Document:

Exhibit 10.1

 

Spescom Software Inc.

Shares of Series H Convertible Preferred Stock and Common Stock Warrants

 

SUBSCRIPTION AGREEMENT

 

October 25, 2005

 

M.A.G. Capital, LLC

Monarch Pointe Fund, Ltd.

555 South Flower Street, Suite 4200

Los Angeles, California 90071

 

Ladies and Gentlemen:

 

Spescom Software Inc. a California corporation (the “Company”), hereby
confirms its agreement with Monarch Pointe Fund, Ltd. (“Monarch” or the “Purchaser”) and
M.A.G. Capital, LLC (“MAG”),
as set forth below.

 

1.             The Securities.  Subject to the terms and conditions herein
contained, the Company proposes to issue and sell (a) to the Purchaser and the
Second Closing Purchaser (as defined below) an aggregate of Two Thousand Four
Hundred Fifty (2,450) shares of its Series H Convertible Preferred Stock (the “Series H Stock”),
which shall be convertible into shares (the “Conversion Shares”) of the Company’s
Common Stock (the “Common
Stock”) in accordance with the formula set forth in the
Certificate of Determination further described below and (b) to Monarch and
MAG, warrants, substantially in the form attached hereto at Exhibit A
(the “Warrants”),
to acquire up to 1,851,852 shares of Common Stock (the “Warrant Shares”), in
accordance with the terms and conditions set forth in Section 3 hereof.  The rights, preferences and privileges of the
Series H Stock are as set forth in the Certificate of Determination of Series H
Preferred Stock, as amended, as filed with the Secretary of State of the State
of California (the “Certificate
of Determination”) in the form attached hereto as Exhibit B.  The number of Conversion Shares and Warrant
Shares that Purchaser may acquire at any time are subject to limitation in the
Certificate of Determination and in the Warrants, respectively, so that the aggregate
number of shares of Common Stock of which such Purchaser and all persons
affiliated with such Purchaser have beneficial ownership (calculated pursuant
to Rule 13d-3 of the Securities Exchange Act of 1934, as amended) does not at
any time exceed 9.99% of the Company’s then outstanding Common Stock.

 

The Series H Stock and the Warrants are sometimes
herein collectively referred to as the “Securities.” 
This Agreement, the Certificate of Determination, and the Registration
Rights Agreement by and among the Company, Purchaser and MAG, entered into
concurrently herewith and attached hereto as Exhibit C, are sometimes
herein collectively referred to as the “Transaction Documents.”

 

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The Securities will be offered and sold to the
Purchaser without such offers and sales being registered under the Securities
Act of 1933, as amended (together with the rules and regulations of the
Securities and Exchange Commission (the “SEC”) promulgated thereunder, the “Securities Act”), in
reliance on exemptions therefrom.

 

In connection with the sale of the Securities, the
Company has made available (including electronically via the SEC’s EDGAR
system) to Purchaser its periodic and current reports, forms, schedules, proxy
statements and other documents (including exhibits and all other information
incorporated by reference) filed with the SEC under the Securities Exchange Act
of 1934, as amended (the “Exchange
Act”).  The Company’s
Annual Report on Form 10-K for the year ended September 30, 2004 and all
subsequent reports, forms, schedules, statements, documents, filings and
amendments filed by the Company with the SEC under the Exchange Act, are
collectively referred to as the “Disclosure Documents.”  All references in this Agreement to financial
statements and schedules and other information which is “contained,” “included”
or “stated” in the Disclosure Documents (or other references of like import)
shall be deemed to mean and include all such financial statements and schedules,
documents, exhibits and other information which is incorporated by reference in
the Disclosure Documents.

 

2.             Representations and Warranties
of the Company.  Except as set forth
on the Disclosure Schedule (the “Disclosure Schedule”) delivered by the Company
to Purchaser on the Closing Date (as defined in Section 3 below), the Company
represents and warrants to and agrees with Purchaser and MAG as follows:

 

(a)           The Disclosure Documents as of their
respective dates did not, and will not (after giving effect to any updated
disclosures therein) as of the Closing Date, contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not misleading.  The Disclosure Documents and the documents
incorporated or deemed to be incorporated by reference therein, at the time
they were filed or hereafter are filed with the SEC, complied and will comply,
at the time of filing, in all material respects with the requirements of the
Securities Act and/or the Exchange Act, as the case may be, as applicable.

 

(b)           Schedule A attached hereto
sets forth a complete list of the subsidiaries of the Company (the “Subsidiaries”).  Each of the Company and its Subsidiaries has
been duly incorporated and each of the Company and the Subsidiaries is validly
existing in good standing as a corporation under the laws of its jurisdiction
of incorporation, with the requisite corporate power and authority to own its
properties and conduct its business as now conducted as described in the
Disclosure Documents and is duly qualified to do business as a foreign
corporation in good standing in all other jurisdictions where the ownership or
leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified would not,
individually or in the aggregate, have a material adverse effect on the
business, condition (financial or other), properties or results of operations
of the Company and the Subsidiaries, taken as a whole (any such event, a “Material Adverse Effect”);
as of the Closing Date, the Company will have the authorized, issued and
outstanding capitalization set forth in on Schedule B attached hereto
(the “Company Capitalization”);
except as set forth in the Disclosure Documents or on Schedule A, the
Company does not have any subsidiaries or own

 

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directly or indirectly
any of the capital stock or other equity or long-term debt securities of or
have any equity interest in any other person; all of the outstanding shares of
capital stock of the Company and the Subsidiaries have been duly authorized and
validly issued, are fully paid and nonassessable and were not issued in violation
of any preemptive or similar rights and are owned free and clear of all liens,
encumbrances, equities, and restrictions on transferability (other than those
imposed by the Securities Act and the state securities or “Blue Sky” laws) or
voting; except as set forth in the Disclosure Documents, all of the outstanding
shares of capital stock of the Subsidiaries are owned, directly or indirectly,
by the Company; except as set forth in the Disclosure Documents, no options,
warrants or other rights to purchase from the Company or any Subsidiary,
agreements or other obligations of the Company or any Subsidiary to issue or
other rights to convert any obligation into, or exchange any securities for,
shares of capital stock of or ownership interests in the Company or any
Subsidiary are outstanding; and except as set forth in the Disclosure Documents
or on Schedule C, there is no agreement, understanding or arrangement
among the Company or any Subsidiary and each of their respective stockholders
or any other person relating to the ownership or disposition of any capital
stock of the Company or any Subsidiary or the election of directors of the
Company or any Subsidiary or the governance of the Company’s or any Subsidiary’s
affairs, and, if any, such agreements, understandings and arrangements will not
be breached or violated as a result of the execution and delivery of, or the
consummation of the transactions contemplated by, the Transaction Documents.

 

(c)           The Company has the requisite
corporate power and authority to execute, deliver and perform its obligations
under the Transaction Documents.  Each of
the Transaction Documents has been duly and validly authorized by the Company
and, when executed and delivered by the Company, will constitute a valid and
legally binding agreement of the Company, enforceable against the Company in
accordance with its terms except as the enforcement thereof may be limited by
(A) bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or other similar laws now or hereafter in effect relating to or
affecting creditors’ rights generally or (B) general principles of equity
and the discretion of the court before which any proceeding therefore may be
brought (regardless of whether such enforcement is considered in a proceeding
at law or in equity) (collectively, the “Enforceability Exceptions”).

 

(d)           The Series H Stock and the Warrants
have been duly authorized and, when issued upon payment thereof in accordance
with this Agreement, will have been validly issued, fully paid and
non-assessable.  The Conversion Shares
issuable have been duly authorized and validly reserved for issuance, and when
issued upon conversion of the Series H Stock in accordance with the terms of
the Certificate of Determination, will have been validly issued, fully paid and
non-assessable.  The Warrant Shares have
been duly authorized and validly reserved for issuance, and when issued upon
exercise of the Warrants in accordance with the terms thereof, will have been validly
issued, fully paid and non-assessable. 
The Common Stock of the Company conforms to the description thereof
contained in the Disclosure Documents. 
The stockholders of the Company have no preemptive or similar rights
with respect to the Common Stock.

 

(e)           No consent, approval, authorization,
license, qualification, exemption or order of any court or governmental agency
or body or third party is required for the performance of the Transaction
Documents by the Company or for the consummation by the

 

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Company of any of the
transactions contemplated thereby, or the application of the proceeds of the
issuance of the Securities as described in this Agreement, except for such
consents, approvals, authorizations, licenses, qualifications, exemptions or
orders (i) as have been obtained on or prior to the Closing Date,
(ii) as are not required to be obtained on or prior to the Closing Date
that will be obtained when required, or (iii) the failure to obtain which
would not, individually or in the aggregate, have a Material Adverse Effect.

