Document:

Dated: November 30, 2005

          NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS
          DEBENTURE IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE
          SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
          COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
          REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
          (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED
          OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
          STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
          AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT
          TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
              IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
 No. MEP-l                                                            $600,000

                         COMPLIANCE SYSTEMS CORPORATION

                          Secured Convertible Debenture

                              Due November 30, 2007

      This Secured Convertible Debenture (the "Debenture") is issued on November
30,  2005  ("Closing  Date") by  COMPLIANCE  SYSTEMS.  CORPORATION,  a  Delaware
corporation (the "Obligor"),  to MONTGOMERY EQUITY PARTNERS, LTD (the "Holder"),
pursuant to that certain Securities Purchase Agreement (the "Securities Purchase
Agreement") of even date herewith.

      FOR VALUE  RECEIVED,  the Obligor hereby  promises to pay to the Holder or
its  successors  and assigns the principal sum of Six Hundred  Thousand  Dollars
($600,000),  together  with  accrued  but unpaid  interest on or before two year
anniversary  of the Closing Date (the  "Maturity  Date") in accordance  with the
following terms:

      Interest.  Interest  shall  aecrue on the  outstanding  principal  balance
hereof  at an  annual  rate  equal  to ten  percent  (10%).  Interest  shall  be
calculated on the basis of a 360-day year and the actual number of  day~e1apsed,
to the extent  permitted by applicable law.  Interest  hereunder will be paid to
the  Holder  or its  assignee  (as  defined  in  Section  4) in whose  name this
Debenture is  registered on the records o~' the Obligor  regarding  registration
and transfers of Debentures (the "Debenture Register").

      Right of  Redemption.  The  Obligor at its option  shall have the - right,
with three (3) business days advance written notice (the  "Redemption  Notice"),
to redeem a portion or all amounts outstanding under this Debenture prior to the
Maturity Date if the closing bid price of the of the Obligor's  CommOn Stock, as
reported  by  Bloomberg,  LP, is less  than the  Fixed  Price at the time of the
Redemption Notice. The Obligor shall pay an amount equal to the principal amount
being  redeemed and accrued  interest,  plus a redemption  premium  ("Redemption
Premium")   equal  to  twenty   percent  (20%)  of  the  amount  being  redeemed
(collectively referred to

<PAGE>

as the  "Redemption  Amount").  The  Obligor  shall  deliver  to the  Holder the
Redemption Amount on the third (3'S ) business day after the Redemption Notice.

      Notwithstanding the foregoing in the event that the Obligor has elected to
redeem a portion of the outstanding  principal amount and accrued interest under
this  Debenture the Holder shall still be entitled to effectuate  Conversions as
contemplated hereunder.

      Security Agreement. This Debenture is secured by a Security Agreement (the
"Security.  Agreement") of even date herewith between the Obligor and the Holder
and a Pledge and Escrow  Agreement  ("Pledge  Agreement")  of even date herewith
between the Obligor, the Holder, and the Escrow Agent.

        Consent of Holder to Sell Capital Stock or Grant Security interests. So
long as any of the principal amount or interest on this Debenture remains
unpaid and unconverted, the Obligor shall not, without the prior consent of the
Holder, (i) issue or sell any shares of common stock or preferred stock without
consideration or for consideration per share less than the Closing Bid Price of
the common stock determined immediately prior to its issuance, (ii) issue or
sell any preferred stock, warrant, option, right, contract, call, or other
security or instrument granting the holder thereof the right to acquire common
stock without consideration or for consideration per
- share less than the Closing Bid Price of the common stock determined
immediately prior to its issuance, (iii) enter into any security instrument
granting the holder a security interest in any of the assets of the Obligor
except in connection with the Company leasing or purchasing office equipment,
computer and networking equipment, co-location equipment and other equipment
and supplies in the ordinary course of the Company's business, provided such
equipment and supplies do not, in the aggregate, exceed fifty thousand dollars
($50,000.00) per annum, or (iv) file any registration statements on Form S-8.

       Rights of First Refusal. So long as any portion of this Debenture is
outstanding (including principal or accrued interest), if the Obligor intends
to raise additional capital by the issuance or sale of capital stock of the
Obligor, including without limitation shares of any class of common stock, any
class of preferred stock, options, warrants or any other securities convertible
or exercisable into shares of common stock (whether the offering is conducted
by the Company, underwriter, placement agent or any third party) the Obligor
shall be obligated to offer to the Holder such issuance or sale of capital
stock, by providing in writing the principal amount of capital it intends to
raise and outline of the material terms of such capital raise, prior to the
offering such issuance or sale of capital stock to any third parties including,
but not limited to, current or former officers or directors, current or former
shareholders and/or investors of the obligor, underwriters, brokers, agents or
other third parties. The Holder shall have ten (10) business days from receipt
of such notice of the sale or issuance of capital stock to accept or reject all
or a portion of such capital raising offer.

       This Debenture is subject to the following additional provisions:

       Section 1. This Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different authorized denominations, as
requested by the Holder surrendering the same. No service charge will be made
for such registration of transfer or exchange.

<PAGE>

        Section 2.   Events of Default.

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

              (i)   Any default in the payment of the principal of, interest on
  or other charges in respect of this Debenture, free of any claim of
  subordination, 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 .Obligor shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any breach or
default of any provision of this Debenture (except as may be covered by Section
2(a)(i) hereof) or any Transaction Document (as defined in Section 4) which is
not cured with in the time prescribed;

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

             (iv) The Obligor or any subsidiary of the Obligor shall default in
any of its obligations under any other debenture or any mortgage, credit
agreement or other facility, indenture agreement, factoring agreement or other
instrument under which there may be issued, or by which there may be secured or
evidenced any indebtedness for borrowed money or money due under any long term
leasing or factoring arrangement of the Obligor or any subsidiary of the
Obligor in an amount exceeding $100,000, 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;

<PAGE>

         (v) The Common Stock shall cease to be quoted for trading or listed for
   trading on either the Nasdaq OTC Bulletin Board ("OTC"), Nasdaq SmaliCap
   Market, New York Stock Exchange, American Stock Exchange or the Nasdaq
   National Market (each, a "Subsequent Market") and shall not again be quoted
   or listed for trading thereon within five (5) Trading Days of such delisting;

               (vi) The Obligor or any subsidiary of the Obligor shall be a
   party to any Change of Control Transaction (as defined in Section- 4);

               (yii) The Obligor shall fail to file the Underlying Shares
   Registration Statement (as defmed in Section 4) with the Commission (as
   defined in Section 4), or the Underlying Shares Registration Statement shall
   not have been declared effective by the Commission, in each case within the
   time periods set forth in the Registration Rights Agreement of even date
   herewith between the Obligor and the Holder;

               (viii) If the effectiveness of the Underlying Shares
   Registration Statement lapses for any reason or the Holder shall not be
   permitted to resell the shares of Common Stock underlying this Debenture
   under the Underlying Shares Registration Statement, in either case, for more
   than five (5) consecutive Trading Days or an aggregate of eight Trading Days
   (which need not be consecutive Trading Days);

               (ix) The Obligor shall fail for any reason to deliver Common
   Stock certificates to a Holder prior to the fifth (5th) Trading Day after a
   -Conversion Date or the Obligor shall provide notice to the Holder,
   including by way of public announcement, at any time, of its intention not
   to comply with requests for- conversions of this Debenture in accordance
   with the terms hereof~

              (x)   The Obligor shall fail for any reason to deliver the
  payment in cash pursuant to a Buy-In (as defined herein) within three (3)
  days after notice is claimed delivered hereunder; - -

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

<PAGE>

       (a)  (i)      Conversion at Option of Holder.

            (A) This Debenture shall be convertible  into shares of Common Stock
at the  option of the  Holder,  in whole or in part at any time and from time to
time,  after the  Original  Issue Date (as defined in Section 4) (subject to the
limitations on conversion set forth in Section 3(a)(iz)  hereof).  The number of
shares of Common Stock issuable upon a conversion  hereunder equals the quotient
obtained  by  dividing  (x)  the  outstanding  amount  of this  Debenture  to be
converted  by (y) the  Conversion  Price (as  defined in Section  3(c)(i)).  The
Obligor shall deliver Common Stock certificates to the Holder prior to the Fifth
(5th) Trading Day after a Conversion Date.

            (B) Notwithstanding anything to the contrary contained herein, if on
any  Conversion  Date:  (1) the  number of  shares  of Common  Stock at the time
authorized, unissued and unreserved for all purposes, or held as treasury stock,
is  insufficient  to pay  principal  and interest  hereunder in shares of Common
Stock; (2) the Common Stock is not listed or quoted for trading on the OTC or on
a  Subsequent  Market;  (3) the  Obligor  has  failed  to  timely  satisf~'  its
conversion; or (4) the issuance of such shares of Common Stock would result in a
violation of Section 3(a)(iz),  then, at the option of the Holder,  the Obligor,
in lieu of  delivering  shares of Common Stock  pursuant to Section  3(a)(i)(A),
shall deliver, within three (3) Trading Days of each applicable Conversion Date,
an amount in cash equal to the product of the outstanding principal amount to be
converted  plus --any interest due therein  divided by the Conversion  Price and
multiplied by the highest closing price of the stock from date of the conversion
notice till the date that such cash payment is made. -

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

            (C) The Holder  shall  effect  conversions  by  delivering  - to the
Obligor  a  completed  notice  in the  form  attached  hereto  as  Exhibit  A (a
"Conversion Notice").  The date on which a Conversion Notice is delivered is the
"Conversion  Date." Unless the Holder is converting the entire  principal amount
outstanding  under this  Debenture,  the Holder is not  required  to  physically
surrender  this  Debenture  to the  Obligor  in  order  to  effect  conversions.
Conversions  hereunder  shall  have  the  effect  of  lowering  the  outstanding
principal  amount of this Debenture plus all accrued and unpaid interest thereon
in an amount  equal to the  applicable  conversion.  The Holder and the  Obligor
shall maintain  records showing the principal  amount  converted and the date of
such conversions. In the event of any dispute or discrepancy, the records of the
Holder shall be controlling and  determinative in the absence of manifest error.
- - (ii) Certain Conversion Restrictions. -

<PAGE>

 Section 3. Conversion.
  ---------- ----------

                    (A)   A Holder may not convert- this Debenture or receive
shares of Common Stock as payment of interest hereunder to the extent such
conversion or receipt of such interest payment would result in the Holder,
together with any affiliate thereof, beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act and the rules promulgated
thereunder) in excess of 4.9% of the then issued and outstanding shares of
Common Stock, including shares issuable upon conversion of, and payment of
interest on, this Debenture held by such Holder after application of this
Section. Since the Holder will not be obligated to report to the Obligor the
number of shares of Common Stock it may hold at the time of a conversion
hereunder, unless the conversion at issue would result in the issuance of
shares of Common Stock in excess of 4.9% of the then outstanding shares of
Common Stock without regard to any other shares which may be beneficially owned
by the Holder or an affiliate thereof, the Holder shall have the authority and
obligation to determine whether the restriction contained in this Section will
limit any particular conversion hereunder and to the extent that the Holder
determines that the limitation contained in this Section applies, the
determination of which portion of the principal amount of this Debenture is
convertible, shall be the responsibility and obligation of the Holder. If the
Holder has delivered a Conversion Notice for a principal amount of this
Debenture that, without regard to any other shares that the Holder or its
affiliates may -beneficially own, would result in the issuance in excess of the
permitted amount hereunder, the Obligor shall notify the Holder of this fact
and shall honor the conversion for the maximum principal amount permitted to be
converted on such Conversion Date in accordance with the periods described in
Section 3(a)(i)(A) and, at the option of the Holder, either retain,any
principal amount tendered for conversion in excess of the permitted amount
hereunder for future conversions or return such excess principal amount to the
Holder. The provisions of this Section may be waived by a Holder (but only as
to itself and not to any other Holder) upon not less than 65 days prior notice
to the Obligor. -Other Holders shall be unaffected by any such waiver. -

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

             (ii)  In addition to any other rights available to the Holder, if
the Obligor fails to deliver to the Holder such certificate or certificates
pursuant to Section 3(a)(i)('A) by the fifth (5th) Trading Day after the
Conversion Date, and if after such fifth (5th) Trading Day the Holder

purchases (in an open market transaction or otherwise) Common Stock to deliver
in satisfaction of a sale by such Holder of the Underlying Shares which the
Holder anticipated receiving upon such conversion (a "Buy-In"), then the
Obligor shall (A) pay in cash to the Holder (in addition to any remedies
available to or elected by the Holder) the amount by which (x) the Holder's
total purchase price (including brokerage commissions, if any) for the Common
Stock so purchased exceeds (y) the product of (1) the aggregate number of
shares of Common Stock that such Holder anticipated receiving from the
conversion at issue multiplied by (2) the market price of the Common Stock at
the time of the sale giving rise to such-purchase obligation and (B) at the
-option of the Holder, either reissue a Debenture in the principal amount equal
to the principal -

<PAGE>

  amount of the attempted conversion or deliver to the Holder the number of
  shares of Common Stock that would have been issued had the Obligor timely
  complied with its delivery requirements under Section 3(a)(z)(A). For
  example, if the Holder purchases Common Stock
  - having a total purchase price of $11,000 to oover a Buy-In with respect to
  an attempted conversion of Debentures with respect to which the market price
  of the Underlying Shares on the date of conversion was a total of $10,000
  under clause (A) of the immediately preceding sentence, the Obligor shall be
  required to pay the Holder $1,000. The Holder shall provide the Obligor
  written notice indicating the amounts payable to the Holder in respect of the
  Buy-In.

