Exhibit 10.3

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS WARRANT NOR
THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
(I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL
(WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM,
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO
RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE
SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

 

  Right to Purchase            shares of Common Stock of Comarco, Inc. (subject
to adjustment as provided herein)

COMMON STOCK PURCHASE WARRANT

 

No.

Issue Date: July 27, 2012

COMARCO, INC., a corporation incorporated under the laws of the State of
California (together with any corporation which shall succeed or assume its
obligations, the “Company”), hereby certifies that, for value received,
BROADWOOD PARTNERS, L.P., with an address at c/o Broadwood Capital, Inc., 724
Fifth Avenue, 9th Floor, New York, New York 10019, or its successors,
representatives and permitted assigns (collectively, “Holder”), is entitled,
subject to the terms set forth below, to purchase from the Company at any time
after the Issue Date until 5:00 p.m. EST on the eighth (8th) anniversary of the
Issue Date (the “Expiration Date”), up to [—] fully paid and nonassessable
shares (the “Shares”) of Common Stock (as defined herein) of the Company at a
per share exercise price of One United States Dollar (US$1.00). The
aforedescribed exercise price per share, as adjusted from time to time as herein
provided, is referred to herein as the “Exercise Price.” The number and
character of Shares of Common Stock and the Exercise Price are subject to
adjustment as provided herein. The Company may reduce the Exercise Price for
some or all of this class of warrants (each, a “Warrant” and together, the
“Warrants”), temporarily or permanently, provided such reduction is made as to
all outstanding Warrants for all Holders of such Warrants.

As used herein the following terms, unless the context otherwise requires, have
the following respective meanings:

(a) “Common Stock” means (i) the Company’s common stock, $0.001 par value per
share, and (ii) the shares of common stock issuable upon conversion or exchange
of any Other Securities pursuant to a plan of recapitalization, reorganization,
merger, sale of assets or otherwise.

(b) “Other Securities” means any capital stock (other than Common Stock) and
other securities of the Company or any other Person which Holder at any time
shall be entitled to receive, or shall have received, on the exercise of the
Warrant, in lieu of or in addition to the Common Stock of the Company, or which
at any time shall be issuable or shall have been issued in exchange for, or in
replacement of, Shares of Common Stock of the Company or Other Securities
pursuant to Section 4 hereof or otherwise.

(c) “Warrant Shares” means the Shares of Common Stock issuable upon exercise of
this Warrant.

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1. Exercise of Warrant.

1.1. Number of Shares Issuable Upon Exercise. From and after the Issue Date and
through and including the Expiration Date, Holder shall be entitled to receive,
upon exercise of this Warrant in whole in accordance with the terms of
subsection 1.2 or upon exercise of this Warrant in part in accordance with
subsection 1.3, shares of Common Stock of the Company, subject to adjustment
pursuant to Section 4.

1.2. Full Exercise. This Warrant may be exercised in full by Holder by
delivering to the Company an original or facsimile copy of the form of exercise
notice attached as Exhibit A hereto (the “Exercise Form”) duly executed by
Holder and payment, in cash, wire transfer or by certified or official bank
check payable to the order of the Company, in the amount obtained by multiplying
the number of Shares of Common Stock for which this Warrant is then exercisable
by the Exercise Price then in effect. The original Warrant is not required to be
surrendered to the Company until it has been fully exercised.

1.3. Partial Exercise. This Warrant may be exercised in part (but not for a
fractional share) by Holder by delivering to the Company an Exercise Form in the
manner and at the place provided in Section 1.2 hereof, except that the amount
payable by Holder on such partial exercise shall be the amount obtained by
multiplying (a) the number of whole Shares of Common Stock designated by Holder
in the Exercise Form by (b) the Exercise Price then in effect. Upon the
surrender of the original Warrant by Holder for any such partial exercise, the
Company, at its sole expense, shall forthwith issue and deliver to, or upon the
order of, Holder a new Warrant of like tenor, in the name of Holder or as Holder
(upon payment by Holder of any applicable transfer taxes) may request, the whole
number of Shares of Common Stock for which such Warrant may still be exercised.

