conversion with respect
      to such conversion), certificates evidencing the number of duly authorized,
      validly issued, fully paid and non-assessable Conversion Shares to which the
      Lender (and/or such other person(s) identified in such Notice of Conversion,
      shall be entitled to receive upon the conversion), as adjusted to reflect the
      effects, if any, of the anti-dilution provisions of Section 2, such certificates
      to be in such reasonable denominations as Lender may request when delivering
      the
      Notice of Conversion.

    

    (e) If
      less
      than the entire principal and accrued interest under this Debenture is being
      converted, the Company shall execute and deliver to the Lender a new Debenture
      (dated as of the date hereof) evidencing the principal balance of this Debenture
      that has not been so converted.

    

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

       

    

    Section
      2. Conversion
      Price Adjustment.

    

    (a)
      If
      and whenever the Company issues or sells any Additional Stock (as defined below)
      for consideration per share less than the Conversion Price in effect immediately
      prior to such issuance or sale, then immediately upon such issuance or sale
      the
      Conversion Price shall be reduced to a new Conversion Price determined by
      dividing (i) amount equal to the sum of (a) the number of shares of Common
      Stock
      (on a fully-diluted basis) outstanding immediately prior to such issuance or
      sale, multiplied by the then existing Conversion Price, plus (b) the
      consideration, if any, received by the Company in connection with such issuance
      or sale, by (ii) the total number of shares of Common Stock (on a fully-diluted
      basis) outstanding immediately after such issuance or sale, rounded to the
      nearest one ten-thousandth ($0.0001) of a dollar. As used herein, “Additional
      Stock”
means
      any securities issued (or deemed to have been issued pursuant to Section 2(b))
      by the Company after the original issue date hereof other than: (i) any rights,
      warrants or options directly or indirectly to subscribe for or purchase Common
      Stock (“Options”)
      outstanding as of the original issue date hereof including the Company’s
      outstanding convertible preferred stock; (ii) the first 15 million of Common
      Stock issued pursuant to an equity incentive plan for employees, officers,
      directors and independent contractors of the Company adopted by the Board of
      Directors of the Company; provided
      such
      Common Stock is sold at or above the market price for the Common Stock as of
      the
      date of grant of the Option to purchase such Common Stock or date of issuance
      of
      such Common Stock, if no Option is being exercised in connection with such
      sale;
      (iii) shares of Common Stock issuable upon conversion of any Debentures issued
      under the Securities Purchase Agreement; and (iv) as a stock dividend or upon
      any subdivision of shares of Common Stock, provided that the securities issued
      pursuant to such stock dividend or subdivision are limited to additional shares
      of Common Stock.

     

    (b)
      For
      purposes of determining the adjusted Conversion Price under Section 2(a) above,
      the following shall be applicable:

    

    (i) Issuance
      of Rights or Options.
      If the
      Company in any manner grants or sells any Options and the price per share for
      which Additional Stock is issuable upon the exercise of such Options, or upon
      conversion or exchange of any convertible securities issuable upon exercise
      of
      such Options, is less than the Conversion Price in effect immediately prior
      to
      such grant or sale, then the total maximum number of shares of Additional Stock
      issuable upon the exercise of such Options or upon conversion or exchange of
      the
      total maximum amount of such Convertible Securities issuable upon the exercise
      of such Options shall be deemed to be outstanding and to have been issued and
      sold by the Company at the time of the granting or sale of such Options for
      such
      price per share. For purposes of this paragraph, the “price per share for which
      Additional Stock is issuable” shall be determined by dividing (A) the total
      amount, if any, received or receivable by the Company as consideration for
      the
      granting or sale of such Options, plus the minimum aggregate amount of
      additional consideration payable to the Company upon exercise of all such
      Options, plus in the case of such Options which relate to Convertible
      Securities, the minimum aggregate amount of additional consideration, if any,
      payable to the Company upon the issuance or sale of such Convertible Securities
      and the conversion or exchange thereof, by (B) the total maximum number of
      shares of Additional Stock issuable upon the exercise of such Options or upon
      the conversion or exchange of all such Convertible Securities issuable upon
      the
      exercise of such Options. No further adjustment of the Conversion Price shall
      be
      made when Convertible Securities are actually issued upon the exercise of such
      Options or when Additional Stock is actually issued upon the exercise of such
      Options or the conversion or exchange of such Convertible Securities.

    

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

       

    

    (ii)
      Issuance
      of Convertible Securities.
      If the
      Company in any manner issues or sells any convertible securities and the price
      per share for which Additional Stock is issuable upon conversion or exchange
      thereof is less than the Conversion Price in effect immediately prior to such
      issuance or sale, then the maximum number of shares of Additional Stock issuable
      upon conversion or exchange of such convertible securities shall be deemed
      to be
      outstanding and to have been issued and sold by the Company at the time of
      the
      issuance or sale of such convertible securities for such price per share. For
      the purposes of this subparagraph, the “price per share for which Additional
      Stock is issuable” shall be determined by dividing (A) the total amount
      received or receivable by the Company as consideration for the issue or sale
      of
      such convertible securities, plus the minimum aggregate amount of additional
      consideration, if any, payable to the Company upon the conversion or exchange
      thereof, by (B) the total maximum number of shares of Additional Stock
      issuable upon the conversion or exchange of all such convertible securities.
      No
      further adjustment of the Conversion Price shall be made when Additional Stock
      is actually issued upon the conversion or exchange of such convertible
      securities, and if any such issue or sale of such convertible securities is
      made
      upon exercise of any Options for which adjustments of the Conversion Price
      had
      been or are to be made pursuant to other provisions of this Section 2, no
      further adjustment of the Conversion Price shall be made by reason of such
      issue
      or sale. 