        (c)   (i) The Holder is entitled, at its option, to convert, and sell
on the same day, at any time, until payment in full of this Debenture, all or
any part of the principal amount of the Debenture, plus accrued interest, into
shares of the Company's Common Stock at the price per share equal to the lesser
of (a) the lowest Closing Bid Price of the Common Stock during the ten
(10)   trading days immediately prior to the date the Obligor files the
Underlying Shares Registration Statement (the "Fixed Conversion Price") or (b)
eighty percent (80%) of the lowest Closing Bid Price, as quoted by Bloomberg,
LP (the "VWAP") of the Common Stock for the five (5) trading days immediately
preceding the Conversion Date. Subparagraphs (a) and (b) above are individually
referred to as a "Conversion Price" and may be adjusted pursuant to the other
terms of this Debenture.

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

             (iii) If the Obligor, at any time while this Debenture is
outstanding, shall issue rights, options or warrants to all holders of Common
Stock (and not to the Holder) entitling them to subscribe for or purchase
shares of Common Stock at a price per share less than the Closing Bid Price at
the record date mentioned below, then the Conversion Price shall be multiplied
by a fraction, of which the denominator shall be the number of shares of the
Common Stock (excluding treasury shares, if any) outstanding on the date of
issuance of such rights or warrants (plus the number of additional shares of
Common Stock offered for subscription or purchase), and of which the numerator
shall be the number of shares of the Common Stock (excluding treasury shares,
if any) outstanding on the date of issuance of such rights or warrants, plus
the number of shares which the aggregate offering price of the total number of
shares so offered would purchase at such Closing Bid Price. Such adjustment
shall be made whenever such rights or warrants are issued, and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such rights, options or warrants. However, upon

<PAGE>

  the expiration of any such right, option or warrant to purchase shares of the
  Common Stock the issuance of which resulted in an adjustment in the
  Conversion Price pursuant to this -Section, if any such right, option or
  warrant shall expire and shall not have been exercised, the Conversion Price
  shall immediately upon such expiration be recomputed and effective
  immediately upon such expiration be increased to the price which it would
  have been (but reflecting any other adjustments in the Conversion Price made
  pursuant to the provisions of this Section after the issuance of such rights
  or warrants) had the adjustment of the Conversion Price made upon the
  issuance of such rights, options or warrants been made on the basis of
  offering for subscription or purchase only that number of shares of the
  Common Stock actually purchased upon the exercise of such rights, options or
  warrants actually exercised.

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

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

<PAGE>

  made whenever any such distribution is made and shall become effective
  immediately after the record date mentioned above. -

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

           - (vii) Within 30 days of the date hereof, the Obligor shall
maintain a share reserve of not less than 65,000,000 shares of Common Stock
issuable upon conversion of this Debenture; and within three (3) Business Days
following the receipt by the Obligor of a Holder's notice that such minimum
number of Underlying Shares is not so reserved, the Obligor shall promptly
reserve a sufficient number of shares of Common Stock to comply with such
requirement. -

             .(viii) All calculations under this Section 3 shall be rounded up
to the nearest $0.001 of a share.

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

             (x) If (A) the Obligor shall declare a dividend (or any other
distribution) on the Common Stock; (B) the Obligor shall declare a- special
nonrecurring cash dividend on or a redemption of the Common Stock; (C) the
Obligor shall authorize the granting to all holders of the Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights; (D) the approval of any stockholders of the Obligor
shall be required in connection with any reclassification of the Common Stock,
any consolidation or merger- to which the Obligor is a party, any sale or
transfer of all or-substantially all of the assets of the Obligor, of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; or (E) the Obligor shall authorize the voluntary
or involuntary dissolution, liquidation or winding up of the affairs Of the
Obligor; then, in each case,- the Obligor shall cause to be filed at each
office or agency maintained for the purpose of conversion of this Debenture,
and shall cause to be mailed to the Holder at its last address as it shall
appear upon the stock bOoks of the Obligor, at least twenty (20) calendar days
prior to the applicable record or effective date hereinafter specified, a
notice stating (x) the date on which a record is to

<PAGE>

  be - taken for the purpose of such dividend, distribution, redemption, rights
  or warrants, or if a record is not to be taken, the date as of which)the
  holders of the Common Stock of record to be entitled to such dividend,
  distributions, redemption, rights or warrants are to be determined or (y) the
  date on which such reclassification, consolidation, merger, sale, transfer or
  share exchange is expected to become effective or close, and the date as of
  which it is expected that holders of the Common Stock of record shall be
  entitled to exchange their shares of the Common Stock for securities, cash or
  other property deliverable upon such reclassification, consolidation, merger,
  sale, transfer or share exchange, provided, that the failure to mail such
  notice or any defect therein or in the mailing thereof shall not affect the
  validity of the corporate action required to be specified in such notice. The
  Holder is entitled to convert this Debenture during the 20-day calendar
  period commencing the date of such noticeto the effective date of the event
  triggering such notice. - -

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

       (d) The Obligor 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 and payment of
interest on this Debenture, each as herein provided, free from preemptive
right~ or any other actual contingent purchase rights of persons other than the
Holder, not less than such number of shares of the Common Stock as shall
(subject to any additional requirements of the Obligor as to reservation of
such shares set forth in this Debenture) be issuable (taking into account the
adjustments and restrictions of Sections 2(b) and 3(c)) upon the conversion of
the- outstanding principal amount of this Debenture and payment of interest
hereunder. The Obligor covenants that all shares of Common Stock that shall be
so

<PAGE>

  issuable shall, upon issue, be duly and validly authorized, issued and fully
  paid, nonassessable and, if the Underlying Shares Registration Statement has
  been declared effective under the Securities Act, registered for public sale
  in accordance with such Underlying Shares Registration Statement. -

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

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

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

If to the Company, to:         Compliance Systems Corporation -

                               90 Pratt Oval          -
                               Glen Cove, NY 11542
                               Attention:  Dean Garfinkel
                               Telephone: (516) 656-5155
                               Facsimile: (516) 676-2420

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

If to the Holder:              Montgomery Equity Partners, Ltd. 101 Hudson
                               Street, Suite 3700

                               Jersey City, NJ 07303

<PAGE>

                                Attention:  Mark Angelo
                                Telephone: (201) 985-8300
With a copy to:    -            David Gonzalez, Esq.
                                101 Hudson Street -- Suite 3700
                                Jersey City, NJ 07302
                                Telephone: (201)985-8300
                                Facsimile: (201) 985-8266

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

      Section 4. Definitions. For the purposes hereof, the following terms shall
have the following meanings: -

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

      "Change of Control Transaction" means the occurrence of (a) an acquisition
after the date hereof by an  individual or legal entity or "group" (as described
in Rule I 3d-5(b)(1)  promulgated  under the Exchange Act) of effective  control
(whether through legal or beneficial  ownership of capital stock of the Obligor,
by contract  or  otherwise)  of in excess of fifty  percent (5 0%) of the voting
securities of the Obligor (except that the  acquisition of voting  securities by
the Holder  shall not  constitute a Change of Control  Transaction  for purposes
hereof); (b) a replacement at one time or over time of more than one-half of the
members of the board of  directors  of the  Obligor  which is not  approved by a
majority of those  individuals  who are members of the board of directors on the
date hereof (or by those  individuals who are serving as members of the board of
directors on any date whose nomination to the board of directors was approved by
a majority of the members of the board of directors  who are members on the date
hereof), (c) the merger, consolidation or sale of fifty percent (50%) or more of
the assets of the Obligor or any subsidiary of the Obligor in one or a series of
related  transactions  with or into another entity,  or (d) the execution by the
Obligor of an agreement to which the Obligor is a party or by which it is bound,
providing for any of the events setforth above in (a), (b) or (c). -

       "Commission" means the Securities and Exchange Commission.

      "Common  Stock" means the common stock,  par value $0.00!,  of the Obligor
and stock of any other class into which such shares may  hereafter be changed or
reclassified.

<PAGE>

       "Exchange Act" means the Securities Exchange Act of 1934, as amended.

        "Funding Event" means any transaction or series of transactions closed
  after the Original Issue Date in which the Obligor raises $1,000,000 or more
  through the sale of their equity securities or securities exercisable or
  convertible into equity securities.

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

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

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

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

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

       "Transaction Documents" means the Securities Purchase Agreement or any
other agreement delivered in connection with the Securities Purchase Agreement,
including, without limitation, the Security Agreement, the Pledge and Escrow
Agreement, and the Investor
Registration Rights Agreement.                                           - -

       "Underlying Shares" means the shares of Common Stock issuable upon
conversion of this Debenture or as payment of interest in accordance with the
terms hereof.

       "Underlying Shares Registration Statement" means a registration
statement meeting the requirements set forth in the Registration Rights
Agreement, covering among other things the resale of the Underlying Shares and
naming the Holder as a "selling stockholder" thereunder.

       Section 5. Except as expressly provided herein, no provision of this
Debenture shall alter or impair the obligations of the Obligor, which are
absolute and unconditional, to pay the principal of, interest and other charges
(if any) on, this Debenture at the time, place, and rate, and in the coin or
currency, herein prescribed. This Debenture is a direct obligation of the
Obligor. This Debenture ranks pan passu with all other Debentures now or
hereafter issued under the terms set forth herein. As long as this Debenture is
outstanding, the Obligor shall not and shall cause their subsidiaries not to,
without the consent of the Holder, (i) amend its certificate of incorporation,
bylaws or other charter documents so as to adversely affect any rights of the
Holder; (ii) repay, repurchase or offer to repay, repurchase or otherwise
acquire shares of its Common Stock or other equity securities other than as to
the Underlying Shares to the extent

<PAGE>

 -permitted or required under the Transaction Documents; or (iii) enter into
  any agreement with respect to any of the foregoing~ - - -

        Section 6. This Debenture shall not entitle the Holder to any of the
  rights of a stockholder of the Obligor, including without limitation, the
  right to vote, to receive dividends and other distributions, or to receive
  any notice of, or to attend, meetings of stockholders or any other
  proceedings of the Obligor, unless and to the extent converted into shares of
  Common Stock in accordance with the terms hereof.

        Section 7. If this Debenture is mutilated, lost, stolen or destroyed,
  the Obligor shall execute and deliver, in exchange and substitution for and
  upon cancellation of the mutilated Debenture, or in lieu of or in
  substitution for a lost, stolen or destroyed Debenture, a new Debenture for
  the principal amount of this Debenture so mutilated, lost, stolen or
  destroyed but only upon receipt of evidence of such loss, theft or
  destruction of such Debenture, and of the ownership hereof, and indemnity, if
  requested, all reasonably satisfactory to the Obligor.

       Section 8. Except as set forth in the Disclosure Schedule attached tO
the Securities Purchase Agreement, no indebtedness of the Obligor is senior to
this Debenture in right of payment, whether with respect to interest, damages
or upon liquidation or dissolution or otherwise. Without the Holder's consent,
the Obligor will not and will not permit any of their subsidiaries to, directly
or indirectly, enter into, create, incur, assume or suffer to exist any
indebtedness 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 there from that is senior in any respect to the obligations of the
Obligor under this Debenture.

       Section 9. This Debenture shall be governed by and construed in
accordance with the laws of the State of New Jersey, without giving effect to
conflicts of laws thereof. Each of the parties -consents to the jurisdiction of
the Superior Courts of the State of New Jersey sitting in Hudson County, New
Jersey and the U.S. District Court for the District of New Jersey sitting in
Newark, New Jersey in connection with any dispute arising under this Debenture
and hereby waives, to the maximum extent permitted by law, any objection,
including any objection based on forum ~ conveniens to the bringing of any such
proceeding in such jurisdictions.

       Section 10. If the Obligor fails to strictly comply with the terms of
this Debenture, then the Obligor shall reimburse the Holder promptly for all
fees, costs and expenses, including, without limitation, attorneys' fees and
expenses incurred by the Holder in any action in connection with this
Debenture, including, without limitation, those incurred: (i) during any
workout, attempted workout, and/or in connection with the rendering of legal
advice as to the Holder's rights, remedies and obligations, (ii) collecting any
sums which become due to the Holder, (iii) defending or prosecuting any
proceeding or any counterclaim to any proceeding or appeal; or (iv) the
protection, preservation or enforcement of any rights or remedies of the
Holder. -

   -   Section 11. Any waiver by the Holder of a breach of any provision of
this Debenture shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Debenture. The failure Qf the Holder to insist upon strict adherence to any
term of this Debenture on one or more occasions shall not be considered a

<PAGE>

waiver or  deprive  that party of the right  thereafter  to insist  upon  strict
adherence to that term or any other term of this  Debenture.  Any waiver must be
in writing.