1.4. Fair Market Value. Fair Market Value of a Share of Common Stock as of a
particular date (the “Determination Date”) shall mean:

(a) If the Company’s Common Stock is traded on an exchange or on the NASDAQ
Global Market, NASDAQ Global Select Market, NASDAQ Capital Market, the New York
Stock Exchange or the NYSE Alternext, then the last reported sale price (as
reported on Bloomberg L.P.) of Common Stock on the trading day immediately
preceding the Determination Date;

(b) If the Company’s Common Stock is not traded on an exchange or on the NASDAQ
Global Market, NASDAQ Global Select Market, NASDAQ Capital Market, the New York
Stock Exchange or the NYSE Alternext, but is traded on the Over-the-Counter
Bulletin Board or in the over-the-counter market or Pink Sheets, then the last
reported sale price (as reported on Bloomberg L.P.) of Common Stock on the
trading day immediately preceding the Determination Date;

(c) Except as provided in clause (d) below and Section 3.1 hereof, if the
Company’s Common Stock is not publicly traded, then the Fair Market Value shall
be as Holder and the Company agree, or in the absence of such an agreement, by
arbitration in accordance with the rules then standing of the American
Arbitration Association, before a single arbitrator to be chosen from a panel of
persons qualified by education and training to pass on the matter to be decided;
or

(d) If the Determination Date is the date of a liquidation, dissolution or
winding up, or any event deemed to be a liquidation, dissolution or winding up
pursuant to the Company’s certificate of incorporation, then the Fair Market
Value is equal to all such amounts to be payable per share to holders of the
Company’s Common Stock pursuant to the certificate of incorporation in the event
of such liquidation, dissolution or winding up, plus all other amounts to be
payable per share in respect of the Common Stock in liquidation under the
certificate of incorporation, assuming for the purposes of this clause (d) that
all of the Shares of Common Stock then issuable upon exercise of all of the
Warrants are outstanding at the Determination Date.

 

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1.5. Company Acknowledgment. The Company will, at the time of the exercise of
the Warrant, upon the request of Holder, acknowledge in writing its continuing
obligation to afford to Holder any rights to which Holder shall continue to be
entitled after such exercise in accordance with the provisions of this Warrant.
If Holder shall fail to make any such request, such failure shall not affect the
continuing obligation of the Company to afford to Holder any such rights.

1.6. Delivery of Stock Certificates, etc. on Exercise; Buy-In. (a) The Company
agrees that, provided the full exercise price listed in the Exercise Form is
received in accordance with Section 1.2 hereof, the Shares of Common Stock
purchased upon exercise of this Warrant shall be deemed to be issued to Holder
as the record owner of such Shares as of the close of business on the date on
which the Exercise Form is delivered and payment made for such Shares. As soon
as practicable after the exercise of this Warrant in full or in part, and in any
event within three (3) business days thereafter (“Warrant Share Delivery Date”),
the Company, at its sole expense (including the payment by it of any applicable
issue taxes), will cause to be issued in the name of and delivered to Holder, or
as Holder (upon payment by Holder of any applicable transfer taxes) may direct
in compliance with applicable securities laws, a certificate or certificates for
the number of duly and validly issued, fully paid and non-assessable Shares of
Common Stock or Other Securities to which Holder shall be entitled on such
exercise, plus, in lieu of any fractional share to which Holder would otherwise
be entitled, cash equal to such fraction multiplied by the then Fair Market
Value of one full Share of Common Stock, together with any other capital stock
or other securities or property (including cash, where applicable) to which
Holder is entitled upon such exercise pursuant to Section 1 hereof or otherwise.
The Company understands that a delay in the delivery of the Warrant Shares after
the Warrant Share Delivery Date could result in economic loss to Holder. As
compensation to Holder for such loss, the Company agrees to pay (as liquidated
damages and not as a penalty) to Holder for any late issuance of Warrant Shares
after exercise of this Warrant the proportionate amount of $25 per business day
after the Warrant Share Delivery Date for each $10,000 amount of the Exercise
Price for which this Warrant is exercised which are not timely delivered. The
Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Notwithstanding the foregoing, and in addition to
any other remedies which may be available to Holder, in the event that the
Company fails for any reason to effect delivery of the Warrant Shares by the
Warrant Share Delivery Date, Holder may, in its sole and absolute discretion,
revoke all or part of Holder’s Warrant exercise by delivery of a notice to such
effect to the Company, whereupon the Company and Holder shall each be restored
to their respective positions immediately prior to the exercise of the relevant
portion of this Warrant, except that the liquidated damages described above
shall be payable through the date of notice of revocation or rescission is
delivered to the Company.

(b) In addition to any other rights available to the Holder, if the Company
fails to cause its transfer agent to transmit to the Holder a certificate or
certificates representing the shares issuable upon exercise of this Warrant
pursuant to an exercise on or before the Warrant Share Delivery Date, and if
after such date the Holder is required by its broker to purchase (in an open
market transaction or otherwise) shares of Common Stock to deliver in
satisfaction of a sale by the Holder of the shares issuable upon exercise of
this Warrant which the Holder anticipated receiving upon such exercise (a
“Buy-In”), then the Company shall (1) pay in cash to the Holder the amount by
which (x) the Holder’s total purchase price (including brokerage commissions, if
any) for the shares of Common Stock so purchased exceeds (y) the amount obtained
by multiplying (A) the number of shares issuable upon exercise of this Warrant
that the Company was required to deliver to the Holder in connection with the
exercise at issue times (B) the price at which the sell order giving rise to
such purchase obligation was executed, and (2) at the option of the Holder,
either reinstate the portion of the Warrant and equivalent number of shares
issuable upon exercise of this Warrant for which such exercise was not honored
or deliver to the Holder the number of shares of Common Stock that would have
been issued had the