    

    (iii)
      Change
      in Option Price, Conversion Rate or Shares Issuable.
      If the
      purchase price provided for in any Options, the additional consideration, if
      any, payable upon the conversion or exchange of any convertible securities,
      the
      rate at which any convertible securities are convertible into or exchangeable
      for Additional Stock, and/or the quantity of Additional Stock issuable upon
      the
      conversion, exercise or exchange of any such Option or convertible security,
      changes at any time, then the Conversion Price in effect at the time of such
      change shall be immediately adjusted to the Conversion Price which would have
      been in effect at such time had such Options or convertible securities still
      outstanding provided for such changed purchase price, additional consideration,
      conversion rate or quantity, as the case may be, at the time initially granted,
      issued or sold; provided that no such change shall at any time cause the
      Conversion Price hereunder to be increased. If the terms of any Option or
      convertible security which was outstanding as of the original issue date hereof
      are changed in the manner described in the immediately preceding sentence,
      then
      such Option or convertible Security and the Additional Stock deemed issuable
      upon exercise, conversion or exchange thereof shall be deemed to have been
      issued as of the date of such change.

    

    (iv)
      Calculation
      of Consideration Received.
      If any
      Additional Stock is issued or sold or deemed to have been issued or sold for
      cash, the consideration will be deemed to be the amount of cash paid therefor.
      In the case of the issuance of Additional Stock for a consideration in whole
      or
      in part other than cash, the consideration other than cash will be deemed to
      be
      the fair value thereof as determined in good faith by the Board of Directors
      of
      the Company irrespective of any accounting treatment.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

       

    

    (v)
      Record
      Date.
      If the
      Company takes a record of the holders of any securities for the purpose of
      entitling them (A) to receive a dividend or other distribution payable in
      Additional Stock, Options or in convertible securities or (B) to subscribe
      for
      or purchase Additional Stock, Options or convertible securities, then such
      record date shall be deemed to be the date of the issue or sale of the shares
      of
      Additional Stock deemed to have been issued or sold upon the declaration of
      such
      dividend or upon the making of such other distribution or the date of the
      granting of such right of subscription or purchase, as the case may
      be.

    

    (c)
      If
      the Borrower, at any time while this Debenture is outstanding, (i) shall pay
      a
      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, (ii) subdivide outstanding shares of Common Stock into
      a
      larger number of shares, (iii) combine (including by way of reverse stock split)
      outstanding shares of Common Stock into a smaller number of shares, or (iv)
      issue by reclassification of shares of the Common Stock any shares of capital
      stock of the Borrower, 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 (excluding
      treasury shares, if any) outstanding after such event. Any adjustment made
      pursuant to this paragraph 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 reclassification.

    

       (d) In
      case
      of any consolidation or merger of the Borrower with or into another corporation
      or the conveyance of all or substantially all of the assets of the Borrower
      to
      another corporation, this Debenture shall thereafter be convertible (to the
      extent such conversion is permitted hereunder) into the number of shares of
      stock or other securities or property to which a holder of the number of shares
      of Common Stock of the Borrower deliverable upon conversion of this Debenture
      would have been entitled upon such consolidation, merger or conveyance; and,
      in
      any such case, appropriate adjustment shall be made in the application of the
      provisions herein set forth with respect to the rights and interest thereafter
      of the holders of this Debenture, to the end that the provisions set forth
      herein shall be thereafter applicable, as nearly as reasonably may be, in
      relation to any shares of stock or other property thereafter deliverable upon
      the conversion of the Debenture.

    

    Section
      3. Redemption.
      (a) The
      Borrower at its option shall have the right, upon 15 business days’ advance
      written notice, to redeem a portion or all amounts outstanding under this
      Debenture prior to the Maturity Date.

    

    (b) Notwithstanding
      the foregoing in the event that the Borrower has elected to repay any
      outstanding principal amount and accrued interest under this Debenture the
      Lender shall still be entitled to effectuate conversions as contemplated
      hereunder through the date of redemption. 

     

    Section
      4. Transferability.
      Neither
      this Debenture nor any shares of stock issuable upon conversion of this
      Debenture have been registered under the Securities Act of 1933, as amended
      (the
“Act”),
      or
      under the securities laws of any state. Neither this Debenture nor any shares
      of
      stock issuable upon conversion of this Debenture may be sold, offered for sale,
      pledged or hypothecated in the absence of a registration statement in effect
      with respect to this Debenture or shares issuable upon conversion of this
      Debenture under such Act unless such registration is not required pursuant
      to a
      valid exemption therefrom under the Act. Provided the foregoing requirements
      are
      satisfied, this Debenture and any of the rights granted hereunder are freely
      transferable by the Lender in its sole discretion.

