Document:

Exhibit 10.4

WARRANT TO PURCHASE COMMON STOCK

 THIS WARRANT
AND THE SECURITIES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR THE AVAILABILITY OF AN EXEMPTION FROM REGISTRATION UNDER
SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAWS.

WARRANT
TO PURCHASE COMMON STOCK

	
  Number
  of Shares:

  	
  Up to 2,200,000 shares (subject to adjustment)

  
	
  Warrant Price:

  	
  $0.44  per share

  
	
  Issuance Date:

  	
  November 5, 2004

  
	
  Expiration Date:

  	
  November 5, 2007

  

 

THIS WARRANT CERTIFIES THAT for value received, Monarch Pointe Fund,
Ltd., or its registered assigns (hereinafter called the “Holder”)
is entitled to purchase from Spescom Software Inc. (hereinafter called the “Company”), the above referenced
number of fully paid and nonassessable shares (the “Shares”)
of common stock (the “Common Stock”),
of Company, at the Warrant Price per Share referenced above; the number of
shares purchasable upon exercise of this Warrant referenced above being subject
to adjustment from time to time as described herein. This Warrant is issued in
connection with that certain Subscription Agreement dated as of November 5,
2004, by and between the Company and Holder (the “Subscription
Agreement”). The exercise of this Warrant shall be subject to
the provisions, limitations and restrictions contained herein.

1.     Term and Exercise.

1.1  Term.  This Warrant is exercisable in whole or in
part (but not as to any fractional share of Common Stock), at any time and from
time to time after the date hereof prior to 6:00 p.m. on the Expiration Date
set forth above.

1.2  Warrant Price.  The Warrant shall be exercisable at the
Warrant Price described above.

1.3  Maximum Number  of Shares.  The maximum number of Shares of Common Stock
exercisable pursuant to this Warrant is 2,200,000 Shares.  However, notwithstanding anything herein to
the contrary, in no event shall the Holder be permitted to exercise this
Warrant for a number of Shares greater than the number that would cause the
aggregate beneficial ownership of the Company’s
Common Stock (calculated pursuant to Rule 13d-3 of the Securities Exchange Act
of 1934, as amended) of the Holder and all persons affiliated with the Holder
to equal 9.99% of the Company’s Common Stock then outstanding.

1.4  Procedure for Exercise of Warrant.  Holder may exercise this Warrant by
delivering the following to the principal office of the Company in accordance
with Section 5.1 hereof: (i) a duly executed Notice of Exercise in
substantially the form attached as Schedule A, (ii) payment of the
Warrant Price then in effect for each of the Shares being purchased, as
designated in the Notice of Exercise, and (iii) this Warrant.  Payment of the Warrant Price may be in cash,
certified or official bank check payable to the order of the Company, or wire
transfer of funds to the Company’s account (or any combination of any of the
foregoing) in the amount of the Warrant Price for each share being purchased.

1.5  Delivery of Certificate and New Warrant.  In the event of any exercise of the rights
represented by this Warrant, a certificate or certificates for the shares of
Common Stock so purchased, registered in the name of the Holder or such other
name or names as may be designated by the Holder, together with any other
securities or other property which the Holder is entitled to receive upon
exercise of this Warrant, shall be delivered to the Holder hereof, at the
Company’s expense, within a reasonable time, not exceeding fifteen (15)
calendar days, after the rights represented by this Warrant shall have been so
exercised; and, unless this Warrant has expired, a new Warrant representing the
number of Shares (except a remaining fractional share), if any, with respect to
which this Warrant shall not then have been exercised shall also be issued to
the Holder hereof within such time.  The
person in whose name any certificate for shares of Common Stock is issued upon
exercise of this Warrant shall for all purposes be deemed to have become the
holder of record of such shares on the date on which the Warrant was
surrendered and payment of the Warrant Price was received by the Company,
irrespective of the date of delivery of such certificate, except that, if the
date of such surrender and payment is on a date when the stock transfer books
of the Company are closed, such person shall be deemed to have become the
holder of such Shares at the close of business on the next succeeding date on
which the stock transfer books are open.

1.6  Restrictive Legend.  Each certificate for Shares shall bear a
restrictive legend in substantially the form as follows, together with any
additional legend required by (i) any applicable state securities laws and
(ii) any securities exchange upon which such Shares may, at the time of
such exercise, be listed:

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.

1

Any certificate issued at any time in exchange or
substitution for any certificate bearing such legend shall also bear such
legend unless, in the opinion of counsel for the Holder thereof (which counsel
shall be reasonably satisfactory to the Company), the securities represented
thereby are not, at such time, required by law to bear such legend.

1.7  Fractional Shares. 
No fractional Shares shall be issuable upon exercise or conversion of
the Warrant.  In the event of a
fractional interest, the number of Shares to be issued shall be rounded down to
the nearest whole Share.

2.     Representations, Warranties and Covenants.

2.1  Representations and Warranties.

(a)   The
Company is a corporation duly organized, validly existing and in good standing
under the laws of its state of incorporation and has all necessary power and
authority to perform its obligations under this Warrant;

(b)   The
execution, delivery and performance of this Warrant has been duly authorized by
all necessary actions on the part of the Company and constitutes the legal,
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms; and

(c)   This
Warrant does not violate and is not in conflict with any of the provisions of
the Company’s Articles of Incorporation or Certificate of Determination, Bylaws
and any resolutions of the Company’s Board of Directors or stockholders, or any
agreement of the Company, and no event has occurred and no condition or
circumstance exists that might (with or without notice or lapse of time)
constitute or result directly or indirectly in such a violation or conflict.

