Document:

Compliance
Systems Corporation

    

    18%
Senior Subordinated Secured Promissory Note

    

    
      
        	
                Dated:
      June, 24, 2009

              	
                Principal
      Amount: $150,000.00

              
	
                Glen
      Cove, New York

              	 
      

      

    

    

    For Value Received, the
undersigned, Compliance
Systems Corporation (together with its
successors and assigns, “Borrower”), a Nevada corporation, hereby promises to
pay to Henry A.
Ponzio, an
individual residing in the State of Connecticut (“Lender”), the principal sum
of  $150,000.00, together with interest as set forth
below.  This 18% Senior Subordinated Secured Promissory Note (this
“Note”) is issued (a) pursuant to, and is the “New Note” referred to, in that
certain Promissory Note Exchange Agreement, dated June 24, 2009 (the “Note
Exchange Agreement”), between Borrower and Lender, and (b) in connection with,
and is the “New Note” referred to in, that certain Security Agreement, dated
June 24, 2009 (the “Security Agreement”), between Borrower and
Lender.  This Note is made subject to the terms and conditions of the
Security Agreement as if set forth in full in this Note.

    

    1.           Interest
Rate.  Until an event of Default shall have occurred, the
principal amount evidenced by this Note shall bear interest at the rate of 18%
per annum, computed on the basis of a 360-day year for the actual number of days
elapsed (the “Applicable Interest Rate”).  Upon the occurrence of an
event of Default, the outstanding principal amount and any accrued but unpaid
interest thereon shall bear interest until paid at the Applicable Interest Rate
plus an
additional 2% per annum (the “Default Interest Rate”).

    

    2.           Payment Date; Payment Method;
Prepayment.

    

    (a)           Payment
Dates.  Payment of all accrued and unpaid interest due under
this Note shall be payable monthly, in arrears, on the first business day (each,
an “Interest Payment Date”) of each calendar month in which any principal amount
evidenced by this Note remains outstanding, commencing with July 1,
2010.  Payment of any outstanding principal amount evidenced by this
Note shall be made on January 1, 2011 (the “Maturity Date”).  Upon
payment in full of the principal evidenced by this Note (and any accrued but
unpaid interest thereon), Lender, by Lender’s acceptance of this Note, agrees to
mark this Note “CANCELLED” and return this Note as so marked to Borrower within
five days after such payment in full is received.  Notwithstanding the
immediately preceding sentence, the failure of Lender to mark this Note
“CANCELLED” and/or return this Note to Borrower upon payment in full of the
principal amount evidenced by this Note (and all accrued interest thereon) shall
not affect the fact that no amounts are due under this Note.  For
purposes of this Note, the term “business day” shall mean any day other than a
Saturday, Sunday or a day on which banking institutions in the State of New York
are authorized or obligated by law or executive order to close.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    (b)           Payment
Method.  Payment of the principal evidenced by this Note (and
any accrued but unpaid interest thereon) shall be made by check, subject to
collection, tendered to Lender, via postage-paid, first class mail, at the
address for the giving of notices as set forth in Section 8 of this
Note.

    

    (c)           Voluntary
Prepayment.  Borrower may pay, without penalty or premium, the
principal amount evidenced by this Note (and any accrued but unpaid interest
thereon), in whole or part, at any time up to the Maturity Date.  Any
partial prepayment shall first be applied against any accrued and unpaid
interest due under this Note and then to the principal amount evidenced by this
Note.  In the event of a voluntary prepayment being less than the full
amount outstanding under this Note (including any accrued but unpaid interest),
upon surrender of this Note in connection with said partial prepayment, Borrower
shall deliver to Lender a new note substantially in the form of this Note and
evidencing as principal any amount not so prepaid.  Notwithstanding
the immediately preceding sentence, following any partial prepayment of
principal evidenced by this Note, this Note shall be deemed to evidence a debt
of Borrower only to the extent of the remaining principal amount outstanding
following such partial repayment(s) (plus any accrued and unpaid
interest).

    

    3.           Default;
Acceleration.

    

    (a)           Any
of the following shall constitute an “event of Default” under this
Note:

    (i)           the
failure by Borrower to pay any amounts required to be paid under this Note on or
before the date on which such payment was due and such failure is not cured
within five business days of the giving of notice to Borrower by Lender of such
failure;

    (ii)          the
breach or noncompliance by Borrower of any of its material representations,
warranties or covenants contained in the Security Agreement and such breach or
noncompliance is not cured within five business days of the giving of notice to
Borrower by Lender of such breach or noncompliance;

    (iii)         Borrower
shall:

    (A)          apply
for or consent to the appointment of a receiver or trustee of Borrower’s
assets,

    (B)           make
a general assignment for the benefit of creditors,

    (C)           file
a petition or other request no matter how denominated (“Petition”) seeking
relief under Title 11 of the United States Code or under any other federal or
state bankruptcy, reorganization, insolvency, readjustment of debt, dissolution
or liquidation law or statute (“Bankruptcy Statute”), or

    (D)           file
an answer admitting the material allegations of a Petition filed against it in
any proceeding under any Bankruptcy Statute;

    (iv)         there
shall have entered against Borrower an order for relief under any Bankruptcy
Statute; or

    (v)         
a Petition seeking an order for relief under any Bankruptcy Statute is filed by
any one other than Borrower and without Borrower’s consent or agreement which is
not dismissed or stayed within 60 days after the date of such filing, or such
Petition is not dismissed upon the expiration of any stay
thereof.

    
      
         

      

      
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    (b)           Upon
the occurrence of an event of Default, the unpaid principal amount evidenced by
this Note (and any accrued but unpaid interest thereon) shall be immediately due
and payable.

    

    (c)           Until
the occurrence of an event of Default, the principal amount evidenced by this
Note shall bear interest at the Applicable Interest Rate and upon an event of
Default, any unpaid principal amount under this Note and any accrued but unpaid
interest through the date of effectiveness of such event of Default shall bear
interest until paid at the Default Interest Rate.

    

    4.           Subordination.

    

    (a)          Subordination.  This
Note shall at all times be wholly subordinate and junior in right of payment to
all Senior Indebtedness (as such capitalized term is defined below) to the
extent and in the manner provided in this section 4.

    

    (b)          Definitions.  As
used in this section 4 and section 12, the following capitalized terms shall
have the following meanings:

    (i)           “Indebtedness”
shall mean:

    (A)          all
indebtedness of Borrower for borrowed money or for the deferred purchase price
of property or services (other than current trade liabilities incurred in the
ordinary course of business and payable in accordance with customary
practices),

    (B)           any
other indebtedness of Borrower that is evidenced by a note, bond, debenture or
similar instrument,

    (C)          all
obligations of Borrower under financing leases,

    (D)          all
obligations of Borrower in respect of acceptances issued or
created,

    (E)           all
obligations of Borrower secured by any lien on property, other than Senior
Indebtedness, and

    (F)           all
guarantee obligations of Borrower;

    (ii)           “Senior
Covenant Default” shall mean any event of default as defined under any agreement
pertaining to Senior Indebtedness, other than a Senior Payment
Default;

    (iii)           “Senior
Indebtedness” means all Indebtedness of Borrower currently or in the future
outstanding to:

    (A)          Agile
Opportunity Fund, LLC (“Agile”) under those certain Amended and Restated Secured
Convertible Debentures of Borrower payable to Agile, each in the principal
amount of $300,000.00 and dated May 6, 2008 and September 2, 2008,
and

    (B)           Nascap
Corp. under that certain Guaranty Agreement, dated September 30, 2006, by
Borrower in favor of Nascap Corp.;

    (iv)           “Senior
Default” shall mean a Senior Payment Default or a Senior Covenant
Default;

    (v)           “Senior
Payment Default” shall mean any default in the payment of any Senior
Indebtedness; and

    
      
         

      

      
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    (vi)           “Subordinated
Indebtedness” shall mean all Indebtedness and other debt of  Borrower
other than Senior Indebtedness, and shall include Borrower’s obligations under
this Note.