 

(f)            Except as set forth on Schedule D,
none of the Company or the Subsidiaries is (i) in material violation of its
articles of incorporation or bylaws (or similar organizational document), (ii)
in breach or violation of any statute, judgment, decree, order, rule or
regulation applicable to it or any of its properties or assets, which breach or
violation would, individually or in the aggregate, have a Material Adverse
Effect, or (iii) except as described in the Disclosure Documents, in default
(nor has any event occurred which with notice or passage of time, or both,
would constitute a default) in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract, indenture, mortgage,
deed of trust, loan agreement, note, lease, license, franchise agreement,
permit, certificate or agreement or instrument to which it is a party or to
which it is subject, which default would, individually or in the aggregate,
have a Material Adverse Effect.

 

(g)           The execution, delivery and
performance by the Company of the Transaction Documents and the consummation by
the Company of the transactions contemplated thereby and the fulfillment of the
terms thereof will not (a) violate, conflict with or constitute or result
in a breach of or a default under (or an event that, with notice or lapse of
time, or both, would constitute a breach of or a default under) any of
(i) the terms or provisions of any contract, indenture, mortgage, deed of
trust, loan agreement, note, lease, license, franchise agreement, permit,
certificate or agreement or instrument to which any of the Company or the
Subsidiaries is a party or to which any of their respective properties or
assets are subject, (ii) the Certificate of Incorporation or bylaws of any
of the Company or the Subsidiaries (or similar organizational document) or
(iii) any statute, judgment, decree, order, rule or regulation of any
court or governmental agency or other body applicable to the Company or the Subsidiaries
or any of their respective properties or assets or (b) result in the
imposition of any lien upon or with respect to any of the properties or assets
now owned or hereafter acquired by the Company or any of the Subsidiaries;
which violation, conflict, breach, default or lien would, individually or in
the aggregate, have a Material Adverse Effect.

 

(h)           The audited consolidated financial
statements included in the Disclosure Documents present fairly the consolidated
financial position, results of operations, cash flows and changes in
shareholders’ equity of the entities, at the dates and for the periods to which
they relate and have been prepared in all material respects in accordance with
generally accepted accounting principles applied on a consistent basis; the
interim un-audited consolidated financial statements included in the Disclosure
Documents present fairly the consolidated financial position, results of
operations and cash flows of the entities, at the dates and for the periods to
which they relate subject to year-end audit adjustments and have been prepared
in all material respects in accordance with generally accepted accounting
principles applied on a consistent basis with the audited consolidated
financial statements included therein; the selected financial and statistical
data included in the Disclosure Documents present fairly the information

 

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shown therein and have
been prepared and compiled in all material respects on a basis consistent with
the audited financial statements included therein, except as otherwise stated
therein; and each of the auditors previously engaged by the Company or to be
engaged in the future by the Company is an independent certified public
accountant as required by the Securities Act for an offering registered
thereunder.

 

(i)            Except as described in the
Disclosure Documents, there is not pending or, to the knowledge of the Company,
threatened any action, suit, proceeding, inquiry or investigation, governmental
or otherwise, to which any of the Company or the Subsidiaries is a party, or to
which their respective properties or assets are subject, before or brought by
any court, arbitrator or governmental agency or body, that, if determined
adversely to the Company or any such Subsidiary, would, individually or in the
aggregate, have a Material Adverse Effect or that seeks to restrain, enjoin,
prevent the consummation of or otherwise challenge the issuance or sale of the
Securities to be sold hereunder or the application of the proceeds therefrom or
the other transactions described in the Disclosure Documents.

 

(j)            The Company and the Subsidiaries own
or possess adequate licenses or other rights to use all patents, trademarks,
service marks, trade names, copyrights and know-how that are necessary to
conduct their businesses as described in the Disclosure Documents.  None of the Company or the Subsidiaries has
received any written notice of infringement of (or knows of any such
infringement of) asserted rights of others with respect to any patents,
trademarks, service marks, trade names, copyrights or know-how that, if such
assertion of infringement or conflict were sustained, would, individually or in
the aggregate, have a Material Adverse Effect.

 

(k)           Each of the Company and the
Subsidiaries possesses all licenses, permits, certificates, consents, orders,
approvals and other authorizations from, and has made all declarations and
filings with, all federal, state, local and other governmental authorities, all
self-regulatory organizations and all courts and other tribunals presently
required or necessary to own or lease, as the case may be, and to operate its
respective properties and to carry on its respective businesses as now or
proposed to be conducted as set forth in the Disclosure Documents (“Permits”), except
where the failure to obtain such Permits would not, individually or in the
aggregate, have a Material Adverse Effect and none of the Company or the
Subsidiaries has received any notice of any proceeding relating to revocation
or modification of any such Permit, except as described in the Disclosure
Documents and except where such revocation or modification would not,
individually or in the aggregate, have a Material Adverse Effect.

 

(l)            Subsequent to June 30, 2005 and except
as described in the Company’s Quarterly Report on Form 10-Q for the quarter
ended June 30, 2005 or in the Company’s Annual Report on Form 10-K for the year
ended September 30, 2004, as amended, (i) the Company and the Subsidiaries
have not incurred any material liabilities or obligations, direct or
contingent, or entered into any material transactions not in the ordinary
course of business or (ii) the Company and the Subsidiaries have not
purchased any of their respective outstanding capital stock, or declared, paid
or otherwise made any dividend or distribution of any kind on any of their
respective capital stock or otherwise (other than, with respect to any of such
Subsidiaries, the purchase of capital stock by the Company), (iii) there
has not been any material

 

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increase in the long-term
indebtedness of the Company or any of the Subsidiaries, (iv) there has not
occurred any event or condition, individually or in the aggregate, that has a
Material Adverse Effect, and (v) the Company and the Subsidiaries have not
sustained any material loss or interference with respect to their respective
businesses or properties from fire, flood, hurricane, earthquake, accident or
other calamity, whether or not covered by insurance, or from any labor dispute
or any legal or governmental proceeding.

 

(m)          There are no material legal or
governmental proceedings nor are there any material contracts or other
documents required by the Securities Act to be described in a prospectus that
are not described in the Disclosure Documents. 
Except as described in the Disclosure Documents, none of the Company or
the Subsidiaries is in default under any of the contracts described in the
Disclosure Documents, has received a notice or claim of any such default or has
knowledge of any breach of such contracts by the other party or parties
thereto, except for such defaults or breaches as would not, individually or in
the aggregate, have a Material Adverse Effect.

 

(n)           Each of the Company and the
Subsidiaries has good and marketable title to all real property described in
the Disclosure Documents as being owned by it and good and marketable title to
the leasehold estate in the real property described therein as being leased by
it, free and clear of all liens, charges, encumbrances or restrictions, except,
in each case, as described in the Disclosure Documents or such as would not,
individually or in the aggregate, have a Material Adverse Effect.  All material leases, contracts and agreements
to which the Company or any of the Subsidiaries is a party or by which any of
them is bound are valid and enforceable against the Company or any such
Subsidiary, are, to the knowledge of the Company, valid and enforceable against
the other party or parties thereto and are in full force and effect, in each
case subject to the Enforceability Exceptions.

 

(o)           Each of the Company and the
Subsidiaries has filed all necessary federal, state and foreign income and
franchise tax returns, except where the failure to so file such returns would
not, individually or in the aggregate, have a Material Adverse Effect, and has
paid all taxes shown as due thereon; and other than tax deficiencies which the
Company or any Subsidiary is contesting in good faith and for which adequate
reserves have been provided in accordance with generally accepted accounting
principles, there is no tax deficiency that has been asserted against the
Company or any Subsidiary that would, individually or in the aggregate, have a
Material Adverse Effect.

 

(p)           None of the Company or the
Subsidiaries is, or immediately after the Closing Date will be, required to
register as an “investment company” or a company “controlled by” an “investment
company” within the meaning of the Investment Company Act of 1940, as amended
(the “Investment Company
Act”).

 

(q)           Since January 2002 none of the
Company or the Subsidiaries or, to the knowledge of any of such entities’
directors, officers, employees, agents or controlling persons, has taken,
directly or indirectly, any action for the purpose of causing the stabilization
or manipulation of the price of the Common Stock.

 

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(r)            None of the Company, the
Subsidiaries or any of their respective Affiliates (as defined in Rule 501(b)
of Regulation D under the Securities Act) directly, or through any agent,
engaged in any form of general solicitation or general advertising (as those
terms are used in Regulation D under the Securities Act) in connection
with the offering of the Securities or engaged in any other conduct that would
cause such offering to be constitute a public offering within the meaning of
Section 4(2) of the Securities Act. 
Assuming the accuracy of the representations and warranties of the
Purchaser in Section 6 hereof, it is not necessary in connection with the
offer, sale and delivery of the Securities to the Purchaser in the manner
contemplated by this Agreement to register any of the Securities under the
Securities Act.

