SECURITY AGREEMENT

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

 

1.

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

2.

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

NOW, THEREFORE,

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

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

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

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

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

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

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

(a)

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

(b)

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

(c)

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

(d)

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

(e)

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

(f)

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

(g)

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

(h)

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

(i)

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

(j)

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

(k)

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

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

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

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

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

(a)

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

(b)

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

 

(c)

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

(d)

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

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

(a)

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

(b)

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

(c)

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

(d)

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

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

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

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

(i)

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

(ii)

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

(iii)

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

(iv)

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

(v)

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

(b) The Debtor covenants with the Secured Party as follows:

(i)

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

(ii)

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

(iii)

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

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

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

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

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

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

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

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

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

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

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

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

 

By:  /s/ Dean Garfinkel                                                                                

Name: Dean Garfinkel

Title: President

By: AGILE INVESTMENTS, LLC, Managing Member 

 

 

By: /s/ David I. Propis                                                                                 

Name: David I. Propis

Title: Managing Member

 

The undersigned, the Chief Executive Officer of Compliance Systems Corporation, a Nevada corporation (the "Company"), hereby certifies, with reference to a certain Security Agreement, dated as of May 6, 2008 (terms defined in such Security Agreement having the same meanings herein as specified therein), between the Company and Agile Opportunity Fund, LLC (the "Secured Party"), to the Secured Party as follows:

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

2. Other Identifying Factors. 

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

Address	County	State
90 Pratt Oval, Glen Cove	Nassau	NY

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

Address	County	State

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

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

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

3. Other Names, Etc.

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

4. Other Current Locations. 

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

Address	County	State

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

Address	County	State

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

Address	County	State

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

Name	Mailing Address	County	State

 

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

_____________________________

Name: Dean Garfinkel

Title: Chief Executive Officer