    

    (c)          General.  Upon the
maturity of any Senior Indebtedness by lapse of time, acceleration, required
prepayment or otherwise, such Senior Indebtedness shall first be paid in full in
cash or in a manner satisfactory to the payees of such Senior Indebtedness, or
such payment duly provided for in cash or in a manner satisfactory to the payees
of such Senior Indebtedness, before any payment is made on account of the
Subordinated Indebtedness or by Borrower or Affiliates (as defined by Rule 12b-2
of the Securities Exchange Act of 1934, as amended) of Borrower to acquire this
Note.  Notwithstanding any provision in this section 4 to the
contrary,

    (i)           for
so long as no Senior Default has occurred and is continuing, or would occur as a
result of such a payment, Borrower may pay and Lender may receive and retain all
regularly scheduled payments of principal and interest (other than at the
Default Interest Rate) under this Note, and

    (ii)           for
so long as no Senior Default has occurred and is continuing, or would occur as a
result of any such prepayment, Borrower may prepay the principal amount
evidenced by this Note, in accordance with the provisions of paragraph 2(c), and
Lender may receive such prepayments.

    

    (d)          Limitation on
Payment.

    (i)           Upon
receipt by Borrower and Lender of a Blockage Notice (as such capitalized term is
defined below), then, unless and until

    (A)           all
Senior Defaults that gave rise to the Blockage Notice shall have been remedied
or effectively waived or shall have ceased to exist or

    (B)           the
Senior Indebtedness in respect of which such Senior Defaults shall have occurred
shall have been paid in full in cash or in a manner satisfactory to the payees
of such Senior Indebtedness, no direct or indirect payment (in cash, property,
securities or by set-off or otherwise) of or on account of the principal
evidenced by this Note, or accrued and unpaid interest or as a sinking fund for
this Note, or in respect of any redemption, retirement, purchase or other
acquisition of Note, shall be made.

    Notwithstanding
the foregoing, in the case of a Blockage Notice that relates to a Senior
Covenant Default, the foregoing restrictions shall commence upon Borrower’s
receipt of such Blockage Notice and shall expire 270 days
thereafter.  Any principal and interest paid by Lender with respect to
this Note prior to the receipt of the subject Blockage Notice may be kept by
Lender.

    (ii)           For
purposes of this Section 4, a “Blockage Notice” is a notice of the holder of
Senior Indebtedness given to Borrower and Lender that a Senior Default has in
fact occurred and is continuing.

    
      
         

      

      
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    Notwithstanding
any provision contained herein to the contrary, once all Senior Defaults which
gave rise to the subject Blockage Notice shall have been remedied or effectively
waived or shall have ceased to exist, or the Senior Indebtedness in respect of
which such Senior Defaults shall have occurred shall have been paid in full in
cash or in a manner satisfactory to the payees of such Senior Indebtedness,
thereafter (unless another Blockage Period shall then be in effect) all amounts
which would have been payable under this Note, but for the existence of the
Blockage Notice delivered with respect to the subject Senior Default, shall be
payable in their entirety.

    

    (e)          Limitation on
Remedies.

    (i)           As
long as any Senior Indebtedness remains outstanding, upon the occurrence of an
event of Default under this Note, Lender shall not, unless the payees of any
Senior Indebtedness shall have caused such Senior Indebtedness to become due
prior to its stated maturity or any event of Default pursuant to subparagraphs
3(a)(iii) through (v) of this Note shall have commenced, declare or join in any
declaration of this Note to be due and payable by reason of such event of
Default or otherwise take any action against Borrower (including, without
limitation, commencing any legal action against Borrower or filing or joining in
the filing of any insolvency petition against Borrower) or exercise or cause to
be exercised any other contractual rights available to Lender prior to the
expiration of 30 days after the written notice of Lender’s ability to accelerate
on account of the occurrence of such event of Default (a “Remedy Notice”) shall
have been given by Lender to Borrower and, to the extent known by Lender, the
payees of the Senior Indebtedness (a “Remedy Standstill Period”).

    (ii)           The
Remedy Standstill Period shall be inapplicable or cease to be effective if the
payees of any Senior Indebtedness shall have caused such Senior Indebtedness to
become due prior to its stated maturity or an event of Default pursuant to
subparagraphs 3(a)(iii) through (v) shall have occurred.

    (iii)           Upon
the expiration or termination of any Remedy Standstill Period, Lender shall be
entitled to exercise any of Lender’s rights with respect to this Note other than
any right to accelerate the maturity date of this Note based upon the occurrence
of any event of Default in respect thereto which has been cured or otherwise
remedied during the Remedy Standstill Period.

    

    (f)          Subordination Upon Certain
Events.  Upon the occurrence of any event of Default with
respect to Borrower under subparagraphs 3(a)(iii) through (v) of this
Note:

    (i)           upon
any payment or distribution of assets of Borrower to creditors of Borrower,
payees of Senior Indebtedness shall be entitled to receive indefeasible payment
in full of all obligations with respect to the Senior Indebtedness before Lender
shall be entitled to receive any payment in respect of the Subordinated
Indebtedness,

    (ii)           until
all Senior Indebtedness is paid in full in cash or in a manner satisfactory to
the payees of such Senior Indebtedness, any distribution to which Lender would
be entitled but for this section 4 shall be made to the payees of Senior
Indebtedness, as their interests may appear, except that Lender may, pursuant to
a plan of reorganization under Chapter 11 of the Bankruptcy Code of 1978, as
amended, or any similar provision of any successor legislation thereto, receive
securities that are subordinate to the Senior Indebtedness to at least the same
extent as this Note if pursuant to such plan the distributions to the payees of
the Senior Indebtedness in the form of cash, securities or other property, by
set-off or otherwise, provide for payment of the full amount of the allowed
claim of the payees of the Senior Indebtedness,

    
      
         

      

      
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    (iii)           for
purposes of this section 4, a distribution may consist of cash, securities or
other property, by set-off or otherwise, and

    (iv)           notwithstanding
the foregoing provisions of paragraphs 4(c) and (d) and this paragraph 4(f), if payment or delivery by
Borrower of cash, securities or other property to Lender is authorized by an
order or decree giving effect, and stating in such order or decree that effect
is given, to the subordination of this Note to the Senior Indebtedness, and made
by a court of competent jurisdiction in a proceeding under any applicable
bankruptcy or reorganization law, payment or delivery by such Borrower of such
cash, securities or other property shall be made to Lender in accordance with
such order or decree.

    

    (g)          Payments and Distributions
Received.  If Lender shall have received any payment from or
distribution of assets of Borrower in respect of the Subordinated Indebtedness
in contravention of the terms of this section 4 before all Senior Indebtedness
is paid in full in cash or in a manner satisfactory to the payees of such Senior
Indebtedness, then, and in such event, such payment or distribution shall be
received and held in trust for and shall be promptly paid over or delivered to
the payees of Senior Indebtedness to the extent necessary to pay all such Senior
Indebtedness in full in cash or in a manner satisfactory to the payees of such
Senior Indebtedness.