    

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

       

    

    Section
      5. Reservation
      of Stock.
      The
      Borrower 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 Lender, not less than such number of shares of the Common Stock
      as shall be issuable upon the conversion of the outstanding principal of this
      Debenture and accrued and unpaid interest thereon. If at any time, the Company
      does not have available an amount of authorized but unissued Common Stock or
      Common Stock held in treasury necessary to satisfy any conversion of all amounts
      outstanding under this Debenture, the Company shall call and hold a special
      meeting of its stockholders within 30 days of the occurrence of any shortfall
      in
      authorized shares for the purpose of approving an increase in the number of
      shares of authorized Common Stock to an amount sufficient to enable conversion
      all amounts outstanding under this Debenture, subject in all respects to
      compliance with the requirements of Section 14 of the Securities Exchange Act
      of
      1934 to which the Borrower is subject. The Board of Directors of the Company
      shall recommend that stockholders vote in favor of increasing the number of
      authorized shares of Common Stock at any such meeting. Each Member of the Board
      of Directors of the Company shall also vote all of such Director’s voting
      securities of the Company in favor of such increase in authorized shares. The
      Borrower covenants that all shares of Common Stock that may be issuable upon
      conversion of this Debenture shall, upon issue, be duly and validly authorized,
      issued and fully paid and nonassessable. No consent of any other party and
      no
      consent, license, approval or authorization of, or registration or declaration
      with, any governmental authority, bureau or agency is required in connection
      with the execution, delivery or performance by the Borrower, or the validity
      or
      enforceability of this Debenture other than such as have been met or obtained.
      The execution, delivery and performance of this Debenture and all other
      agreements and instruments executed and delivered or to be executed and
      delivered pursuant hereto or thereto or the securities issuable upon conversion
      of this will not violate any provision of any existing law or regulation or
      any
      order or decree of any court, regulatory body or administrative agency or the
      certificate of incorporation or by-laws of the Borrower or any mortgage,
      indenture, contract or other agreement to which the Borrower is a party or
      by
      which the Borrower or any property or assets of the Borrower may be bound.
      

    

    Section
      6. No
      Fractional Shares.
      Upon a
      conversion hereunder the Borrower shall not be required to issue stock
      certificates representing fractions of shares of Common Stock, and in lieu
      of
      any fractional shares which would otherwise be issuable, the Borrower shall
      issue the next highest whole number of shares of Common Stock, as the case
      may
      be.

    

    Section
      7. Event
      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):

    

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

       

    

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

    

    (ii) The
      Borrower or any subsidiary of Borrower as listed on Schedule 2.7 of the
      Securities Purchase Agreement (each, a “Subsidiary”)
      shall
      fail to observe or perform any other material covenant, agreement or warranty
      contained in, or otherwise commit any breach or default of any provision of
      this
      Debenture or any Loan Document to which it is a party;

    

    (iii) The
      Borrower or any Subsidiary, shall commence, or there shall be commenced against
      the Borrower or any Subsidiary any applicable bankruptcy or insolvency laws
      as
      now or hereafter in effect or any successor thereto, or the Borrower or any
      Subsidiary 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 Borrower or Subsidiary or there is commenced against the Borrower or
      Subsidiary any such bankruptcy, insolvency or other proceeding which remains
      undismissed for a period of 60 days; or the Borrower or Subsidiary is
      adjudicated insolvent or bankrupt; or any order of relief or other order
      approving any such case or proceeding is entered; or the Borrower or Subsidiary
      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 60 days; or the Borrower or Subsidiary
      makes a general assignment for the benefit of creditors; or the Borrower or
      Subsidiary shall fail to pay or shall state that it is unable to pay or shall
      be
      liable to pay, its debts as they become due or 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 Borrower or
      Subsidiary for the purpose of effecting any of the foregoing; or

    

    (iv) The
      Borrower or any Subsidiary shall default in any of its secured 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 leasing or factoring arrangement
      of
      the Borrower, 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.

    

    (b) Following
      an Event of Default, the Interest Rate shall increase to twenty percent (20%)
      per annum (but not exceeding the maximum rate permitted by law) immediately
      following such Event of Default. During
      the time that any portion of this Debenture is outstanding, if (i) any Event
      of
      Default has occurred and has not been cured by the Borrower or (ii) an event
      described in Section 2(d) occurs, the full principal amount of this Debenture,
      together with interest and other amounts owing in respect thereof, to the date
      of acceleration shall become at the Lender's election, immediately due and
      payable. The Lender need not provide and the Borrower hereby waives any
      presentment, demand, protest or other notice of any kind, and the Lender 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. 

    

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

       

    

    Section
      8. Registration
      Rights.
      The
      Lender is entitled to certain registration rights with respect to the Common
      Stock issuable upon conversion of this Debenture as set forth in the Securities
      Purchase Agreement. 

    

    Section
      9. Notices.
      Any and
      all notices, requests, documents or other communications or deliveries required
      or permitted to be given or delivered hereunder shall be delivered in accordance
      with the notice provisions of the Securities Purchase Agreement.

    

    Section
      10. Governing
      Law.
      This
      Debenture and the provisions hereof are to be construed according to and are
      governed by the laws of the State of New York, without regard to principles
      of
      conflicts of laws thereof. Borrower agrees that the New York State Supreme
      Court
      located in the County of Nassau, State of New York shall have exclusive
      jurisdiction in connection with any dispute concerning or arising out of this
      Debenture, the Loan Documents, or otherwise relating to the parties
      relationship. In any action, lawsuit or proceeding brought to enforce or
      interpret the provisions of this Debenture, the Loan Documents and/or arising
      out of or relating to any dispute between the parties, the Lender shall be
      entitled to recover all of his or its costs and expenses relating to such issue
      (including without limitation, reasonable attorney’s fees and disbursements) in
      addition to any other relief to which the Lender may be entitled.