 

3

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Company timely complied with its exercise and delivery obligations hereunder.
For example, if the Holder purchases Common Stock having a total purchase price
of $11,000 to cover a Buy-In with respect to an attempted exercise for shares of
Common Stock with an aggregate sale price giving rise to such purchase
obligation of $10,000, under clause (1) of the immediately preceding sentence
the Company shall be required to pay the Holder $1,000. The Holder shall provide
the Company written notice indicating the amounts payable to the Holder in
respect of the Buy-In, together with applicable confirmations and other evidence
reasonably requested by the Company. Nothing herein shall limit a Holder’s right
to pursue any other remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company’s failure to timely deliver
certificates representing shares of Common Stock upon exercise of this Warrant
as required pursuant to the terms hereof.

1.7. Automatic Exercise. In the event this Warrant is exercisable pursuant to
the provisions of Section 2 hereof on a cashless basis as of the close of the
last trading day on or before the Expiration Date, then this Warrant, to the
extent not previously unexercised and subject to the limitation in Section 10 of
this Warrant, shall be deemed to have been automatically exercised without the
requirement of any notice or delivery of the Exercise Form, pursuant to the
terms of Section 2 of this Warrant. Such Expiration Date will be deemed the
exercise date for purposes of determining the Warrant Share Delivery Date and
similar terms hereof.

2. Exercise.

2.1 Payment upon exercise may be made at the option of Holder in its absolute
discretion either in (i) wire transfer payable to the order of the Company equal
to the applicable aggregate Exercise Price, (ii) by delivery of Common Stock
issuable upon exercise of the Warrants in accordance with Section (b) below, or
(iii) by a combination of any of the foregoing methods, for the number of Common
Stock specified in such form (as such exercise number shall be adjusted to
reflect any adjustment in the total number of shares of Common Stock issuable to
Holder per the terms of this Warrant) and Holder shall thereupon be entitled to
receive the number of duly authorized, validly issued, fully-paid and
non-assessable Shares of Common Stock (or Other Securities) determined as
provided herein. Notwithstanding the immediately preceding sentence, payment
upon exercise may be made in the manner described in Section 2(b) below
commencing one year after the Issue Date, but only with respect to Warrant
Shares not included for unrestricted public resale in an effective registration
statement.

2.2 Subject to the provisions herein to the contrary, if the Fair Market Value
of one share of Common Stock is greater than the Exercise Price (at the date of
calculation as set forth below), in lieu of exercising this Warrant for cash,
Holder may elect to receive shares equal to the value (as determined below) of
this Warrant (or the portion thereof being cancelled) by delivery of a properly
endorsed Exercise Form delivered to the Company by any means described in
Section 13 hereof, in which event the Company shall issue to Holder a 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 Warrant or, if only a
portion of the Warrant is being exercised, the portion of the Warrant being
exercised (at the date of such calculation) A=    Fair Market Value B=   
Exercise Price (as adjusted to the date of such calculation)

 

4

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For purposes of Rule 144 promulgated under the 1933 Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction in the manner described above shall be deemed to have been
acquired by Holder, and the holding period for the Warrant Shares shall be
deemed to have commenced, on the date this Warrant was originally issued.