2.2  Issuance of Shares.  The Company covenants and agrees that all
shares of Common Stock that may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be validly issued, fully paid
and nonassessable, and free from all taxes, liens and charges with respect to
the issue thereof.  The Company further
covenants and agrees that it will pay when due and payable any and all federal
and state taxes which may be payable in respect of the issue of this Warrant or
any Common Stock or certificates therefor issuable upon the exercise of this
Warrant.  The Company further covenants
and agrees that the Company will at all times have authorized and reserved,
free from preemptive rights, a sufficient number of shares of Common Stock to
provide for the exercise in full of the rights represented by this
Warrant.  If at any time the number of
authorized but unissued shares of Common Stock of the Company shall not be
sufficient to effect the exercise of the Warrant in full, subject to the
limitations set forth in Section 1.3 hereto, then the Company will take all
such corporate action as may, in the opinion of counsel to the Company, be
necessary or advisable to increase the number of its authorized shares of
Common Stock as shall be sufficient to permit the exercise of the Warrant in
full, subject to the limitations set forth in Section 1.3 hereto, including
without limitation, using its best efforts to obtain any necessary stockholder
approval of such increase.  The Company
further covenants and agrees that if any shares of capital stock to be reserved
for the purpose of the issuance of shares upon the exercise of this Warrant
require registration with or approval of any governmental authority under any
federal or state law before such shares may be validly issued or delivered upon
exercise, then the Company will in good faith and as expeditiously as possible
endeavor to secure such registration or approval, as the case may be.  If and so long as the Common Stock issuable
upon the exercise of this Warrant is listed on any national securities exchange
or the Nasdaq Stock Market, the Company will, if permitted by the rules of such
exchange or market, list and keep listed on such exchange or market, upon
official notice of issuance, all shares of such Common Stock issuable upon
exercise of this Warrant.

3.     Other Adjustments.

3.1  Subdivision or Combination of Shares.  In case the Company shall at any time
subdivide its outstanding Common Stock into a greater number of shares, the
Warrant Price in effect immediately prior to such subdivision shall be
proportionately reduced, and the number of Shares subject to this Warrant shall
be proportionately increased, and conversely, in case the outstanding Common
Stock of the Company shall be combined into a smaller number of shares, the
Warrant Price in effect immediately prior to such combination shall be
proportionately increased, and the number of Shares subject to this Warrant
shall be proportionately decreased.

3.2  Dividends in Common Stock, Other Stock or Property.  If at any time or from time to time the
holders of Common Stock (or any shares of stock or other securities at the time
receivable upon the exercise of this Warrant) shall have received or become
entitled to receive, without payment therefor:

(a)   Common
Stock, Options or any shares or other securities which are at any time directly
or indirectly convertible into or exchangeable for Common Stock, or any rights
or options to subscribe for, purchase or otherwise acquire any of the foregoing
by way of dividend or other distribution;

(b)   any
cash paid or payable otherwise than as a regular cash dividend; or

(c)   Common
Stock or additional shares or other securities or property (including cash) by
way of spin-off, split-up, reclassification, combination of shares or similar
corporate rearrangement (other than Common Stock issued as a stock split or
adjustments in respect of which shall be covered by the terms of Section 3.1
above) and additional shares, other securities or property issued in connection
with a Change (as defined below) (which shall be covered by the terms of
Section 3.4 below), then and in each such case, the Holder hereof shall, upon
the exercise of this Warrant, be entitled to receive, in addition to the number
of shares of Common Stock receivable thereupon, and without payment of any
additional consideration therefor, the amount of stock and other securities and
property (including cash in the cases referred to in clause (b) above and this
clause (c)) which such Holder would hold on the date of such exercise had such
Holder been the holder of record of such Common Stock as of the date on which
holders of Common Stock received or became entitled to receive such shares or
all other additional stock and other securities and property.

3.3  Reorganization, Reclassification, Consolidation, Merger or Sale.  If any recapitalization, reclassification or
reorganization of the share capital of the Company, or any consolidation or
merger of the Company with another corporation, or the sale of all or
substantially all of its shares and/or assets or other transaction (including,
without limitation, a sale of substantially all of its assets followed by a
liquidation) shall be effected in such a way that holders of Common Stock shall
be entitled to receive shares, securities or other assets or property (a “Change”),
then, as a condition of such Change, lawful and adequate provisions shall be
made by the Company whereby the Holder hereof shall thereafter have the right
to purchase and receive (in lieu of the Common Stock of the Company immediately
theretofore purchasable and receivable upon the exercise of the rights represented
hereby) such shares, securities or other assets or property as may be issued or
payable with respect to or in exchange for the number of outstanding Common
Stock which such Holder would have been entitled to receive had such Holder
exercised this Warrant immediately prior to the consummation of such
Change.  The Company or its successor
shall promptly issue to Holder a new Warrant for such new securities or other
property.  The new Warrant shall provide
for adjustments which shall be as nearly equivalent as may be practicable to
give effect to the adjustments provided for in this Section 3 including,
without limitation, adjustments to the Warrant Price and to the number of
securities or property issuable upon exercise of the new Warrant.  The provisions of this Section 3.3 shall
similarly apply to successive Changes.

4.     Ownership and Transfer.

4.1  Ownership of This Warrant.  The Company may deem and treat the person in
whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any
notice to the contrary until presentation of this Warrant for registration of
transfer as provided in this Section 4.