    

    Section
      11. Successors
      and Assigns.
      Subject
      to applicable securities laws, this Debenture and the rights and obligations
      evidenced hereby shall inure to the benefit of and be binding upon the
      successors of the Company and the successors and assigns of Lender.

     

    Section
      12. Amendment.
      This
      Debenture may be modified or amended or the provisions hereof waived only with
      the written consent of the Lender and the Company. 

     

    Section
      13. Severability.
      Wherever possible, each provision of this Debenture shall be interpreted in
      such
      manner as to be effective and valid under applicable law, but if any provision
      of this Debenture shall be prohibited by or invalid under applicable law, such
      provision shall be ineffective to the extent of such prohibition or invalidity,
      without invalidating the remainder of such provisions or the remaining
      provisions of this Debenture.

     

    [Signature
      page follows]

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    

    IN
      WITNESS WHEREOF, the Borrower has caused this Debenture to be duly executed
      by a
      duly authorized officer as of the date first above indicated.

    

    COMPLIANCE
      SYSTEMS CORPORATION

     

    By:_________________________________

    Name:
      Dean Garfinkel

    Title:
      President

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    ANNEX
      A

    

    NOTICE
      OF
      CONVERSION

    To
      Be
      Executed by the Lender

    in
      Order
      to Convert Debenture

    
 

    The
      undersigned Lender hereby elects to convert $__________ principal and $_____
      interest currently outstanding and owed under the Secured Convertible Debenture
      issued to Agile
      Opportunity Fund, LLC
      at a
      Conversion Price of $___ (the “Debenture”)
      and to
      purchase ___________ shares of Common Stock of Compliance
      Systems Corporation
      issuable
      upon conversion of such Debenture, and requests that certificates for such
      securities shall be issued in the name of:

    

    

    ___________________________________________________________

    (please
      print or type name and address)

    

    ___________________________________________________________

    (please
      insert social security or other identifying number)

    

    and
      be
      delivered as follows:

    

    

    ___________________________________________________________

    please
      print or type name and address)

    

    ___________________________________________________________

    (please
      insert social security or other identifying number)

    

    

    Lender
      Name:_______________________________________________

    

    By:________________________________________________________

    Name:

    Title:

    

    Conversion
      Date:___________________________________________

    

    

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

          
          

        

      

    

     

    EXHIBIT
      B

    

    FORM
      OF SECURITY AGREEMENT

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SECURITY
      AGREEMENT

    

    This
      Security Agreement (this “Security
      Agreement”),
      dated
      as of May 6, 2008, is by and between Compliance
      Systems Corporation,
      a
      Nevada corporation (the “Debtor”)
      and
Agile
      Opportunity Fund, LLC,
      a
      Delaware limited liability company (the “Secured
      Party”).

     

    Background

    

    
      	 	
              1.

            	
              The
                Secured Party has purchased from the Debtor a Secured Convertible
                Debenture (the “Debenture”)
                in the principal amount of $300,000.00, pursuant to a Securities
                Purchase
                Agreement between the Debtor and the Secured Party dated as of the
                date
                hereof (the “Securities
                Purchase Agreement”)
                and may purchase an Additional Debenture pursuant to the terms of
                the
                Securities Purchase Agreement. Capitalized terms used herein and
                not
                otherwise defined herein shall have the meanings specified in the
                Securities Purchase Agreement.

            

    

    

    
      	 	
              2.

            	
              To
                induce the Secured Party to purchase the Debentures, the Debtor has
                agreed
                to provide the Secured Party with, except as otherwise noted herein,
                a
                first priority security interest in the Collateral (as hereinafter
                defined).

            

    

    

    NOW,
      THEREFORE,

    

    In
      consideration of the promises and the mutual covenants and agreements herein
      set
      forth, and in order to induce the Secured Party to purchase the Debentures,
      the
      Debtor hereby agrees with the Secured Party as follows:

    

    Section
      1. Grant
      of Security Interest.
      The
      Debtor hereby grants to the Secured Party, on the terms and conditions
      hereinafter set forth, except as otherwise noted herein, a first priority
      security interest in the collateral hereinafter identified (the “Collateral”).
      Notwithstanding the immediately preceding sentence, the security interest being
      granted by Debtor to Secured Party pursuant to this Agreement, shall, with
      respect to the Nascap
      Collateral
      (as such
      term is hereinafter defined), be subordinate and junior to that certain first
      priority security interest granted by Call Compliance, Inc., a wholly-owned
      subsidiary of Debtor (“Call
      Compliance”),
      to
      Nascap
      Corp. (“Nascap”)
      pursuant to the Security Agreement, dated as of September 30, 2006 (the
“Nascap
      Security Agreement”),
      between Call Compliance and Nascap securing the obligations of Call Compliance
      under the loan (the “Senior
      Loan”)
      extended to Call Compliance by Nascap and evidenced by the Promissory Note,
      dated September 30, 2006 (the “Nascap
      Note”)
      of
      Call Compliance for the benefit of Nascap and in the principal amount of
      $150,000. The obligations and performance of Call Compliance under the Nascap
      Note have been guaranteed by Debtor. For purposes of this Security Agreement,
      the term Nascap Collateral shall mean all of the following property of Call
      Compliance, whether now owned or existing or hereafter acquired or arising
      and
      wheresoever located:

    

    (a) All
      accounts receivable owing to the Call Compliance arising out of goods sold
      or
      leased or for services rendered by Call Compliance solely in connection with
      the
      VeriSign, Inc. and Comtel Telcom Assets, LP (and each of their respective
      affiliates, successors and/or assigns) accounts, with a value of up to $150,000
      plus all accrued interest under the Senior Loan and Nascap Note;
      and

    

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

       

    

    (b) All
      book
      and records relating to any of the collateral referred to in subsection (a)
      (including, without limitation, customer data, credit files, computer programs,
      printouts, and other computer materials and records of Call Compliance
      pertaining to any of the foregoing).