3. Adjustment for Reorganization, Consolidation, Merger, etc.

3.1. Fundamental Transaction. If, at any time while this Warrant is outstanding,
a Fundamental Transaction (as defined herein) occurs, then, upon
any subsequent exercise of this Warrant, Holder shall have the right to receive,
for each Warrant Share that would have been issuable upon such exercise
immediately prior to the occurrence of such Fundamental Transaction, at the
option of Holder in its sole and absolute discretion, (a) upon exercise of this
Warrant, the number of Shares of Common Stock of the successor or acquiring
corporation or of the Company, if it is the surviving corporation, and any
additional consideration (the “Alternate Consideration”) receivable upon or as
a result of such reorganization, reclassification, merger,
consolidation or disposition of assets by Holder of the number of Shares of
Common Stock for which this Warrant is exercisable immediately prior to such
event or (b) if the Company is acquired in (1) a transaction where the
consideration paid to holders of the Common Stock consists solely of cash, (2) a
“Rule 13e-3 transaction” as defined in Rule 13e-3 under the Exchange Act or
(3) a transaction involving a Person not traded on a national securities
exchange, the Nasdaq Global Select Market, the Nasdaq Global Market or the
Nasdaq Capital Market, cash equal to the Black-Scholes Value. For purposes of
any such exercise, the determination of the Exercise Price shall
be appropriately adjusted to apply to such Alternate Consideration based on the
amount of Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Company shall apportion the
Exercise Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the
Alternate Consideration. If holders of Common Stock are given any choice as to
the securities, cash or property to be received in a Fundamental Transaction,
then Holder shall be given the same choice as to the Alternate Consideration it
receives upon any exercise of this Warrant following such
Fundamental Transaction. To the extent necessary to effectuate the
foregoing provisions, any successor to the Company or surviving entity in such
Fundamental Transaction shall issue to Holder a new warrant consistent with
the foregoing provisions and evidencing Holder’s right to exercise such
warrant into Alternate Consideration. The terms of any agreement pursuant to
which a Fundamental Transaction is effected shall include terms requiring any
such successor or surviving entity to comply with the provisions of this Section
3.1 and ensuring that this Warrant (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a Fundamental
Transaction. “Black-Scholes Value” shall be determined in accordance with the
Black-Scholes Option Pricing Model obtained from the “OV” function on Bloomberg
L.P. using (i) a price per share of Common Stock equal to the volume weighted
average price (as determined by Bloomberg L.P.) (“VWAP”) of the Common Stock for
the trading day immediately preceding the date of consummation of the applicable
Fundamental Transaction, (ii) a risk-free interest rate corresponding to the
U.S. Treasury rate for a period equal to the remaining term of this Warrant as
of the date of such request and (iii) an expected volatility equal to the 100
day volatility obtained from the HVT function on Bloomberg L.P. determined as of
the trading day immediately following the public announcement of the applicable
Fundamental Transaction.

(a) A Fundamental Transaction is defined as the occurrence of any of the
following (each, a “Fundamental Transaction”):

(i) The Company effects any merger or consolidation of the Company with or into
another entity where the other entity acquires more than 50% of the outstanding
shares in one or a series of related transactions;

 

5

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(ii) The Company effects any sale or transfer of 40% in the aggregate, in one or
a series of related transactions, of the properties and assets of the Company to
another Person(s) in any rolling twelve (12) month period;

(iii) any purchase, exchange or tender offer (whether by the Company or another
entity) is completed pursuant to which holders of an aggregate of 50% or more of
the outstanding Shares of Common Stock of the Company are permitted to tender or
exchange their Shares for other securities (whether of the Company or another
Person), cash or property;

(iv) The Company consummates a stock purchase or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with one or more persons whereby such other persons
acquire more than the 50% of the outstanding Shares of Common Stock (not
including any Shares of Common Stock held by such other persons making or party
to, or associated or affiliated with, the other persons making or party to, such
stock purchase or other business combination);

(v) any “person” or “group” (as these terms are used for purposes of Sections
13(d) and 14(d) of the 1934 Act) is or shall become the “beneficial owner” (as
defined in Rule 13d-3 under the 1934 Act), directly or indirectly, in one or a
series of related transactions, of 50% or more of the aggregate Common Stock of
the Company; or

(vi) The Company effects any reclassification of the Common Stock or any share
exchange pursuant to which more than 50% of the Common Stock of the Company is
effectively converted into or exchanged for other securities (whether of the
Company or another Person), cash or property. The foregoing provision shall
similarly apply to successive Fundamental Transactions of a similar nature by
any such successor or purchaser.

3.2 Continuation of Terms. Upon any reorganization, consolidation, merger or
transfer (and any dissolution following any transfer) referred to in this
Section 3, this Warrant shall continue in full force and effect and the terms
hereof shall be applicable to the Other Securities and property receivable on
the exercise of this Warrant after the consummation of such reorganization,
consolidation or merger or the effective date of dissolution following any such
transfer, as the case may be, and shall be binding upon the issuer of any Other
Securities, including, in the case of any such transfer, the Person acquiring
all or substantially all of the properties or assets of the Company, whether or
not such Person shall have expressly assumed the terms of this Warrant as
provided in Section 4 hereof. In the event this Warrant does not continue in
full force and effect after the consummation of the transactions described in
this Section 3, then only in such event will the Company’s securities and
property (including cash, where applicable) receivable by Holder of the Warrants
be delivered to the Trustee as contemplated in connection with the events in
this Section 3.2.