    

    (h)          Proofs of
Claim.  If, while any Senior Indebtedness is outstanding, any
event of Default under subparagraphs 3(a)(iii) through (v) occurs with respect
to Borrower, Lender shall duly and promptly take such action as any payee of
Senior Indebtedness may reasonably request to collect any payment with respect
to this Note for the account of the payees of the Senior Indebtedness and to
file appropriate claims or proofs of claim in respect of this
Note.  Upon the failure of Lender to take any such action, each payee
of Senior Indebtedness is hereby irrevocably authorized and empowered (in its
own name or otherwise), but shall have no obligation, to demand, sue for,
collect and receive every payment or distribution referred to in respect of this
Note and to file claims and proofs of claim and take such other action as it may
deem necessary or advisable for the exercise or enforcement of any of the rights
or interests of Lender with respect to this Note.

    

    (i)           Subrogation.  After
all amounts payable under or in respect of Senior Indebtedness are paid in full
in cash or in a manner satisfactory to the payees of such Senior Indebtedness,
Lender shall be subrogated to the rights of payees of Senior Indebtedness to
receive payments or distributions applicable to Senior Indebtedness to the
extent that distributions otherwise payable to Lender have been applied to the
payment of Senior Indebtedness.  A distribution made under this
section 4 to a payee of Senior Indebtedness which otherwise would have been made
to Lender is not, as between Borrower and Lender, a payment by Borrower on
Senior Indebtedness.

    

    (j)           Relative Rights.  By
acceptance of this Note, Lender agrees that this section 4 defines the relative
rights of Lender and the payees of Senior Indebtedness.  Nothing in
this section 4 shall:

    
      
         

      

      
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    (i)           impair,
as between Borrower and Lender, the obligations of Borrower, which are absolute
and unconditional, to pay the principal amount evidenced by this Note (and
accrued and unpaid interest, including default interest) in accordance with its
terms;

    (ii)         affect
the relative rights of Lender and creditors of Borrower other than payees of
Senior Indebtedness or

    (iii)         prevent
Lender from exercising Lender’s available remedies upon an event of Default,
subject to the rights, if any, under this section 4 of payees of Senior
Indebtedness.

    

    (k)          Subordination May Not Be Impaired by
Borrower.  No right of any payee of any Senior Indebtedness to
enforce the subordination of the Indebtedness evidenced by this Note shall be
impaired by any failure to act by Borrower or such payee of Senior Indebtedness
or by the failure of Borrower or such payee to comply with the terms of the
Secured Notes, including this Note.  The provisions of this section 4
shall continue to be effective or be reinstated, as the case may be, if at any
time any payment of any of the Senior Indebtedness is rescinded or must
otherwise be returned by any payee of Senior Indebtedness as a result of the
insolvency, bankruptcy or reorganization of Borrower or any of its subsidiaries
or otherwise, all as though such payment had not been made.

    

    (l)           Payments.  A payment
with respect to principal of or interest on the Subordinated Indebtedness shall
include, without limitation, payment of principal evidenced by this Note (and
accrued and unpaid interest), any depositing of funds for the defeasance of the
Subordinated Indebtedness, any sinking fund and any payment on account of
mandatory prepayment or optional prepayment provisions.

    

    (m)         Section Not to Prevent Events of
Default.  The failure to make a payment on account of principal
of or interest on or other amounts constituting Subordinated Indebtedness by
reason of any provision of this section 4 shall not be construed as preventing
the occurrence of an event of Default under section 3.

    

    (n)         Subordination Not Impaired; Benefit
of Subordination.  By acceptance of this Note, Lender
acknowledges and consents that, without notice to or assent by Lender, and
without affecting the liabilities and obligations of Borrower and the rights and
benefits of the payees of  Senior Indebtedness set forth in this
section 4:

    (i)           the
obligations and liabilities of Borrower and any other party or parties for or
upon the Senior Indebtedness may, from time to time, be increased, renewed,
refinanced, extended, modified, amended, restated, compromised, supplemented,
terminated, waived or released;

    (ii)          the
payees of Senior Indebtedness, and any representative or representatives acting
on behalf thereof, may exercise or refrain from exercising any right, remedy or
power granted by or in connection with any agreements relating to Senior
Indebtedness; and

    (iii)         any
balance or balances of funds with any payee of Senior Indebtedness at any time
outstanding for the credit of Borrower may, from time to time, in whole or in
part, be surrendered or released;

    
      
         

      

      
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    all as
the payees of the Senior Indebtedness, and any representative or representatives
acting on behalf thereof, may deem advisable, and all without impairing,
abridging, diminishing, releasing or affecting the subordination of the
Subordinated Indebtedness to the Senior Indebtedness provided for
herein.

    

    (o)          Modification of Section
4.  The provisions of this section 4 are for the benefit of the
payees of Senior Indebtedness and, so long as any Senior Indebtedness remains
unpaid, may not be modified, rescinded or canceled in whole or in part without
the prior written consent thereto of all payees of Senior
Indebtedness.

    

    (p)          Covenants of
Lender.  By acceptance of this Note, Lender is agreeing and
consenting that, until all of the Senior Indebtedness has been fully
paid:

    (i)           Lender
shall not give any subordination in respect of this Note;

    (ii)          Lender
shall not release, exchange, extend the time of payment of, compromise, set off
or otherwise discharge any part of this Note or modify or amend this Note;
and

    (iii)         for
the benefit of the payees of Senior Indebtedness, upon the occurrence and during
the continuance of a Senior Default, Lender shall take any actions reasonably
requested by any payee of Senior Indebtedness to effectuate the full benefit of
the subordination contained herein.

    

    (q)          Miscellaneous.

    (i)           To
the extent permitted by applicable law, Lender and Borrower hereby
waive:

    (A)           notice
of acceptance of the terms of this Agreement by the payees of the Senior
Indebtedness and

    (B)           all
diligence in the collection or protection of or realization upon the Senior
Indebtedness.

    (ii)           Borrower
and Lender hereby expressly acknowledge that the payees of Senior Indebtedness
may enforce any and all rights derived herein by suit, either in equity or law,
for specific performance of any agreement contained in this section 4 or for
judgment at law and any other relief whatsoever appropriate to such action or
procedure.

    (iii)           Lender
acknowledges and consents that the foregoing subordination provisions are, and
are intended to be, an inducement and a consideration to each payee of Senior
Indebtedness, whether such Senior Indebtedness was created or acquired before or
after the issuance of this Note, and each payee of Senior Indebtedness shall be
deemed conclusively to have relied upon such subordination provisions in
acquiring and continuing to hold such Senior Indebtedness.

    

    5.           Enforcement.  All
disputes regarding the enforcement or construction of this Note shall be
resolved in accordance with the Security Agreement and may not be resolved
independently of the enforcement or construction of the Security Agreement which
has been made a part hereof.