2

4.2  Transfer and Replacement.  Subject to the terms and conditions of this
Warrant and compliance with all applicable securities laws, and upon prior
written consent of the Company, which consent shall not be unreasonably
withheld, this Warrant and all rights hereunder are transferable in whole or in
part upon the books of the Company by the Holder hereof in person or by duly
authorized attorney, and a new Warrant or Warrants, of the same tenor as this
Warrant but registered in the name of the transferee or transferees (and in the
name of the Holder, if a partial transfer is effected) shall be made and
delivered by the Company upon surrender of this Warrant duly endorsed, at the
office of the Company in accordance with Section 6.1 hereof.  Upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft or destruction, and, in such
case, of indemnity or security reasonably satisfactory to it, and upon
surrender of this Warrant if mutilated, the Company will make and deliver a new
Warrant of like tenor, in lieu of this Warrant; provided that if the Holder
hereof is an instrumentality of a state or local government or an institutional
holder or a nominee for such an instrumentality or institutional holder an
irrevocable agreement of indemnity by such Holder shall be sufficient for all
purposes of this Warrant, and no evidence of loss or theft or destruction shall
be necessary.  This Warrant shall be promptly
cancelled by the Company upon the surrender hereof in connection with any
transfer or replacement.  Except as
otherwise provided above, in the case of the loss, theft or destruction of a
Warrant, the Company shall pay all expenses, taxes and other charges payable in
connection with any transfer or replacement of this Warrant, other than income
taxes and stock transfer taxes (if any) payable in connection with a transfer
of this Warrant, which shall be payable by the Holder.  Holder will not transfer this Warrant and the
rights hereunder except in compliance with federal and state securities laws
and except after providing evidence of such compliance reasonably satisfactory
to the Company.

5.     Compliance with Securities Laws.  By acceptance of this Warrant, the Holder
hereby represents, warrants and covenants that any shares of stock purchased
upon exercise of this Warrant or acquired upon conversion thereof shall be
acquired for investment only and not with a view to, or for sale in connection
with, any distribution thereof; that the Holder has had such opportunity as
Holder has deemed adequate to obtain from representatives of the Company such
information as is necessary to permit the Holder to evaluate the merits and
risks of its investment in the Company; that the Holder is able to bear the
economic risk of holding such shares as may be acquired pursuant to the
exercise of this Warrant for an indefinite period; that the Holder understands
that the shares of stock acquired pursuant to the exercise of this Warrant or
acquired upon conversion thereof will not be registered under the Act (unless
otherwise required pursuant to exercise by the Holder of the registration
rights, if any, previously granted to the registered Holder) and will be
“restricted securities” within the meaning of Rule 144 under the Securities Act
of 1933 and that the exemption from registration under Rule 144 will not be
available for at least one year from the date of exercise of this Warrant, and
even then will not be available unless a public market then exists for the stock,
adequate information concerning the Company is then available to the public,
and other terms and conditions of Rule 144 are complied with; and that all
stock certificates representing shares of stock issued to the Holder upon
exercise of this Warrant or upon conversion of such shares may have affixed
thereto a legend substantially in the form set forth in Section 1.6 above.

6.     Miscellaneous Provisions.

6.1  Notices.  Any notice or other document required or
permitted to be given or delivered to the Holder shall be delivered or
forwarded to the Holder at c/o Mercator Advisory Group, LLC, 555 South Flower
Street, Suite 4500, Los Angeles, California 90071, Attention:  David F. Firestone (Facsimile No. 213/553
8285), or to such other address or number as shall have been furnished to the
Company in writing by the Holder, with a copy to Sheppard Mullin Richter &
Hampton LLP, 333 South Hope Street, 48th Floor, Los Angeles, California
90071-1448 Attention David C. Ulich (Facsimile No. 213/620-1398).  Any notice or other document required or
permitted to be given or delivered to the Company shall be delivered or
forwarded to the Company at 10052 Mesa Ridge Court, Suite 100, San Diego,
California, 92121, Attention:  John Low
(Facsimile No. 858/625-3010), with a copy to Gibson, Dunn & Crutcher LLP,
1881 Page Mill Rd., Palo Alto, California, 94304 Attention: Russell C. Hansen
(Facsimile No. 650/849-5083), or to such other address or number as shall have
been furnished to Holder in writing by the Company.

6.2  All notices, requests and approvals
required by this Warrant shall be in writing and shall be conclusively deemed
to be given (i) when hand-delivered to the other party, (ii) when received if
sent by facsimile at the address and number set forth above; provided that notices
given by facsimile shall not be effective, unless either (a) a duplicate copy
of such facsimile notice is promptly given by depositing the same in the mail,
postage prepaid and addressed to the party as set forth below or (b) the
receiving party delivers a written confirmation of receipt for such notice by
any other method permitted under this paragraph; and further provided that any
notice given by facsimile received after 5:00 p.m. (recipient’s time) or on a
non-business day shall be deemed received on the next business day; (iii) five
(5) business days after deposit in the United States mail, certified, return
receipt requested, postage prepaid, and addressed to the party as set forth
below; or (iv) the next business day after deposit with an international
overnight delivery service, postage prepaid, addressed to the party as set
forth below with next business day delivery guaranteed; provided that the
sending party receives confirmation of delivery from the delivery service
provider.

6.3  No Rights as Shareholder; Limitation of
Liability.  This Warrant
shall not entitle the Holder to any of the rights of a shareholder of the
Company except upon exercise in accordance with the terms hereof.  No provision hereof, in the absence of
affirmative action by the Holder to purchase shares of Common Stock, and no
mere enumeration herein of the rights or privileges of the Holder, shall give
rise to any liability of the Holder for the Warrant Price hereunder or as a
shareholder of the Company, whether such liability is asserted by the Company
or by creditors of the Company.