 

(s)           There is no strike, labor dispute, slowdown
or work stoppage with the employees of the Company or any of the Subsidiaries
which is pending or, to the knowledge of the Company or any of the
Subsidiaries, threatened.

 

(t)            Each of the Company and the
Subsidiaries carries general liability insurance coverage comparable to other
companies of its size and similar business.

 

(u)           Each of the Company and the
Subsidiaries maintains internal accounting controls which provide reasonable
assurance that (A) transactions are executed in accordance with management’s
authorization, (B) transactions are recorded as necessary to permit
preparation of its financial statements and to maintain accountability for its
assets, and (C) access to its material assets is permitted only in
accordance with management’s authorization and (D) the values and amounts
reported for its material assets are compared with its existing assets at
reasonable intervals.

 

(v)           The Company does not know of any
claims for services, either in the nature of a finder’s fee or financial
advisory fee, with respect to the offering of the Securities and the
transactions contemplated by the Transaction Documents.

 

(w)          The Common Stock is traded on the
Over-the-Counter Bulletin Board (the “OTC BB”). 
Except as described in the Disclosure Documents, the Company currently
is not in violation of, and the consummation of the transactions contemplated
by the Transaction Documents will not violate, any rule of the National
Association of Securities Dealers.

 

(x)            The Company is eligible to use Form
S-1 or S-2 for the resale of the Conversion Shares by Purchaser or their
transferees and the Warrant Shares by Purchaser, MAG or their transferees.  The Company has no reason to believe that it
is not capable of satisfying the registration or qualification requirements (or
an exemption therefrom) necessary to permit the resale of the Conversion Shares
and the Warrant Shares under the securities or “blue sky” laws of any
jurisdiction within the United States.

 

(y)                                 Set forth on Schedule E is the
Company’s intended use of the proceeds from this transaction.

 

(z)            Except as set forth on Schedule F,
to the Company’s knowledge, none of the officers or directors of the Company
(i) has been convicted of any crime (other

 

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than traffic
violations or misdemeanors not involving fraud) or is
currently under investigation or indictment for any such crime,
(ii) has been found by a court or governmental agency to have violated any
securities or commodities law or to have committed fraud or is currently a
party to any legal proceeding in which either is alleged, (iii) has been
the subject of a proceeding under the bankruptcy laws or any similar state
laws, or (iv) has been an officer, director, general partner, or managing
member of an entity which has been the subject of such a proceeding.

 

3.             Purchase, Sale, Exchange and
Delivery of the Securities.  On the
basis of the representations, warranties, agreements and covenants herein
contained and subject to the terms and conditions herein set forth, the Company
agrees to issue and sell to the Purchaser, and Purchaser agrees to purchase
from the Company, a total of 2,450 shares of Series H Stock as follows:  (i) 1,000 shares of Series H Stock at
$1,000.00 per share as set forth below, and (ii) 1,450 shares of Series H Stock
in exchange for tendering 1,450 shares of Series G Convertible Preferred Stock
of the Company owned by Monarch, represented by stock certificate no.
G-02.  In connection with the purchase
and sale of Series H Stock, for no additional consideration, the Purchaser and
MAG will receive Warrants to purchase 1,851,852 shares of Common Stock, as set
forth below.

 

(a)           The closing of the
transactions described herein (the “Closing”) shall take place at a time and on a
date (the “Closing Date”)
to be specified by the parties, which will be no later than 5:00 p.m. (Pacific time) on October      , 2005. 
On the Closing Date, the Company shall deliver (a) a certificate in
definitive form for 1,950 shares of Series H Stock issued Monarch, (c) Warrants
in the amounts of (i) 462,963 to Monarch and (ii) 462,963 to MAG and
(d) the Subscription Agreement, Certificate of Designation and
Registration Rights Agreement, each duly executed on behalf of the Company.  On the Closing Date, (i) Monarch shall
deliver Five Hundred Thousand Dollars ($500,000) (the “Purchase Price”) by
wire transfer of immediately available funds to an account as directed by the
Company, (ii) Monarch shall deliver stock certificate no. G-02 in the amount of
One Thousand Four Hundred Fifty (1,450) shares of Series G Convertible
Preferred Stock of the Company and (iii) each of the Purchaser and MAG shall
deliver the Subscription Agreement and Registration Rights Agreement, each duly
executed on behalf of each such Purchaser and MAG.  The Closing will occur when all documents and instruments necessary or
appropriate to effect the transactions contemplated herein are exchanged by the
parties and all actions taken at the Closing will be deemed to be taken
simultaneously.

 

(b)           The second closing of the
transactions described herein (the “Second Closing”) shall take place at a time
and on a date (the “Second
Closing Date”) no later than January 20, 2006. If all of the
following conditions (the “Second
Closing Conditions”) have not been met on or before January 20,
2006, MAG and the Second Closing Purchaser (as defined below) shall have no
obligation to go forward with the Second Closing.

 

(i)            On or before November 1, 2005, the
Company shall engage Liolios Group (“Liolios Group”), or a public relations firm
reasonably acceptable to MAG and the Company, to perform various marketing and
public relations services for the Company for a period of six months, provided, however, that the Company shall
have the right to terminate Liolios Group or such other public relations firm
at any time, in the event the Company, in its

 

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sole discretion, is
dissatisfied with Liolios Group’s performance. 
In the event the Company terminates such public relations firm within
such six month period, the Company shall engage an alternate public relations
firm reasonably acceptable to MAG to perform such functions for the remainder
of such period.

 

(ii)           No Event of Default or breach of any
covenant under this Agreement or the Subscription Agreement dated November 5,
2004 by and between Company, Purchaser and MAG shall have occurred.

 

(iii)          The Second Closing Purchaser shall
have received certificates, dated the Second Closing Date and signed by the
Chief Executive Officer and the Chief Financial Officer of the Company, to the
effect of paragraphs 5(a) and (b).

 

(iv)          The closing price of Company’s Common
Stock for the twenty (20) trading days preceding the Second Closing Date shall
be greater than or equal to $0.16 per share.

 

(v)                                 On the Second Closing Date, the Company
shall be current in all of its public filings.

 

(vi)          The officers and directors of the
Company shall not sell any shares of Common Stock prior to the date which is
100 days after the effective date of the Registration Statement.

 

(vii)         The Second Closing Purchaser shall have
received an opinion of Gibson, Dunn & Crutcher LLP with respect to the
authorization of the Series H Stock, the Conversion Shares, the Warrants and
the Warrant Shares to be issued in the Second Closing and other customary
matters.

 

On the Second
Closing Date, the Company shall deliver (a) a certificate in definitive form
for 500 shares of Series H Stock issued to such fund as MAG designates, which
shall be one or more of Purchaser, Mercator Momentum Fund, L.P. or Momentum
Fund III, L.P. (the “Second Closing Purchaser”), provided, however, that if MAG fails to notify the Company
at least three (3) business days prior to the Second Closing Date which fund or
funds it has designated to be the Second Closing Purchaser, the Second Closing
Purchaser shall be Monarch, (b) Warrants in the amounts of (i) 462,963 to the
Second Closing Purchaser and (ii) 462,963 to MAG, and (c) a registration rights
agreement substantially in the form attached hereto as Exhibit D, duly executed
by the Company.  On the Second Closing
Date, (i) MAG shall cause the Second Closing Purchaser to deliver Five Hundred
Thousand Dollars ($500,000) (the “Subsequent Purchase Price”) by wire transfer
of immediately available funds to an account as directed by the Company, (ii)
MAG shall cause the Second Closing Purchaser to deliver, and MAG shall deliver,
a registration rights agreement substantially in the form attached hereto as
Exhibit D, duly executed on behalf of each of the Second Closing Purchaser and
MAG, and (iii) if Monarch is not the Second Closing Purchaser, MAG shall cause
the Second Closing Purchaser to deliver to the Company a certificate, in form
and substance satisfactory to the Company, pursuant to which the Second Closing
Purchaser agrees to be bound by all of the terms and conditions of this
Subscription Agreement, including but not limited to the representations,

 

9

 

warranties and covenants
set forth herein, and the term “Purchaser” as used in this Subscription
Agreement, shall be deemed to refer to both Monarch and the Second Closing
Purchaser.  The Second Closing will occur
when all documents and instruments
necessary or appropriate to effect the transactions contemplated herein are
exchanged by the parties and all actions taken at the Second Closing will be
deemed to be taken simultaneously.