      Section 12. If any  provision  of this  Debenture  is invalid,  illegal or
unenforceable,  the balance of this Debenture shall remain in effect, and if any
provision is inapplicable to- any person or circumstance,  it shall nevertheless
remain applicable to all other persons and  circumstances.  If it shall be found
that any interest or other amount deemed  interest due  hereunder  shall violate
applicable laws governing  usury,  the applicable rate of interest due hereunder
shall  automatically be lowered to equal the maximum permitted rate of interest.
The Obligor  covenants  (to the extent that it may lawfully do so) that it shall
not at any time  insist-upon,  plead, or in any manner  whatsoever claim or take
the benefit or advantage of, any stay, extension or usury law or other law which
would  prohibit  or forgive  the  Obligor  from paying all or any portion of the
principal of or interest on this  Debenture  as  contemplated  herein,  wherever
enacted,  now or at any time  hereafter  in  force,  or  which  may  affect  the
covenants or the performance of this  indenture,  and the Obligor (to the extent
it may lawfully do so) hereby  expressly waives all benefits or advantage of any
such law,  and  covenants  that it will not, by resort to any such law,  hinder,
delay or impeded the  execution of any power herein  granted to the Holder,  but
will  suffer and permit  the  execution  of every such as though no such law has
been enacted. - 1

      Section 13.  Whenever any payment or other  obligation  hereunder shall be
due on a day other than a Business  Day,  such payment shall be made on the next
succeeding Business Day. -

       Section 14. THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION
DOCUMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALiNG, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS PROVISION
IS A MATERIAL INDUCEMENT FOR THE PARTIES' ACCEPTANCE OF THIS
AGREEMENT.            . -

[SIGNATURE PAGE FOLLOWS; REMAINDER OF PAGE INTENTIONALLY BLANK]

<PAGE>

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

    -                              COMPLIANCE SYSTEMS CORPORATION

                                   By:_____________
                                   Name: Dean Garfinkel
                                   Title: Chairman

<PAGE>

TO:
                                    EXHIBIT A

                              NOTICE OF CONVERSION

        (To be executed by the Holder in order to convert the Debenture)

       The undersigned hereby irrevocably elects to convert
$____________________________ of the principal amount of the above Debenture
into Shares of Common Stock of Compliance Systems Corporation, according to the
conditions stated therein, as of the Conversion Date written below.

Conversion Date:

Applicable Conversion Price:

Signature:

Name:

Address:

Amount to be converted:

Amount of Debenture
unconverted:

Conversion Price per share:

Number of shares of Common Stock to be issued:
Please issue the shares of Common Stock in the following name and to the
following -address:
Issue to:

Authorized Signature:
Name:

Title:

Phone Number:

Broker DTC Participant Code:
                                        $SECURITIES PURCHASE AGREEMENT

      THIS  SECURITIES  PURCHASE  AGREEMENT  (this  "Agreement"),  dated as of
November 30, 2005, by and among  COMPLIANCE  SYSTEMS  CORPORATION,  a Delaware
corporation  (the  "Company"),  and the Buyers  listed on  Schedule I attached
hereto (individually, a "Buyer" or collectively "Buyers").

                                  RECITALS:

      WHEREAS,  the Company and the Buyer(s) are executing and delivering this
Agreement in reliance upon an exemption from securities  registration pursuant
to  Section  4(2)  and/or  Rule 506  of  Regulation  D  ("Regulation   D")  as
promulgated by the U.S.  Securities and Exchange  Commission (the "SEC") under
the Securities Act of 1933, as amended (the "Securities Act");

      WHEREAS,  the  parties  desire  that,  upon the terms and subject to the
conditions  contained  herein,  the  Company  shall  issue  and  sell  to  the
Buyer(s),  as  provided  herein,  and the  Buyer(s)  shall  purchase up to One
Million   Dollars   ($1,000,000)  of  secured   convertible   debentures  (the
"Convertible  Debentures"),  which  shall be  convertible  into  shares of the
Company's  common stock,  par value $0.001 (the "Common Stock") (as converted,
the  "Conversion  Shares") of which Six Hundred  Thousand  Dollars  ($600,000)
shall be funded on the fifth  (5th)  business  day  following  the date hereof
(the "First Closing") and Four Hundred  Thousand  Dollars  ($400,000) shall be
funded  two (2)  business  days prior to the date the  registration  statement
(the   "Registration   Statement")   is  filed,   pursuant  to  the   Investor
Registration  Rights  Agreement dated the date hereof,  with the United States
Securities  and  Exchange   Commission  (the  "SEC")  (the  "Second  Closing")
(individually  referred  to as a  "Closing"  collectively  referred  to as the
"Closings"),  for  a  total  purchase  price  of  up to  One  Million  Dollars
($1,000,000),  (the  "Purchase  Price") in the  respective  amounts  set forth
opposite each Buyer(s) name on Schedule I (the "Subscription Amount");

      WHEREAS,  contemporaneously  with the  execution  and  delivery  of this
Agreement,  the parties  hereto are  executing and  delivering a  Registration
Rights Agreement  substantially (the "Investor Registration Rights Agreement")
pursuant  to which the  Company  has  agreed to provide  certain  registration
rights  under the  Securities  Act and the rules and  regulations  promulgated
there under, and applicable state securities laws;

      WHEREAS,   the  aggregate  proceeds  of  the  sale  of  the  Convertible
Debentures  contemplated  hereby shall be held in escrow pursuant to the terms
of an escrow agreement (the "Escrow Agreement");

      WHEREAS,  contemporaneously  with the  execution  and  delivery  of this
Agreement,  the  parties  hereto  are  executing  and  delivering  a  Security
Agreement  and each wholly owned  subsidiary of the Company is entering into a
Security Agreement  (collectively the "Security  Agreement") pursuant to which
the Company and its  subsidiaries  have agreed to provide the Buyer a security
interest  in  Pledged  Collateral  (as this term is  defined  in the  Security
Agreement)  to  secure  the  Company's   obligations   under  the  Transaction
Documents or any other obligations of the Company to the Buyer;

<PAGE>

      WHEREAS,  contemporaneously  with the  execution  and  delivery  of this
Agreement,  the parties  hereto,  Barry  Brookstein,  and Dean  Garfinkel  are
executing and delivering a Insider Pledge and Escrow Agreements  (collectively
the "Pledge and Escrow  Agreement")  pursuant to which the Dean  Garfinkel and
Barry  Brookstein have agreed to provide the Buyer a security  interest in the
Pledged  Shares (as this term is  defined in the Pledge and Escrow  Agreement)
to secure the Company's  obligations  under the  Transaction  Documents or any
other obligations of the Company to the Buyer; and

      WHEREAS,  contemporaneously  with the  execution  and  delivery  of this
Agreement,  the  parties  hereto  are  executing  and  delivering  Irrevocable
Transfer Agent Instructions (the "Irrevocable Transfer Agent Instructions").

      NOW,  THEREFORE,  for and in  consideration  of the mutual covenants and
other  agreements  contained  in this  Agreement  the Company and the Buyer(s)
hereby agree as follows:

            1. PURCHASE AND SALE OF CONVERTIBLE DEBENTURES.

                  (a)   Purchase  of  Convertible  Debentures.  Subject to the
satisfaction  (or waiver) of the terms and conditions of this Agreement,  each
Buyer agrees,  severally and not jointly,  to purchase at each Closing and the
Company agrees to sell and issue to each Buyer,  severally and not jointly, at
each  Closing,  Convertible  Debentures  in  amounts  corresponding  with  the
Subscription  Amount  set forth  opposite  each  Buyer's  name on  Schedule  I
hereto.  Upon execution  hereof by a Buyer,  the Buyer shall wire transfer the
Subscription  Amount set forth  opposite  his name on  Schedule I in  same-day
funds or a check  payable  to  "David  Gonzalez,  Esq.,  as  Escrow  Agent for
Compliance   Systems   Corporation/Cornell   Capital   Partners,   LP",  which
Subscription  Amount  shall be held in  escrow  pursuant  to the  terms of the
Escrow  Agreement  (as  hereinafter   defined)  and  disbursed  in  accordance
therewith.   Notwithstanding   the   foregoing,   a  Buyer  may  withdraw  his
Subscription  Amount and terminate this Agreement as to such Buyer at any time
after the execution hereof and prior to Closing (as hereinafter defined).

                  (b)   Closing  Date.  The First  Closing of the purchase and
sale of the  Convertible  Debentures  shall take  place at 10:00 a.m.  Eastern
Standard  Time on the fifth (5th)  business  day  following  the date  hereof,
subject  to  notification  of  satisfaction  of the  conditions  to the  First
Closing set forth  herein and in Sections 6 and 7 below (or such later date as
is mutually  agreed to by the Company and the Buyer(s))  (the "First  Closing
Date") and the  Second  Closing of the  purchase  and sale of the  Convertible
Debentures  shall  take  place at 10:00  a.m.  Eastern  Standard  Time two (2)
business days prior to the date the  Registration  Statement is filed with the
SEC,  subject to  notification of satisfaction of the conditions to the Second
Closing set forth  herein and in Sections 6 and 7 below (or such later date as
is mutually  agreed to by the Company and the Buyer(s)) (the "Second  Closing
Date")  (collectively  referred to a the "Closing  Dates").  The Closing shall
occur on the  respective  Closing Dates at the offices of Yorkville  Advisors,
LLC, 3700 Hudson  Street,  Suite 3700,  Jersey City, New Jersey 07302 (or such
other place as is mutually agreed to by the Company and the Buyer(s)).

                  (c)   Escrow Arrangements;  Form of Payment.  Upon execution
hereof by Buyer(s) and pending the  Closings,  the  aggregate  proceeds of the
sale of the  Convertible  Debentures  to  Buyer(s)  pursuant  hereto  shall be
deposited in a non-interest bearing escrow account with David Gonzalez,  Esq.,

                                       2
<PAGE>

as escrow  agent (the  "Escrow  Agent"),  pursuant  to the terms of the Escrow
Agreement.  Subject to the  satisfaction  of the terms and  conditions of this
Agreement,  on the Closing  Dates,  (i) the Escrow Agent shall  deliver to the
Company in accordance  with the terms of the Escrow  Agreement  such aggregate
proceeds  for  the  Convertible  Debentures  to be  issued  and  sold  to such
Buyer(s),  and  (ii) the  Company  shall  deliver to each  Buyer,  Convertible
Debentures  which such Buyer(s) is purchasing  in amounts  indicated  opposite
such Buyer's name on Schedule I, duly executed on behalf of the Company.

            2. BUYER'S REPRESENTATIONS AND WARRANTIES.

      Each Buyer represents and warrants, severally and not jointly, that:

                  (a)   Investment  Purpose.   Each  Buyer  is  acquiring  the
Convertible  Debentures  and, upon conversion of Convertible  Debentures,  the
Buyer will acquire the Conversion  Shares then  issuable,  for its own account
for investment  only and not with a view towards,  or for resale in connection
with,  the public  sale or  distribution  thereof,  except  pursuant  to sales
registered or exempted under the Securities Act;  provided,  however,  that by
making the  representations  herein,  such Buyer reserves the right to dispose
of the  Conversion  Shares at any time in  accordance  with or  pursuant to an
effective  registration  statement  covering  such  Conversion  Shares  or  an
available exemption under the Securities Act.

                  (b)   Accredited   Investor   Status.   Each   Buyer  is  an
"Accredited  Investor" as that term is defined in Rule 501(a)(3) of Regulation
D.

                  (c)   Reliance on Exemptions.  Each Buyer  understands  that
the  Convertible  Debentures  are being  offered and sold to it in reliance on
specific  exemptions  from the  registration  requirements  of  United  States
federal  and state  securities  laws and that the  Company  is relying in part
upon the  truth  and  accuracy  of,  and such  Buyer's  compliance  with,  the
representations,  warranties,  agreements,  acknowledgments and understandings
of such Buyer set forth herein in order to determine the  availability of such
exemptions and the eligibility of such Buyer to acquire such securities.

                  (d)   Information.  Each  Buyer  and its  advisors  (and his
or, its counsel),  if any, have been furnished with all materials  relating to
the  business,  finances  and  operations  of the Company and  information  he
deemed  material  to making an  informed  investment  decision  regarding  his
purchase of the Convertible  Debentures and the Conversion Shares,  which have
been requested by such Buyer.  Each Buyer and its advisors,  if any, have been
afforded the  opportunity to ask questions of the Company and its  management.
Neither such  inquiries nor any other due diligence  investigations  conducted
by such Buyer or its advisors,  if any, or its  representatives  shall modify,
amend or affect such Buyer's  right to rely on the  Company's  representations
and warranties  contained in Section 3 below.  Each Buyer understands that its
investment in the Convertible  Debentures and the Conversion Shares involves a
high  degree of risk.  Each  Buyer is in a  position  regarding  the  Company,
which,  based upon  employment,  family  relationship  or economic  bargaining
power,  enabled and enables such Buyer to obtain  information from the Company
in order to evaluate the merits and risks of this  investment.  Each Buyer has
sought such accounting,  legal and tax advice, as it has considered  necessary
to make an informed  investment  decision with respect to its  acquisition  of
the Convertible Debentures and the Conversion Shares.

