Unassociated Document


    Exhibit
      10.4

     

    NEITHER
      THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE HAVE
      BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
      COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
      THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
      MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
      STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
      OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
      SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
      EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE
      SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
      COMPANY.  THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF
      THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT
      OR
      OTHER LOAN SECURED BY SUCH SECURITIES.

    


    COMMON
      STOCK PURCHASE WARRANT

    


    VIKING
      SYSTEMS, INC.

     

    
      	Warrant
              Shares: __________   	
              Initial
                Exercise Date: July 31, 2007

            


    

                                                                                                

     

    THIS
      COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value
      received, __________________(the “Holder”), is entitled, upon the terms
      and subject to the limitations on exercise and the conditions hereinafter set
      forth, at any time on or after the date hereof (the “Initial Exercise
      Date”) and on or prior to the close of business on February 23, 2014 (the
“Termination Date”) but not thereafter, to subscribe for and purchase
      from Viking Systems, Inc., a Delaware corporation (the “Company”), up to
      ____________ shares (the “Warrant Shares”) of common stock, par value
      $.001 per share, of the Company (the “Common Stock”).  The
      purchase price of one share of Common Stock under this Warrant shall be equal
      to
      the Exercise Price, as defined in Section 2(b).

     

    Section
      1.        
  Definitions.  Capitalized terms used and not
      otherwise defined herein shall have the meanings set forth in that certain
      Securities Purchase Agreement (the “Purchase Agreement”), dated July 31,
      2007, as the same may be amended, among the Company and the purchasers signatory
      thereto.

     

    Section
      2.           
 Exercise.

     

    a)           Exercise
      of Warrant.  Exercise of the purchase rights represented by this
      Warrant may be made, in whole or in part, at any time or times on or after
      the
      Initial Exercise Date and on or before the Termination Date by delivery to
      the
      Company of a duly executed facsimile copy of the Notice of Exercise Form
      annexed  hereto (or such other office or agency of the Company as it
      may designate by notice in writing to the registered Holder at the address
      of
      such Holder appearing on the books of the Company); and, within 3 Trading Days
      of the date said Notice of Exercise is delivered to the Company, the Company
      shall have received  payment of the aggregate Exercise Price of the
      shares thereby purchased by wire transfer or cashier’s check drawn on a United
      States bank.  Notwithstanding anything herein to the contrary, the
      Holder shall not be required to physically surrender this Warrant to the Company
      until the Holder has purchased all of the Warrant Shares available hereunder
      and
      the Warrant has been exercised in full, in which case, the Holder shall
      surrender this Warrant to the Company for cancellation within 3 Trading Days
      of
      the date the final Notice of Exercise is delivered to the
      Company.  Partial exercises of this Warrant resulting in purchases of
      a portion of the total number of Warrant Shares available hereunder shall have
      the effect of lowering the outstanding number of Warrant Shares purchasable
      hereunder in an amount equal to the applicable number of Warrant Shares
      purchased.  The Holder and the Company shall maintain records showing
      the number of Warrant Shares purchased and the date of such
      purchases.  The Company shall deliver any objection to any Notice of
      Exercise Form within 1 Business Day of receipt of such notice.  In the
      event of any dispute or discrepancy, the records of the Holder shall be
      controlling and determinative in the absence of manifest error. The Holder
      and
      any assignee, by acceptance of this Warrant, acknowledge and agree that, by
      reason of the provisions of this paragraph, following the purchase of a portion
      of the Warrant Shares hereunder, the number of Warrant Shares available for
      purchase hereunder at any given time may be less than the amount stated on
      the
      face hereof.

     

    
      
         

      

      
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    b)           Exercise
      Price.  The exercise price per share of the Common Stock under
      this Warrant shall be $0.18, subject to adjustment hereunder
      (the “Exercise Price”).