    

    All
      of
      the property and interests in property described in subsections (a) and (b)
      are
      herein collectively referred to as the “Nascap Loan Collateral.”

    

    Section
      2. Collateral.
      The
      Collateral is all tangible and intangible assets of the Debtor of whatever
      kind
      and nature (including, without limitation, all intellectual property of whatever
      kind or nature of the Debtor including patents, trademarks, tradenames,
      copyrights and all other intellectual property and any applications or
      registrations therefore, accounts, chattel paper, commercial tort claims,
      documents, equipment, farm products, general intangibles, instruments,
      inventory, investment property, and the stock of all of Debtor’s subsidiaries),
      in each case whether now owned or hereafter acquired and wherever located,
      and
      all proceeds thereof, together with all proceeds, products, replacements and
      renewals thereof. 

    

    Section
      3. Representations
      and Warranties; Covenants.
      The
      Debtor hereby represents, warrants and covenants as follows:

    

    
      	 	
              (a)

            	
              Except
                in respect of the assets securing the Senior Loan and Nascap Note,
                the
                Debtor has title to the Collateral free from any lien, security interest,
                encumbrance or claim.

            

    

    

    
      	 	
              (b)

            	
              The
                Debtor will maintain the Collateral so as to preserve its value subject
                to
                wear and tear in the ordinary
                course.

            

    

    

    
      	 	
              (c)

            	
              The
                Debtor is a corporation duly organized, validly existing and in good
                standing under the laws of the State of
                Nevada.

            

    

    

    
      	 	
              (d)

            	
              The
                Debtor will pay when due all existing or future charges, liens, or
                encumbrances on the Collateral, and will pay when due all taxes and
                assessments now or hereafter imposed or affecting the Collateral
                unless
                such taxes or assessments are diligently contested by the Debtor
                in good
                faith and reasonable reserves are established
                therefor.

            

    

    

    
      	 	
              (e)

            	
              All
                factual information with respect to the Debentures and the Collateral
                and
                account debtors set forth in any schedule, certificate or other writing
                at
                any time heretofore or hereafter furnished by the Debtor to the Secured
                Party, and all other written factual information heretofore or hereafter
                furnished by the Debtor to the Secured Party, is or will be true
                and
                correct in all material respects, as of the date
                furnished.

            

    

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (f)

            	
              Within
                five business days following execution of this Agreement, the Secured
                Party will prepare, execute and file with the Secretary of State
                in the
                State of Nevada, a UCC-1 Financing Statement covering the Collateral,
                naming the Secured Party as Secured Party
                thereunder.

            

    

    

    
      	 	
              (g)

            	
              The
                Debtor will keep its records concerning the Collateral at its address
                shown in Section 18 below. Such records will be of such character
                as to
                enable the Secured Party or their representatives to determine at
                any time
                the status thereof, and the Debtor will not, unless the Secured Party
                shall otherwise consent in writing, maintain any such record at any
                other
                address.

            

    

    

    
      	 	
              (h)

            	
              The
                Debtor will furnish the Secured Party information on a quarterly
                basis
                concerning the Debtor, the Debentures and the Collateral as the Secured
                Party may at any time reasonably
                request.

            

    

    

    
      	 	
              (i)

            	
              The
                Debtor will permit the Secured Party and its representatives at any
                reasonable time on five days’ prior written notice to inspect any and all
                of the Collateral, and to inspect, audit and make copies of and extracts
                from all records and all other papers in possession of the Debtor
                pertaining to the Debentures and the
                Collateral.

            

    

    

    
      	 	
              (j)

            	
              The
                Debtor will, at such times as the Secured Party may reasonably request,
                deliver to the Secured Party a schedule identifying the Collateral
                subject
                to the security interest of this Security Agreement, and such additional
                schedules, certificates, and reports respecting all or any of the
                Collateral at the time subject to the security interest of this Security
                Agreement, and the items or amounts received by the Debtor in full
                or
                partial payment or otherwise as proceeds received in connection with
                any
                Collateral. Any such schedule, certificate or report shall be executed
                by
                a duly authorized officer of the Debtor on behalf of the Debtor and
                shall
                be in such form and detail as the Secured Party may reasonably specify.
                The Debtor shall immediately notify the Secured Party of the occurrence
                of
                any event causing loss or depreciation in the value of the Collateral,
                and
                the amount of such loss or
                depreciation.

            

    

    

    
      	
            	(k)	
              If
                and when so requested by the Secured Party, the Debtor will stamp
                on the
                records of
                the Debtor concerning the Collateral a notation, in a form satisfactory
                to
                the Secured Party, of the security interest of the Secured Party
                under
                this Security Agreement.