6.4  Governing Law.  This Warrant shall be governed by and
construed in accordance with the laws of the State of California as applied to
agreements among California residents made and to be performed entirely within
the State of California, without giving effect to the conflict of law
principles thereof.

6.5  Binding Effect on Successors.  This Warrant shall be binding upon any
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company’s assets and/or securities.  All of the obligations of the Company
relating to the Shares issuable upon the exercise of this Warrant shall survive
the exercise and termination of this Warrant. 
All of the covenants and agreements of the Company shall inure to the
benefit of the successors and assigns of the Holder.

3

6.6  Waiver, Amendments and Headings.  This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by both parties (either generally or in a  particular instance and either retroactively
or prospectively).  The headings in this
Warrant are for purposes of reference only and shall not affect the meaning or
construction of any of the provisions hereof.

6.7  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 5.1 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 a
Holder 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.

6.8  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.

 

 

IN
WITNESS WHEREOF,
the Company has caused this Warrant to be signed by its duly authorized officer
this 5th day of November, 2004.

 

	
  COMPANY:

  	
   

  
	
   

  	
  SPESCOM SOFTWARE INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ John W. Low

  
	
   

  	
  Print Name:  John W. Low

  
	
   

  	
  Title:  Chief
  Financial officer

  

 

4

SCHEDULE A

 

FORM OF NOTICE OF EXERCISE

 

[To
be signed only upon exercise of the Warrant]

 

TO BE EXECUTED BY THE REGISTERED
HOLDER

TO EXERCISE THE WITHIN WARRANT

 

 

The undersigned hereby elects to purchase             shares
of Common Stock (the “Shares”) of Spescom Software, Inc. under the Warrant to
Purchase Common Stock dated October      ,
2004, which the undersigned is entitled to purchase pursuant to the terms of
such Warrant.   The undersigned has
delivered $               ,
the aggregate Warrant Price for             Shares
purchased herewith, in full in cash or by certified or official bank check or
wire transfer.

 

Please issue a certificate or certificates
representing such shares of Common Stock in the name of the undersigned or in
such other name as is specified below and in the denominations as is set forth
below:

 

	
   

  
	
  [Type Name of Holder as it should appear on the stock certificate]

  
	
   

  
	
   

  
	
  [Requested Denominations — if no denomination is specified, a single
  certificate will be issued]

  
	
   

  
	
  The initial address of such Holder to be entered on the books of
  Company shall be:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  

 

The undersigned
hereby represents and warrants that the undersigned is acquiring such shares
for his own account for investment purposes only, and not for resale or with a
view to distribution of such shares or any part thereof.

 

	
   

  	
  By:

  	
   

  
	
   

  	
  Print Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
  Dated:

  	
   

  
						

 

1

FORM OF ASSIGNMENT

(ENTIRE)

 

[To be signed only upon transfer
of entire Warrant]

 

TO BE EXECUTED BY THE REGISTERED
HOLDER

TO TRANSFER THE WITHIN WARRANT

 

 

FOR VALUE
RECEIVED                                                 
hereby sells, assigns and transfers unto                                                  
all rights of the undersigned under and pursuant to the within Warrant, and the
undersigned does hereby irrevocably constitute and appoint                                                  
Attorney to transfer the said Warrant on the books of                                                  ,
with full power of substitution.

 

 

 

	
   

  
	
  [Type Name of Holder]

  
	
   

  
	
   

  
	
   

  	
   

  
	
  By:

  	
   

  
	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Dated: 

  	
   

  

 

 

 

NOTICE

The signature to
the foregoing Assignment must correspond exactly to the name as written upon
the face of the within Warrant, without alteration or enlargement or any change
whatsoever.

1

FORM OF ASSIGNMENT

(PARTIAL)

 

[To be signed only upon partial
transfer of Warrant]

 

TO BE EXECUTED BY THE REGISTERED
HOLDER

TO TRANSFER THE WITHIN WARRANT

 

 

FOR VALUE RECEIVED
                                                 
hereby sells, assigns and transfers unto                                                  
(i) the rights of the undersigned to purchase                             shares
of Common Stock under and pursuant to the within Warrant, and (ii) on a
non-exclusive basis, all other rights of the undersigned under and pursuant to
the within Warrant, it being understood that the undersigned shall retain,
severally (and not jointly) with the transferee(s) named herein, all rights
assigned on such non-exclusive basis. 
The undersigned does hereby irrevocably constitute and appoint                                                  
Attorney to transfer the said Warrant on the books of Spescom Software,
Inc.,  with full power of substitution.

 

 

 

	
   

  
	
  [Type Name of Holder]

  
	
   

  
	
   

  
	
   

  	
   

  
	
  By:

  	
   

  
	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Dated: 

  	
   

  

 

 

 

NOTICE

The signature to
the foregoing Assignment must correspond exactly to the name as written upon
the face of the within Warrant, without alteration or enlargement or any change
whatsoever.

1Exhibit 10.5

 

NEITHER THESE WARRANTS NOR THE COMMON STOCK ISSUABLE
UPON EXERCISE OF THESE WARRANTS HAVE BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “ACT”), OR ANY APPLICABLE STATE SECURITIES LAWS AND
MAY NOT BE SOLD, PLEDGED OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE ACT OR UNLESS AN EXEMPTION
FROM SUCH REGISTRATION IS AVAILABLE.