                                       3
<PAGE>

                  (e)   No Governmental  Review.  Each Buyer  understands that
no  United  States  federal  or  state  agency  or  any  other  government  or
governmental  agency has passed on or made any  recommendation  or endorsement
of the  Convertible  Debentures or the Conversion  Shares,  or the fairness or
suitability of the investment in the Convertible  Debentures or the Conversion
Shares,  nor have such  authorities  passed upon or endorsed the merits of the
offering of the Convertible Debentures or the Conversion Shares.

                  (f)   Transfer  or  Resale.   Each  Buyer  understands  that
except as provided in the  Investor  Registration  Rights  Agreement:  (i) the
Convertible  Debentures have not been and are not being  registered  under the
Securities Act or any state  securities laws, and may not be offered for sale,
sold, assigned or transferred unless (A) subsequently  registered  thereunder,
or (B) such Buyer shall have  delivered  to the Company an opinion of counsel,
in a  generally  acceptable  form,  to the effect that such  securities  to be
sold,  assigned or transferred may be sold,  assigned or transferred  pursuant
to an exemption  from such  registration  requirements;  (ii) any sale of such
securities  made in  reliance  on Rule  144  under  the  Securities  Act (or a
successor rule  thereto) ("Rule 144")  may be made only in accordance with the
terms of Rule 144 and further,  if Rule 144 is not  applicable,  any resale of
such  securities  under  circumstances  in which  the  seller (or  the  person
through  whom the sale is made) may be deemed  to be an  underwriter  (as that
term is defined in the Securities Act) may require  compliance with some other
exemption  under the  Securities  Act or the rules and  regulations of the SEC
thereunder;  and (iii)  neither the Company nor any other  person is under any
obligation to register such  securities  under the Securities Act or any state
securities  laws or to comply with the terms and  conditions  of any exemption
thereunder.   The  Company   reserves   the  right  to  place  stop   transfer
instructions against the shares and certificates for the Conversion Shares.

                  (g)   Legends.    Each    Buyer    understands    that   the
certificates or other instruments  representing the Convertible Debentures and
or the Conversion Shares shall bear a restrictive  legend in substantially the
following form (and a stop transfer  order may be placed  against  transfer of
such stock certificates):

            THE SECURITIES  REPRESENTED BY THIS  CERTIFICATE  HAVE
            NOT BEEN REGISTERED  UNDER THE SECURITIES ACT OF 1933,
            AS AMENDED,  OR APPLICABLE  STATE SECURITIES LAWS. THE
            SECURITIES  HAVE BEEN ACQUIRED  SOLELY FOR  INVESTMENT
            PURPOSES  AND NOT WITH A VIEW  TOWARD  RESALE  AND MAY
            NOT  BE  OFFERED  FOR  SALE,   SOLD,   TRANSFERRED  OR
            ASSIGNED IN THE ABSENCE OF AN  EFFECTIVE  REGISTRATION
            STATEMENT FOR THE SECURITIES  UNDER THE SECURITIES ACT
            OF 1933, AS AMENDED,  OR APPLICABLE  STATE  SECURITIES
            LAWS,  OR  AN  OPINION  OF  COUNSEL,  IN  A  GENERALLY
            ACCEPTABLE  FORM,  THAT  REGISTRATION  IS NOT REQUIRED
            UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS.

                                       4
<PAGE>

The legend set forth above  shall be removed  and the  Company  within two (2)
business days shall issue a  certificate  without such legend to the holder of
the Conversion Shares upon which it is stamped,  if, unless otherwise required
by state securities laws, (i) in connection with a sale transaction,  provided
the  Conversion  Shares are  registered  under the  Securities  Act or (ii) in
connection  with a sale  transaction,  after such holder  provides the Company
with an opinion of counsel,  which  opinion  shall be in form,  substance  and
scope  customary  for opinions of counsel in comparable  transactions,  to the
effect that a public sale,  assignment  or transfer of the  Conversion  Shares
may be made without registration under the Securities Act.

                  (h)   Authorization,  Enforcement.  This  Agreement has been
duly and validly  authorized,  executed and  delivered on behalf of such Buyer
and is a valid and binding  agreement of such Buyer  enforceable in accordance
with its  terms,  except as such  enforceability  may be  limited  by  general
principles of equity or  applicable  bankruptcy,  insolvency,  reorganization,
moratorium,  liquidation  and other  similar  laws  relating  to, or affecting
generally, the enforcement of applicable creditors' rights and remedies.

                  (i)   Receipt  of  Documents.  Each  Buyer  and  his  or its
counsel has received and read in their  entirety:  (i) this Agreement and each
representation,  warranty and covenant set forth herein,  and the  Transaction
Documents;  (ii) all due diligence and other  information  necessary to verify
the  accuracy  and  completeness  of  such  representations,   warranties  and
covenants;  and (iii)  answers to all  questions  each Buyer  submitted to the
Company  regarding an investment in the Company;  and each Buyer has relied on
the  information  contained  therein  and has not  been  furnished  any  other
documents, literature, memorandum or prospectus.

                  (j)   Due Formation of Corporate  and Other  Buyers.  If the
Buyer(s) is a corporation,  trust,  partnership or other entity that is not an
individual  person,  it has been  formed and  validly  exists and has not been
organized for the specific  purpose of purchasing the  Convertible  Debentures
and is not prohibited from doing so.

                  (k)   No  Legal   Advice  From  the   Company.   Each  Buyer
acknowledges,  that it had the  opportunity  to review this  Agreement and the
transactions  contemplated by this Agreement with his or its own legal counsel
and  investment  and tax  advisors.  Each  Buyer  is  relying  solely  on such
counsel and  advisors  and not on any  statements  or  representations  of the
Company or any of its  representatives  or agents for legal, tax or investment
advice with respect to this investment,  the transactions contemplated by this
Agreement or the securities laws of any jurisdiction.

                  (l)   No  Buyer   makes  any   representation   or  warranty
regarding the Company's ability to successfully  become a public company or to
have  any  registration  statement  filed  by  the  Company  pursuant  to  the
Registration  Rights  Agreement  or otherwise  declared  effective by the SEC.
The Company has the sole  obligation  to make any and all such  filings as may
be  necessary  to  become  a  public  company  and to  have  any  registration
statement declared effective by the SEC.

                                       5
<PAGE>

            3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

      The Company  represents and warrants to each of the Buyers that,  except
as set forth in the Disclosure Schedule attached as Exhibit A hereto:

                  (a)   Organization  and  Qualification.  The Company and its
subsidiaries  are  corporations  duly  organized and validly  existing in good
standing under the laws of the  jurisdiction  in which they are  incorporated,
and have the requisite  corporate  power to own their  properties and to carry
on  their  business  as now  being  conducted.  Each  of the  Company  and its
subsidiaries is duly qualified as a foreign  corporation to do business and is
in good  standing in every  jurisdiction  in which the nature of the  business
conducted by it makes such qualification necessary,  except to the extent that
the  failure  to be so  qualified  or be in good  standing  would  not  have a
material adverse effect on the Company and its subsidiaries taken as a whole.

                  (b)   Authorization,  Enforcement,  Compliance  with  Other
Instruments.  (i) The Company has the requisite  corporate power and authority
to enter  into  and  perform  this  Agreement,  the  Security  Agreement,  the
Investor  Registration  Rights  Agreement,   the  Irrevocable  Transfer  Agent
Agreement,  the Escrow Agreement,  the Pledge and Escrow  Agreements,  and any
related  agreements  (collectively  the "Transaction  Documents") and to issue
the  Convertible  Debentures and the Conversion  Shares in accordance with the
terms hereof and thereof,  (ii) the execution and delivery of the  Transaction
Documents  by the  Company  and  the  consummation  by it of the  transactions
contemplated hereby and thereby,  including,  without limitation, the issuance
of the  Convertible  Debentures the Conversion  Shares and the reservation for
issuance and the issuance of the Conversion  Shares  issuable upon  conversion
or exercise  thereof,  have been duly  authorized  by the  Company's  Board of
Directors and no further consent or  authorization is required by the Company,
its Board of Directors or its  stockholders,  (iii) the Transaction  Documents
have been duly  executed and  delivered by the Company,  (iv) the  Transaction
Documents  constitute  the  valid  and  binding  obligations  of  the  Company
enforceable  against the Company in  accordance  with their  terms,  except as
such  enforceability  may be  limited  by  general  principles  of  equity  or
applicable bankruptcy, insolvency, reorganization,  moratorium, liquidation or
similar  laws  relating  to,  or  affecting  generally,   the  enforcement  of
creditors'  rights  and  remedies.  The  authorized  officer  of  the  Company
executing the Transaction  Documents knows of no reason why the Company cannot
file the  registration  statement as required under the Investor  Registration
Rights Agreement or perform any of the Company's other  obligations under such
documents.

                  (c)   Capitalization.  As of the date hereof the  authorized
capital  stock of the Company  consists of  40,000,000  shares of Common Stock
and no shares of Preferred Stock, of which  12,965,003  shares of Common Stock
are issued and outstanding.  All of such outstanding  shares have been validly
issued and are fully  paid and  nonassessable.  No shares of Common  Stock are
subject  to  preemptive  rights  or any other  similar  rights or any liens or
encumbrances  suffered or  permitted  by the  Company.  As of the date of this
Agreement,  (i) there are no outstanding options,  warrants,  scrip, rights to
subscribe to, calls or  commitments of any character  whatsoever  relating to,
or securities or rights  convertible  into, any shares of capital stock of the
Company or any of its subsidiaries, or contracts, commitments,  understandings
or  arrangements  by which the  Company or any of its  subsidiaries  is or may
become  bound to issue  additional  shares of capital  stock of the Company or
any of its subsidiaries or options,  warrants,  scrip, rights to subscribe to,
calls or  commitments of any character  whatsoever  relating to, or securities
or rights  convertible into, any shares of capital stock of the Company or any

                                       6
<PAGE>

of its  subsidiaries,  (ii) there are no outstanding debt securities and (iii)
there are no agreements or arrangements  under which the Company or any of its
subsidiaries  is  obligated  to register  the sale of any of their  securities
under  the  Securities  Act  (except  pursuant  to  the  Registration   Rights
Agreement)  and (iv)  there are no  outstanding  registration  statements  and
there are no outstanding  comment letters from the SEC or any other regulatory
agency.  There are no securities or instruments  containing  anti-dilution  or
similar  provisions  that will be triggered by the issuance of the Convertible
Debentures  as described in this  Agreement.  The Company has furnished to the
Buyer true and correct copies of the Company's  Articles of Incorporation,  as
amended   and  as  in  effect  on  the  date  hereof   (the   "Articles   of
Incorporation"),  and the  Company's  Bylaws,  as in effect on the date hereof
(the  "Bylaws"),   and  the  terms  of  all  securities  convertible  into  or
exercisable  for Common Stock and the material  rights of the holders  thereof
in  respect   thereto  other  than  stock  options  issued  to  employees  and
consultants.

                  (d)   Issuance of  Securities.  The  Convertible  Debentures
are duly  authorized  and, upon issuance in accordance  with the terms hereof,
shall be duly issued,  fully paid and nonassessable,  are free from all taxes,
liens and charges with respect to the issue  thereof.  The  Conversion  Shares
issuable  upon  conversion  of  the  Convertible  Debentures  have  been  duly
authorized  and  reserved  for  issuance.   Upon  conversion  or  exercise  in
accordance with the Convertible  Debentures the Conversion Shares will be duly
issued, fully paid and nonassessable.

                  (e)   No   Conflicts.    The    execution,    delivery   and
performance of the Transaction  Documents by the Company and the  consummation
by the Company of the transactions  contemplated hereby will not (i) result in
a violation of the Articles of Incorporation,  any certificate of designations
of any  outstanding  series of preferred stock of the Company or the Bylaws or
(ii)  conflict  with or constitute a default (or an event which 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  of,  any
agreement,  indenture  or  instrument  to  which  the  Company  or  any of its
subsidiaries  is a  party,  or  result  in  a  violation  of  any  law,  rule,
regulation,  order, judgment or decree (including federal and state securities
laws  and   regulations   and  the  rules  and  regulations  of  The  National
Association  of  Securities  Dealers  Inc.'s OTC  Bulletin  Board on which the
Common Stock is quoted)  applicable to the Company or any of its  subsidiaries
or by which any  property or asset of the  Company or any of its  subsidiaries
is  bound  or  affected.  Neither  the  Company  nor  its  subsidiaries  is in
violation of any term of or in default under its Articles of  Incorporation or
Bylaws  or  their  organizational  charter  or  Bylaws,  respectively,  or any
material contract, agreement, mortgage,  indebtedness,  indenture, instrument,
judgment,  decree or order or any statute,  rule or  regulation  applicable to
the  Company  or its  subsidiaries.  The  business  of  the  Company  and  its
subsidiaries is not being  conducted,  and shall not be conducted in violation
of any material law,  ordinance,  or regulation  of any  governmental  entity.
Except as  specifically  contemplated  by this Agreement and as required under
the Securities Act and any applicable  state  securities  laws, the Company is
not  required to obtain any  consent,  authorization  or order of, or make any
filing or registration with, any court or governmental  agency in order for it
to execute,  deliver or perform any of its  obligations  under or contemplated
by this Agreement or the Registration  Rights Agreement in accordance with the
terms hereof or thereof.  All consents,  authorizations,  orders,  filings and
registrations  which  the  Company  is  required  to  obtain  pursuant  to the
preceding  sentence  have been  obtained  or  effected on or prior to the date
hereof.  The  Company  and  its  subsidiaries  are  unaware  of any  facts  or
circumstance, which might give rise to any of the foregoing.