     

    c)           Cashless
      Exercise.  If at any time after one year from the date of issuance
      of this Warrant there is no effective Registration Statement registering, or
      no
      current prospectus available for, the resale of the Warrant Shares by the
      Holder, then this Warrant may also be exercised at such time by means of a
      “cashless exercise” in which the Holder shall be entitled to receive a
      certificate for the number of Warrant Shares equal to the quotient obtained
      by
      dividing [(A-B) x (X)] by (A), where:

     

    
      	
            	
              (A)
                =

            	
              the
                VWAP on the Trading Day immediately preceding the date of such
                election;

            


    

    


    
      	
            	
              (B)
                =

            	
              the
                Exercise Price of this Warrant, as adjusted;
                and

            


    

    


    
      	
            	
              (X)
                =

            	
              the
                number of Warrant Shares issuable upon exercise of this Warrant in
                accordance with the terms of this Warrant by means of a cash exercise
                rather than a cashless exercise.

            


    

    


    Notwithstanding
      anything herein to the contrary, on the Termination Date, this Warrant shall
      be
      automatically exercised via cashless exercise pursuant to this Section
      2(c).

    


    
      
         

      

      
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    d)           Exercise
      Limitations.

     

    
      	
               

            	
              i.

            	
              Holder’s
                Restrictions.  The Company shall not effect any exercise of
                this Warrant, and a  Holder shall not have the right to exercise
                any portion of this Warrant, pursuant to Section 2(c) or otherwise,
                to the
                extent that after giving effect to such issuance after exercise as
                set
                forth on the applicable Notice of Exercise, such Holder (together
                with
                such Holder’s Affiliates, and any other person or entity acting as a group
                together with such Holder or any of such Holder’s Affiliates), as set
                forth on the applicable Notice of Exercise, would beneficially own
                in
                excess of the Beneficial Ownership Limitation (as defined below). 
                For purposes of the foregoing sentence, the number of shares of Common
                Stock beneficially owned by such Holder and its Affiliates shall
                include
                the number of shares of Common Stock issuable upon exercise of this
                Warrant with respect to which such determination is being made, but
                shall
                exclude the number of shares of Common Stock which would be issuable
                upon
                (A) exercise of the remaining, nonexercised portion of this Warrant
                beneficially owned by such Holder or any of its Affiliates and (B)
                exercise or conversion of the unexercised or nonconverted portion
                of any
                other securities of the Company (including, without limitation, any
                other
                Debentures or Warrants) subject to a limitation on conversion or
                exercise
                analogous to the limitation contained herein beneficially owned by
                such
                Holder or any of its affiliates.  Except as set forth in the
                preceding sentence, for purposes of this Section 2(d)(i), beneficial
                ownership shall be calculated in accordance with Section 13(d) of
                the
                Exchange Act and the rules and regulations promulgated thereunder,
                it
                being acknowledged by a Holder that the Company is not representing
                to
                such Holder that such calculation is in compliance with Section 13(d)
                of
                the Exchange Act and such Holder is solely responsible for any schedules
                required to be filed in accordance therewith.   To the
                extent that the limitation contained in this Section 2(d) applies,
                the
                determination of whether this Warrant is exercisable (in relation
                to other
                securities owned by such Holder together with any Affiliates) and
                of which
                a portion of this Warrant is exercisable shall be in the sole discretion
                of a Holder, and the submission of a Notice of Exercise shall be
                deemed to
                be each Holder’s determination of whether this Warrant is exercisable (in
                relation to other securities owned by such Holder together with any
                Affiliates) and of which portion of this Warrant is exercisable,
                in each
                case subject to such aggregate percentage limitation, and the Company
                shall have no obligation to verify or confirm the accuracy of such
                determination.   In addition, a determination as to any
                group status as contemplated above shall be determined in accordance
                with
                Section 13(d) of the Exchange Act and the rules and regulations
                promulgated thereunder.  For purposes of this Section 2(d), in
                determining the number of outstanding shares of Common Stock, a Holder
                may
                rely on the number of outstanding shares of Common Stock as reflected
                in
                (x) the Company’s most recent Form 10-QSB or Form 10-KSB, as the case may
                be, (y) a more recent public announcement by the Company or (z) any
                other
                notice by the Company or the Company’s Transfer Agent setting forth the
                number of shares of Common Stock outstanding.  Upon the written or
                oral request of a Holder, the Company shall within two Trading Days
                confirm orally and in writing to such Holder the number of shares
                of
                Common Stock then outstanding.  In any case, the number of
                outstanding shares of Common Stock shall be determined after giving
                effect
                to the conversion or exercise of securities of the Company, including
                this
                Warrant, by such Holder or its Affiliates since the date as of which
                such
                number of outstanding shares of Common Stock was reported.  The
                “Beneficial Ownership Limitation” shall be 4.99% of the number of
                shares of the Common Stock outstanding immediately after giving effect
                to
                the issuance of shares of Common Stock issuable upon exercise of
                this
                Warrant.  The Beneficial Ownership Limitation provisions of this
                Section 2(d)(i) may be waived by such Holder, at the election of
                such
                Holder, upon not less than 61 days’ prior notice to the Company to change
                the Beneficial Ownership Limitation to 9.99% of the number of shares
                of
                the Common Stock outstanding immediately after giving effect to the
                issuance of shares of Common Stock upon exercise of this Warrant,
                and the
                provisions of this Section 2(d) shall continue to apply.  Upon
                such a change by a Holder of the Beneficial Ownership Limitation
                from such
                4.99% limitation to such 9.99% limitation, the Beneficial Ownership
                Limitation may not be further waived by such Holder.  The
                provisions of this paragraph shall be construed and implemented in
                a
                manner otherwise than in strict conformity with the terms of this
                Section
                2(d)(i) to correct this paragraph (or any portion hereof) which may
                be
                defective or inconsistent with the intended Beneficial Ownership
                Limitation herein contained or to make changes or supplements necessary
                or
                desirable to properly give effect to such limitation. The limitations
                contained in this paragraph shall apply to a successor holder of
                this
                Warrant.

