Document:

DATE:  MARCH 8, 2006

         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-3                                                             $1,000,000

                         COMPLIANCE SYSTEMS CORPORATION

                          SECURED CONVERTIBLE DEBENTURE

                               DUE: MARCH 7, 2008

      This Secured Convertible Debenture (the "Debenture") is issued on March 8,
2006 ("Closing Date") by COMPLIANCE  SYSTEMS  CORPORATION,  a Nevada 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.

      WHEREAS, the Obligor has issued to the Holder and the Holder has purchased
from the  Obligor a Secured  Convertible  Debenture  on  November  30, 2005 (the
"November  Debenture")  for a purchase  price of $600,000.  The entire  purchase
price of $600,000 was paid by the Holder on November  30,  2005.  As of the date
hereof, the outstanding principal on the November Debenture equals $600,000, and
all accrued  interest has been paid through the date hereof.  In accordance with
the  Securities  Purchase  Agreement,  the Holder has  surrendered  the November
Debenture  for  conversion  into this  Convertible  Debenture  and has funded an
additional Four Hundred Thousand  Dollars  ($400,000) for a total purchase price
of One Million Dollars.

      FOR VALUE  RECEIVED,  the Obligor hereby  promises to pay to the Holder or
its   successors   and  assigns  the  principal  sum  of  One  Million   Dollars
($1,000,000),  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:

<PAGE>

      Interest.  Interest  shall  accrue 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 days elapsed,
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 of 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 as the "Redemption Amount"). The Obligor shall deliver
to the Holder the  Redemption  Amount on the third (3rd)  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,
security agreements dated the date hereof between each subsidiary of the Obligor
and the  Holder  (the  "Subsidiary  Security  Agreements"),  a Pledge and Escrow
Agreement between Barry Brookstein,  the Holder,  and the Escrow Agreement dated
the date  hereof  (the  "Brookstein  Pledge  Agreement"),  a Pledge  and  Escrow
Agreement between Dean Garfinkel, the Holder, and the Escrow Agreement dated the
date hereof (the "Garfinkel Pledge Agreement") 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.

                                       2
<PAGE>

      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.

      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;

                                       3
<PAGE>

            (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;

            (v)   The  Common  Stock  shall  cease to be quoted  for  trading or
listed for  trading on either the Nasdaq  OTC  Bulletin  Board  ("OTC"),  Nasdaq
SmallCap 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);

            (vii) The  Obligor  shall  fail  to  file  the   Underlying   Shares
Registration Statement (as defined 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;

                                       4
<PAGE>

      (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.

      Section 3. Conversion.

      (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)(ii)  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  satisfy  its
conversion; or (4) the issuance of such shares of Common Stock would result in a
violation of Section 3(a)(ii),  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
(5th) 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.

                                       5
<PAGE>

            (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.

                  (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.

                                       6
<PAGE>

            (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  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)(i)(A).  For example,  if the Holder
purchases  Common  Stock  having a total  purchase  price of  $11,000 to cover 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) $0.10 (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   Debenture  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.

                                       7
<PAGE>

            (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 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 such issuance, be entitled to receive shares of Common Stock at a price per
share which is less than the Conversion  Price, such issuance shall be deemed to
have occurred for less than the Conversion  Price),  then, at the sole option of
the Holder,  the  Conversion  Price shall be adjusted to mirror the  conversion,
exchange or purchase  price for such Common  Stock or Common  Stock  Equivalents
(including any reset provisions thereof) at issue. Such adjustment shall be made
whenever such Common Stock or Common Stock  Equivalents are issued.  The 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.

                                       8
<PAGE>

            (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 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 exchange 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.

                                       9
<PAGE>

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

            (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.

                                       10
<PAGE>

      (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 rights
or any other actual contingent purchase rights of persons other than the Holder,
not less than such number of shares of the Common Stock as shall (subject to any
additional  requirements  of the  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  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:

                                       11
<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 Holder:             Montgomery Equity Partners, Ltd.
                              101 Hudson Street, Suite 3700
                              Jersey City, NJ 07303
                              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 and/or facsimile number and/or to the attention of such
other person as the  recipient  party has  specified by written  notice given to
each other  party three (3)  business  days prior to the  effectiveness  of such
change.  Written  confirmation  of receipt  (i) given by the  recipient  of such
notice,   consent,   waiver  or  other   communication,   (ii)  mechanically  or
electronically  generated by the sender's facsimile machine containing the time,
date,  recipient  facsimile  number  and an  image  of the  first  page  of such
transmission  or (iii) provided by a nationally  recognized  overnight  delivery
service, shall be rebuttable evidence of personal service,  receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.

      Section 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  13d-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  (50%) 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 set forth above in (a), (b) or (c).

                                       12
<PAGE>

      "Commission" means the Securities and Exchange Commission.

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

      "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 Subsidiary Security
Agreements, the Brookstein Pledge Agreement, the Garfinkel Pledge Agreement, the
Pledge and Escrow Agreement, and the Investor Registration Rights Agreement.

                                       13
<PAGE>

      "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  pari 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 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 non  conveniens  to the bringing of any such  proceeding  in such
jurisdictions.

                                       14
<PAGE>

      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 of the Holder to insist upon strict adherence to any term
of this Debenture on one or more  occasions  shall not be considered a waiver or
deprive that party of the right  thereafter  to insist upon strict  adherence to
that term or any other term of this Debenture. Any waiver must be in writing.

      Section 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.