                                       7
<PAGE>

                  (f)   Financial  Statements.  As of their respective  dates,
the financial statements of the Company (the  "Financial  Statements") for the
two most recently  completed  fiscal years and any  subsequent  interim period
complied  as to form  in all  material  respects  with  applicable  accounting
requirements  and the published  rules and regulations of the SEC with respect
thereto.  Such  financial  statements  have been prepared in  accordance  with
generally accepted accounting  principles,  consistently  applied,  during the
periods involved  (except (i) as may be otherwise  indicated in such Financial
Statements  or the notes  thereto,  or (ii) in the case of  unaudited  interim
statements,  to the extent they may exclude  footnotes  or may be condensed or
summary   statements)  and,  fairly  present  in  all  material  respects  the
financial  position of the Company as of the dates  thereof and the results of
its  operations  and cash flows for the periods  then ended  (subject,  in the
case of  unaudited  statements,  to normal  year-end  audit  adjustments).  No
other  information  provided  by or on behalf  of the  Company  to the  Buyer,
including,  without  limitation,  information  referred to in this  Agreement,
contains  any  untrue  statement  of a  material  fact or omits  to state  any
material fact necessary in order to make the statements  therein, in the light
of the circumstances under which they were made, not misleading.

                  (g)   Absence  of  Litigation.  There  is no  action,  suit,
proceeding,  inquiry or  investigation  before or by any court,  public board,
government  agency,  self-regulatory  organization  or body pending against or
affecting the Company, the Common Stock or any of the Company's  subsidiaries,
wherein an unfavorable  decision,  ruling or finding would (i) have a material
adverse effect on the transactions  contemplated  hereby (ii) adversely affect
the validity or enforceability  of, or the authority or ability of the Company
to perform its  obligations  under,  this  Agreement  or any of the  documents
contemplated  herein, or (iii) have a material adverse effect on the business,
operations,  properties,  financial  condition or results of operations of the
Company and its subsidiaries taken as a whole.

                  (h)   Acknowledgment  Regarding  Buyer's  Purchase  of  the
Convertible   Debentures.   The  Company  acknowledges  and  agrees  that  the
Buyer(s) is acting  solely in the capacity of an arm's length  purchaser  with
respect  to this  Agreement  and the  transactions  contemplated  hereby.  The
Company  further  acknowledges  that the Buyer(s) is not acting as a financial
advisor or fiduciary of the Company (or in any similar  capacity) with respect
to this  Agreement  and the  transactions  contemplated  hereby and any advice
given by the Buyer(s) or any of their respective  representatives or agents in
connection  with this Agreement and the  transactions  contemplated  hereby is
merely  incidental to such Buyer's  purchase of the Convertible  Debentures or
the Conversion  Shares.  The Company further  represents to the Buyer that the
Company's  decision to enter into this  Agreement has been based solely on the
independent evaluation by the Company and its representatives.

                  (i)   No General  Solicitation.  Neither  the  Company,  nor
any of its  affiliates,  nor any  person  acting on its or their  behalf,  has
engaged in any form of general  solicitation  or general  advertising  (within
the meaning of Regulation D under the Securities  Act) in connection  with the
offer or sale of the Convertible Debentures or the Conversion Shares.

                                       8
<PAGE>

                  (j)   No Integrated  Offering.  Neither the Company, nor any
of its affiliates,  nor any person acting on its or their behalf has, directly
or  indirectly,  made any offers or sales of any  security  or  solicited  any
offers  to  buy  any  security,   under   circumstances   that  would  require
registration of the Convertible  Debentures or the Conversion Shares under the
Securities  Act or cause this  offering of the  Convertible  Debentures or the
Conversion  Shares to be  integrated  with prior  offerings by the Company for
purposes of the Securities Act.

                  (k)   Employee  Relations.  Neither  the  Company nor any of
its  subsidiaries  is involved in any labor  dispute nor, to the  knowledge of
the Company or any of its subsidiaries,  is any such dispute threatened.  None
of the  Company's  or its  subsidiaries'  employees is a member of a union and
the Company  and its  subsidiaries  believe  that their  relations  with their
employees are good.

                  (l)   Intellectual  Property  Rights.  The  Company  and its
subsidiaries   own  or  possess   adequate  rights  or  licenses  to  use  all
trademarks,  trade names, service marks,  service mark registrations,  service
names, patents, patent rights, copyrights,  inventions,  licenses,  approvals,
governmental  authorizations,  trade  secrets and rights  necessary to conduct
their   respective   businesses  as  now   conducted.   The  Company  and  its
subsidiaries  do not have any knowledge of any  infringement by the Company or
its  subsidiaries  of trademark,  trade name rights,  patents,  patent rights,
copyrights,  inventions,  licenses, service names, service marks, service mark
registrations,  trade secret or other  similar  rights of others,  and, to the
knowledge of the Company there is no claim,  action or  proceeding  being made
or brought against, or to the Company's  knowledge,  being threatened against,
the Company or its  subsidiaries  regarding  trademark,  trade name,  patents,
patent rights,  invention,  copyright,  license, service names, service marks,
service  mark  registrations,  trade  secret  or other  infringement;  and the
Company and its subsidiaries  are unaware of any facts or circumstances  which
might give rise to any of the foregoing.

                  (m)   Environmental  Laws. The Company and its  subsidiaries
are (i) in compliance with any and all applicable foreign,  federal, state and
local laws and  regulations  relating to the  protection  of human  health and
safety,   the  environment  or  hazardous  or  toxic   substances  or  wastes,
pollutants  or  contaminants  ("Environmental  Laws"),  (ii) have received all
permits,  licenses  or  other  approvals  required  of them  under  applicable
Environmental  Laws to conduct their  respective  businesses  and (iii) are in
compliance  with all terms  and  conditions  of any such  permit,  license  or
approval.

                  (n)   Title.  Any real  property and  facilities  held under
lease  by the  Company  and its  subsidiaries  are held by them  under  valid,
subsisting  and  enforceable  leases with such  exceptions as are not material
and do not  interfere  with  the  use  made  and  proposed  to be made of such
property and buildings by the Company and its subsidiaries.

                  (o)   Insurance.  The Company  and each of its  subsidiaries
are insured by insurers of recognized  financial  responsibility  against such
losses and risks and in such amounts as management of the Company  believes to
be prudent  and  customary  in the  businesses  in which the  Company  and its
subsidiaries  are  engaged.  Neither the Company nor any such  subsidiary  has
been  refused  any  insurance  coverage  sought or applied for and neither the
Company nor any such  subsidiary has any reason to believe that it will not be
able to renew  its  existing  insurance  coverage  as and when  such  coverage
expires  or to  obtain  similar  coverage  from  similar  insurers  as  may be
necessary  to continue its  business at a cost that would not  materially  and
adversely  affect the  condition,  financial or  otherwise,  or the  earnings,

                                       9
<PAGE>

b
                  (p)   Regulatory  Permits.  The Company and its subsidiaries
possess all material  certificates,  authorizations  and permits issued by the
appropriate  federal,  state or foreign  regulatory  authorities  necessary to
conduct  their  respective  businesses,  and  neither the Company nor any such
subsidiary has received any notice of  proceedings  relating to the revocation
or modification of any such certificate, authorization or permit.

                  (q)   Internal  Accounting  Controls.  The  Company and each
of  its  subsidiaries  maintain  a  system  of  internal  accounting  controls
sufficient to provide reasonable  assurance that (i) transactions are executed
in  accordance  with  management's  general or specific  authorizations,  (ii)
transactions  are  recorded as necessary  to permit  preparation  of financial
statements in conformity with generally accepted accounting  principles and to
maintain asset  accountability,  and (iii) the recorded  amounts for assets is
compared  with the existing  assets at reasonable  intervals  and  appropriate
action is taken with respect to any differences.

                  (r)   No  Material  Adverse   Breaches,   etc.  Neither  the
Company nor any of its  subsidiaries  is subject to any charter,  corporate or
other legal restriction,  or any judgment,  decree,  order, rule or regulation
which in the  judgment  of the  Company's  officers  has or is expected in the
future  to  have  a  material  adverse  effect  on the  business,  properties,
operations,  financial  condition,  results of  operations or prospects of the
Company or its  subsidiaries.  Neither the Company nor any of its subsidiaries
is in breach of any contract or  agreement  which  breach,  in the judgment of
the Company's  officers,  has or is expected to have a material adverse effect
on the  business,  properties,  operations,  financial  condition,  results of
operations or prospects of the Company or its subsidiaries.

                  (s)   Tax Status.  The Company and each of its  subsidiaries
has made and filed all  federal  and state  income and all other tax  returns,
reports and  declarations  required by any jurisdiction to which it is subject
and  (unless  and  only  to the  extent  that  the  Company  and  each  of its
subsidiaries  has set aside on its books  provisions  reasonably  adequate for
the payment of all unpaid and  unreported  taxes) has paid all taxes and other
governmental  assessments  and charges that are  material in amount,  shown or
determined to be due on such returns,  reports and declarations,  except those
being  contested  in good  faith  and has set  aside  on its  books  provision
reasonably  adequate  for the payment of all taxes for periods  subsequent  to
the periods to which such returns,  reports or declarations  apply.  There are
no  unpaid  taxes  in any  material  amount  claimed  to be due by the  taxing
authority  of any  jurisdiction,  and the  officers of the Company  know of no
basis for any such claim.

                  (t)   Certain  Transactions.  Except  (i)  as  noted  in the
Budget,  (ii)  arm's-length  transactions  pursuant to which the Company makes
payments in the ordinary  course of business upon terms no less favorable than
the  Company  could  obtain  from third  parties,  or (iii) the grant of stock
options  disclosed  in  the  Disclosure   Schedule,   none  of  the  officers,
directors,   or  employees  of  the  Company  is  presently  a  party  to  any
transaction  with the Company (other than for services as employees,  officers
and  directors),  including  any  contract,  agreement  or  other  arrangement
providing  for the  furnishing  of services to or by,  providing for rental of
real or personal  property to or from, or otherwise  requiring  payments to or
from any  officer,  director  or such  employee  or, to the  knowledge  of the
Company,  any  corporation,  partnership,  trust or other  entity in which any
officer,  director,  or any such employee has a substantial  interest or is an
officer, director, trustee or partner.

                                       10
<PAGE>

                  (u)   Fees and Rights of First  Refusal.  The Company is not
obligated  to  offer  the  securities  offered  hereunder  on a right of first
refusal  basis or otherwise to any third  parties  including,  but not limited
to,  current or former  shareholders  of the Company,  underwriters,  brokers,
agents or other third parties.

                  (v)   The Company  acknowledges that the Buyer is relying on
the  representations  and  warranties  made by the Company  hereunder and that
such  representations  and warranties  are a material  inducement to the Buyer
purchasing the Convertible  Debentures.  The Company further acknowledges that
without such  representations  and  warranties of the Company made  hereunder,
the Buyer would not enter into this Agreement.

            4. COVENANTS.

                  (a)   Best  Efforts.  Each party shall use its best  efforts
to timely  satisfy each of the conditions to be satisfied by it as provided in
Sections 6 and 7 of this Agreement.

                  (b)   Form  D.  The  Company  agrees  to  file a Form D with
respect  to the  Conversion  Shares  as  required  under  Regulation  D and to
provide a copy thereof to each Buyer promptly  after such filing.  The Company
shall,  on or before the Closing  Date,  take such action as the Company shall
reasonably  determine is necessary to qualify the Conversion Shares, or obtain
an exemption for the  Conversion  Shares for sale to the Buyers at the Closing
pursuant to this Agreement under  applicable  securities or "Blue Sky" laws of
the  states of the  United  States,  and shall  provide  evidence  of any such
action so taken to the Buyers on or prior to the Closing Date.

                  (c)   Reporting  Status.  Commencing on the effectiveness of
the  Registration  Statement and until the earlier of (i) the date as of which
the  Buyer(s)  may  sell  all of the  Conversion  Shares  without  restriction
pursuant to Rule 144(k)  promulgated  under the  Securities  Act (or successor
thereto),  or (ii) the date on which (A) the Buyer(s)  shall have sold all the
Conversion  Shares and (B) none of the Convertible  Debentures are outstanding
(the  "Registration  Period"),  the Company  shall file in a timely manner all
reports  required to be filed with the SEC  pursuant to the  Exchange  Act and
the  regulations  of the SEC  thereunder,  and the Company shall not terminate
its status as an issuer  required to file reports  under the Exchange Act even
if the Exchange Act or the rules and  regulations  thereunder  would otherwise
permit such termination.