            

    

    

    Section
      4. Disposition
      of Collateral in Ordinary Course.
      Debtor
      shall not sell, transfer, assign, convey, license, grant any right to use or
      otherwise dispose of any Collateral except in the ordinary course of business,
      without the prior written consent of the Secured Party.

    

    Section
      5. Secured
      Party May Perform.
      Upon the
      occurrence and continuation of an “Event
      of Default”
under
      a
      Debenture, at the option of the Secured Party, the Secured Party may discharge
      taxes, liens or security interests, or other encumbrances at any time hereafter
      levied or placed on the Collateral; may pay for insurance required to be
      maintained on the Collateral pursuant to Section 3; and may pay for the
      maintenance and preservation of the Collateral. The Debtor agrees to reimburse
      the Secured Party on demand for any payment reasonably made, or any expense
      reasonably incurred, by the Secured Party pursuant to the foregoing
      authorization. Until the occurrence and continuation of an Event of Default,
      the
      Debtor may have possession of the Collateral and use the Collateral in any
      lawful manner not inconsistent with this the Security Agreement.

    

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

       

    

    Section
      6. Obligations
      Secured; Certain Remedies.
      This
      Security Agreement secures the payment and performance of all obligations of
      the
      Debtor to the Secured Party under the Debentures, whether now existing or
      hereafter arising and whether for principal, interest, costs, fees or otherwise
      (collectively, the “Obligations”).
      Upon
      the occurrence and continuation of an Event of Default under a Debenture, the
      Secured Party may declare all obligations secured hereby immediately due and
      payable and may exercise the remedies of a secured party under the Uniform
      Commercial Code. Without limiting the foregoing, the Secured Party may require
      the Debtor to assemble the Collateral and make it available to the Secured
      Party
      at a place to be designated by the Secured Party which is reasonably convenient
      to both parties or to execute appropriate documents of assignment, transfer
      and
      conveyance, in each case, in order to permit the Secured Party to take
      possession of and title to the Collateral. Unless the Collateral is perishable
      or threatens to decline rapidly in value or is of a type customarily sold on
      a
      recognized market, the Secured Party will give the Debtor reasonable notice
      of
      the time and place of any public sale thereof or of the time after which any
      private sale or any other intended disposition thereof is to be made. The
      requirements of reasonable notice shall be met if such notice is mailed to
      the
      Debtor via registered or certified mail, postage prepaid, at least fifteen
      days
      before the time of sale or disposition. Expenses of retaking, holding, preparing
      for sale, selling or the like, shall include the Secured Party’s reasonable
      attorneys’ fees and legal expenses.

    

    Section
      7. Debtor
      Remains Liable.
      Anything herein to the contrary notwithstanding:

    

    
      	 	
              (a)

            	
              Notwithstanding
                the exercise of any remedy available to the Secured Party hereunder
                or at
                law in connection with an Event of Default, the Debtor shall remain
                liable
                to repay the balance remaining unpaid and outstanding under the Debenture
                after the value or proceeds received by the Secured Party in connection
                with such remedy is subtracted. The Secured Party shall promptly
                deliver
                and pay over to the Debtor any portion of the value or proceeds received
                in connection with such remedy that remains after the unpaid and
                outstanding portion of the Debenture is paid in
                full.

            

    

    

    
      	 	
              (b)

            	
              The
                Debtor shall remain liable under the contracts and agreements included
                in
                the Collateral to the extent set forth therein, and shall perform
                all of
                its duties and obligations under such contracts and agreements to
                the same
                extent as if this Security Agreement had not been
                executed.

            

    

     

    
      	 	
              (c)

            	
              The
                exercise by the Secured Party of any of Secured Party’s rights hereunder
                shall not release the Debtor from any of Debtor’s duties or obligations
                under any such contracts or agreements included in the
                Collateral.

            

    

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (d)

            	
              The
                Secured Party shall not have any obligation or liability under any
                such
                contracts or agreements included in the Collateral by reason of this
                Security Agreement, nor shall the Secured Party be obligated to perform
                any of the obligations or duties of the Debtor thereunder or to take
                any
                action to collect or enforce any claim for payment assigned
                hereunder.

            

    

    

    Section
      8. Security
      Interest Absolute.
      All
      rights of the Secured Party and the security interests granted to the Secured
      Party hereunder shall be absolute and unconditional, to the maximum extent
      permitted by law, irrespective of:

    

    
      	 	
              (a)

            	
              Any
                lack of validity or enforceability of the Debentures or any other
                document
                or instrument relating thereto;

            

    

    

    
      	 	
              (b)

            	
              Any
                change in the time, manner or place of payment of, or in any other
                term
                of, all or any part of the Obligations or any other amendment to
                or waiver
                of or any consent to any departure from the Debentures or any other
                document or instrument relating
                thereto;

            

    

    

    
      	 	
              (c)

            	
              Any
                exchange, release or non-perfection of any collateral (including
                the
                Collateral), or any release of or amendment to or waiver of or consent
                to
                or departure from any guaranty, for all or any of the Obligations;
                or

            

    

    

    
      	 	
              (d)

            	
              Any
                other circumstance which might otherwise constitute a defense available
                to, or a discharge of, the Debtor, a guarantor or a third party grantor
                of
                a security interest.