 

 

	
  1,000,000
  Warrants

  	
  November 4, 2004

  

 

SPESCOM SOFTWARE, INC.

 

WARRANTS

 

 

Spescom Software, Inc., a
California corporation (“SPCO”),
certifies that, for value  received, Trilogy Capital
Partners, Inc. (“Trilogy”), or registered assigns (the “Holder”), is the owner of One Million (1,000,000) Warrants
of SPCO (the “Warrants”).  Each Warrant entitles the Holder to purchase
from SPCO at any time prior to the Expiration Date (as defined below) one share
of the common stock of SPCO (the “Common
Stock”) for $0.40 (the “Exercise Price”),
on the terms and conditions hereinafter provided.  The Exercise Price and the number of shares
of Common Stock purchasable upon exercise of each Warrant are subject to
adjustment as provided in this Certificate.

1.             Vesting; Expiration Date; Exercise

1.1           Vesting.  The Warrants shall vest and become
exercisable as follows:   (i) 500,000
Warrants shall vest at such time as the Market Price (as defined in Section 1.4
of this Certificate) exceeds $0.60 per share; (ii) 250,000 Warrants shall vest
and become exercisable at such time as the Market Price exceeds $0.70 per
share; and (iii) the remaining 250,000 Warrants shall vest and become
exercisable at such time as the Market Price exceeds $0.80 per share.

1.2           Expiration Date.  The Warrants shall expire on November 3, 2007
(the “Expiration Date”).

1.3           Manner of
Exercise.  The Warrants are
exercisable by delivery to SPCO of the following (the “Exercise
Documents”): (a) this Certificate (b) a written notice of election
to exercise the Warrants; and (c) payment of the Exercise Price in cash, by
check or by “net” exercise as contemplated by Section 1.4 of this
Certificate.  Within three business days
following receipt of the foregoing, SPCO shall execute and deliver to the
Holder: (a) a certificate or certificates representing the aggregate number of
shares of Common Stock purchased by the Holder, and (b) if

less than all of
the Warrants evidenced by this Certificate are exercised, a new certificate
evidencing the Warrants not so exercised.

1.4           Net Exercise.  In lieu of the payment methods set forth in
Section 1.3 above, the Holder may elect to exchange all or some of the
Warrant for the number of shares of Common Stock computed using the following
formula:

X = Y (A-B)

            A

Where X = the number of shares of Common Stock to be issued to Holder.

Y = the number of shares of Common Stock purchasable under the Warrants
being exchanged (as adjusted to the date of such calculation).

A = the
Market Price on the date of receipt by SPCO of the exercise documents.

B = the Exercise Price of the Warrants being exchanged
(as adjusted in accordance with the terms of Section 2 hereof).

The “Market Price”
on any date shall be the average of the Daily Market Prices for each of the 10
trading days immediately preceding such date. 
The “Daily Market Price” on any trading day shall be deemed to be the
last reported sale price of the Common Stock on such day, or, in the case no
such reported sales take place on such day, the last reported sale price on the
preceding trading day on which there was a last reported sales price, as
officially reported by the principal securities exchange in which the shares of
Common Stock are listed or admitted to trading or by the Nasdaq Stock Market,
or if the Common Stock is not listed or admitted to trading on any national
securities exchange or the Nasdaq Stock Market, the last sale price, or if
there is no last sale price, the closing bid price, as furnished by the
National Association of Securities Dealers, Inc. (such as through the OTC
Bulletin Board) or a similar organization or if Nasdaq is no longer reporting
such information.  If the Market Price
cannot be determined pursuant to the sentence above, the Market Price shall be
determined in good faith (using customary valuation methods) by the Board of
Directors of SPCO based on the information best available to it, including
recent arms-length sales of Common Stock to unaffiliated persons.

2.             Adjustments of Exercise Price and Number
and Kind of Conversion Shares

2.1           In the event that
SPCO shall at any time hereafter (a) pay a dividend in Common Stock or
securities convertible into Common Stock; (b) subdivide or split its
outstanding Common Stock; (c) combine its outstanding Common Stock into a
smaller number of shares; then the number of shares to be issued immediately
after the occurrence of any such event shall be adjusted so that the Holder
thereafter may receive the number of shares of Common Stock it would have owned
immediately following such action if it had exercised the Warrants immediately
prior to such action

 

2

 

and the Exercise
Price shall be adjusted to reflect such proportionate increases or decreases in
the number of shares.

2.2           In case of any
reclassification of the outstanding shares of Common Stock (other than a change
covered by Section 2.1 hereof or a change which solely affects the par value of
such shares) or in the case of any merger or consolidation or merger in which
SPCO is not the continuing corporation and which results in any
reclassification or capital reorganization of the outstanding shares), the
Holder shall have the right thereafter (until the Expiration Date) to receive
upon the exercise hereof, for the same aggregate Exercise Price payable
hereunder immediately prior to such event, the kind and amount of shares of
stock or other securities or property receivable upon such reclassification,
capital reorganization, merger or consolidation, by a Holder of the number of
shares of Common Stock obtainable upon the exercise of the Warrants immediately
prior to such event; and if any reclassification also results in a change in
shares covered by Section 2.1, then such adjustment shall be made pursuant
to both this Section 2.2 and Section 2.1 (without duplication).  The provisions of this Section 2.2 shall
similarly apply to successive reclassifications, capital reorganizations and
mergers or consolidations, sales or other transfers.