                  (d)   Use of  Proceeds.  The Company  will use the  proceeds
from the sale of the Convertible  Debentures for general corporate and working
capital purposes in a manner  consistent with the uses described in the budget
attached  hereto as Exhibit B (the "Budget").  The Company,  in its discretion
and without  prior  consent of or notice to the Buyers,  may deviate up to ten
percent (10%) for any single line item described in the Budget.

                                       11
<PAGE>

                  (e)   Reservation  of  Shares.  The  Company  shall take all
action reasonably necessary to at all times have authorized,  and reserved for
the purpose of  issuance,  such  number of shares of Common  Stock as shall be
necessary  to effect the  issuance of the  Conversion  Shares.  If at any time
the Company does not have  available such shares of Common Stock as shall from
time to time be sufficient to effect the  conversion of all of the  Conversion
Shares,  the Company shall call and hold a special meeting of the shareholders
within sixty (60) days of such occurrence,  for the sole purpose of increasing
the number of shares authorized.  The Company's  management shall recommend to
the  shareholders  to vote in favor of  increasing  the  number  of  shares of
Common  Stock  authorized.  Management  shall  also vote all of its  shares in
favor of increasing the number of authorized shares of Common Stock.

                  (f)   Listings   or    Quotation.    The   Company    shall,
concurrently with the  effectiveness of the registration  statement filed with
the SEC pursuant to the Investor  Registration  Rights  Agreement,  secure the
listing or quotation of its Common Stock (including,  without limitation,  the
Conversion Shares) upon a national  securities  exchange,  automated quotation
system or the  Over-The-Counter  Bulletin  Board  ("OTCBB")  maintained by the
National  Association of Securities  Dealers,  Inc. The Company shall maintain
the listing or  quotation  of the Common Stock for so long as the Buyer is the
beneficial  owner of any Common Stock or Conversion  Shares (whether  obtained
or to be obtained under this  Agreement),  the  Convertible  Debentures or any
other  agreement  between  the  Company  and  the  Buyer.  The  Company  shall
maintain the Common  Stock's  authorization  for  quotation  on the OTCBB.  It
shall  be an event of  default  hereunder  if the  Company  fails to  strictly
comply with its obligations under this Section 4(f).

                  (g)   Fees and Expenses.

                        Each of the  Company  and the  Buyer(s)  shall pay all
costs and expenses  incurred by such party in connection with the negotiation,
investigation,   preparation,   execution  and  delivery  of  the  Transaction
Documents.  The Company  shall pay  Yorkville  Advisors  Management  LLC a fee
equal to ten percent (10%) of the Purchase Price.

                        The Company shall pay a  structuring  fee to Yorkville
Advisors  Management,  LLC of Twenty Five  Thousand  Dollars  ($25,000)  which
shall be paid directly from the proceeds of the First Closing.

                        The Company shall pay the Buyers a non-refundable  due
diligence fee of Two Thousand  Five Hundred  Dollars  ($2,500)  which shall be
paid directly from the proceeds of the First Closing.
\
                  (h)   The  Company  shall  be  solely  responsible  for  the
contents of the Registration  Statement,  prospectus or other filing made with
the SEC or otherwise used in the offering of the Company's  securities (except
as such  disclosure  relates  solely to the Buyer and then only to the  extent
that such  disclosure  conforms with  information  furnished in writing by the
Buyer to the Company),  even if the Buyer or its agents as an accommodation to
the Company  participate  or assist in the  preparation  of such  Registration
Statement,  prospectus  or other SEC filing.  The Company shall retain its own
legal  counsel to review,  edit,  confirm and do all things such counsel deems
necessary or desirable to such  Registration  Statement,  prospectus  or other
SEC filing to ensure that it does not contain an untrue  statement  or alleged
untrue  statement of material  fact or omit or alleged to omit a material fact
necessary to make the statements made therein,  in light of the  circumstances
under which the statements were made, not misleading.

                                       12
<PAGE>

                  (i)   Corporate   Existence.   So   long   as   any  of  the
Convertible  Debentures remain outstanding,  the Company shall not directly or
indirectly  consummate  any  merger,  reorganization,  restructuring,  reverse
stock split  consolidation,  sale of all or substantially all of the Company's
assets  or  any  similar  transaction  or  related   transactions  (each  such
transaction,  an "Organizational Change") unless, prior to the consummation an
Organizational  Change,  the  Company  obtains  the  written  consent  of each
Buyer.  In any such case,  the Company will make  appropriate  provision  with
respect to such holders'  rights and  interests to insure that the  provisions
of  this  Section  4(h)  will  thereafter  be  applicable  to the  Convertible
Debentures.

                  (j)   Transactions   With   Affiliates.   So   long  as  any
Convertible  Debentures  are  outstanding,  the Company  shall not,  and shall
cause  each  of  its  subsidiaries  not  to,  enter  into,  amend,  modify  or
supplement,  or  permit  any  subsidiary  to  enter  into,  amend,  modify  or
supplement any agreement, transaction,  commitment, or arrangement with any of
its or any  subsidiary's  officers,  directors,  person who were  officers  or
directors  at any time during the  previous  two (2) years,  stockholders  who
beneficially  own five percent (5%) or more of the Common Stock, or Affiliates
(as  defined  below) or with any  individual  related by blood,  marriage,  or
adoption  to any such  individual  or with any entity in which any such entity
or individual  owns a five percent (5%) or more  beneficial  interest  (each a
"Related  Party"),  except  for  (a)  customary  employment  arrangements  and
benefit  programs on reasonable  terms,  (b) any investment in an Affiliate of
the Company,  (c) any agreement,  transaction,  commitment,  or arrangement on
an  arm's-length  basis on terms no less favorable than terms which would have
been  obtainable  from a  person  other  than  such  Related  Party,  (d)  any
agreement,  transaction,  commitment,  or  arrangement  which is approved by a
majority of the disinterested  directors of the Company;  for purposes hereof,
any  director who is also an officer of the Company or any  subsidiary  of the
Company  shall  not be a  disinterested  director  with  respect  to any  such
agreement, transaction,  commitment, or arrangement.  "Affiliate" for purposes
hereof means,  with respect to any person or entity,  another person or entity
that,  directly  or  indirectly,  (i) has a ten  percent  (10%) or more equity
interest in that person or entity,  (ii) has ten percent  (10%) or more common
ownership  with that person or entity,  (iii)  controls that person or entity,
or  (iv) shares  common  control  with that  person or  entity.  "Control"  or
"controls"  for  purposes  hereof means that a person or entity has the power,
direct or  indirect,  to conduct or govern the  policies of another  person or
entity.

                  (k)   Transfer  Agent.  The  Company  covenants  and  agrees
that, in the event that the Company's  agency  relationship  with the transfer
agent  should be  terminated  for any reason  prior to a date which is two (2)
years after the Closing  Date,  the Company  shall  immediately  appoint a new
transfer  agent and shall  require  that the new  transfer  agent  execute and
agree to be bound by the terms of the Irrevocable  Transfer Agent Instructions
(as defined herein).

                  (l)   Restriction on Issuance of the Capital Stock.  So long
as any Convertible Debentures are outstanding,  the Company shall not, without
the prior written consent of the Buyer(s),  (i) issue or sell shares of Common
Stock or Preferred  Stock without  consideration  or for a  consideration  per
share  less  than  the  fair  market  value  of the  Common  Stock  determined

                                       13
<PAGE>

immediately  prior to its  issuance,  (ii) issue any warrant,  option,  right,
contract,  call, or other security instrument granting the holder thereof, the
right to acquire  Common Stock without  consideration  or for a  consideration
less than such Common Stock's fair market value determined  immediately  prior
to it's  issuance,  (iii)  enter into any  security  instrument  granting  the
holder a security  interest  in any and all assets of the  Company,  except in
connection with the Company leasing or purchasing office  equipment,  computer
and  networking  equipment,  co-location  equipment  and other  equipment  and
supplies in the  ordinary  course of the  Company's  business,  provided  such
equipment  and  supplies  do not,  in the  aggregate,  exceed  fifty  thousand
dollars  ($50,000.00)  per annum, or (iv) file any  registration  statement on
Form S-8.

                  (m)   Lock-up  Agreement.  On the date  hereof,  the Company
shall  obtain  from  each  officer  and  director  of the  Company  a  lock-up
agreement.  Such  lock-up  agreement  shall  prohibit  sales of the  Company's
Common  Stock  for so long as any  portion  of the  Convertible  Debenture  is
outstanding.

                  (n)   No Payment of Management Fees.      Except          as
disclosed  in the  Budget,  the  Company  shall not make any  payments  of (i)
salaries,  management fees,  commissions or any other remuneration to officers
or directors of the Company or any person or entity that is an  "affiliate" of
any such  person or entity  (the  "Management  Group")  or (ii) on any  notes,
accounts  payable or other  obligations or  liabilities  owed to any member of
Management  Group until the  Registration  Statement  has been  effective  (as
declared by the Securities and Exchange  Commission)  for a period of at least
90 days (the "Prohibition Period").

                  (o)   No Indebtedness.  For  so  long  as  the   Convertible
Debenture is  outstanding,  the Company shall not incur any  indebtedness  for
borrowed money or become a guarantor or otherwise  contingently liable for any
such indebtedness  except for (i) trade payables or purchase money obligations
incurred in the  ordinary  course of  business,  or (ii) amounts not to exceed
one hundred thousand dollars ($100,000).

                  (p)   No Other Registration Statements.   Except   for   the
filing of the  registration  statements  contemplated in this transaction (the
"Permitted  Registration   Statements"),   for  so  long  as  the  Convertible
Debenture is  outstanding,  the Company shall not file any other  registration
statements on any form  (including but not limited to forms S-1, SB-2, S-3 and
S-8)  without the prior  written  consent of the Buyer.  Further,  the Company
shall not  register  for sale or resale of any shares of capital  stock in the
Permitted  Registration  Statements other than the capital stock  beneficially
owned  by the  Buyer or to be  issued  to the  Buyer  upon  conversion  of the
Convertible  Debentures,  exercise of  warrants or issuance  under the Standby
Equity Distribution Agreement of even date herewith.

                  (q)   Neither the  Buyer(s) nor any of its  affiliates  have
an open short  position in the Common Stock of the  Company,  and the Buyer(s)
agrees  that it shall  not,  and that it will  cause  its  affiliates  not to,
engage in any short  sales of or  hedging  transactions  with  respect  to the
Common Stock as long as any Convertible  Debenture or warrants to purchase the
Warrant Shares shall remain outstanding.

                                       14
<PAGE>

                  (r)   Following the  consummation  of a merger with a public
entity,  the public entity or the surviving entity,  shall have entered into a
pledge  and  escrow   agreement   substantially  in  the  form  of  Exhibit  C
("Subsequent  Pledge  Agreement"),  pursuant to which the public entity or the
surviving entity shall provide the Buyer a security  interest in the shares of
the public  entity or the  surviving  entity in such amount that together with
the Pledged Shares from Barry  Brookstein and Dean Garfinkel equals 51% of the
outstanding  stock of the  public  entity or  surviving  entity to secure  the
obligations  of the Company  under this  Agreement  and under the  Transaction
Documents,  which the public entity or the surviving  entity will have assumed
in accordance with the merger.

                  (s)   Immediately upon the First Closing,  the Company shall
instruct BP Audit Group,  PLLC to resume its audit of the Company's  financial
statements  and the  Company  shall  use its best  efforts  to have the  audit
complete within 30 days of the First Closing Date.