      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]

                                       15
<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

                                       16
<PAGE>

                                    EXHIBIT A

                              NOTICE OF CONVERSION

        (TO BE EXECUTED BY THE HOLDER IN ORDER TO CONVERT THE DEBENTURE)

TO:

      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:              ______________________________________

ACCOUNT NUMBER:                           ______________________________________PLEDGE AND ESCROW AGREEMENT

      THIS PLEDGE AND ESCROW  AGREEMENT  (the  "Agreement")  is made and entered
into as of March 8, 2006 (the "Effective Date") by and among COMPLIANCE  SYSTEMS
CORPORATION, a corporation organized and existing under the laws of the State of
Nevada  (formerly GSA  Publications,  Inc.) (the "Pledgor"),  MONTGOMERY  EQUITY
PARTNERS,  LTD.,  (the  "Pledgee"),  and DAVID  GONZALEZ,  ESQ., as escrow agent
("Escrow Agent").

                                    RECITALS:

      WHEREAS,  in order to secure the full and prompt payment when due (whether
at the stated  maturity,  by  acceleration or otherwise) of all of the Company's
obligations (the  "Obligations")  to the Pledgee or any successor to the Pledgee
under this Agreement,  the Securities  Purchase  Agreement of even date herewith
between the Pledgor and the Pledgee (the "Securities Purchase  Agreement"),  the
Convertible Debentures (the "Convertible  Debentures") issued or to be issued by
the Pledgor to the Pledgee in connection with the Securities Purchase Agreement,
either now or in the future,  up to a total of One Million Dollars  ($1,000,000)
of principal,  plus any  interest,  costs,  fees,  and other amounts owed to the
Pledgee  thereunder,  the Security  Agreement of even date herewith  between the
Pledgor and the Pledgee  (the  "Security  Agreement"),  and all other  contracts
entered  into  between  the  parties  hereto  (collectively,   the  "Transaction
Documents"),  the Pledgor has agreed to irrevocably pledge to the Pledgee Twenty
Million  (20,000,000)  shares (the  "Pledged  Shares") of the  Pledgor's  common
stock.

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

                              TERMS AND CONDITIONS

      1.    PLEDGE AND TRANSFER OF PLEDGED SHARES.

            1.1.  The Pledgor  hereby  grants to Pledgee a security  interest in
all Pledged Shares as security for Pledgor's  obligations  under the Convertible
Debentures.  Simultaneously with the execution of the Transaction Documents, the
Pledgor shall deliver to the Escrow Agent stock  certificates  representing  the
Pledged  Shares,  together with duly executed stock powers or other  appropriate
transfer documents executed in blank by the Pledgor (the "Transfer  Documents"),
and such stock  certificates and Transfer  Documents shall be held by the Escrow
Agent  until  the full  payment  of all  amounts  due to the  Pledgee  under the
Convertible Debentures and through repayment in accordance with the terms of the
Convertible Debentures, or the termination or expiration of this Agreement.

      2.    RIGHTS RELATING TO PLEDGED  SHARES.  Upon the occurrence of an Event
of Default  (as  defined  herein),  the  Pledgee  shall be  entitled to vote the
Pledged Shares, to receive  dividends and other  distributions  thereon,  and to
enjoy all other rights and  privileges  incident to the ownership of the Pledged
Shares.

<PAGE>

      3.    RELEASE OF  PLEDGED  SHARES  FROM  PLEDGE.  Upon the  payment of all
amounts due to the Pledgee  under the  Convertible  Debentures  by  repayment in
accordance  with the terms of the  Convertible  Debentures,  the parties  hereto
shall  notify the Escrow  Agent to such effect in writing.  Upon receipt of such
written  notice  for  payment  of  the  amounts  due to the  Pledgee  under  the
Convertible  Debentures,  the  Escrow  Agent  shall  return to the  Pledgor  the
Transfer  Documents  and  the  certificates  representing  the  Pledged  Shares,
(collectively the "Pledged Materials"),  whereupon any and all rights of Pledgee
in the Pledged  Materials shall be terminated.  Notwithstanding  anything to the
contrary  contained herein,  upon full payment of all amounts due to the Pledgee
under the Convertible  Debentures,  by repayment in accordance with the terms of
the Convertible  Debentures,  this Agreement and Pledgee's security interest and
rights in and to the Pledged Shares shall terminate.

      4.    EVENT OF  DEFAULT.  An  "Event of  Default"  shall be deemed to have
occurred  under this  Agreement  upon an Event of Default under the  Transaction
Documents.

      5.    REMEDIES.

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

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

                                       2
<PAGE>

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

            5.4.  DEMAND REGISTRATION  RIGHTS. In addition to all other remedies
available to the Pledgee,  upon an Event of Default, the Pledgor shall promptly,
but in no event more than thirty (30) days after the date of the Default Notice,
file a  registration  statement  to register  with the  Securities  and Exchange
Commission the Pledged  Shares for the resale by the Pledgee.  The Pledgor shall
cause the  registration  statement  to remain in effect until all of the Pledged
Shares have been sold by the Pledgee.

      6.    CONCERNING THE ESCROW AGENT.

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

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

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

                                       3
<PAGE>

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

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

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

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

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

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

                                       4
<PAGE>

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

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

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

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

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

                                       5
<PAGE>

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

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

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

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

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

         [SIGNATURE PAGE FOLLOWS; REMAINDER OF PAGE INTENTIONALLY BLANK]

                                       6
<PAGE>

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

                              MONTGOMERY EQUITY PARTNERS, LTD.

                              By:  Yorkville Advisors, LLC
                              Its: General Partner

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

                              COMPLIANCE SYSTEMS CORPORATION

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

                              ESCROW AGENT

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

                                       7

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