3.             Reservation of Shares.  SPCO shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock, such
number of shares of Common Stock as shall from time to time be issuable upon
exercise of the Warrants.  If at any time
the number of authorized but unissued shares of Common Stock shall not be
sufficient to permit the exercise of the Warrants, SPCO shall promptly seek
such corporate action as may necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose.

4.             Certificate as to Adjustments.  In each case of any adjustment in the
Exercise Price, or number or type of shares issuable upon exercise of these
Warrants, the Chief Financial Officer of SPCO shall compute such adjustment in
accordance with the terms of these Warrants and prepare a certificate setting
forth such adjustment and showing in detail the facts upon which such
adjustment is based, including a statement of the adjusted Exercise Price.  SPCO shall promptly send (by facsimile and by
either first class mail, postage prepaid or overnight delivery) a copy of each
such certificate to the Holder.

5.             Loss or Mutilation.  Upon receipt of evidence reasonably
satisfactory to SPCO of the ownership of and the loss, theft, destruction or
mutilation of this Certificate, and of indemnity reasonably satisfactory to it,
and (in the case of mutilation) upon surrender and cancellation of these
Warrants, SPCO will execute and deliver in lieu thereof a new Certificate of
like tenor as the lost, stolen, destroyed or mutilated Certificate.

6.             Representations and Warranties of SPCO.  SPCO hereby represents and warrants to Holder
that:

6.1           Due Authorization.  All corporate action on the part of SPCO, its
officers, directors and shareholders necessary for (a) the authorization,
execution and delivery of, and the performance of all obligations of SPCO
under, these Warrants, and (b) the authorization, issuance, reservation for
issuance and delivery of all of the Common Stock issuable upon exercise of
these Warrants, has been duly taken. 
These Warrants constitute a valid and binding obligation of SPCO
enforceable in

3

accordance with
their terms, subject, as to enforcement of remedies, to applicable bankruptcy,
insolvency, moratorium, reorganization and similar laws affecting creditors’
rights generally and to general equitable principles.

6.2           Organization.  SPCO is a corporation duly organized, validly
existing and in good standing under the laws of the State referenced in the
first paragraph of this Certificate and has all requisite corporate power to
own, lease and operate its property and to carry on its business as now being
conducted and as currently proposed to be conducted.

6.3           Valid Issuance of
Stock.  Any shares of Common Stock
issued upon exercise of these Warrants will be duly and validly issued, fully
paid and non-assessable.

6.4           Governmental Consents.  All consents, approvals, orders,
authorizations or registrations, qualifications, declarations or filings with
any federal or state governmental authority on the part of SPCO required in
connection with the consummation of the transactions contemplated herein have
been obtained.

7.             Representations and Warranties of Trilogy.  Trilogy hereby represents and
warrants to SPCO that:

7.1           Trilogy is acquiring
the Warrants for its own account, for investment purposes only.

7.2           Trilogy understands
that an investment in the Warrants involves a high degree of risk, and Trilogy
has the financial ability to bear the economic risk of this investment in the
Warrants, including a complete loss of such investment. Trilogy has adequate
means for providing for its current financial needs and has no need for
liquidity with respect to this investment.

7.3           Trilogy has such
knowledge and experience in financial and business matters that it is capable
of evaluating the merits and risks of an investment in the Warrants and in
protecting its own interest in connection with this transaction.

7.4           Trilogy understands
that the Warrants have not been registered under the Securities Act of 1933, as
amended (the “Securities Act”) or
under any state securities laws.  Trilogy
is familiar with the provisions of the Securities Act and Rule 144 thereunder
and understands that the restrictions on transfer on the Warrants may result in
Trilogy being required to hold the Warrants for an indefinite period of time.

7.5           Trilogy agrees not
to sell, transfer, assign, gift, create a security interest in, or otherwise
dispose of, with or without consideration (collectively, “Transfer”)
any of the Warrants except pursuant to an effective registration statement
under the Securities Act or an exemption from registration.  As a further condition to any such Transfer,
except in the event that such Transfer is made pursuant to an effective
registration statement under the Securities Act, if in the reasonable opinion
of counsel to SPCO any Transfer of the Warrants by the contemplated transferee
thereof would not be exempt from the registration and prospectus delivery
requirements of the Securities Act, SPCO may require the contemplated
transferee to furnish SPCO with an investment letter setting forth such
information and agreements as may be reasonably requested by SPCO to ensure
compliance by such transferee with the Securities Act.

4

8.             Notices of Record Date

                                In the event:

8.1           SPCO shall take a
record of the holders of its Common Stock (or other stock or securities at the
time receivable upon the exercise of these Warrants), for the purpose of
entitling them to receive any dividend or other distribution, or any right to
subscribe for or purchase any shares of stock of any class or any other
securities or to receive any other right; or

8.2           of any consolidation
or merger of SPCO with or into another corporation, any capital reorganization
of SPCO, any reclassification of the capital stock of SPCO, or any conveyance
of all or substantially all of the assets of SPCO to another corporation in
which holders of SPCO’s stock are to receive stock, securities or property of
another corporation; or

8.3           of any voluntary
dissolution, liquidation or winding-up of SPCO; or

8.4           of any redemption or
conversion of all outstanding Common Stock;

then, and in each such
case, SPCO will mail or cause to be mailed to the Holder a notice specifying,
as the case may be, (a) the date on which a record is to be taken for the
purpose of such dividend, distribution or right, or (b) the date on which such
reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation, winding-up, redemption or conversion is to take
place, and the time, if any is to be fixed, as of which the holders of record
of Common Stock (or such stock or securities as at the time are receivable upon
the exercise of these Warrants), shall be entitled to exchange their shares of
Common Stock (or such other stock or securities), for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, conveyance, dissolution, liquidation or winding-up.  SPCO shall use all reasonable efforts to
ensure such notice shall be delivered at least 15 days prior to the date
therein specified.