            5. TRANSFER AGENT INSTRUCTIONS.

                  (a)   The  Company  shall  issue  the  Irrevocable  Transfer
Agent  Instructions  to  its  transfer  agent  irrevocably   appointing  David
Gonzalez,  Esq.  as the  Company's  agent for  purpose of having  certificates
issued,  registered in the name of the Buyer(s) or its respective  nominee(s),
for the Conversion Shares representing such amounts of Convertible  Debentures
as specified from time to time by the Buyer(s) to the Company upon  conversion
of the Convertible  Debentures,  for interest owed pursuant to the Convertible
Debenture,  and for any and all Liquidated Damages (as this term is defined in
the Investor  Registration  Rights Agreement).  David Gonzalez,  Esq. shall be
paid a cash fee of Fifty  Dollars  ($50) for every  occasion they act pursuant
to the Irrevocable  Transfer Agent Instructions.  The Company shall not change
its transfer agent without the express written consent of the Buyer(s),  which
may  be  withheld  by  the   Buyer(s)  in  its  sole   discretion.   Prior  to
registration  of the  Conversion  Shares  under the  Securities  Act, all such
certificates  shall bear the restrictive  legend  specified in Section 2(g) of
this  Agreement.  The  Company  warrants  that no  instruction  other than the
Irrevocable  Transfer  Agent  Instructions  referred to in this Section 5, and
stop transfer  instructions to give effect to Section 2(g) hereof (in the case
of the  Conversion  Shares  prior to  registration  of such  shares  under the
Securities  Act) will be given by the Company to its  transfer  agent and that
the Conversion Shares shall otherwise be freely  transferable on the books and
records of the  Company as and to the extent  provided in this  Agreement  and
the Investor  Registration  Rights Agreement.  Nothing in this Section 5 shall
affect in any way the Buyer's  obligations  and  agreement  to comply with all
applicable  securities laws upon resale of Conversion  Shares. If the Buyer(s)
provides the Company with an opinion of counsel,  in form, scope and substance
customary  for opinions of counsel in  comparable  transactions  to the effect
that  registration of a resale by the Buyer(s) of any of the Conversion Shares
is not required  under the  Securities  Act, the Company  shall within two (2)
business  days instruct its transfer  agent to issue one or more  certificates
in  such  name  and in such  denominations  as  specified  by the  Buyer.  The
Company  acknowledges  that a breach by it of its  obligations  hereunder will
cause  irreparable  harm to the Buyer by  vitiating  the intent and purpose of
the transaction  contemplated  hereby.  Accordingly,  the Company acknowledges
that the remedy at law for a breach of its  obligations  under this  Section 5
will be inadequate and agrees,  in the event of a breach or threatened  breach
by the Company of the  provisions of this  Section 5,  that the Buyer(s) shall
be entitled,  in addition to all other  available  remedies,  to an injunction
restraining any breach and requiring immediate issuance and transfer,  without
the necessity of showing  economic loss and without any bond or other security
being required.

                                       15
<PAGE>

            6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

      The  obligation  of  the  Company   hereunder  to  issue  and  sell  the
Convertible  Debentures  to the  Buyer(s)  at the  Closings  is subject to the
satisfaction,  at or  before  the  Closing  Dates,  of each  of the  following
conditions,  provided that these conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion:

                  (a)   Each  Buyer  shall  have   executed  the   Transaction
Documents and delivered them to the Company.

                  (b)   The Buyer(s)  shall have delivered to the Escrow Agent
the Purchase  Price for  Convertible  Debentures in respective  amounts as set
forth next to each Buyer as  outlined  on  Schedule I attached  hereto and the
Escrow  Agent  shall have  delivered  the net  proceeds to the Company by wire
transfer  of   immediately   available   U.S.   funds  pursuant  to  the  wire
instructions provided by the Company.

                  (c)   The  representations  and  warranties  of the Buyer(s)
shall be true and  correct in all  material  respects as of the date when made
and  as of the  Closing  Dates  as  though  made  at  that  time  (except  for
representations  and  warranties  that speak as of a specific  date),  and the
Buyer(s)  shall  have  performed,  satisfied  and  complied  in  all  material
respects  with the  covenants,  agreements  and  conditions  required  by this
Agreement to be  performed,  satisfied or complied  with by the Buyer(s) at or
prior to the Closing Dates.

            7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.

                  (a)   The  obligation of the Buyer(s)  hereunder to purchase
the   Convertible   Debentures   at  the  First  Closing  is  subject  to  the
satisfaction,  at or before the First  Closing  Date, of each of the following
conditions:

                        (i)   The Company shall have executed the  Transaction
Documents and delivered the same to the Buyer(s).

                        (ii)  The   representations   and  warranties  of  the
Company  shall be true and  correct in all  material  respects  (except to the
extent that any of such  representations  and warranties is already  qualified
as to materiality in Section 3 above, in which case, such  representations and
warranties shall be true and correct without further  qualification) as of the
date when made and as of the First  Closing  Date as though  made at that time
(except for  representations  and warranties that speak as of a specific date)
and the Company shall have  performed,  satisfied and complied in all material
respects  with the  covenants,  agreements  and  conditions  required  by this
Agreement to be  performed,  satisfied  or complied  with by the Company at or
prior to the First Closing  Date.  If requested by the Buyer,  the Buyer shall
have received a certificate,  executed by the President of the Company,  dated
as of the First Closing  Date,  to the  foregoing  effect and as to such other
matters  as may  be  reasonably  requested  by the  Buyer  including,  without
limitation   an  update  as  of  the  First   Closing   Date   regarding   the
representation contained in Section 3(c) above.

                        (iii) The Company  shall have  executed and  delivered
to the Buyer a Convertible  Debentures  in the amount of Six Hundred  Thousand
Dollars ($600,000).

                                       16
<PAGE>

                        (iv)  The Buyer(s)  shall have  received an opinion of
counsel from in a form satisfactory to the Buyer(s).

                        (v)   The Company  shall have provided to the Buyer(s)
a  certificate  of good standing from the secretary of state from the state in
which the company is incorporated.

                        (vi)  The  Company  or the Buyer  shall  have  filed a
form UCC-1 or such other  forms as may be  required  to  perfect  the  Buyer's
interest in the Pledged  Property as detailed in the Security  Agreement dated
the date hereof and provided proof of such filing to the Buyer(s).

                        (vii) Barry  Brookstein and Dean Garfinkel  shall have
delivered  to the  Escrow  Agent the  Pledged  Shares as well as any  transfer
documents as required pursuant to the Pledge and Escrow Agreement.

                        (viii)      The  Company  shall have  provided  to the
Buyer  an  acknowledgement,  to  the  satisfaction  of  the  Buyer,  from  the
Company's  independent  certified  public  accountants  as to its  ability  to
provide all  consents  required in order to file a  registration  statement in
connection with this transaction.

                        (ix)  The  Company  shall  have  reserved  out  of its
authorized and unissued Common Stock,  solely for the purpose of effecting the
conversion  of the  Convertible  Debentures,  shares of Common Stock to effect
the conversion of all of the Conversion Shares then outstanding.

                        (x)   The Irrevocable Transfer Agent Instructions,  in
form and substance  satisfactory  to the Buyer,  shall have been  delivered to
and acknowledged in writing by the Company's transfer agent.

                  (b)   The  obligation  of the  Buyer(s)  hereunder to accept
the   Convertible   Debentures  at  the  Second  Closing  is  subject  to  the
satisfaction,  at or before the Second  Closing Date, of each of the following
conditions:

                        (i)   The  Common  Stock  shall  be   authorized   for
quotation  on the  OTCBB,  trading  in the  Common  Stock  shall not have been
suspended  for any reason,  and all the  Conversion  Shares  issuable upon the
conversion of the Convertible Debentures shall be approved by the OTCBB.

                        (ii)  The   representations   and  warranties  of  the
Company  shall be true and  correct in all  material  respects  (except to the
extent that any of such  representations  and warranties is already  qualified
as to materiality in Section 3 above, in which case, such  representations and
warranties shall be true and correct without further  qualification) as of the
date when made and as of the Second  Closing  Date as though made at that time
(except for  representations  and warranties that speak as of a specific date)
and the Company shall have  performed,  satisfied and complied in all material
respects  with the  covenants,  agreements  and  conditions  required  by this
Agreement to be  performed,  satisfied  or complied  with by the Company at or
prior to the Second  Closing Date. If requested by the Buyer,  the Buyer shall
have received a  certificate,  executed by two officers of the Company,  dated
as of the Second  Closing Date,  to the foregoing  effect and as to such other
matters  as may  be  reasonably  requested  by the  Buyer  including,  without
limitation   an  update  as  of  the  Second   Closing  Date   regarding   the
representation contained in Section 3(c) above.

                                       17
<PAGE>

                        (iii) The Company  shall have  executed and  delivered
to the  Buyer(s)  the  Convertible  Debenture  in the  amount of Four  Hundred
Thousand Dollars ($400,000).

                        (iv)  The  Company  shall  have  consummated  a merger
with a public  entity and the  public  entity  shall  have filed all  required
public filings in connection with such transaction,  including audited and pro
forma financial statements.

                        (v)   As part of the merger,  the public  entity shall
have  assumed any and all  obligations  of the Company  relating to the Buyer,
including,  without limitation,  this Agreement, the Transaction Documents and
related  documents all of even date herewith.  The Company shall have provided
the Buyer with the relevant merger documents.

                        (vi)  Following the  consummation  of the merger,  the
public  entity or the  surviving  entity,  shall have  entered into a Security
Agreement with the Buyer,  providing a security  interest in the assets of the
public entity and all  subsidiaries  to secure the  obligations  of under this
Agreement  and under  the  Transaction  Documents.  The  public  entity or the
surviving  entity,  shall have filed a form UCC-1 with  regard to the  pledged
property and provided proof of such filing to the Buyer.

                        (vii) Following the consummation of the merger,  Barry
Brookstein  and Dean  Garfinkel  shall have  replaced the Pledged  Shares with
shares of common stock of the surviving entity.

                        (viii)      The  public   company  or  the   surviving
entity shall have entered into the  Subsequent  Pledge  Agreement  pursuant to
which the public  entity or the  surviving  entity  shall  provide the Buyer a
security  interest in the shares of the public entity or the surviving  entity
in such amount that  together  with the Pledged  Shares from Barry  Brookstein
and Dean Garfinkel  equals 51% of the  outstanding  stock of the public entity
or surviving  entity and shall have  delivered such shares to the Escrow Agent
along  with all  transfer  documents  as set  forth in the  Subsequent  Pledge
Agreement.

                        (viii)      No Events of Default  shall have  occurred
under this Agreement or the Transaction Documents.

                        (ix)  The  Company  shall  have   certified  that  all
conditions  to the Second  Closing  have been  satisfied  and that the Company
will  file the  Registration  Statement  with the SEC in  compliance  with the
rules  and  regulations  promulgated  by the SEC for  filing  thereof  two (2)
business days after the Second Closing.  If requested by the Buyer,  the Buyer
shall  have  received  a  certificate,  executed  by the two  officers  of the
Company, dated as of the Second Closing Date, to the foregoing effect.

                                       18
<PAGE>

            8. INDEMNIFICATION.

                  (a)   In   consideration   of  the  Buyer's   execution  and
delivery of this  Agreement and acquiring the  Convertible  Debentures and the
Conversion  Shares  hereunder,  and in addition to all of the Company's  other
obligations  under  this  Agreement,   the  Company  shall  defend,   protect,
indemnify  and hold  harmless  the  Buyer(s)  and  each  other  holder  of the
Convertible  Debentures and the Conversion  Shares, and all of their officers,
directors,   employees  and  agents (including,   without  limitation,   those
retained in connection with the  transactions  contemplated by this Agreement)
(collectively,  the "Buyer Indemnitees") from and against any and all actions,
causes of action, suits, claims, losses, costs,  penalties,  fees, liabilities
and damages,  and expenses in connection  therewith  (irrespective  of whether
any such Buyer  Indemnitee is a party to the action for which  indemnification
hereunder  is  sought),   and  including   reasonable   attorneys'   fees  and
disbursements   (the  "Indemnified   Liabilities"),   incurred  by  the  Buyer
Indemnitees  or any of them as a result of, or arising  out of, or relating to
(a) any  misrepresentation or breach of any representation or warranty made by
the Company in this  Agreement,  the  Convertible  Debentures  or the Investor
Registration  Rights  Agreement  or  any  other  certificate,   instrument  or
document  contemplated  hereby or  thereby,  (b) any  breach of any  covenant,
agreement or obligation  of the Company  contained in this  Agreement,  or the
Investor  Registration  Rights Agreement or any other certificate,  instrument
or document  contemplated  hereby or thereby, or (c) any cause of action, suit
or claim  brought  or made  against  such  Indemnitee  and  arising  out of or
resulting  from the  execution,  delivery,  performance or enforcement of this
Agreement or any other  instrument,  document or agreement  executed  pursuant
hereto  by  any of the  parties  hereto,  any  transaction  financed  or to be
financed in whole or in part,  directly or  indirectly,  with the  proceeds of
the  issuance  of the  Convertible  Debentures  or the  status of the Buyer or
holder of the  Convertible  Debentures  the Conversion  Shares,  as a Buyer of
Convertible  Debentures  in the  Company.  To the  extent  that the  foregoing
undertaking by the Company may be  unenforceable  for any reason,  the Company
shall make the maximum  contribution  to the payment and  satisfaction of each
of the Indemnified Liabilities, which is permissible under applicable law.