3.3 Share Issuance. Until the Expiration Date, if the Company shall issue any
Common Stock, except for the Excepted Issuances (as defined herein), prior to
the complete exercise of this Warrant for a consideration less than the Exercise
Price then in effect at the time of such issuance, then, and thereafter
successively upon each such issuance, the Exercise Price shall be reduced to
such other lower price for then outstanding Warrants. For purposes of this
adjustment, the issuance of any equity or debt instrument of the Company, other
than the Excepted Issuances, carrying the right to convert such security or debt
instrument into Common Stock or of any warrant, right or option to purchase
Common Stock shall result in an adjustment to the Exercise Price upon the
issuance of the above-described security, debt instrument, warrant, right or
option if such issuance is at a price lower than the Exercise Price in effect
upon such issuance and again at any time upon any actual, permitted, optional or
allowed issuances of shares of Common Stock upon any actual, permitted,
optional, or allowed exercise

 

6

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of such conversion or purchase rights if such issuance is at a price lower than
the Exercise Price in effect upon any actual, permitted, optional, or allowed
issuance. Other than with respect to Excepted Issuances, Common Stock issued or
issuable by the Company for no consideration or for consideration that cannot be
determined at the time of issue will be deemed issuable or to have been issued
for $0.001 per share of Common Stock. Upon any reduction of the Exercise Price,
the number of Shares of Common Stock that Holder of this Warrant shall
thereafter, on the exercise hereof, be entitled to receive shall be adjusted to
a number determined by multiplying the number of Shares of Common Stock that
would otherwise (but for the provisions of this Section 3.3) be issuable on such
exercise by a fraction of which (a) the numerator is the Exercise Price that
would otherwise (but for the provisions of this Section 3.3) be in effect, and
(b) the denominator is the Exercise Price in effect on the date of such
exercise. For purposes of this Section 3.3, (“Excepted Issuances”) shall mean:
(i) full or partial consideration in connection with a strategic merger,
acquisition, consolidation or purchase of substantially all of the securities or
assets of a corporation or other entity, (ii) the Company’s issuance of
securities in connection with strategic license agreements and other partnering
arrangements, (iii) the Company’s issuance of Common Stock or the issuances or
grants of options to purchase Common Stock to employees, directors, advisory
board members, and consultants pursuant to plans approved by the Company’s board
of directors as of the Closing Date, or (iv) as a result of the exercise of
Warrants which are granted or issued pursuant to this Agreement and related
Agreements entered into on the unamended terms in effect on the Closing Date.

3.4 Adjustments for Event of Default. (a) Adjustment of Exercise Price. Upon the
occurrence of an Event of Default (as defined in the Loan Agreement), the
Exercise Price shall be adjusted to the lower of (i) the VWAP for the five
(5) trading days immediately preceding the date of the occurrence of the Event
of Default and (ii) the then applicable Warrant Exercise Price (the “Default
Exercise Price”).

(b) Issuance of Penalty Warrants. Upon the occurrence of an Event of Default,
Holder shall be entitled to receive additional warrants for each ninety (90) day
period the Company remains in default for a default that curable by the Company
using its best efforts, under the same terms and conditions of this Warrant
(including, but not limited to, the adjustment of the Exercise Price to the
Default Exercise Price as set forth in Section 3.4(a) above), in an amount equal
to 25% of the original amount of the Warrants issued hereunder. Such additional
Warrants shall be issued in accordance with the procedures set forth in
Section 1.6 hereof and shall become due on the first day of every such 90 day
period

4. Extraordinary Events Regarding Common Stock. In the event that the Company
shall (a) issue additional Shares of Common Stock as a dividend or other
distribution on outstanding Common Stock, (b) subdivide its outstanding Shares
of Common Stock or (c) combine its outstanding Shares of the Common Stock into a
smaller number of Shares of Common Stock, then, in each such event, the Exercise
Price shall, simultaneously with the happening of such event, be adjusted by
multiplying the then Exercise Price by a fraction, the numerator of which shall
be the number of Shares of Common Stock outstanding immediately prior to such
event and the denominator of which shall be the number of Shares of Common Stock
outstanding immediately after such event, and the product so obtained shall
thereafter be the Exercise Price then in effect. The Exercise Price, as so
adjusted, shall be readjusted in the same manner upon the happening of any
successive event or events described in this Section 4. The number of Shares of
Common Stock that Holder of this Warrant shall thereafter, on the exercise
hereof, be entitled to receive shall be adjusted to a number determined by
multiplying the number of Shares of Common Stock that would otherwise (but for
the provisions of this Section 4) be issuable on such exercise by a fraction of
which (a) the numerator is the Exercise Price that would otherwise (but for the
provisions of this Section 4) be in effect, and (b) the denominator is the
Exercise Price in effect on the date of such exercise.

 

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5. Certificate as to Adjustments. In each case of any adjustment or readjustment
in the Shares of Common Stock (or Other Securities) issuable upon exercise of
the Warrants, the Company, at its sole expense, shall promptly cause its Chief
Financial Officer or other appropriate designee to compute such adjustment or
readjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional Shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of Shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding and (c) the Exercise Price
and the number of Shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to Holder and any Warrant Agent of the
Company that is appointed pursuant to Section 11 hereof.