    
      
         

      

      
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    6.           Applicable Law; Jurisdiction; Waiver
Of Jury Trial.  THIS NOTE SHALL BE GOVERNED BY AND INTERPRETED
UNDER THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE
PERFORMED THEREIN, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF
LAW.  BORROWER HEREBY IRREVOCABLY CONSENTS THAT ANY LEGAL ACTION OR
PROCEEDING AGAINST BORROWER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS
AGREEMENT MAY BE INSTITUTED IN ANY STATE COURT OF GENERAL JURISDICTION LOCATED
IN EITHER THE COUNTIES OF NASSAU OR SUFFOLK OF THE STATE OF NEW YORK, OR THE
UNITED STATES FEDERAL COURT FOR THE EASTERN DISTRICT OF NEW YORK AND BORROWER
HEREBY SUBMITS TO THE JURISDICTION AND VENUE OF SUCH COURTS.  BORROWER
FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS ARISING OUT OF ANY OF THE
AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES
THEREOF BY POSTAGE PREPAID CERTIFIED OR REGISTERED FIRST-CLASS MAIL, RETURN
RECEIPT REQUESTED, TO BORROWER.  THE FOREGOING, HOWEVER, SHALL NOT
LIMIT THE RIGHT OF LENDER TO SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW OR TO COMMENCE ANY LEGAL ACTION OR PROCEEDING OR TO OBTAIN EXECUTION OF
JUDGMENT IN ANY APPROPRIATE JURISDICTION.  IN THE EVENT OF LITIGATION
BETWEEN THE PARTIES OVER ANY MATTER CONNECTED WITH THIS AGREEMENT, THE RIGHT TO
A TRIAL BY JURY IS HEREBY WAIVED BY SUCH PARTIES.

    

    7.           Parties in
Interest.  This Note is non-negotiable and may not be sold,
assigned or otherwise transferred (except under will or laws of succession
applicable to Lender) without the prior written consent of Borrower and Lender
and shall bind both parties hereto and their respective heirs, successors and
permitted assigns.

    

    8.           Notices.  All
requests, demands, notices and other communications required or otherwise given
under this Agreement shall be sufficiently given if (a) delivered by hand,
against written receipt therefor, (b) forwarded by overnight courier requiring
acknowledgment of receipt or (c) mailed by postage prepaid, registered or
certified mail, return receipt requested, addressed, in the case of clauses (b)
or (c) of this section 8 as follows:

    

    
      
        
          
            	
                    If
      to Borrower, to:

                  	 
      	
                    Dean
      Garfinkel, President

                  
	 
      	 
      	
                    Compliance
      Systems Corporation

                  
	 
      	 
      	
                    90
      Pratt Oval

                  
	 
      	 
      	
                    Glen
      Cove, New York 11542

                  
	 
      	 
      	 
      
	
                    with
      a copy to:

                  	 
      	
                    Dennis
      C. O’Rourke, Esq.

                  
	 
      	 
      	
                    Moritt
      Hock Hamroff & Horowitz LLC

                  
	 
      	 
      	
                    400
      Garden City Plaza

                  
	 
      	 
      	
                    Garden
      City, New York
11530

                  

          

        

      

    

     

    
      
         

      

      
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                    If
      to Lender, to:

                  	 
      	
                    Henry
      A. Ponzio

                  
	 
      	 
      	
                    446
      Main Street – Unit 15

                  
	 
      	 
      	
                    Old
      Saybrook, Connecticut
06475

                  

          

        

      

    

    

    or, in
the case of any of the parties hereto, at such other address as such party shall
have furnished in writing, in accordance with this section 8, to the other
parties hereto.  Each such request, demand, notice or other
communication shall be deemed given (x) on the date of delivery by hand, (y) on
the first business day following the date of delivery to an overnight courier or
(z) three business days following mailing by registered or certified
mail.

    

    9.           Waiver.

    

    (a)           The
rights and remedies of Lender under this Note shall be cumulative and not
alternative.  No waiver by Lender of any right or remedy under this
Note shall be effective unless in writing signed by Lender.  Neither
the failure nor any delay in exercising any right, power or privilege under this
Note will operate as a waiver of such right, power or privilege and no single or
partial exercise of any such right, power or privilege by Lender will preclude
any other or further exercise of such right, power or privilege or the exercise
of any other right, power or privilege.  To the maximum extent
permitted by applicable law,

    (i)           no
claim or right of the Lender arising out of this Note can be discharged by the
Lender, in whole or in part, by a waiver or renunciation of the claim or right
unless in a writing, signed by the Lender;

    (ii)          no
waiver that may be given by the Lender will be applicable except in the specific
instance for which it is given; and

    (iii)         no
notice to or demand on the Borrower will be deemed to be a waiver of any
obligation of the Borrower or of the right of the Lender to take further action
without notice or demand as provided in this Note.

    

    (b)           Borrower
hereby waives all right to notice of acceptance, default, presentment, and
notice of dishonor.

    

    10.         Severability.  If
any provision in this Note is held invalid or unenforceable by any court of
competent jurisdiction, the other provisions of this Note will remain in full
force and effect.  Any provision of this Note held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.

    

    11.         Section Headings;
Construction.  The headings of sections and paragraphs in this
Note are provided for convenience only and will not affect its construction or
interpretation.  All references to "section," “paragraph,”
“subparagraph" and “clause” refer to the corresponding section, paragraph,
subparagraph or clause of this Agreement, as the case may be, unless otherwise
specified.  All words used in this Note will be construed to be of
such gender or number as the circumstances require.  Unless otherwise
expressly provided, the words "hereof" and "hereunder" and similar references
refer to this Note in its entirety and not to any specific section or subsection
hereof.

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    12.         Usury.  Anything in
this Note to the contrary notwithstanding, the obligation of Borrower to make
payments of interest shall be subject to the limitation that payments of
interest shall not be required to be made to the extent that Lender’s receipt of
such payments of interest would not be permissible under the law or laws
applicable to Lender limiting rates of interest which may be charged or
collected by Lender.  Any such amount of interest which is not paid as
a result of the limitation referred to in the preceding sentence shall be
carried forward and paid, if ever, by Borrower to Lender on the earliest date or
dates on which any interest is payable under this Note and on which the receipt
of such payment is permissible under the laws applicable to Lender limiting
rates of interest which may be charged or collected by Lender.

    

    13.         Time is of the
Essence.  Wherever time is specified for the doing or
performance of any act herein, time shall be considered of the
essence.

    

    14.         Security.  The
obligations of Borrower under this Note are secured pursuant to the terms of
that certain Security Agreement, dated June 24, 2009, between Borrower and
Lender.

    

    IN WITNESS WHEREOF, this Note
has been duly executed and delivered as of the date first above
written.

    

    
      
        
          	 
      	
                  Compliance
      Systems Corporation

                
	 
      	 
      	 
      
	 
      	
                  By:

                	
                  /s/ Dean Garfinkel

                
	 
      	 
      	
                  Dean
      Garfinkel, President

                

        

      

    

    

    
      
        	
                ATTEST:

              
	 
      	 
      
	
                By:

              	
                /s/ Barry M. Brookstein

              
	 
      	
                Barry
      M. Brookstein, Secretary

              

      

    

    

    
      
         

      

      
        11SECURITY
AGREEMENT

     

    This
Security Agreement (this “Agreement”), made and entered
into June 24, 2009, is by and between Compliance Systems Corporation, a Nevada
corporation (“Borrower”), and Henry A.
Ponzio, a resident of the State of Connecticut (“Lender”).