9.             Registration Rights.

9.1           If SPCO shall
determine to register any Common Stock under the Securities Act for sale in
connection with a public offering of Common Stock (other than pursuant to an
employee benefit plan or a merger, acquisition or similar transaction), SPCO
will give written notice thereof to Holder and will include in such
registration any of the Registrable Shares which Holder may request be included
(“Included Shares”) by a writing
delivered to SPCO within 15 days after the notice given by SPCO to Holder;
provided, however, that if the offering is to be firmly underwritten, and the
representative of the underwriters of the offering refuse in writing to include
in the offering all of the shares of Common Stock requested by SPCO and others,
the shares to be included shall be allocated first to SPCO and any shareholder
who initiated such registration and then among the others based on the
respective number of shares of Common Stock held by such persons.  If SPCO decides not to, and does not, file a
registration statement with respect to such registration, or after filing
determines to withdraw the same before the effective date thereof, SPCO will
promptly so inform Holder, and SPCO will not be obligated to complete the
registration of the Included Shares included therein.  SPCO will pay all costs and expenses of such
registration other than underwriting discounts or brokerage fees or commissions
in connection with the sale of the Included Shares and fees and costs of
accountants, attorneys or others retained by Holder.  For purposes of this Agreement,

5

“Registrable Shares” shall mean the shares of Common Stock
(or such stock or securities as at the time are receivable upon the exercise of
these Warrants) issuable upon exercise of the Warrants and any shares issued as
a result of stock split, stock dividend or reclassification of such shares; provided,
however, that any share shall cease to be a Registrable Share if and when
(a) it has been effectively registered under the Securities Act and
disposed of pursuant thereto, or (b) the holder may sell such share (or in
the case of a share not yet issued under this Warrant, the holder may exercise
this Warrant, including pursuant to Section 1.4, and sell such share issued
upon such exercise) in the market on which SPCO common stock is then traded
without registration under the Securities Act.

9.2           In connection with
any registration under this Section 9, SPCO will:

9.2.1        furnish to Holder a
copy of the registration statement and each amendment to the registration
statement and such number of copies of the final prospectus included in the
registration statement as Holder may reasonably request in order to facilitate
the distribution of the Included Shares owned by Holders;

9.2.2        notify Holder of the
issuance of any stop order by the Securities and Exchange Commission in
connection with the registration statement; and

9.2.3        Require each legal
opinion and accountant’s “cold comfort” letter in connection with the offering,
if any, to be rendered to Holder as well as SPCO and/or its Board of Directors.

9.3           As a condition to
including Registrable Shares in the registration statement, Holder must provide
to SPCO such information regarding itself, the Registrable Shares held by it
and the intended method of distribution of such Shares as shall be required to
effect the registration of the Registrable Shares and, if the offering is being
underwritten, Holder must provide such powers of attorney, indemnities and
other documents as may be reasonably requested by the managing underwriter.

9.4           Following the
effectiveness of the registration statement, upon receipt from SPCO of a notice
that the registration statement contains an untrue statement of material fact
or omits to state any material fact required to be stated therein or necessary
to make the statements therein not misleading in light of the circumstances
under which they were made, Holder will immediately discontinue disposition of
Included Shares pursuant to the registration statement until SPCO notifies
Holder that it may resume sales of Included Shares and, if necessary, provides
to Holder copies of the supplemental or amended prospectus.  In such event, Holder will deliver to SPCO
all copies, other than permanent file copies then in Holder’s possession, of
the most recent prospectus covering the Included Shares.

9.5           SPCO agrees to
indemnify and hold harmless Holder, and its officers, directors and agents, and
each person, if any, who controls Holder within the meaning of Section 15 of
the Securities Act or Section 20 of the Securities  Exchange Act of 1934, as amended (the “Exchange Act”) from and against any and all losses, claims,
damages and liabilities caused by (i) any violation or alleged violation by
SPCO of the Securities Act, Exchange Act, any state securities laws or any

6

rule or regulation
promulgated under the Securities Act, Exchange Act or any state securities laws,
(ii) any untrue statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus relating to the Included
Shares (as amended or supplemented if SPCO shall have furnished any amendments
or supplements thereto) or any preliminary prospectus, or (iii) caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which they were made, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or omission or alleged untrue statement or omission based upon information
furnished in writing to SPCO by Holder or on Holder’s behalf expressly for use
therein.

9.6           Holder agrees to
indemnify and hold harmless SPCO, its officers, directors and agents and each
person, if any, who controls SPCO within the meaning of either Section 15 of
the Securities Act or Section 20 of the Exchange Act to the same extent as the
foregoing indemnity from SPCO to Holder, but only with respect to information
furnished in writing by Holder or on Holder’s behalf expressly for use in any
registration statement or prospectus relating to the Registrable Shares, or any
amendment or supplement thereto, or any preliminary prospectus.