6. Reservation of Stock, etc. Issuable on Exercise of Warrant; Financial
Statements. The Company will at all times reserve and keep available, solely for
issuance and delivery on the exercise of the Warrants, all Shares of Common
Stock (or Other Securities) from time to time issuable upon the exercise of the
Warrant. This Warrant entitles Holder, upon written request, to receive copies
of all financial and other information distributed or required to be distributed
to holders of the Company’s Common Stock.

7. Assignment; Exchange of Warrant. Subject to compliance with applicable
securities laws, this Warrant and the rights evidenced hereby may be transferred
by any registered Holder (a “Transferor”). On the surrender for exchange of this
Warrant, with the Transferor’s endorsement in the form of Exhibit B attached
hereto (the “Transferor Endorsement Form”), and together with an opinion of
counsel reasonably satisfactory to the Company that the transfer of this Warrant
will be in compliance with applicable securities laws, the Company will issue
and deliver to or on the order of the Transferor thereof a new Warrant or
Warrants of like tenor, in the name of the Transferor and/or the transferee(s)
specified in such Transferor Endorsement Form (each a “Transferee”), calling in
the aggregate on the face or faces thereof for the number of Shares of Common
Stock called for on the face or faces of the Warrant so surrendered by the
Transferor.

8. Replacement of Warrant. On receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant and, in
the case of any such loss, theft or destruction of this Warrant, on delivery of
an indemnity agreement or security reasonably satisfactory in form and amount to
the Company or, in the case of any such mutilation, on surrender and
cancellation of this Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.

9. Maximum Exercise. To the extent that, after the date hereof, the Holder’s
ownership percentage of Shares of Common Stock of the Company is less than ten
percent (10%) of the outstanding Shares of Common Stock, the Holder shall not be
entitled to exercise this Warrant on an exercise date, in connection with that
number of Shares of Common Stock which would be in excess of the sum of (i) the
number of Shares of Common Stock beneficially owned by Holder and its affiliates
on an exercise date, and (ii) the number of Shares of Common Stock issuable upon
the exercise of this Warrant with respect to which the determination of this
limitation is being made on an exercise date, which would result in beneficial
ownership by Holder and its affiliates of more than 9.99% of the outstanding
Shares of Common Stock on such date. For the purposes of the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Exchange Act and Rule 13d-3 thereunder. Subject to the
foregoing, Holder shall not be limited to aggregate exercises which would result
in the issuance of more than 9.99%. The restriction described in this
paragraph may be waived, in whole or in part, upon sixty-one (61) days’ prior
notice from Holder to the Company to increase such percentage to up to 9.99%,
but not in excess of 9.99%.

 

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10. Warrant Agent. The Company may, by written notice to Holder, appoint an
agent (a “Warrant Agent”) for the purpose of issuing Common Stock (or Other
Securities) on the exercise of this Warrant pursuant to Section 1 hereof,
exchanging this Warrant pursuant to Section 7 hereof and replacing this Warrant
pursuant to Section 8 hereof, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such
office by such Warrant Agent.

11. Transfer on the Company’s Books. Until this Warrant is transferred on the
books of the Company, the Company may treat the registered Holder as the
absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.

12. Registration Rights.

12.1 Upon the request of the Holder (the “Request”), the Company shall prepare
and, as soon as possible after the Request, but in no event later than the date
that is forty-five (45) days after the Request, file with the SEC a registration
statement on Form S-1 (the “Registration Statement”) registering the Warrant
Shares. The Company shall use its best efforts to have the Registration
Statement declared effective by the SEC as soon as possible, but in no event
later than one hundred and fifty (150) days from the date of the Request. The
Company shall pay fifty percent (50%) of all costs and expenses related to the
registration of the Warrant Shares.

12.2 If a Registration Statement covering the Warrant Shares (i) is not filed
with the SEC by the Company within forty-five (45) days after the date of the
Request, or (ii) does not become effective within one hundred and fifty
(150) days after the date of the Request and remain effective for the
Registration Period (as hereinafter defined), the Company shall refund any and
all costs and expenses related to the registration of the Warrant Shares
previously paid by the Holder and the Company shall be liable for one hundred
percent (100%) of such costs and expenses. The Company agrees that it will not
challenge or dispute Holder’s remedies set forth in this Section by asserting
that such remedies constitute a penalty or should otherwise not be enforced as
written.