 

Notwithstanding
the foregoing, if, as of January 20, 2006, the parties fail to consummate the
Second Closing and such failure is attributable to MAG’s or the Second Closing
Purchaser’s failure to take any action necessary to consummate the Second
Closing, the Company shall have the right to amend its Certificate of
Determination such that it reverts to the form in which it was filed prior to
the First Closing Date (and the Purchaser and MAG hereby irrevocably consent to
such amendment), and the obligations of the Company under this Subscription
Agreement and the Registration Rights Agreement shall be deemed null and void.

 

4.                                       Certain Covenants of the Company. 
The Company covenants and agrees with Purchaser as follows:

 

(a)           None of the Company or any of its
Affiliates will sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any “security” (as defined in the Securities Act) which
would be integrated with the sale of the Securities in a manner which would
require the registration under the Securities Act of the Securities.

 

(b)           The Company will not become, at any
time prior to the expiration of three years after the Closing Date, an open-end
investment company, unit investment trust, closed-end investment company or
face-amount certificate company that is or is required to be registered under
the Investment Company Act.

 

(c)           None of the proceeds of the Series H
Stock will be used to reduce or retire any insider note or convertible debt
held by an officer or director of the Company.

 

(d)           Subject to Section 10 of this
Agreement, the Conversion Shares and the Warrant Shares will be eligible for
trading on the OTC BB or such market on which the Company’s shares are
subsequently listed or traded, immediately following the effectiveness of the
Registration Statement.

 

(e)           The Company will use reasonable
efforts to do and perform all things required to be done and performed by it
under this Agreement and the other Transaction Documents and to satisfy all
conditions precedent on its part to the obligations of the Purchaser to
purchase and accept delivery of the Securities.

 

5.             Conditions of the Purchaser’s
Obligations.  The obligation of
Purchaser to consummate the Closing is subject to the following conditions
unless waived in writing by the Purchaser:

 

(a)           The representations and warranties of
the Company contained in this Agreement shall be true and correct in all
material respects (other than representations and warranties with a Material
Adverse Effect qualifier, which shall be true and correct as written) on

 

10

 

and as of the Closing
Date; the Company shall have complied in all material respects with all
agreements and satisfied all conditions on its part to be performed or
satisfied hereunder at or prior to the Closing Date.

 

(b)           None of the issuance and sale of the
Securities pursuant to this Agreement or any of the transactions contemplated
by any of the other Transaction Documents shall be enjoined (temporarily or
permanently) and no restraining order or other injunctive order shall have been
issued in respect thereof; and there shall not have been any legal action,
order, decree or other administrative proceeding instituted or, to the Company’s
knowledge, threatened against the Company or against Purchaser relating to the
issuance of the Securities or Purchaser’s activities in connection therewith or
any other transactions contemplated by this Agreement, the other Transaction
Documents or the Disclosure Documents.

 

(c)           The Purchaser shall have received an
opinion of Gibson, Dunn & Crutcher LLP with respect to the authorization of
the Series H Stock, the Conversion Shares, the Warrants and the Warrant Shares
and other customary matters in the form attached hereto as Exhibit E.

 

6.                                       Representations and Warranties of the
Purchaser.

 

(a)           Each of the Purchaser and MAG
represents and warrants to the Company that the Securities to be acquired by it
hereunder (including the Conversion Shares and the Warrant Shares that it may
acquire upon conversion or exercise of the Series H Stock or the Warrants,
respectively) are being acquired for their own account for investment and with
no intention of distributing or reselling such Securities (including the
Conversion Shares and the Warrant Shares that it may acquire upon conversion or
exercise thereof, as the case may be) or any part thereof or interest therein
in any transaction which would be in violation of the securities laws of the
United States of America or any State. 
Nothing in this Agreement, however, shall prejudice or otherwise limit
the Purchaser’s right to sell or otherwise dispose of all or any part of such
Conversion Shares or Warrant Shares under an effective registration statement
under the Securities Act and in compliance with applicable state securities
laws or under an exemption from such registration.  By executing this Agreement, Purchaser
further represents that such Purchaser does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participation to any person with respect to any of the Securities.

 

(b)           Each of the Purchaser and MAG
understands that the Securities (including the Conversion Shares and the
Warrant Shares that it may acquire upon conversion or exercise thereof, as the
case may be) have not been registered under the Securities Act and may not be
offered, resold, pledged or otherwise transferred except (a) pursuant to
an exemption from registration under the Securities Act (and, if requested by
the Company, based upon an opinion of counsel acceptable to the Company) or
pursuant to an effective registration statement under the Securities Act and (b) in
accordance with all applicable securities laws of the states of the United
States and other jurisdictions.

 

11

 

Each of the Purchaser and MAG agrees to the
imprinting, so long as appropriate, of the following legend on the Securities
(including the Conversion Shares and the Warrant Shares that it may acquire
upon conversion or exercise thereof, as the case may be):

 

The shares of
stock evidenced by this certificate have not been registered under the U.S. Securities
Act of 1933, as amended, and may not be offered, sold, pledged or otherwise
transferred (“transferred”) in the absence of such registration or an
applicable exemption therefrom. In the absence of such registration, such
shares may not be transferred unless, if the Company requests, the Company has
received a written opinion from counsel in form and substance satisfactory to
the Company stating that such transfer is being made in compliance with all
applicable federal and state securities laws.

 

The legend set forth above may be removed if and when
the Conversion Shares or the Warrant Shares, as the case may be, are disposed
of pursuant to an effective registration statement under the Securities Act or
in the opinion of counsel to the Company experienced in the area of United
States Federal securities laws such legends are no longer required under
applicable requirements of the Securities Act. 
The Series H Stock, the Warrants, the Conversion Shares and the Warrant
Shares shall also bear any other legends required by applicable Federal or
state securities laws, which legends may be removed when in the opinion of
counsel to the Company experienced in the applicable securities laws, the same
are no longer required under the applicable requirements of such securities
laws.  The Company agrees that it will
provide Purchaser, upon request, with a substitute certificate, not bearing
such legend at such time as such legend is no longer applicable.  Purchaser agrees that, in connection with any
transfer of the Conversion Shares or the Warrant Shares by it pursuant to an
effective registration statement under the Securities Act, Purchaser will
comply with all prospectus delivery requirements of the Securities Act.  The Company makes no representation, warranty
or agreement as to the availability of any exemption from registration under
the Securities Act with respect to any resale of the Series H Stock, the
Warrants, the Conversion Shares or the Warrant Shares.

 

(c)           Each of the Purchaser and MAG
represents and warrants to the Company that it is an “accredited investor”
within the meaning of Rule 501(a) of Regulation D under the Securities Act and
that neither such Purchaser nor MAG is an “underwriter” within the meaning of
Section 2(11) of the Securities Act.  Each
of the Purchaser and MAG represents and warrants to the Company that neither
such Purchaser nor MAG learned of the opportunity to acquire Securities or any
other security issuable by the Company through any form of general advertising
or public solicitation.

 

(d)           Each of the Purchaser and MAG
represents and warrants to the Company that it has such knowledge,
sophistication and experience in business and financial matters so as to be
capable of evaluating the merits and risks of the prospective investment in the
Securities, having been represented by counsel, and has so evaluated the merits
and risks of such investment and is able to bear the economic risk of such
investment and, at the present time, is able to afford a complete loss of such
investment.

 

12

 

(e)           Each of the Purchaser and MAG
represents and warrants to the Company that its overall commitment to
investments which are not readily marketable is not disproportionate to its net
worth, and its purchase of the Securities will not cause such overall
commitment to become excessive.

 

(f)            Each of the Purchaser and MAG
recognizes that the purchase of the Securities involves a high degree of risk.

 

(g)           Each of the Purchaser and MAG
represents and warrants to the Company that all information it has provided to
the Company including, but not limited to, its financial position and its
knowledge of financial and business matters is true, correct and complete as of
the date of execution of this Subscription Agreement.  Each of the Purchaser and MAG undertakes to
provide promptly to the Company written notice of any material changes in its
financial position or otherwise, and such information shall be true, correct
and complete as of the date given.  Each
of the Purchaser and MAG understands that the Company will rely to a material
degree upon the representations contained therein.

 

(h)           Each of the Purchaser and MAG
represents and warrants to the Company that (i) the purchase of the Securities
to be purchased by it has been duly and properly authorized and this Agreement
has been duly executed and delivered by it or on its behalf and constitutes the
valid and legally binding obligation of Purchaser or MAG, enforceable against
Purchaser or MAG in accordance with its terms, subject to the Enforceability
Exceptions, (ii) the purchase of the Securities to be purchased by it does
not conflict with or violate its charter, by-laws or any law, regulation or
court order applicable to it; and (iii) the purchase of the Securities to
be purchased by it does not impose any penalty or other onerous condition on
Purchaser or MAG under or pursuant to any applicable law or governmental
regulation.