9.7           In case any
proceeding (including any governmental investigation) shall be instituted
involving any person in respect of which indemnity may be sought pursuant to
this Section 10, such person (an “Indemnified Party”)
shall promptly notify the person against whom such indemnity may be sought (the
“Indemnifying Party”) in writing and the
Indemnifying Party shall assume the defense thereof, including the employment
of counsel reasonably satisfactory to such Indemnified Party, and shall assume
the payment of all fees and expenses; provided that the failure of any
Indemnified Party so to notify the Indemnifying Party shall not relieve the
Indemnifying Party of its obligations hereunder except to the extent (and only
to the extent that) that the Indemnifying Party is materially prejudiced by
such failure to notify.  In any such
proceeding, any Indemnified Party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party unless (i) the Indemnifying Party and the Indemnified
Party shall have mutually agreed to the retention of such counsel or (ii) in
the reasonable judgment of such Indemnified Party representation of both parties
by the same counsel would be inappropriate due to actual or potential differing
interests between them.  It is understood
that the Indemnifying Party shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable fees
and expenses of more than one separate firm of attorneys (in addition to any
local counsel) at any time for all such Indemnified Parties (including in the
case of Holder, all of its officers, directors and controlling persons) and
that all such fees and expenses shall be reimbursed as they are incurred.  In the case of any such separate firm for the
Indemnified Parties, the Indemnified Parties shall designate such firm in
writing to the Indemnifying Party.  The
Indemnifying Party shall not be liable for any settlement of any proceeding
effected without its written consent (which consent shall not be unreasonably
withheld or delayed), but if settled with such consent, or if there be a final
judgment for the plaintiff, the Indemnifying Party shall indemnify and hold
harmless such Indemnified Parties from and against any loss or liability (to
the extent stated above) by reason of such settlement or judgment.  No Indemnifying Party shall, without the
prior written consent of the Indemnified Party, effect any settlement of any
pending or threatened proceeding in respect of which any Indemnified Party is
or could have been a party and indemnity could have been sought hereunder by
such Indemnified Party, unless such settlement includes an unconditional
release of such Indemnified Party from all liability arising out of such
proceeding.

7

10.          Severability. 
If any term, provision, covenant or restriction of these Warrants is
held by a court of competent jurisdiction to be invalid, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions of these
Warrants shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.

11.          Notices. 
All notices, requests, consents and other communications required
hereunder shall be in writing and shall be effective when delivered or, if
delivered by registered or certified mail, postage prepaid, return receipt
requested, shall be effective on the third day following deposit in United
States mail: to the Holder, at Trilogy Capital Partners, Inc., 14061⁄2  Kenter Avenue, Los Angeles, CA 90049; and if
addressed to SPCO, at Spescom Software Inc., Attn: Carl
Mostert, CEO, 10052 Mesa Ridge Court, Suite 100, San Diego, CA 92121, or such other
address as Holder or SPCO may designate in writing.

12.          No Rights as Shareholder. 
The Holder shall have no rights as a shareholder of SPCO with respect to
the shares issuable upon exercise of the Warrants until the receipt by SPCO of
all of the Exercise Documents.

 

	
   

  	
  SPESCOM SOFTWARE, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John W. Low

  
	
   

  	
   

  	
  John W. Low, Chief Financial Officer

  

 

8

 

EXHIBIT
“A”

NOTICE OF EXERCISE

(To be signed only upon exercise
of the Warrants)

 

To:          Spescom
Software Inc.

The undersigned hereby elects to purchase
shares of Common Stock (the “Warrant Shares”)
of Spescom Software Inc. (“SPCO”),
pursuant to the terms of the enclosed warrant certificate (the “Certificate”). The undersigned tenders herewith payment of
the exercise price pursuant to the terms of the Certificate.

The
undersigned hereby represents and warrants to, and agrees with, SPCO as
follows:

1.             Holder is acquiring the Warrant Shares for its own
account, for investment purposes only.

2.             Holder understands that an investment in the Warrant
Shares involves a high degree of risk, and Holder has the financial ability to
bear the economic risk of this investment in the Warrant Shares, including a
complete loss of such investment. Holder has adequate means for providing for
its current financial needs and has no need for liquidity with respect to this
investment.

3.             Holder has such knowledge and experience in financial
and business matters that it is capable of evaluating the merits and risks of
an investment in the Warrant Shares and in protecting its own interest in
connection with this transaction.

4.             Holder understands that the Warrant Shares have not been
registered under the Securities Act or under any state securities laws.  Holder is familiar with the provisions of the
Securities Act and Rule 144 thereunder and understands that the restrictions on
transfer on the Warrant Shares may result in Holder being required to hold the
Warrant Shares for an indefinite period of time.

5.             Holder agrees not to sell, transfer, assign, gift,
create a security interest in, or otherwise dispose of, with or without
consideration (collectively, “Transfer”) any
of the Warrant Shares except pursuant to an effective registration statement
under the Securities Act or an exemption from registration.  As a further condition to any such Transfer,
except in the event that such Transfer is made pursuant to an effective
registration statement under the Securities Act, if in the reasonable opinion
of counsel to SPCO any Transfer of the Warrant Shares by the contemplated
transferee thereof would not be exempt from the registration and prospectus
delivery requirements of the Securities Act, SPCO may require the contemplated
transferee to furnish SPCO with an investment letter setting forth such
information and agreements as may be reasonably requested by SPCO to ensure
compliance by such transferee with the Securities Act.

Each certificate
evidencing the Warrant Shares will bear the following legend:

“THE SECURITIES
REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 (THE “ACT”) OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE
EXERCISED, SOLD, PLEDGED OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE ACT OR UNLESS AN EXEMPTION
FROM SUCH REGISTRATION IS AVAILABLE.

 

Number of Warrants Exercised:  ______________

Net Exercise 
___ Yes    ___ No

Dated:  ____________________

 

2

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