    

    WHEREAS, Borrower is indebted
to Lender in the principal amount of $150,000 as of the date of this Agreement
and such indebtedness is evidenced by a demand promissory note of Borrower,
dated April 27, 2006 (the “Original Note”), in favor of
Lender;

    

    WHEREAS, pursuant to that
certain Promissory Note Exchange Agreement, dated as of the date of this
Agreement (the “Note Exchange
Agreement”), between Borrower and Lender, Lender is, simultaneously with
the delivery of this Agreement by Borrower to Lender, exchanging an 18% Senior
Subordinated Secured Promissory Note of Borrower, dated the date of this
Agreement (the “New
Note”), in favor of Lender for the Original Note;

    

    WHEREAS, as security for
payment and performance of Borrower’s obligations under the New Note, and in
accordance with the terms of the Note Exchange Agreement, Borrower has agreed to
grant, and is by executing this Agreement granting, to Lender a security
interest in certain of Borrower’s property and assets, to the extent set forth
in this Agreement;

    

    WHEREAS, Lender would not be
willing to exchange the New Note for the Original Note, nor willing to enter
into the Note Exchange Agreement, if Borrower were not willing to, and did not,
grant Lender a security interest in certain of Borrower’ property and assets, to
the extent set forth in this Agreement; and

    

    WHEREAS, all capitalized terms
not otherwise defined in this Agreement shall have the meanings assigned to such
capitalized terms in Article 9 of the Uniform Commercial Code (the "UCC") as in
effect in New York, and such definitions are hereby incorporated in this
Agreement by reference and made a part hereof.

    

          
    NOW,
THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, for other good and valuable consideration, the
sufficiency and receipt of which is hereby acknowledged, and in order to induce
Lender to enter into the Note Exchange Agreement and exchange the New Note for
the Original Note, the parties to this Agreement, intended to be legally bound,
agree as follows:

    

    1.        
   GRANT OF SECURITY INTEREST.

    

     (a)           As
collateral security for the timely payment and satisfaction of all obligations
and liabilities of Borrower under the New Note (each, a “Secured Obligation”), Borrower
hereby affirms, grants, pledges and assigns to the Lender a security interest
(the “Security Interest”)
in and to all of the following property of Borrower, whether now owned or
existing or hereafter acquired or arising and wheresoever
located:

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    

    (i)         All
tangible and intangible assets of Borrower of whatever kind and nature
(including, without limitation, all intellectual property of whatever kind or
nature of Borrower including patents, trademarks, tradenames, copyrights and all
other intellectual property and any applications or registrations therefor,
accounts (“Accounts”),
chattel paper, commercial tort claims, documents, equipment, farm products,
general intangibles, instruments, inventory, investment property, and the stock
of all of Borrower’s subsidiaries), in each case whether now owned or hereafter
acquired and wherever located, and all proceeds thereof, together with all
proceeds, products, replacements and renewals thereof; and

    (ii)        All
books and records relating to any of the Collateral (as such capitalized term is
defined below) (including, without limitation, customer data, credit files,
computer programs, printouts and other computer materials and records of
Borrower pertaining to any of the assets of Borrower referred to in clause (i)
of this paragraph 2(a)).

     

    All of the property and interests in
property described in clauses (i) and (ii) of this paragraph 2(a) are
collectively referred to in this Agreement as the “Collateral.”

    

    (b)           Notwithstanding
anything to the contrary contained in this Agreement, the Security Interest
shall be subordinated to the security interests in the Collateral previously
granted by Borrower to Nascap Corp., Agile Opportunity Fund, LLC and Henry A.
Ponzio (collectively, and as amended, modified or enlarged in any respect, the
“Previously Granted Security
Interests”) and the Security Interest shall be and remain subordinated to
the Previously Granted Security Interests.

    

    2.           FINANCING
STATEMENTS.  Borrower authorizes Lender to file financing
statements limited to the Collateral as prescribed by Article 9 of the UCC and
the Uniform Commercial Code as presently in effect under the laws of all other
applicable jurisdictions, prepared and approved by Lender in form and number
sufficient for filing wherever required with respect to the Collateral, in order
that Lender shall have a duly perfected security interest of record in the
Collateral following the filing of such financing statements with the
appropriate local and state governmental authorities.  Borrower
authorizes Lender to prepare and file such financing statements without
Borrower’s signature where permitted under the laws of the applicable
jurisdictions.

    

    3.           MAINTENANCE
OF SECURITY INTEREST.

    

    (a)           Subject
to the rights of the holders of the Previously Granted Security Interests,
Borrower will, from time to time, upon the request of the Lender, deliver
specific assignments of Collateral, together with such other instruments and
documents, financing statements, amendments thereto, assignments or other
writings as Lender may reasonably request to carry out the terms of this
Agreement or to protect or enforce the Security Interest in the
Collateral.

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    

    (b)           With
respect to any and all Collateral to be secured and conveyed under this
Agreement, Borrower agrees to do and cause to be done all things necessary to
perfect and keep in full force the Security Interest granted in favor of the
Lender, including, but not limited to, the filing of any amendments to
previously filed financing statements and the prompt payment of all fees and
expenses incurred in connection with any filings made to perfect or continue the
Security Interest in favor of Lender.

    

    (c)           Borrower
agrees to make appropriate entries upon its financial statements and books and
records disclosing the Security Interest granted to Lender pursuant to this
Agreement.

    

    4.           RECEIPT OF
PAYMENT.  In the event an Event of Default (as such capitalized
term is defined below) shall occur and be continuing and Borrower (or any of its
affiliates, subsidiaries, stockholders, directors, officers, employees or
agents) shall receive any proceeds of Collateral, including, without limitation,
monies, checks, notes, drafts or any other items of payment, subject to the
rights of the holders of the Previously Granted Security Interests, Borrower
shall hold all such items of payment in trust for, and for the benefit and as
the property of, Lender, and no later than the first Business Day (as defined
hereinafter) following the receipt of such proceeds, Borrower shall cause the
same to be forwarded to Lender for Lender’s custody and possession as additional
Collateral.  For purposes of this Agreement, the term “Business Day” shall mean any
day on which banks are open for business and are neither required nor authorized
to close in the State of New York.

    

    5.           COLLECTIONS;
LENDER'S RIGHT TO NOTIFY ACCOUNT DEBTORS AND TO ENDORSE BORROWER’S
NAME.

    

    (a)           Borrower
hereby authorizes Lender, at all times after the occurrence and during the
continuation of an Event of Default, but subject to the rights of the holders of
the Previously Granted Security Interests, to:

    (i)        
   to open Borrower’s mail and collect any and all amounts due to
Borrower from parties obligated on any of Borrower’s Accounts ("Account
Debtors");

    (ii)           to
take over Borrower’s post office boxes or make other arrangements as Lender
deems necessary to receive Borrower’s mail, including notifying the post office
authorities to change the address for delivery of Borrower’s mail to such
address as Lender may designate; and

    (iii)          to
notify any or all Account Debtors that their respective Accounts have been
assigned to Lender and that Lender has a security interest in the Accounts
(provided that Lender may at any time give such notice to an Account Debtor that
is a department, agency or authority of the United States
government).

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    (b)           Borrower,
at all times after the occurrence and during the continuation of an Acceleration
Event (as such capitalized term is defined below), but subject to the rights of
the holders of the Previously Granted Security Interests, irrevocably makes,
constitutes and appoints Lender (and all agents designated by Lender for that
purpose) as Borrower’s true and lawful attorney (and agent-in-fact) to endorse
Borrower’s name on any checks, notes, drafts or any other payment relating to or
constituting proceeds of the Collateral which comes into Lender's possession or
Lender's control, and deposit the same to the account of Lender on account and
for payment of the Secured Obligations.  Lender shall promptly furnish
Borrower with a copy of any such notice sent with respect to Collateral pursuant
to this section 5 and Borrower hereby agrees that any such notice, in Lender's
sole discretion, may be sent on Borrower’s stationery, in which event Borrower
shall co-sign such notice with Lender.  For purposes of this
Agreement, the term “Acceleration Event” means
that:

    (i)        
   an Event of Default has occurred and is continuing
and

    (ii)           the
Secured Obligations have become due and payable (whether by acceleration, at
final maturity or otherwise).