 

(i)            Each of the Purchaser and MAG
represents and warrants to the Company that neither it nor any of its
directors, officers, employees, agents, partners, members, controlling persons
or shareholders holding 5% or more of the Common Stock outstanding on the
Closing Date, has taken or will take, directly or indirectly, any actions
designed, or might reasonably be expected to cause or result in the
stabilization or manipulation of the price of the Common Stock.

 

(j)            Each of the Purchaser and MAG
acknowledges it or its representatives have reviewed and understand the
Transaction Documents and Disclosure Documents and further acknowledges that it
or its representatives have been afforded (i) the opportunity to ask such
questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Company’s
financial condition, results of operations, business, properties, management
and prospects sufficient to enable it to evaluate its investment in the
Securities; and (iii) the opportunity to obtain such additional information
which the Company possesses or can acquire without unreasonable effort or
expense that is necessary to verify the accuracy and completeness of the
information contained in the Disclosure Documents.

 

13

 

(k)           Each of the Purchaser and MAG
represents and warrants to the Company that it has based its investment
decision solely upon the information contained in the Disclosure Documents and
such other information as may have been provided to it or its representatives
by the Company in response to their inquiries, and has not based its investment
decision on any research or other report regarding the Company prepared by any
third party (“Third
Party Reports”).  Each of
the Purchaser and MAG understands and acknowledges that (i) the Company does
not endorse any Third Party Reports and (ii) its actual results may differ
materially from those projected in any Third Party Report.

 

(l)            Each of the Purchaser and MAG
represents and warrants to the Company that no oral or written representations
have been made and no oral or written information has been furnished to them or
their advisors in connection with this offering that were in any way
inconsistent with the information set forth in the Disclosure Documents.

 

(m)          Each of the Purchaser and MAG
understands and acknowledges that (i) any forward-looking information included
in the Disclosure Documents supplied to Purchaser or MAG by the Company or its
management is subject to risks and uncertainties, including those risks and
uncertainties set forth in the Disclosure Documents; and (ii) the Company’s
actual results may differ materially from those projected by the Company or its
management in such forward-looking information.

 

(n)           Each of the Purchaser and MAG
understands and acknowledges that (i) the Securities are offered and sold
without registration under the Securities Act in a private placement that is
exempt from the registration provisions of the Securities Act and (ii) the
availability of such exemption depends in part on, and that the Company and its
counsel will rely upon, the accuracy and truthfulness of the foregoing
representations and each of Purchaser and MAG hereby consents to such reliance.

 

(o)           Each of the Purchaser and MAG
understands that no U.S. federal or state agency, or any agency or governmental
or regulatory authority in any other country, including without limitation, the
U.S. Securities and Exchange Commission, has passed upon the Securities or made
any finding or determination as to the fairness of this investment.

 

(p)           Each of the Purchaser and MAG
represents and warrants to the Company that it is not a prohibited investor
under the anti-money laundering or anti-terrorism laws of any jurisdiction,
including without limitation, any country, territory, nation or national
association.

 

(q)           Each of the Purchaser and MAG
understands that the Company and its assets may be subject to the laws and
regulations of many jurisdictions, including but not limited to anti-terrorism
laws and anti-money laundering laws. 
Neither MAG nor Purchaser, nor any person or entity who controls MAG or
Purchaser, nor, to the best of MAG and the Purchaser’s knowledge, any person or
entity who owns any direct equity interest in either of them, is identified on
the list of “Specially Designated Nationals and Blocked Persons” (“SDNs”)
maintained by the U.S. Department of Treasury’s Office of Foreign Assets Control
(“OFAC”), and neither of the Purchaser nor MAG is owned or controlled by any
SDN. Neither of the Purchaser nor MAG is involved in business arrangements or
otherwise engaged in transactions

 

14

 

with or involving
countries subject to economic or trade sanctions imposed by the United States
Government, or with or involving SDNs in violation of the regulations
maintained by the OFAC.  Each of the
Purchaser and MAG is in full compliance with the Bank Secrecy Act (31 U.S.C. §
5311 et. seq.) and 18 U.S.C. §§ 1956 and 1957 and the regulations under such
statutes; and any other applicable anti-terrorist or anti-money laundering Laws
and regulations.

 

(r)            Each of the Purchaser and MAG
represents and warrants to the Company that neither of the Purchaser, nor MAG,
nor any of their affiliates has, directly or indirectly, offered to “short sell”,
contracted to “short sell,” otherwise engaged in any “short selling” or
encouraged others to “short sell” the securities of the Company, including,
without limitation, shares of Common Stock that will be received as a result of
the conversion of the Series H Stock or the exercise of the Warrants.  For purposes of this Agreement, “short
selling” shall include any short sale (whether or not against the box) and any
similar hedging or derivative securities transaction.

 

7.                                       Covenants of Purchaser.

 

(a)           Not to Short Sell Stock.  Purchaser, on behalf of itself, its
affiliates, its successors and assigns and any other direct or indirect transferee
holding any of the Warrants, the Series H Stock or the Registrable Securities,
hereby covenants and agrees not to, directly or indirectly, offer to “short
sell”, contract to “short sell” or otherwise “short sell” or encourage others
to “short sell” the securities of the Company, including, without limitation,
shares of Common Stock that will be received as a result of the conversion of
the Series H Stock or the exercise of the Warrants.

 

8.                                       Termination.

 

(a)           This Agreement may be terminated in
the sole discretion of the Company by notice to Purchaser if at the Closing
Date:

 

(i)            the representations and warranties
made by Purchaser or MAG in Section 6 are not true and correct in all material
respects; or

 

(ii)           as to the Company, the sale of the
Securities hereunder (i) is prohibited or enjoined by any applicable law or
governmental regulation or (ii) subjects the Company to any penalty, or in its
reasonable judgment, other onerous condition under or pursuant to any
applicable law or government regulation that would materially reduce the
benefits to the Company of the sale of the Securities to Purchaser, so long as
such regulation, law or onerous condition was not in effect in such form at the
date of this Agreement.

 

(b)           This Agreement may be terminated by
either of the Purchaser or MAG by notice to the Company given in the event that
the Company shall have failed, refused or been unable to satisfy all material
conditions on its part to be performed or satisfied hereunder on or prior to
the Closing Date, or if after the execution and delivery of this Agreement and
immediately prior to the Closing Date, trading in securities of the Company on
the OTC BB shall have been suspended.

 

15

 

(c)                                  This Agreement may be terminated by
mutual written consent of all parties.

 

9.             Registration.  The Company shall use commercially reasonable
efforts to prepare and file with the SEC a Registration Statement, or amend its
existing Registration Statement on Form S-2, Registration No. 333-121038
covering the resale of the maximum number of Conversion Shares issuable upon
conversion of the Series H Stock then issued to Purchaser and the Warrant
Shares issuable upon exercise of the Warrants (collectively, the “Registrable Securities”),
on or before December 31, 2005, as set forth in the Registration Rights
Agreement.  If the Second Closing is
consummated following the filing or effectiveness of such Registration
Statement, the Company shall use commercially reasonable efforts to amend such
Registration Statement to add the maximum number of Conversion Shares issuable
upon conversion of the Series H Stock issued in the Second Closing and the
Warrant Shares issuable upon exercise of the Warrants issued in the Second
Closing (and such shares shall be included in the definition of Registrable
Securities) within thirty (30) days following the Second Closing Date.

 

10.           Redemption.  At any time after the Closing, the Company
may, at its option, issue a redemption notice to the Purchaser and MAG (a “Redemption
Notice”) providing that the Company (or its designee) will purchase all or a
portion of the outstanding Series H Stock and Warrants (including any Common
Stock issued upon the conversion of the Series H Stock or exercise of the
Warrants). The Redemption Notice shall specify (a) the redemption date (the “Redemption
Date”), which date shall be at least five (5) trading days after the date the
Redemption Notice is received by Purchaser and MAG, and (b) the number of
shares of Series H Stock and/or Warrants to be redeemed. The redemption price
for the Series H Stock shall equal $1500 per share (or the equivalent value on
an as-converted basis for each share of Common Stock). The redemption price per
share for the Warrants shall equal 150% of the exercise price per share. Unless
full payment is received by Purchaser and MAG within three (3) trading days
after the Redemption Date, the Redemption Notice shall be void.

 

11.           Event of Default.  If an Event of Default (as defined below)
occurs and remains uncured for a period of 15 days, the Purchaser and MAG shall
have the right to exercise any or all of the rights given to the Purchaser and
MAG relating to the Securities, as further described in the Certificate of
Determination.  In addition, the Conversion
Price (as defined in the Certificate of Determination) shall be reduced from
85% of the Market Price (as defined in the Certificate of Determination) to 75%
of the Market Price, subject to the Ceiling Price and Floor Price as those
terms are defined in the Certificate of Determination.