            

    

    

    Section
      9. Additional
      Assurances.
      At the
      request of the Secured Party, the Debtor will join in executing or will execute,
      as appropriate, all necessary financing statements in a form reasonably
      satisfactory to the Secured Party, and the Debtor will pay the reasonable cost
      of filing such statements, including all statutory fees. The Debtor will further
      execute all other instruments reasonably deemed necessary by the Secured Party
      and pay the reasonable cost of filing such instruments. The Debtor warrants
      that
      no financing statement covering Collateral or any part or proceeds thereof
      is
      presently on file in any public office, except with respect to the Nascap Loan
      Collateral. The Debtor covenants that it will not grant any other security
      interest in the Collateral without first obtaining the written consent of the
      Secured Party, except with respect to extensions, if any, of the security
      interest of Nascap in the Nascap Loan Collateral.

    

    Section
      10. Representations,
      Warranties and Covenants Concerning Debtor’s Legal
      Status.

    

    
      	
            	(a)	
              The
                Debtor has previously executed and delivered to the Secured Party
                a
                Perfection Certificate in the form of Schedule
                I
                hereto. The Debtor represents and warrants to the Secured Party as
                follows:

            

    

    

    
      	 	 	
              (i)

            	
              Debtor’s
                exact legal name is as indicated on the Perfection Certificate and
                on the
                signature page hereof;

            

    

    

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

       

    

    
      	 	 	
              (ii)

            	
              Debtor
                is an organization of the type, and is organized in the jurisdiction,
                set
                forth in the Perfection
                Certificate;

            

    

    

    
      	 	 	
              (iii)

            	
              the
                Perfection Certificate accurately sets forth Debtor’s organizational
                identification number or accurately states that Debtor has
                none;

            

    

    

    
      	 	 	
              (iv)

            	
              the
                Perfection Certificate accurately sets forth Debtor’s place of business
                or, if more than one, its chief executive office as well as Debtor’s
                mailing address, if different; and

            

    

    

    
      	 	 	
              (v)

            	
              all
                other information set forth on the Perfection Certificate is accurate
                and
                complete.

            

    

    

    
      	 	
              (b)

            	
              The
                Debtor covenants with the Secured Party as
                follows:

            

    

    

    
      	 	 	
              (i)

            	
              without
                providing fifteen days’ prior written notice to the Secured Party, Debtor
                will not change its name, its place of business, or, if more than
                one, its
                chief executive offices or its mailing address or organizational
                identification number, if it has
                one;

            

    

    

    
      	 	
              (ii)

            	
              if
                Debtor does not have an organizational identification number and
                later
                obtains one, Debtor shall forthwith notify the Secured Party of such
                organizational identification number;
                and

            

    

    

    
      	 	
              (iii)

            	
              Debtor
                will not change its type of organization, jurisdiction of organization
                or
                other legal structure.

            

    

    

    Section
      11. Expenses.
      The
      Debtor will upon demand pay to the Secured Party the amount of any and all
      reasonable expenses, including the reasonable fees and disbursements of its
      counsel and of any experts and agents, which the Secured Party may incur in
      connection with (i) the custody, preservation, use or operation of, or the
      sale
      of, collection from, or other realization upon, any of the Collateral upon
      the
      occurrence and continuation of an Event of Default, (ii) the exercise or
      enforcement of any of the rights of the Secured Party hereunder, or (iii) the
      failure by the Debtor to perform or observe any of the provisions
      hereof.

    

    Section
      12. Notices
      of Loss or Depreciation.
      The
      Debtor will immediately notify the Secured Party of any claim, suit or
      proceeding against any Collateral or any event causing loss or depreciation
      in
      the value of Collateral, including the amount of such loss or
      depreciation

    

    Section
      13.  No
      Waivers.
      No
      waiver by the Secured Party of any default shall operate as a waiver of any
      other default or of the same default on any subsequent occasion. 

    

    Section
      14. Successor
      and Assigns.
      The
      Secured Party shall have the right to assign this Security Agreement and its
      rights hereunder without the consent of the Debtor. All rights of the Secured
      Party shall inure to the benefit of the successors and assigns of the Secured
      Party. All obligations of the Debtor shall be binding upon the Debtor’s
      successors and assigns.

    

    
      
        
        

      

      
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    Section
      15. Governing
      Law; Jurisdiction.
      This
      Security Agreement shall be governed by the laws of the State of New York,
      without giving effect to such jurisdiction’s principles of conflict of laws,
      except to the extent that the validity or the perfection of the security
      interest hereunder, or remedies hereunder, in respect of any particular
      Collateral are governed by the laws of a jurisdiction other than the State
      of
      New York. Each
      of the parties hereto submits to the personal jurisdiction of and each agrees
      that all proceedings relating hereto shall be brought in federal or state courts
      located within Nassau or Suffolk Counties in the State of New York.

    

    Section
      16. Counterparts.
      This
      Security Agreement may be executed in any number of counterparts, each of which
      will be deemed an original, but all of which together shall constitute one
      and
      the same instrument.

    

    Section
      17.  Remedies
      Cumulative.
      The
      rights and remedies herein are cumulative, and not exclusive of other rights
      and
      remedies which may be granted or provided by law. 