    

    6.           COVENANTS.  Borrower
covenants with Lender that from and after the date of this Agreement until
termination of this Agreement in accordance with section 21:

    

    (a)           Inspection.  Lender
(directly or through Lender’s agents) shall have the right, upon reasonable
request and prior notice, and at any reasonable times during Borrower’s usual
business hours, to inspect the Collateral, all records related to the Collateral
(and to make extracts or copies from such records), and the premises upon which
any of the Collateral is located, to discuss Borrower’s affairs and finances
with any party (other than Account Debtors) and to verify with any party other
than Account Debtors the amount, quality, quantity, value and condition of, or
any other matter relating to, the Collateral and, if an Event of Default has
occurred and is continuing, to discuss Borrower’s affairs and finances with
Account Debtors and to verify the amount, quality, value and condition of, or
any other matter relating to, the Collateral and such Account Debtors. Upon or
after the occurrence and during the continuation of an Acceleration Event,
Lender may at any time and from time to time employ and maintain on Borrower’s
premises a custodian selected by Lender who shall have full authority to do all
acts necessary to protect Lender’s interest.  All expenses incurred by
Lender by reason of the employment of such custodian shall be paid by Borrower,
added to the Secured Obligations and secured by the Collateral.

    

    (b)           Assignments, Records and
Schedules of Accounts.  Borrower shall keep accurate and
complete records of its Accounts (“Account Records”) and from
time to time, at intervals designated by Lender, Borrower shall provide Lender
with a schedule (each, a “Schedule of Accounts”) of
Account Records in form and substance reasonably acceptable to Lender describing
all Collateral created or acquired by Borrower; provided, however, that
Borrower’s failure to execute and deliver any Schedule of Accounts shall not
affect or limit the Security Interest or Lender's other rights in and to any
Collateral for the benefit of Lender.  If requested by Lender,
Borrower shall furnish Lender with copies of proof of delivery and other
documents relating to the Collateral so scheduled, including, without
limitation, repayment histories and present status reports (collectively, “Account Documents”) and such
other matter and information relating to the status of then existing Collateral
as Lender shall reasonably request.  Borrower shall not remove any
Account Records or Account Documents or change its chief executive offices from
the address set forth on Schedule A to this Agreement
without 30 days prior written notice to Lender as provided in section 16 and
delivery to Lender by Borrower prior to such removal of executed financing
statements, amendments and other documents necessary to maintain the Security
Interest as granted under this Agreement.

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    

    (c)           Notice Regarding Disputed
Accounts.  In the event any amounts due and owing in excess of
$25,000 are in dispute between any Account Debtor and Borrower (which shall
include, without limitation, any dispute in which an offset claim or
counterclaim may result), Borrower shall provide Lender with written notice of
such dispute as soon as practicable, explaining in detail the reason for the
dispute, all claims related to the dispute and the amount in
controversy.

    

    (d)           Verification of
Accounts.  If an Event of Default has occurred and is
continuing, any of Lender's agents shall have the right, at any reasonable time
or times hereafter, to verify with Account Debtors the validity, amount or any
other matter relating to any Accounts and, whether or not an Event of Default
has occurred, any of Lender's agents shall have the right to verify the same
with Borrower.

    

    (e)           Corporate Name; Jurisdiction
of Incorporation.  Borrower shall not (i) change or otherwise
modify its corporate name in any respect, (ii) reincorporate in a jurisdiction
other than Nevada or (iii) merge, convert or otherwise change its form of
organization from a Nevada corporation without 30 days prior written notice to
Lender in each instance.  Upon the request of Lender, the chief
executive officer of Borrower shall execute and deliver a certificate to Lender,
in form reasonably satisfactory to Lender, certifying that no change has been
made to Borrower’s corporate name, organization or jurisdiction of incorporation
since the date of this Agreement or the last notice of change provided pursuant
to this section 6(e) was given, as the case may be.

    

    7.           WARRANTIES AND REPRESENTATIONS
REGARDING COLLATERAL GENERALLY.  Borrower warrants and
represents that Borrower is and will continue to be the owner of the Collateral,
now owned and upon the acquisition of the same, free and clear of all liens,
claims, charges, encumbrances and security interests (“Liens”) other than the
Previously Granted Security Interests or security interests in the Collateral
specifically junior and subordinated to the Security Interest, and that Borrower
will defend such Collateral and any products and proceeds of the Collateral
against all claims and demands of all parties at any time claiming the same or
any interest in the Collateral adverse to Lender, other than claims or demands
by holders of the Previously Granted Security Interests.

    

    8.           COLLATERAL WARRANTIES AND
REPRESENTATIONS. With respect to the Collateral, Borrower warrants and
represents to Lender that Lender may rely on all statements or representations
made by Borrower on or with respect to any Schedule of Accounts prepared and
delivered by it and that:

    (i)           All
Account Records and Account Documents are located only at Borrower’s location as
set forth on Schedule A to this Agreement and incorporated herein by
reference;

    (ii)          The
Collateral is genuine, are in all respects what they purport to be, are not
evidenced by an instrument or document or, if evidenced by an instrument or
document, are only evidenced by one original instrument or
document;

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    

    (iii)          The
Collateral covers, in part, bona fide sales and deliveries of inventory usually
dealt in by Borrower, or the rendition by Borrower of services, to an Account
Debtor in the ordinary course of business; 

    (iv)          The
amounts of the face value shown on any Schedule of Accounts or invoice statement
delivered to the Lender with respect to any Collateral, as applicable, are
actually owing to Borrower and are not contingent for any reason; and there are
no setoffs, discounts, allowances, claims, counterclaims or disputes of any kind
or description in an amount greater than $25,000 in the aggregate, or greater
than $5,000 individually, existing or asserted with respect thereto and Borrower
has not made any agreement with any Account Debtor thereunder for any deduction
therefrom, except as may be stated in the Schedule of Accounts and reflected in
the calculation of the face value of each respective invoice related
thereto;

    (v)           Except
for conditions generally applicable to Borrower’s industry and markets, there
are no facts, events, or occurrences known to Borrower pertaining particularly
to any Collateral which is reasonably expected to materially impair in any way
the validity, collectibility or enforcement of Collateral that would reasonably
be likely, in the aggregate, to be of material economic value, or in the
aggregate materially reduce the amount payable thereunder from the amount of the
invoice face value shown on any Schedule of Accounts, and on all contracts,
invoices and statements delivered to the Lender, with respect
thereto;

    (vi)          The
goods or services giving rise to the Collateral are not, and were not at the
time of the sale or performance thereof, subject to any Liens, except those of
Lender and the holders of the Previously Granted Security
Interests;

    (vii)         Except
as previously described elsewhere in this Agreement, the Collateral has not been
pledged to any Person other than to Lender under this Agreement and the holders
of the Previously Granted Security Interests and is owned by Borrower free and
clear of any Liens; and

    (viii)        The
Security Interest will not be subject to any offset, deduction, counterclaim,
Lien or other adverse condition.