 

The Purchaser need not provide and the Company hereby
waives any presentment, demand, protest or other notice of any kind, and the
Purchaser may immediately and without expiration of any grace period enforce
any and all of its rights and remedies hereunder and all other remedies
available to it under applicable law. Such declaration may be rescinded and
annulled by Purchaser at any time prior to payment hereunder. No such
rescission or annulment shall affect any subsequent Event of Default or impair
any right consequent thereon.

 

16

 

An “Event of Default” shall include the commencement by the
Company of a voluntary case or proceeding under the bankruptcy laws or the Company’s
failure to: (i) discharge or stay a bankruptcy proceeding within 60 days
of such action being taken against the Company, (ii) file the Registration
Statement with the SEC on or before December 31, 2005, (iii) maintain trading
of the Company’s Common Stock on the OTC BB except for any periods when the
stock is listed on the NASDAQ Small Stock Market, the NASDAQ National Stock
Market, the AMEX or the NYSE, (iv) pay the expenses referred to below or the
Due Diligence Fee within three (3) days after the Closing; or (vi) deliver to
Purchaser, or Purchaser’s broker, as directed, Common Stock that Purchaser has
converted within three (3) business days of such conversion.

 

12.            Notices.  All communications hereunder shall be in
writing and shall be hand delivered, mailed by first-class mail, couriered by
next-day air courier or by facsimile and confirmed in writing (i) if to the
Company, at the addresses set forth below, or (ii) if to a Purchaser or MAG, to
the address set forth for such party on the signature page hereto.

 

If to the
Company:

Spescom Software Inc. 

10052 Mesa Ridge Court, Suite 100

San Diego, CA  92121

Telephone No.: (858) 625-3000 (ext. 6831)

Facsimile No.:  (858) 625-3010

Attention:  John Low

with a copy to:

Gibson, Dunn & Crutcher LLP

1881 Page Mill Rd.

Palo Alto, CA  94063

Telephone No.: (650) 849-5383

Facsimile No.:  (650) 849-5083

Attention:  Russell C. Hansen

 

All such notices and communications shall be deemed to
have been duly given:  (i) when delivered
by hand, if personally delivered; (ii) five business days after being deposited
in the mail, postage prepaid, if mailed certified mail, return receipt
requested; (iii) one business day after being timely delivered to a next-day
air courier guaranteeing overnight delivery; (iv) the date of transmission if
sent via facsimile to the facsimile number as set forth in this Section or the
signature page hereof prior to 6:00 p.m. on a business day, or (v) the business
day following the date of transmission if sent via facsimile at a facsimile number
set forth in this Section or on the signature page hereof after 6:00 p.m. or on
a date that is not a business day. 
Change of a party’s address or facsimile number may be designated
hereunder by giving notice to all of the other parties hereto in accordance
with this Section.

 

17

 

13.           Survival Clause.  The respective representations, warranties,
agreements and covenants of the Company and the Purchaser and MAG set forth in
this Agreement shall survive until the first anniversary of the Closing.

 

14.           Fees and Expenses.  Within three (3) days of Closing, the Company
agrees to pay (i) Purchaser’s legal expenses incurred in connection with the
preparation and negotiation of the Transaction Documents up to $10,000 and (ii)
to MAG a due diligence fee in the amount of $10,000.

 

15.           Attorneys’ Fees.  If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the Warrants or
the Certificate of Determination, the prevailing party or parties shall be
entitled to receive from the other party or parties reasonable attorneys’ fees,
costs and necessary disbursements in addition to any other relief to which the
prevailing party or parties may be entitled.

 

16.           Successors.  This Agreement shall inure to the benefit of
and be binding upon Purchaser, MAG and the Company and their respective
successors and legal representatives, and nothing expressed or mentioned in
this Agreement is intended or shall be construed to give any other person any
legal or equitable right, remedy or claim under or in respect of this
Agreement, or any provisions herein contained; this Agreement and all
conditions and provisions hereof being intended to be and being for the sole
and exclusive benefit of such persons and for the benefit of no other person.
Neither the Company nor Purchaser may assign this Agreement or any rights or
obligation hereunder without the prior written consent of the other party.

 

17.           No Waiver; Modifications in
Writing.  No failure or delay on the
part of the Company, MAG or Purchaser in exercising any right, power or remedy
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy.  The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to the
Company, MAG or Purchaser at law or in equity or otherwise.  No waiver of or consent to any departure by
the Company, MAG or Purchaser from any provision of this Agreement shall be
effective unless signed in writing by the party entitled to the benefit
thereof, provided that notice of any such waiver shall be given to each party
hereto as set forth below.  Except as
otherwise provided herein, no amendment, modification or termination of any
provision of this Agreement shall be effective unless signed in writing by or
on behalf of each of the Company, MAG and the Purchaser.  Any amendment, supplement or modification of
or to any provision of this Agreement, any waiver of any provision of this
Agreement, and any consent to any departure by the Company, MAG or Purchaser
from the terms of any provision of this Agreement shall be effective only in the
specific instance and for the specific purpose for which made or given.  Except where notice is specifically required
by this Agreement, no notice to or demand on the Company in any case shall
entitle the Company to any other or further notice or demand in similar or
other circumstances.

 

18.           Entire Agreement.  This Agreement, together with Transaction
Documents, constitutes the entire agreement among the parties hereto and
supersedes all prior agreements, understandings and arrangements, oral or
written, among the parties hereto with respect to the subject matter hereof and
thereof.

 

18

 

19.           Severability.  If any provision of this Agreement is held to
be invalid or unenforceable in any respect, the validity and enforceability of
the remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby.

 

20.           APPLICABLE LAW.  THE VALIDITY AND INTERPRETATION OF THIS
AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT
GIVING EFFECT TO PROVISIONS RELATING TO CONFLICTS OF LAW TO THE EXTENT THE
APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.  THE PARTIES HEREBY IRREVOCABLY AND
UNCONDITIONALLY AGREE THAT ACTIONS, SUITS OR PROCEEDINGS ARISING OUT OF OR
RELATING TO THIS AGREEMENT MAY BE BROUGHT ONLY IN STATE OR FEDERAL COURTS
LOCATED IN THE CITY OF LOS ANGELES, CALIFORNIA AND HEREBY SUBMIT TO THE
EXCLUSIVE JURISDICTION OF SUCH COURTS FOR SUCH PURPOSE.

 

21.           Counterparts.  This Agreement may be executed in two or more
counterparts and may be delivered by facsimile transmission, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.

 

22.           If the foregoing correctly sets forth
our understanding, please indicate your acceptance thereof in the space
provided below for that purpose, whereupon this Agreement shall constitute a
binding agreement among the Company, the Purchaser and MAG.

 

19

 

	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  Spescom Software Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Keith Stentiford

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Keith Stentiford

  
	
   

  	
   

  	
  Title:

  	
  Chief Executive Officer

  
					

 

20

 

	
  ACCEPTED AND
  AGREED:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Monarch Pointe Fund Ltd.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Harry
  Aharonian

  	
   

  
	
   

  	
   

  	
  Harry
  Aharonian

  
	
   

  	
   

  	
  Portfolio
  Manager

  
	
   

  	
   

  
	
  M.A.G. Capital, LLC

  	
  Addresses
  for Notice to Purchaser and MAG:

  
	
   

  	
   

  
	
   

  	
  M.A.G.,
  Capital, LLC

  
	
   

  	
  555 South
  Flower Street, Suite 4500

  
	
  By:

  	
  /s/ Harry
  Aharonian

  	
   

  	
  Los Angeles,
  California 90071

  
	
   

  	
  Harry
  Aharonian

  	
  Attention:  David Firestone

  
	
   

  	
  Portfolio
  Manager

  	
  Facsimile:  (213) 533-8285

  
	
   

  	
   

  
	
   

  	
  with copy
  to:

  
	
   

  	
   

  
	
   

  	
  David C.
  Ulich, Esq.

  Sheppard, Mullin, Richter & Hampton LLP

  333 South Hope Street, 48th Floor

  Los Angeles, California 90071

  Facsimile: (213) 620-1398

  
						

 

21Exhibit 10.2

 

EXHIBIT C

to
Subscription Agreement

 

REGISTRATION
RIGHTS AGREEMENT

 

AGREEMENT dated as of October 25, 2005, between
Monarch Pointe Fund, Ltd., (the “Fund”), and M.A.G. CAPITAL, LLC (“MAG”)
(the Fund and MAG are referred to individually as a “Holder” and
collectively as the “Holders”), and Spescom Software Inc., a California
corporation (the “Company”).