                  (b)   In  consideration  of  the  Company's   execution  and
delivery  of this  Agreement,  and in  addition  to all of the  Buyer's  other
obligations under this Agreement,  the Buyer shall defend, protect,  indemnify
and hold  harmless the Company and all of its officers,  directors,  employees
and agents (including,  without limitation,  those retained in connection with
the transactions contemplated by this Agreement) (collectively,  the "Company
Indemnitees")  from and against any and all Indemnified  Liabilities  incurred
by the  Indemnitees  or any of them as a result  of,  or  arising  out of,  or
relating  to (a) any  misrepresentation  or  breach of any  representation  or
warranty  made by the  Buyer(s)  in this  Agreement,  instrument  or  document
contemplated  hereby or thereby  executed by the Buyer,  (b) any breach of any
covenant,   agreement  or  obligation  of  the  Buyer(s)   contained  in  this
Agreement,   the  Investor   Registration   Rights   Agreement  or  any  other
certificate,  instrument or document  contemplated  hereby or thereby executed
by the  Buyer,  or (c) any  cause of  action,  suit or claim  brought  or made
against such Company  Indemnitee based on material  misrepresentations  or due
to a material  breach and  arising  out of or  resulting  from the  execution,
delivery,   performance  or  enforcement  of  this  Agreement,   the  Investor
Registration  Rights Agreement or any other instrument,  document or agreement
executed  pursuant  hereto by any of the  parties  hereto.  To the extent that
the foregoing  undertaking by each Buyer may be unenforceable  for any reason,
each  Buyer   shall  make  the  maximum   contribution   to  the  payment  and
satisfaction  of each of the  Indemnified  Liabilities,  which is  permissible
under applicable law.

                                       19
<PAGE>

            9. GOVERNING LAW: MISCELLANEOUS.

                  (a)   Governing  Law.  This  Agreement  shall be governed by
and  interpreted  in  accordance  with  the laws of the  State  of New  Jersey
without  regard to the  principles  of conflict of laws.  The parties  further
agree  that any  action  between  them  shall be heard in Hudson  County,  New
Jersey,  and expressly  consent to the  jurisdiction and venue of the Superior
Court of New Jersey,  sitting in Hudson County and the United States  District
Court for the  District  of New Jersey  sitting in Newark,  New Jersey for the
adjudication of any civil action asserted pursuant to this Paragraph.

                  (b)   Counterparts.  This  Agreement  may be executed in two
or more identical  counterparts,  all of which 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.  In the event any  signature
page is  delivered by  facsimile  transmission,  the party using such means of
delivery shall cause four (4) additional  original executed signature pages to
be  physically  delivered  to the  other  party  within  five  (5) days of the
execution and delivery hereof.

                  (c)   Headings.  The  headings  of  this  Agreement  are for
convenience   of  reference  and  shall  not  form  part  of,  or  affect  the
interpretation of, this Agreement.

                  (d)   Severability.  If  any  provision  of  this  Agreement
shall be invalid or  unenforceable  in any  jurisdiction,  such  invalidity or
unenforceability  shall not  affect  the  validity  or  enforceability  of the
remainder  of  this  Agreement  in  that   jurisdiction  or  the  validity  or
enforceability of any provision of this Agreement in any other jurisdiction.

                  (e)   Entire   Agreement,    Amendments.    This   Agreement
supersedes  all other prior oral or written  agreements  between the Buyer(s),
the Company,  their affiliates and persons acting on their behalf with respect
to the  matters  discussed  herein,  and this  Agreement  and the  instruments
referenced  herein  contain  the  entire  understanding  of the  parties  with
respect to the matters  covered herein and therein and, except as specifically
set forth  herein or  therein,  neither  the  Company  nor any Buyer makes any
representation,  warranty,  covenant  or  undertaking  with  respect  to  such
matters.  No provision of this  Agreement  may be waived or amended other than
by  an  instrument  in  writing  signed  by  the  party  to  be  charged  with
enforcement.

                  (f)   Notices.  Any  notices,  consents,  waivers,  or other
communications  required  or  permitted  to be given  under  the terms of this
Agreement  must be in writing  and will be deemed to have been  delivered  (i)
upon receipt,  when delivered  personally;  (ii) upon confirmation of receipt,
when  sent by  facsimile;  (iii)  three  (3)  days  after  being  sent by U.S.
certified mail,  return receipt  requested,  or (iv) one (1) day after deposit
with  a  nationally  recognized  overnight  delivery  service,  in  each  case
properly  addressed  to the party to  receive  the  same.  The  addresses  and
facsimile numbers for such communications shall be:

                                       20
<PAGE>

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

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

      If to the Buyer(s),  to its address and facsimile  number on Schedule I,
with  copies to the  Buyer's  counsel as set forth on  Schedule  I. Each party
shall  provide five (5) days' prior  written  notice to the other party of any
change in address or facsimile number.

                  (g)   Successors  and  Assigns.   This  Agreement  shall  be
binding  upon and inure to the  benefit of the  parties  and their  respective
successors  and  assigns.  Neither the Company nor any Buyer shall assign this
Agreement or any rights or  obligations  hereunder  without the prior  written
consent of the other party hereto.

                  (h)   No  Third  Party  Beneficiaries.   This  Agreement  is
intended for the benefit of the parties hereto and their respective  permitted
successors  and assigns,  and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.

                  (i)   Survival.  Unless this  Agreement is terminated  under
Section  9(l),  the  representations  and  warranties  of the  Company and the
Buyer(s)  contained  in Sections 2 and 3, the  agreements  and  covenants  set
forth in Sections 4, 5 and 9, and the indemnification  provisions set forth in
Section 8, shall  survive the Closing for a period of two (2) years  following
the date on which  the  Convertible  Debentures  are  converted  in full.  The
Buyer(s) shall be responsible  only for its own  representations,  warranties,
agreements and covenants hereunder.

                  (j)   Publicity.  The  Company and the  Buyer(s)  shall have
the right to approve,  before  issuance any press  release or any other public
statement  with respect to the  transactions  contemplated  hereby made by any
party;  provided,  however,  that the Company  shall be entitled,  without the
prior  approval of the  Buyer(s),  to issue any press  release or other public
disclosure  with  respect  to  such  transactions  required  under  applicable
securities  or other  laws or  regulations  (the  Company  shall  use its best
efforts to consult the Buyer(s) in  connection  with any such press release or
other public  disclosure  prior to its release and Buyer(s)  shall be provided
with a copy thereof upon release thereof).

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

                                       21
<PAGE>

                  (l)   Termination.  In the event that the Closing  shall not
have  occurred  with respect to the Buyers on or before five (5) business days
from the date hereof due to the  Company's  or the Buyer's  failure to satisfy
the  conditions  set forth in  Sections 6 and 7 above  (and the  non-breaching
party's failure to waive such  unsatisfied  condition(s)),  the  non-breaching
party shall have the option to terminate  this  Agreement with respect to such
breaching  party at the close of business on such date  without  liability  of
any party to any other party;  provided,  however,  that if this  Agreement is
terminated  by the Company  pursuant to this Section  9(l),  the Company shall
remain  obligated  to  reimburse  the  Buyer(s)  for the fees and  expenses of
Yorkville Advisors Management, LLC described in Section 4(g) above.

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

         [SIGNATURE PAGE FOLLOWS; REMAINDER PAGE INTENTIONALLY BLANK]

                                       22
<PAGE>

      IN  WITNESS  WHEREOF,  the  Buyers  and the  Company  have  caused  this
Securities  Purchase  Agreement  to be  duly  executed  as of the  date  first
written above.

                                         COMPANY:
                                         COMPLIANCE SYSTEMS CORPORATION

                                         By:_________________________________
                                         Name: Dean Garfinkel
                                         Title:      Chairman

                                       23
<PAGE>

                                  EXHIBIT A

                             DISCLOSURE SCHEDULE

      3.    REPRESENTATIONS AND WARRANTIES OF THE COMPANY

            (c)   Capitalization.  As  of  the  date  hereof,  the  authorized
capital  stock of the Company  consists of  40,000,000  shares of Common Stock
and no shares of Preferred Stock, of which  12,965,003  shares of Common Stock
are issued and outstanding.

            In August 2004,  the Company  entered into a consulting  agreement
with Leonard  Neuhaus for his services in connection  with obtaining  suitable
financing for the Company.  Under the terms of the consulting  agreement,  Mr.
Neuhaus  will  receive:  (x) a fee equal to 5% of the  initial  $1  million of
gross proceeds received by the Company or its  subsidiaries,  with such fee to
be paid  entirely in cash;  and (y) a fee equal to 5% of any amounts in excess
of  the  $1  million  of  gross  proceeds  received  by  the  Company  or  its
subsidiaries,  with such fee to be paid 50% in cash and 50% in common stock of
the  Company.  All fees  shall be paid at the  closing of the  transaction  to
which they relate.  The share price for all fees to be paid to Mr.  Neuhaus in
the form of common stock of the Company will be equal to the conversion  price
paid by Montgomery  Equity  Partners,  Ltd. to the Company in connection  with
Montgomery's  conversion of any  principal  amount in excess of the initial $1
million  debenture  issued by the Company or any successor to  Montgomery.  If
there  is more  than one  such  conversion,  then  the  conversion  price  for
purposes  of  calculating  the  fee  to be  paid  to  Mr.  Neuhaus  under  the
cosnulting  agreement  will  be the  last  one in  time.  Notwithstanding  the
foregoing,  in its sole  and  absolute  discretion,  the  Company  may pay Mr.
Neuhaus'  fee as  calculated  above  entirely in the form of cash.  All common
stock  issued  to Mr.  Neuhaus  as a fee  under the  consulting  agreement  in
connection with any transaction  with Montgomery will either be registered and
freely  tradable  or be included  and  registered  for resale  pursuant to the
Securities Act of 1933, as amended, in the first registration  statement filed
by the Company  following the transaction with /Montgomery for which such fees
were earned.

            As of the date hereof,  there are outstanding warrants to purchase
580,000  shares  of Common  Stock at $1.50  per  share.  These  warrants  will
expire on September 30, 2008.

            Please  refer to  Schedule  F-1 below for a list of the  Company's
debt securities.

            (t)   Certain  Transactions.  Dean Garfinkel and Alison  Garfinkel
each  loaned the  Company  $125,000.  Barry M.  Brookstein  loaned the Company
$750,000, and his wholly-owned company,  Spirits Management,  Inc., loaned the
Company  $125,000.  In addition,  monies totaling  $500,000 were borrowed from
Amanuensis, an independent third-party,  with Barry M. Brookstein acting as an
intermediary.   Although   Mr. Brookstein  is  President  of  Tele-Serv  Inc.,
Telemax Co., Inc., and Phone-Tel New Corp.,  he is not a shareholder of any of
these companies.

                                       24
<PAGE>

      4.    COVENANTS

            (d)   Use of Proceeds.  Please refer to Exhibit H attached  hereto
for the  Company's  Budget,  which details the proposed use of Proceeds by the
Company.

                                       25
<PAGE>

                                 Schdeule F-1

                        Compliance Systems Corporation
                         Schedule of Debt Securities
                            as of November 7, 2005

                                                                      Balance
                                                                    ------------

Secured Debt (UCCs Filed):
  Notes Payable - Robert Lippe                                         30,000.00

  Capitalized Leases Payable:
   Dell Financial Services                                              8,795.00
   Bank of the West                                                    32,849.00
   GE Capital                                                          27,756.00
   Axis Capital Inc.                                                   17,900.00
   M&T Credit Services LLC                                             18,080.00
   Netbank Business Finance (formerly Republic Leasing)                30,620.00
   US Bancorp                                                          35,615.00
                                                                    ------------
  Total Leases Payable                                                171,615.00

  Secured Lease - Ford Credit                                          10,400.00

Total Secured Debt                                                    212,015.00
                                                                    ------------

                                                                      Balance
                                                                    ------------

Unsecured Debt:
  AMGRO                                                                13,420.00
  Brad Friedman                                                        50,000.00
  Henry Ponzio                                                        237,500.00
  HSBC Bank                                                           100,000.00
  Phone-Tel New Corp                                                  163,376.00
  Spirits Management Inc.                                             163,376.00
  Tele-Serv Inc.                                                      108,917.00
  Telmax Co. Inc.                                                     108,917.00
  Amanuensis Ltd.                                                     500,000.00
  Spirits Management Inc.                                              11,826.00
  Alison Garfinkel                                                    125,000.00
  Dean Garfinkel                                                      125,000.00
  Barry M. Brookstein                                                 750,000.00
  Stock Repurchase Payable to Alison Garfinkel                         82,800.00
  Spirits Management Inc.                                             125,000.00
                                                                    ------------

Total Unsecured Debt                                                2,665,132.00
                                                                    ------------

Total                                                               2,877,147.00
                                                                    ============

<PAGE>

                                  EXHIBIT B

                                    BUDGET

                  [to be manually inserted at First Closing]

<PAGE>

                                  EXHIBIT C

                    SUBSEQUENT PLEDGE AND ESCROW AGREEMENT

<PAGE>

                                  SCHEDULE I

                             SCHEDULE OF BUYERS

<TABLE>
<CAPTION>
                                                    Address/Facsimile     Amount of
          Name                  Signature            Number of Buyer      Subscription
          ----                  ---------            ---------------      ------------
<S>                       <C>                    <C>                      <C>
Montgomery Equity         By:   Yorkville        101 Hudson Street -      $1,000,000
Partners, Ltd.            Advisors, LLC          Suite 3700
                          Its:  General Partner  Jersey City, NJ  07303
                                                 Facsimile:  (201)
                                                 985-8266

                          By:_________________
                          Name: Mark Angelo
                          Its:  Portfolio
                          Manager

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

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00103-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00103-of-00352.parquet"}]]