    

    Section
      18. Notices.
      Any
      demand upon or notice to a party hereunder shall be effective when delivered
      by
      hand, against written receipt therefor, two business days following the business
      day on which it is properly deposited in the mails postage prepaid, certified
      or
      registered mail, return receipt requested, or one business day following deposit
      with an overnight courier, in each case addressed to such party at the address
      shown below or such other address as the party may advise the other party in
      writing:

     

    
      
        	
                If
                  to the Secured Party:

              	
                Agile
                  Opportunity Fund, LLC

              
	 	
                1175
                  Walt Whitman Road, Suite 100A

              
	 	
                Melville,
                  NY 11747

              
	 	 
	
                With
                  a copy to:

              	
                Westerman
                  Ball Ederer Miller & Sharfstein, LLP

              
	 	
                170
                  Old Country Road

              
	 	
                Mineola,
                  NY 11501

              
	 	
                Attn:
                  Alan C. Ederer, Esq.

              
	 	 
	
                If
                  to the Debtor:

              	
                Compliance
                  Systems Corporation

              
	 	
                90
                  Pratt Oval

              
	 	
                Glen
                  Cove, NY 11542

              
	 	
                Attn.:
                  Dean Garfinkel, President

              
	 	 
	
                With
                  a copy to:

              	
                Moritt
                  Hock Hamroff & Horowitz LLP

              
	 	
                400
                  Garden City Plaza

              
	 	
                Garden
                  City, NY 11530

              
	 	
                Attn:
                  Dennis C. O’Rourke, Esq.

              

      

       

    

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    

    Section
      19. Entire
      Agreement.
      This
      Security Agreement and the documents and instruments referred to herein embody
      the entire agreement entered into between the parties relating to the subject
      matter hereof, and may not be amended, waived, or discharged except by an
      instrument in writing executed by the Secured Party.

    

    Section
      20. Termination.
      This
      Security Agreement shall terminate upon the repayment in full of the Initial
      Debenture and, if issued, the Additional Debenture or conversion in full of
      the
      Initial Debenture and, if issued, the Additional Debenture, upon which the
      Secured Party shall cooperate in the filing of the necessary or appropriate
      documents and instruments to release the security interest created hereby and
      will execute and deliver any and all documents and/or instruments reasonably
      requested by Debtor in connection therewith.

     

    [Remainder
      of Page Intentionally Left Blank]

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the parties hereto, by their duly authorized agents, have
      executed this Security Agreement as of the date set forth above.

    

    COMPLIANCE
      SYSTEMS CORPORATION

     

    

    By:___________________________________________

    Name:
      Dean Garfinkel

    Title:
      President

    

    

    AGILE
      OPPORTUNITY FUND, LLC

    By:
      AGILE
      INVESTMENTS, LLC, Managing Member 

     

     

    By:___________________________________________

    Name:
      David I. Propis

    Title:
      Managing Member

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    

    SCHEDULE
      I

    

    PERFECTION
      CERTIFICATE

    

    The
      undersigned, the Chief Executive Officer of Compliance
      Systems Corporation,
      a Nevada corporation (the "Company"),
      hereby certifies, with reference to a certain Security Agreement, dated as
      of
      May __, 2008 (terms defined in such Security Agreement having the same meanings
      herein as specified therein), between the Company and Agile
      Opportunity Fund, LLC
      (the "Secured
      Party"),
      to the Secured Party as follows:

    

    1. Name. The
      exact legal name of the Company as that name appears on its Certificate of
      Incorporation is as follows: Compliance Systems Corporation.

    

    2. Other
      Identifying Factors. 

    

    (a)
      The following is the mailing address of the Company:

    

    Address     County  State

    

    90
      Pratt Oval, Glen Cove   Nassau  NY

    

    (b) If
      different from its mailing address, the Company’s place of business or, if more
      than one, its chief executive office is located at the following
      address:

    

    Address   County    State

    

    

    
      	
            	(c)	
              The
                following is the type of organization of the Company:
                Corporation.

            

    

    

    
      	
            	(d)	
              The
                following is the jurisdiction of the Company’s organization:
                Nevada.

            

    

    

    
      	
            	(e)	
              The
                following is the Company's state issued organizational identification
                number: C28314-2003.

            

    

    

    3. Other
      Names, Etc.

    

    The
      following is a list of all other names (including trade names or similar
      appellations) used by the Company, or any other business or organization to
      which the Company became the successor by merger, consolidation, acquisition,
      change in form, nature or jurisdiction of organization or otherwise, now or
      at
      any time during the past five years: 

     

    4. Other
      Current Locations. 

    

    (a) The
      following are all other locations in the United States of America in which
      the
      Company maintain any books or records relating to any of the Collateral
      consisting of accounts, instruments, chattel paper, general intangibles or
      mobile goods:

    

    Address   County    State

     

    (b) The
      following are all other places of business of the Company in the United States
      of America:

    

    Address   County    State

    

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    (c) The
      following are all other locations in the United States of America where any
      of
      the Collateral consisting of inventory or equipment is located:

    

    Address   County    State

     

     

    (d) The
      following are the names and addresses of all persons or entities other than
      the
      Company, such as lessees, consignees, warehousemen or purchasers of chattel
      paper, which have possession or are intended to have possession of any of the
      Collateral consisting of instruments, chattel paper, inventory or
      equipment:

    

    Name  Mailing
      Address  County  State

    
 

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, I have hereunto signed this Perfection Certificate on May
      6,
      2008.

    

    

    

    _____________________________

    Name:
      Dean Garfinkel

    Title:
      Chief Executive Officer

    

    
      
        
        

      

      
        12

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