 

WHEREAS, the Fund has purchased, for $500,000, and
in exchange for tendering 1,450 shares of outstanding Series G Convertible
Preferred Stock of the Company owned by the Fund and represented by stock
certificate no. G-02 to the Company, an aggregate of 1,950 shares of Series H
Convertible Preferred Stock (the “Series H Stock”) from the Company, and
has the right to cause its Series H Stock to be converted into shares of Common
Stock, no par value (the “Common Stock”), of the Company, pursuant to
the conversion formula set forth in the Certificate of Determination of Series
H Preferred Stock as filed with the Secretary of State of the State of California
on the date hereof (the “Certificate of Determination”);

 

WHEREAS, the Fund and MAG have acquired warrants
(together, the “Warrants”) from the Company, pursuant to which Fund and
MAG have the right to purchase in the aggregate up to 925,926 shares of Common
Stock;

 

WHEREAS, the Company desires to grant to the Holders
the registration rights set forth herein with respect to the shares of Common
Stock issuable upon the conversion of the Series H Stock and the exercise of
the Warrants.

 

NOW, THEREFORE, the parties hereto mutually agree as
follows:

 

1.  Registrable
Securities.  As used
herein the terms “Registrable Security” means each of the shares of
Common Stock issued (i) upon the conversion of the Series H Stock (the “Conversion
Shares”) and (ii) upon exercise of the Warrants (the “Warrant Shares”),
provided, however, that with respect to any particular Registrable Security,
such security shall cease to be a Registrable Security as of the date of
determination that (a) it has been effectively registered under the
Securities Act of 1933, as amended (the “Securities Act”), and disposed
of pursuant thereto, or (b) registration under the Securities Act is no
longer required for the immediate public distribution of such security.  The term “Registrable Securities”
means any and/or all of the securities falling within the foregoing definition
of a “Registrable Security.”  In the
event of any merger, reorganization, consolidation, recapitalization or other
change in corporate structure affecting the Common Stock, such adjustment shall
be made in the definition of “Registrable Security” as is appropriate in order
to prevent any dilution or enlargement of the rights granted pursuant to this
Section 1.

 

1

 

2.  Registration.

 

(a) The Company shall use its commercially reasonable efforts to file a
registration statement or an amendment to the Company’s existing Registration
Statement No. 333-121038 (the “Registration Statement”) with the
Securities and Exchange Commission (the “SEC”) no later than December
31, 2005 in order to register the resale of the Registrable Securities under
the Securities Act.  The Company shall
use its commercially reasonable efforts to cause the Registration Statement to
become effective no later than (a) ninety (90) days after the filing date if
such Registration Statement is not subject to SEC review, or (b) one hundred
twenty (120) days after the filing date if such Registration Statement is
subject to SEC review.  Once effective,
the Company shall use its commercially reasonable efforts to maintain the
effectiveness of the Registration Statement until the earliest of the following
dates (the “Expiration Date”) (i) the date that all of the
Registrable Securities have been sold, or (ii) the date that the Company
receives an opinion of counsel to the Company that all of the Registrable
Securities may be freely traded without registration under the Securities Act,
under Rule 144 promulgated under the Securities Act or otherwise.

 

(b) The Company will initially include in the Registration Statement as
Registrable Securities (i) Twenty Six Million, Eight Hundred Ninety Six Thousand,
Five Hundred Fifty Two (26,896,552) shares of Common Stock issuable upon
conversion of the Series H Stock and (ii) the maximum numbers of shares of
Common Stock issuable upon exercise of the Warrants.

 

(c) If (i) the Company fails to file the Registration Statement with
the SEC by December 31, 2005, or (ii) the Registration Statement fails to
become effective within the applicable time period set forth in Section 2(a)
above of ninety (90) or one hundred twenty (120) days, as the case may be, the
Company shall pay to Holders an amount equal to Five Hundred Dollars ($500) per
day until the Registration Statement is declared effective; provided, however,
that in no event shall the aggregate liability of the Company under this
Section exceed Fifty Thousand Dollars ($50,000).

 

3.  Covenants of the Company
with Respect to Registration.

 

The Company covenants and agrees as follows:

 

(a) If any stop order shall be issued by the SEC in connection
therewith, the Company shall use commercially reasonable efforts to obtain
promptly the removal of such order. 
Following the effective date of the Registration Statement, the Company
shall, upon the request of any Holder, forthwith supply such reasonable number
of copies of the Registration Statement, preliminary prospectus and prospectus
meeting the requirements of the Securities Act, and any other documents
necessary or incidental to the public offering of the Registrable Securities,
as shall be reasonably requested by the Holder to permit the Holder to make a
public distribution of the Holder’s Registrable Securities.  The obligations of the Company hereunder with
respect to the Holder’s Registrable Securities are subject to the Holder’s
furnishing to the Company such appropriate information concerning the Holder,
the Holder’s Registrable Securities and the terms of the Holder’s offering of
such Registrable Securities as the Company may reasonably request in writing.

 

2

 

(b) The Company shall pay all costs, fees and expenses in connection
with the Registration Statement filed pursuant to Section 2 hereof
including, without limitation, the Company’s legal and accounting fees,
printing expenses, and blue sky fees and expenses; provided, however, that each
Holder shall be solely responsible for the fees of any counsel retained by the
Holder in connection with such registration and any transfer taxes or
underwriting discounts, commissions or fees applicable to the Registrable
Securities sold by the Holder pursuant thereto.

 

(c) The Company will take all actions which may be required to qualify
or register the Registrable Securities included in the Registration Statement
for the offer and sale under the securities or blue sky laws of such states as
are reasonably requested by each Holder of such securities, provided that the
Company shall not be obligated to execute or file any general consent to service
of process or to qualify as a foreign corporation to do business under the laws
of any such jurisdiction.

 

4.  Additional
Terms.

 

(a) The Company shall indemnify and hold harmless the Holders and each
underwriter, within the meaning of the Securities Act, who may purchase from or
sell for any Holder, any Registrable Securities, from and against any and all
losses, claims, damages and liabilities caused by any untrue statement of a
material fact contained in the Registration Statement, any other registration
statement filed by the Company under the Securities Act with respect to the
registration of the Registrable Securities, any post-effective amendment to
such registration statements, or any prospectus included therein or caused by
any omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or omission based upon information furnished or required to be furnished in
writing to the Company by the Holders or underwriter expressly for use therein,
which indemnification shall include each person, if any, who controls any
Holder or underwriter within the meaning of the Securities Act and each
officer, director, employee and agent of each Holder and underwriter; provided,
however, that the indemnification in this Section 4(a) with respect to any
prospectus shall not inure to the benefit of any Holder or underwriter (or to
the benefit of any person controlling any Holder or underwriter) on account of
any such loss, claim, damage or liability arising from the sale of Registrable
Securities by the Holder or underwriter, if a copy of a subsequent prospectus
correcting the untrue statement or omission in such earlier prospectus was
provided to such Holder or underwriter by the Company prior to the subject sale
and the subsequent prospectus was not delivered or sent by the Holder or
underwriter to the purchaser prior to such sale and provided further, that the
Company shall not be obligated to so indemnify any Holder or any such
underwriter or other person referred to above unless the Holder or underwriter
or other person, as the case may be, shall at the same time indemnify the
Company, its directors, each officer signing the Registration Statement and
each person, if any, who controls the Company within the meaning of the
Securities Act, from and against any and all losses, claims, damages and
liabilities caused by any untrue statement of a material fact contained in the
Registration Statement, any registration statement or any prospectus required
to be filed or furnished by reason of this Agreement or caused by any omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, insofar as such losses, claims,
damages or liabilities are caused by any untrue statement or omission based
upon information furnished in writing to the Company by the Holder or
underwriter expressly for use therein.

 

3

 

(b) The Holders shall indemnify and hold harmless the Company, from and
against any and all losses, claims, damages and liabilities caused by any
untrue statement of a material fact contained in the Registration Statement,
any registration statement or any prospectus required to be filed or furnished
by reason of this Agreement or caused by any omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, insofar as such losses, claims, damages or liabilities
are caused by any material untrue statement or material omission based upon
information furnished in writing to the Company by any Holder expressly for use
therein.

 

(c) If for any reason the indemnification provided for in the preceding
section is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, claim, damage, liability or expense
referred to therein, then the indemnifying party, in lieu of indemnifying
such indemnified party thereunder, shall contribute to the amount paid or
payable by the indemnified party as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect the relative fault of
the indemnified party and the indemnifying party, as well as any other relevant
equitable considerations.

 

(d) Promptly after receipt by an indemnified party under this
Section 4 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 4, deliver to the
indemnifying party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, to assume the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that an
indemnified party shall have the right to retain its own counsel, with the fees
and expenses to be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential conflict of interests between such indemnified
party and any other party represented by such counsel in such proceeding.  The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall relieve such indemnifying party of liability to the indemnified
party under this Section 4 only to the extent the indemnifying party is
prejudiced as a result thereof.