12.3 The Company shall use its best efforts to keep such Registration Statement
continuously effective until the earlier of (A) the date on which all of the
Warrant Shares have been sold, (B) the date on which all of the Warrant Shares
become eligible for resale without volume limitations pursuant to Rule 144 under
the Exchange Act and (C) the date on which the Holder notifies the Company that
keeping the Registration Statement effective is unnecessary (the “Registration
Period”). The Company shall promptly prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to such
Registration Statement and any prospectus used in connection therewith, as may
be necessary to keep such Registration Statement effective at all times until
the expiration of the Registration Period. The Company shall pay fifty percent
(50%) of all costs and expenses related to keeping such Registration Statement
effective.

12.4 The Company shall, not less than three (3) business days prior to the
filing of the Registration Statement or any related prospectus or any amendment
or supplement thereto, (i) furnish to the Holder or any holder under this
Agreement copies of the Registration Statement or prospectus proposed to be
filed, which documents will be subject to the review of the Holder or any holder
under this Agreement, and (ii) cause its officers and directors, counsel and
independent certified public accountants to respond to such inquiries as shall
be necessary, in the reasonable opinion of respective counsel to conduct a
reasonable investigation. Furthermore, the Company shall advise the Holder or
any holder under this Agreement, within two (2) business days: (x) after it
shall receive notice or obtain knowledge of the issuance of any stop order by
the SEC delaying or suspending the effectiveness of the Registration

 

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Statement or of the initiation or threat of any proceeding for that purpose, or
any other order issued by any state securities commission or other regulatory
authority suspending the qualification or exemption from qualification of any of
the Warrant Shares under state securities or “blue sky” laws; and it will
promptly use its best efforts to prevent the issuance of any stop order or other
order or to obtain its withdrawal at the earliest possible moment if such stop
order or other order should be issued; and (y) when the prospectus or any
prospectus supplement or post-effective amendment has been filed, and, with
respect to the Registration Statement or any post-effective amendment thereto,
when the same has become effective.

13. Piggy-Back Registrations. If there is not an effective Registration
Statement covering all of the Warrant Shares and the Company shall determine to
prepare and file with the U.S. Securities and Exchange Commission (the
“Commission”) a registration statement relating to an offering for its own
account or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to the Holder written notice of such
determination and, if within fifteen (15) calendar days after receipt of such
notice, the Holder shall so request in writing, the Company shall include in
such registration statement all or any part of the Warrant Shares such Holder
requests to be registered, subject to customary underwriter cutbacks applicable
to all holders of registration rights. To the extent not all of the Warrant
Shares may be included for registration in the registration statement, as a
result of the Commission’s application of Rule 415 under the Securities Act,
priority in such registration statement will be given to the other Common Stock
included therein in preference to the Warrant Shares except no preference shall
be given to shares held by affiliates. The obligations of the Company under this
Section may be waived by the Holder entitled to registration rights under this
Section 12. The holders whose shares are included or required to be included in
such registration statement are granted the same rights, benefits, liquidated or
other damages and indemnification granted to other holders of securities
included in such registration statement. Notwithstanding anything to the
contrary herein, the registration rights granted to the Holder shall not be
applicable for such times as such Warrant Shares may be sold by the Holder
thereof without restriction pursuant to Section 144(b)(1) of the Securities Act.
In no event shall the liability of the Holder or permitted successor in
connection with any Warrant Shares included in any such registration statement
be greater in amount than the dollar amount of the net proceeds actually
received by such Holder upon the sale of the Warrant Shares sold pursuant to
such registration or such lesser amount applicable to other holders of
securities included in such registration statement.

14. Severability. In case any one or more of the provisions hereof shall be
invalid, illegal or unenforceable in any respect under any law, the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby. The parties shall endeavor in
good faith negotiations to replace the invalid, illegal or unenforceable
provisions with valid provisions the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable provisions.

15. Notices. All notices, demands, requests, consents, approvals and other
communications required or permitted hereunder shall be in writing and, unless
otherwise specified herein, shall be (i) personally served, (ii) deposited in
the mail, registered or certified, return receipt requested, postage prepaid,
(iii) delivered by reputable overnight air courier service with charges prepaid,
or (iv) transmitted by hand delivery or facsimile, addressed as set forth below
or to such other address as such party shall

 

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have specified most recently by written notice in accordance with this Section.
Any notice or other communication required or permitted to be given hereunder
shall be deemed effective (a) upon hand delivery or delivery by facsimile, with
accurate confirmation generated by the transmitting facsimile machine, at the
address or number designated below (if delivered on a business day during normal
business hours where such notice is to be received), or the first business day
following such delivery (if delivered other than on a business day during normal
business hours where such notice is to be received), (b) on the first business
day following the date of mailing by reputable overnight air courier service,
fully prepaid, addressed to such address or (c) three (3) business days after in
the mail or upon actual receipt of such mailing, whichever shall first occur.
The addresses for such communications shall be:

If to the Company, to:

Comarco, Inc.