    

    9.           EVENTS OF
DEFAULT.  It is understood and agreed that the occurrence of
any one or more of the following shall constitute an “Event of Default” under this
Agreement and shall entitle Lender to take such actions as are elsewhere
provided in this Agreement in respect of Events of Default:

    (i)           
an Event of Default (as such term is defined in the New Note) under the Note
shall have occurred and be continuing;

    (ii)           Borrower
shall have failed to pay Lender any of the Secured Obligations in accordance
with the New Note and such failure has not been cured within five Business Days
of the giving of notice of such failure to Borrower by Lender;

    (iii)          any
representation or warranty made by the Borrower in the New Note or this
Agreement shall prove to have been false in any material respect when
made;

    (iv)          any
covenant made by Borrower in this Agreement (other than those covenants
contained in section 6(a)) is breached, violated or not complied with and not
been cured within five Business Days of the giving of notice of such breach,
violation or non-compliance to Borrower by Lender; provided, however, that any
breach, violation or non-Borrower with any covenant contained in section 6(a)
shall immediately result in an Event of Default; or

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    

    (v)           any
covenant made by the Borrower in the New Note is breached, violated, or not
complied with and not been cured within five Business Days of the giving of
notice of such breach, violation or non-compliance to Borrower by Lender, and
such breach, violation or non-compliance results in a material adverse change to
the Collateral or the Collateral’s value, in either case, taken as a
whole.

    

    10.         RIGHTS AND REMEDIES UPON ACCELERATION
EVENT.

    

    (a)           Subject
to the rights and remedies of the holders of Previously Granted Security
Interests, upon and after an Acceleration Event, Lender shall have the following
rights and remedies in addition to any rights and remedies set forth elsewhere
in this Agreement, all of which may be exercised with or, if allowed by law,
without notice to Borrower:

    (i)           All
of the rights and remedies of a secured party under Article 9 of the UCC and the
Uniform Commercial Code of any other state or jurisdiction where such rights and
remedies are asserted, or under other applicable law, all of which rights and
remedies shall be cumulative, and none of which shall be exclusive, to the
extent permitted by law, in addition to any other rights and remedies contained
in this Agreement or the New Note;

    (ii)          The
right to foreclose the Security Interest by any available judicial procedure or
without judicial process;

    (iii)         The
right to:

    (A)          enter
upon the premises of Borrower through self-help and without judicial process,
without first obtaining a final judgment or giving Borrower notice and
opportunity for a hearing on the validity of Lender's claim and without any
obligation to pay rent to Borrower, or any other place or places where any
Collateral is located and kept, and remove the Collateral from such premises to
the premises of Lender or any agent of Lender, for such time as Lender may
desire, in order effectively to collect or liquidate the Collateral,
and/or

    (B)           require
Borrower to assemble the Collateral and make it available to Lender at a place
to be designated by Lender that is reasonably convenient to both
parties;

                (iv)           
The right to:

    (A)       
  demand payment of any Accounts;

    (B)          enforce
payment of Accounts, by legal proceedings or otherwise;

    (C)          exercise
all of Borrower’s rights and remedies with respect to the collection of the
Accounts;

    (D)          settle,
adjust, compromise, extend or renew the Accounts;

    (E)           settle,
adjust or compromise any legal proceedings brought to collect the
Accounts;

    (F)           if
permitted by applicable law, sell or assign the Accounts upon such terms, for
such amounts and at such time or times as Lender deems advisable;

    (G)          discharge
and release the Accounts;

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    

    (H)          take
control, in any manner, of any item of payment or proceeds referred to in
section 4;

    (I)           prepare,
file and sign Borrower’s name on a Proof of Claim in bankruptcy or similar
document against any Account Debtor;

    (J)           prepare,
file and sign Borrower’s name on any notice of Lien, assignment or satisfaction
of Lien or similar document in connection with the Collateral;

    (K)          endorse
the name of Borrower upon any chattel paper, document, instrument, invoice,
freight bill, bill of lading or similar document or agreement relating to the
Accounts or Inventory;

    (L)           use
Borrower’s stationery for verifications of the Collateral and notices thereof to
Account Debtors;

    (M)         use
the information recorded on or contained in any data processing equipment and
computer hardware and software relating to any Collateral to which Borrower has
access; and/or

    (N)          do
all acts and things and execute all documents necessary, in Lender's sole
discretion, to collect the Accounts; and

    (v)  Borrower acknowledges
that Lender has no obligation to preserve rights to the Collateral against prior
parties or to marshal any Collateral for the benefit of any person or
entity.

    

    (b)           The
net cash proceeds resulting from the collection, liquidation, sale, lease or
other disposition of the Collateral shall be applied first to the expenses
(including all attorneys' fees) of retaking, holding, storing, processing and
preparing for sale, selling, collecting, liquidating and the like, and then to
the satisfaction of all Secured Obligations. Any sale or other disposition of
the Collateral and the possession of the Collateral by Lender shall be in
compliance with all provisions of applicable law (including applicable
provisions of the UCC).  Borrower shall be liable to Lender, and shall
pay to Lender on demand any deficiency which may remain after such sale,
disposition, collection or liquidation of the Collateral.  Lender
shall remit to Borrower or other party entitled thereto any surplus remaining
after all Secured Obligations and any other obligations of Borrower to Lender
under this Agreement have been fully satisfied.

    

    11.         ANTI-MARSHALLING
PROVISIONS.  The right is hereby given by Borrower to Lender to
make releases (whether in whole or in part) of all or any part of the Collateral
agreeable to Lender without notice to, or the consent, approval or agreement of
other parties and interests, including junior lienors, which releases shall not
impair in any manner the validity of or priority of the Liens and security
interests in the remaining Collateral conferred under such documents, nor
release Borrower from personal liability for the Secured Obligations hereby
secured.  Notwithstanding the existence of any other security interest
in the Collateral held by Lender, Lender shall have the right to determine the
order in which any or all of the Collateral shall be subjected to the remedies
provided in this Agreement.  The proceeds realized upon the exercise
of the remedies provided in this Agreement shall be applied by Lender in the
manner herein provided in this Agreement.  Borrower hereby waives any
and all right to require the marshalling of assets in connection with the
exercise of any of the remedies permitted by applicable law or provided in this
Agreement.

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    

    12.         APPOINTMENT OF LENDER AS BORROWER’S
LAWFUL ATTORNEY.  Without limitation of any other provision of
this Agreement, upon and after an Acceleration Event, Borrower irrevocably
designates, makes, constitutes and appoints Lender (and all parties designated
by Lender) as Borrower’s true and lawful attorney (and agent-in-fact) to take
all actions and to do all things required to be taken or done by Borrower under
this Agreement.  All acts of Lender or Lender’s designee taken
pursuant to this section 12 are hereby ratified and confirmed and Lender or
Lender’s designee shall not be liable for any acts of omission or commission nor
for any error of judgment or mistake of fact or law, other than as a result of
Lender’s or Lender’s designee’s gross negligence or willful
misconduct.  This power, being coupled with an interest, is
irrevocable by Borrower until this Agreement has been terminated in accordance
with section 21.

    

    13.         RIGHTS AND REMEDIES CUMULATIVE;
NON-WAIVER; ETC.  The enumeration of the rights and remedies of
Lender set forth in this Agreement is not intended to be exhaustive and the
exercise by Lender of any right or remedy shall not preclude the exercise of any
other rights or remedies, all of which shall be cumulative, and shall be in
addition to any other right or remedy given under this Agreement, or under any
other agreement between Borrower and Lender or which may now or hereafter exist
in law or in equity or by suit or otherwise.  No delay or failure to
take action on the part of Lender in exercising any right, power or privilege
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right, power or privilege preclude other or further exercise thereof or
the exercise of any other right, power or privilege or shall be construed to be
a waiver of any Event of Default.  No waiver by a party hereunder
shall be effective unless it is in writing and signed by the party making such
waiver, and then only to the extent specifically stated in such
writing.  No course of dealing between Borrower and Lender or Lender's
agents shall be effective to change, modify or discharge any provision of this
Agreement or to constitute a waiver of any Event of Default.  Lender
shall not have any liability for any error, omission or delay of any kind
occurring in the handling or liquidation of the Collateral or for any damages
resulting such error, omission or delay, other than as a result of Lender’s or
Lender’s agent’s gross negligence or willful misconduct.