 

(e) Neither the filing of a Registration Statement by the Company
pursuant to this Agreement nor the making of any request for prospectuses by
the Holder shall impose upon any Holder any obligation to sell the Holder’s
Registrable Securities.

 

(f) Each Holder, upon receipt of notice from the Company that an event
has occurred which requires a Post-Effective Amendment to the Registration
Statement or a supplement to the prospectus included therein, shall promptly
discontinue the sale of Registrable Securities until the Holder receives a copy
of a supplemented or amended prospectus from the Company, which the Company
shall provide as soon as practicable after such notice.

 

4

 

(g) If the Company fails to keep the Registration Statement referred to
above continuously effective during the requisite period, then the Company
shall, promptly upon the request of any Holder, use commercially reasonable
efforts to update the Registration Statement or file a new registration
statement covering the Registrable Securities remaining unsold, subject to the
terms and provisions hereof, so that the registration of such unsold Registered
Securities is maintained for a number of days beyond the Expiration Date equal
to the number of days that the Holder is unable to sell pursuant to Section
4(f) above.

 

(h) Each Holder agrees to provide the Company with any information or
undertakings reasonably requested by the Company in order for the Company to
include any appropriate information concerning the Holder in the Registration
Statement or in order to promote compliance by the Company or the Holder with
the Securities Act.

 

(i) Each Holder, by its acceptance of the Registrable Securities,
agrees to cooperate with the Company as reasonably requested by the Company in
connection with the preparation and filing of a Registration Statement
hereunder.

 

(j)
Each Holder, on behalf of itself, its affiliates, its successors and assigns
and any other direct or indirect transferee holding any of the Warrants, the
Series H Stock or the Registrable Securities, hereby covenants and agrees not
to, directly or indirectly, offer to “short sell”, contract to “short sell” or
otherwise “short sell” or encourage others to “short sell” any securities of
the Company, including, without limitation, shares of Common Stock that will be
received as a result of the conversion of the Series H Stock or the exercise of
the Warrants.  For purposes of this
Agreement, “short selling” shall include any sale, any trade in any option or
other derivative security, any hedging transaction relating to the securities
of the Company or any transaction intended to affect the price of the Company’s
common stock.

 

(k) If requested in writing by the Company and the managing underwriter
of an underwritten registered public offering by the Company of its Common
Stock, the Holders shall agree not to sell or otherwise transfer or dispose of
any Common Stock of the Company held by such Holders (other than those included
in the registration statement) for a period not to exceed 90 days following the
effective date of a registration statement of the Company filed under the
Securities Act, provided that all officers and directors of the Company enter
into similar agreements identical in terms to that of the Holders.

 

5.  Governing
Law.  The Registrable
Securities will be, if and when issued, delivered in California.  This Agreement shall be deemed to have been
made and delivered in the State of California and shall be governed as to
validity, interpretation, construction, effect and in all other respects by the
internal substantive laws of the State of California, without giving
effect to the choice of law rules thereof.

 

6.  Amendment.  This Agreement may only be amended by a
written instrument executed by the Company and the Holders.

 

7.  Entire
Agreement.  This Agreement
constitutes the entire agreement of the parties hereto with respect to the
subject matter hereof, and supersedes all prior agreements and understandings
of the parties, oral and written, with respect to the subject matter hereof.

 

5

 

8.  Execution
in Counterparts.  This
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
document.

 

9.  Notices.  All communications hereunder shall be in
writing and shall be hand delivered, mailed by first-class mail, couriered by
next-day air courier or by facsimile at the addresses set forth below.

 

	
  If to the Holders,

  	
  M.A.G. Capital, LLC

  
	
   

  	
  Monarch Pointe Fund, Ltd.

  
	
   

  	
  555 South Flower
  Street, Suite 4200

  
	
   

  	
  Los Angeles, CA 90071

  
	
   

  	
  Attention: David Firestone

  
	
   

  	
   

  
	
  With a copy to

  	
  Sheppard Mullin Richter
  & Hampton LLP

  
	
   

  	
  333 South Hope Street

  
	
   

  	
  48th Floor

  
	
   

  	
  Los Angeles, CA 90071-1448

  
	
   

  	
  Telephone No.: (213)
  620-1780

  
	
   

  	
  Facsimile No.:  (213) 620-1398

  
	
   

  	
  Attention:     David
  C. Ulich

  
	
   

  	
   

  
	
  If to the Company,

  	
  Spescom Software Inc.

  
	
   

  	
  10052 Mesa Ridge Court,
  Suite 100

  
	
   

  	
  San Diego, CA 92121

  
	
   

  	
  Telephone No.: (858)
  625-3000 (ext. 6831)

  
	
   

  	
  Facsimile No.:  (858) 625-3010

  
	
   

  	
  Attention: John Low

  
	
   

  	
   

  
	
  With a copy to

  	
  Gibson, Dunn &
  Crutcher LLP

  
	
   

  	
  1881 Page Mill Rd.

  
	
   

  	
  Palo Alto, CA 94063

  
	
   

  	
  Telephone No.: (650)
  849-5383

  
	
   

  	
  Facsimile No.: (650)
  849-5083

  
	
   

  	
  Attention:     Russell
  C. Hansen

  

 

All such notices and communications shall be
deemed to have been duly given:  (i) when
delivered by hand, if personally delivered; (ii) five business days after being
deposited in the mail, postage prepaid, if mailed certified mail, return
receipt requested; (iii) one business day after being timely delivered to a
next-day air courier guaranteeing overnight delivery; (iv) the date of
transmission if sent via facsimile to the facsimile number as set forth in this
Section or the signature page hereof prior to 4:00 p.m. on a business day, or
(v) the business day following the date of transmission if sent via facsimile
at a facsimile number set forth in this Section or on the signature page hereof
after 4:00 p.m. or on a date that is not a business day.  Change of a party’s address or facsimile
number may be designated hereunder by giving notice to all of the other parties
hereto in accordance with this Section.

 

6

 

10.  Binding
Effect; Benefits.  Any
Holder may assign its rights hereunder; provided, however, that the rights of a
Holder hereunder may be transferred by such Holder or its transferee only to a
person or entity who acquires Series H Preferred Stock or Warrants convertible
into or exercisable for an aggregate of at least 200,000 shares of Common
Stock.  This Agreement shall inure to the
benefit of, and be binding upon, the parties hereto and their respective heirs,
legal representatives, successors and permitted assigns.  Nothing herein contained, express or implied,
is intended to confer upon any person other than the parties hereto and their
respective heirs, legal representatives and successors, any rights or remedies
under or by reason of this Agreement.

 

11.  Headings.  The headings contained herein are for the
sole purpose of convenience of reference, and shall not in any way limit or
affect the meaning or interpretation of any of the terms or provisions of this
Agreement.

 

12.  Severability.  Any provision of this Agreement which is held
by a court of competent jurisdiction to be prohibited or unenforceable in any
jurisdiction(s) shall be, as to such jurisdiction(s), ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of
such provision in any other jurisdiction.

 

13.  Jurisdiction.  Each of the parties irrevocably agrees that
any and all suits or proceedings based on or arising under this Agreement may
be brought only in and shall be resolved in the federal or state courts located
in the City of Los Angeles, California and consents to the
jurisdiction of such courts for such purpose. 
Each of the parties irrevocably waives the defense of an inconvenient
forum to the maintenance of such suit or proceeding in any such court.  Each of the parties further agrees that
service of process upon such party mailed by first class mail to the address
set forth in Section 9 shall be deemed in every respect effective service of
process upon such party in any such suit or proceeding.  Nothing herein shall affect the right of either
party
to serve process in any other manner permitted by law.  Each of the parties agrees that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.

 

14.  Attorneys’
Fees and Disbursements. 
If any action at law or in equity is necessary to enforce or interpret
the terms of this Agreement, the prevailing party or parties shall be entitled
to receive from the other party or parties reasonable attorneys’ fees and
disbursements in addition to any other relief to which the prevailing party or
parties may be entitled.

 

[The balance of this page is
intentionally left blank.]

 

7

 

IN WITNESS WHEREOF, this Agreement has been executed and
delivered by the parties hereto as of the date first above written.

 

	
   

  	
  SPESCOM
  SOFTWARE INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John W. Low

  	
   

  
	
   

  	
  Name:

  	
  John W. Low

  
	
   

  	
  Its:

  	
  Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
  HOLDERS:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  M.A.G. CAPITAL, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Harry Aharonian

  	
   

  
	
   

  	
  Name:

  	
  Harry Aharonian

  
	
   

  	
  Its:

  	
  Portfolio Manager

  
	
   

  	
   

  
	
   

  	
  MONARCH POINT FUND, LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Harry Aharonian

  	
   

  
	
   

  	
  Name:

  	
  Harry Aharonian

  
	
   

  	
  Its:

  	
  Portfolio Manager

  
					

 

8

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