25541 Commercentre Drive

Lake Forest, CA 92630

Facsimile: (949) 599-1430

Attention: Tom Lanni, President and CEO

With a copy to (which copy shall not constitute notice):

Stradling Yocca Carlson & Rauth

660 Newport Center Drive, Suite 1600

Newport Beach, CA 92651

Facsimile: (949) 823-5150

Attention: Ben A. Frydman

If to Holder:

Broadwood Partners, L.P.

c/o Broadwood Capital, Inc.

724 Fifth Avenue, 9th Floor

New York, NY 10019

Facsimile: (212) 508-5756

Attention: Neal C. Bradsher

With a copy to (which copy shall not constitute notice):

Lucosky Brookman LLP

33 Wood Avenue South, 6th Floor

Iselin, NJ 08830

Facsimile: (732) 395-4401

Attention: Joseph M. Lucosky, Esq. / Seth A. Brookman, Esq.

16. Law Governing This Warrant. This Warrant shall be governed by and construed
in accordance with the laws of the State of New York without regard to
principles of conflicts of laws. Any action brought by either party hereto
against the other concerning the transactions contemplated by this Warrant shall
be brought only in the state courts of New York or in the federal courts located
in the state and county of New York. The parties to this Warrant hereby
irrevocably waive any objection to jurisdiction and venue of any action
instituted hereunder and shall not assert any defense based on lack of
jurisdiction or venue or based upon forum non conveniens. The Company and Holder
waive trial by jury. The prevailing party shall be entitled to recover from the
other party its reasonable attorney’s fees and

 

11

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costs. In the event that any provision of this Warrant or any other agreement
delivered in connection herewith is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform to such statute or rule of law. Any such provision which may
prove invalid or unenforceable under any law shall not affect the validity or
enforceability of any other provision of any agreement. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any suit, action or proceeding in connection with this Warrant or any
other Transaction Document by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Warrant and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any other manner permitted by law.

[Signature page follows]

 

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IN WITNESS WHEREOF, the Company has executed this Warrant as of the date first
written above.

 

COMARCO, INC.

By:

 

 

Name:

 

Title:

 

 

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Exhibit A

FORM OF EXERCISE NOTICE

(to be signed only on exercise of Warrant)

TO: COMARCO, INC.

The undersigned, pursuant to the provisions set forth in the attached Warrant
(No. A-            ), hereby irrevocably elects to purchase (check applicable
box):

            Shares of the Common Stock covered by such Warrant; or

            the maximum number of Shares of Common Stock covered by such Warrant
pursuant to the cashless exercise procedure set forth in Section 2 of the
Warrant.

The undersigned herewith makes payment of the full exercise price for such
Shares at the price per share provided for in the attached Warrant, which is
$            . Such payment takes the form of (check applicable box or boxes):

            $            in lawful money of the United States; and/or

            the cancellation of such portion of the attached Warrant as is
exercisable for a total of             Shares of Common Stock (using a Fair
Market Value of $            per share for purposes of this calculation); and/or

            the cancellation of such number of Shares of Common Stock as is
necessary, in accordance with the formula set forth in Section 2 of the Warrant,
to exercise this Warrant with respect to the maximum number of Shares of Common
Stock purchasable pursuant to the cashless exercise procedure set forth in
Section 2 of the Warrant.

The undersigned requests that the certificates for such Shares be issued in the
name of and delivered pursuant to DTC instructions below or
to                    whose address is                 
                                         
                                                                               .

The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable upon exercise of the attached Warrant
shall be made pursuant to registration of the Common Stock under the 1933 Act,
or pursuant to an exemption from registration under the 1933 Act.

DTC Instructions:             

 

Dated:                      

 

  (Signature must conform to name of holder as specified on the face of the
Warrant)  

 

 

(Address)

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Exhibit B

FORM OF TRANSFEROR ENDORSEMENT

(To be signed only on transfer of Warrant)

For value received, the undersigned hereby sells, assigns and transfers unto the
Person(s) named below under the heading “Transferees” the right represented by
the attached Warrant to purchase the percentage and number of Shares of Common
Stock of Comarco, Inc. to which the attached Warrant relates specified under the
headings “Percentage Transferred” and “Number Transferred,” respectively,
opposite the name(s) of such Person(s) and appoints each such Person Attorney to
transfer its respective right on the books of Comarco, Inc. with full power of
substitution in the premises.

 

Transferees

  

Percentage Transferred

  

Number Transferred

                 

 

Dated:                     ,            

   

 

    (Signature must conform to name of holder as specified on the face of the
warrant)

 

Signed in the presence of:

 

(Name)

 

 

ACCEPTED AND AGREED:

[TRANSFEREE]

 

 

 

            (Name)

   

 

 

 

 

            (address)

 

 

            (address)

 

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