    

    14.         SUPPLEMENTAL
DOCUMENTATION.  At Lender's request, Borrower shall execute and
deliver to Lender all documents, instruments and other written matter that
Lender may request to perfect and maintain perfected the Security Interest, in
form and substance reasonably acceptable to Lender, and pay all charges,
expenses and fees that Lender may reasonably incur in filing any of such
documents, and all taxes relating thereto.  Borrower acknowledges that
a carbon, photographic, photostatic or other reproduction of this Agreement or a
financing statement is sufficient as a financing statement and may be filed by
Lender in any appropriate filing office.

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    

    

    15.         WAIVERS.  In
addition to the other waivers contained herein, Borrower hereby expressly
waives, to the extent permitted by law: presentment for payment, demand,
protest, notice of demand, notice of protest, notice of default or dishonor,
notice of payments and non-payments and all other notices and consents to any
action taken by Lender unless expressly required by this Agreement.

    

    16.         NOTICE.  All
requests, demands, notices and other communications required or otherwise given
under this Agreement shall be deemed sufficiently given if (a) delivered by
hand, against written receipt therefor, (b) forwarded via a nationally
recognized overnight courier requiring delivery the next business day and
written acknowledgment of receipt or (c) mailed by postage prepaid, registered
or certified mail, return receipt requested, in any event, addressed as
follows:

    

    If to
Borrower,
to:                            Dean
Garfinkel, President

    Compliance Systems
Corporation

    90 Pratt Oval

    Glen Cove, New York 11542

    

    with a copy
to:                   Dennis
C. O’Rourke, Esq.

    Moritt Hock Hamroff & Horowitz
LLP

    400 Garden City Plaza

    Garden City, New York
11530

    

    If to
Lender,
to:                                Henry
A. Ponzio

    466 Main Street – Unit 15

    Old Saybrook, Connecticut
06475

    

    with a copy to:

    

    or, in
the case of any of the parties to this Agreement, at such other address as such
party shall have furnished in writing, in accordance with this section 16, to
the other party to this Agreement.  Each such request, demand, notice
or other communication shall be deemed given (i) on the date of delivery by
hand, (ii) on the first business day following the date of delivery to an
overnight courier or (iii) three business days following mailing by registered
or certified mail.

    

    17.         ENTIRE
AGREEMENT.  This Agreement constitutes and expresses the entire
understanding between the parties to this Agreement with respect to the subject
matter of this Agreement, and supersedes all prior agreements and
understandings, inducements, commitments or conditions, express or implied, oral
or written, except as herein contained.  The express terms of this
Agreement control and supersede any course of performance or usage of the trade
inconsistent with any of the terms of this Agreement.  Neither this
Agreement nor any portion or provision hereof may be changed, altered, modified,
supplemented, discharged, canceled, terminated, or amended orally or in any
manner other than by an agreement, in writing signed by the parties to this
Agreement.

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    

    18.         SEVERABILITY.  The
provisions of this Agreement are independent of and separable from each
other.  If any provision hereof shall for any reason be held invalid
or unenforceable, such invalidity or unenforceability shall not affect the
validity or enforceability of any other provision hereof, but this Agreement
shall be construed as if such invalid or unenforceable provision had never been
contained in this Agreement.

    

    19.         SUCCESSORS AND
ASSIGNS.  This Agreement shall be binding upon the successors
and assigns of Borrower, and the rights, remedies, powers, and privileges of
Lender under this Agreement shall inure to the benefit of the successors,
assigns and heirs of Lender; provided, however, that
Borrower shall not make any assignment of any of Borrower’s obligations or
rights under this Agreement without the prior written consent of
Lender.

    

    20.         COUNTERPARTS.  This
Agreement may be executed in any number of counterparts and all the counterparts
taken together shall be deemed to constitute one and the same
instrument.

    

    21.         TERMINATION;
RELEASE.  This Agreement, the Security Interest and all
obligations of Borrower under this Agreement shall terminate without delivery of
any instrument or performance of any act by any party, and the Collateral shall
automatically be released from the Security Interest and other Liens created by
this Agreement and all rights to such Collateral shall automatically revert to
Borrower upon the full satisfaction and cancellation of the New
Note.  Notwithstanding the immediately preceding sentence, upon such
termination of the Security Interest, Lender shall reassign and redeliver such
Collateral then held by or for Lender and execute and deliver to Borrower such
documents as Borrower shall reasonably request to evidence such termination, as
well as filing such documents as may be required under Article 9 of the UCC and
other applicable laws to note the termination of the Security
Interest.

    

    22.         APPLICABLE LAW; JURISDICTION; WAIVER
OF JURY TRIAL.  THIS AGREEMENT SHALL BE GOVERNED BY AND
INTERPRETED UNDER THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE
AND TO BE PERFORMED THEREIN, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF
CONFLICTS OF LAW.  BORROWER HEREBY IRREVOCABLY CONSENTS THAT ANY LEGAL
ACTION OR PROCEEDING AGAINST BORROWER ARISING OUT OF OR IN ANY WAY CONNECTED
WITH THIS AGREEMENT MAY BE INSTITUTED IN ANY STATE COURT OF GENERAL JURISDICTION
LOCATED IN EITHER THE COUNTIES OF NASSAU OR SUFFOLK OF THE STATE OF NEW YORK, OR
THE UNITED STATES FEDERAL COURT FOR THE EASTERN DISTRICT OF NEW YORK AND
BORROWER HEREBY SUBMITS TO THE JURISDICTION AND VENUE OF SUCH
COURTS.  BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF
PROCESS ARISING OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR
PROCEEDING BY THE MAILING OF COPIES THEREOF BY POSTAGE PREPAID CERTIFIED OR
REGISTERED FIRST-CLASS MAIL, RETURN RECEIPT REQUESTED, TO
BORROWER.  THE FOREGOING, HOWEVER, SHALL NOT LIMIT THE RIGHT OF LENDER
TO SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE ANY
LEGAL ACTION OR PROCEEDING OR TO OBTAIN EXECUTION OF JUDGMENT IN ANY APPROPRIATE
JURISDICTION.  IN THE EVENT OF LITIGATION BETWEEN THE PARTIES OVER ANY
MATTER CONNECTED WITH THIS AGREEMENT, THE RIGHT TO A TRIAL BY JURY IS HEREBY
WAIVED BY SUCH PARTIES.

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    

    IN WITNESS WHEREOF, the
parties have duly executed this Security Agreement on the day and year first
written above.

    

    
      
        
          
            
              
                	
                        BORROWER:

                      
	 
      	 
      
	
                        Compliance
      Systems Corporation

                      
	 
      	 
      
	
                        By:

                      	
                        /s/ Dean Garfinkel

                      
	 
      	
                        Dean
      Garfinkel, President

                      
	 
      	 
      
	
                        LENDER:

                      
	 
      	 
      
	
                        /s/ Henry A. Ponzio

                      
	
                        Henry
      A.
Ponzio

                      

              

            

          

        

      

    

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

    Schedule
A

    

    Borrower’s
Location

    

    90 Pratt
Oval

    Glen
Cove, New York 11542

    
      
         

      

      
        13

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