            


    

     

    
      
         

      

      
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    e)           Mechanics
      of Exercise.

     

    i.      Authorization
      of Warrant Shares.  The Company covenants that all Warrant Shares
      which may be issued upon the exercise of the purchase rights represented by
      this
      Warrant will, upon exercise of the purchase rights represented by this Warrant,
      be duly authorized, validly issued, fully paid and nonassessable and free from
      all taxes, liens and charges created by the Company in respect of the issue
      thereof (other than taxes in respect of any transfer occurring contemporaneously
      with such issue).

     

    ii.           Delivery
      of Certificates Upon Exercise.  Certificates for shares purchased
      hereunder shall be transmitted by the transfer agent of the Company to the
      Holder by crediting the account of the Holder’s prime broker with the Depository
      Trust Company through its Deposit Withdrawal Agent Commission (“DWAC”)
      system if the Company is a participant in such system, and otherwise by physical
      delivery to the address specified by the Holder in the Notice of Exercise within
      3 Trading Days from the delivery to the Company of the Notice of Exercise Form,
      surrender of this Warrant (if required) and payment of the aggregate Exercise
      Price as set forth above (“Warrant Share Delivery Date”).  This
      Warrant shall be deemed to have been exercised on the date the Exercise Price
      is
      received by the Company.  The Warrant Shares shall be deemed to have
      been issued, and Holder or any other person so designated to be named therein
      shall be deemed to have become a holder of record of such shares for all
      purposes, as of the date the Warrant has been exercised by payment to the
      Company of the Exercise Price (or by cashless exercise, if permitted) and all
      taxes required to be paid by the Holder, if any, pursuant to Section 2(e)(vii)
      prior to the issuance of such shares, have been paid.

     

    iii.           Delivery
      of New Warrants Upon Exercise.  If this Warrant shall have been
      exercised in part, the Company shall, at the request of a Holder and upon
      surrender of this Warrant certificate, at the time of delivery of the
      certificate or certificates representing Warrant Shares, deliver to Holder
      a new
      Warrant evidencing the rights of Holder to purchase the unpurchased Warrant
      Shares called for by this Warrant, which new Warrant shall in all other respects
      be identical with this Warrant.

     

    iv.           Rescission
      Rights.  If the Company fails to cause its transfer agent to
      transmit to the Holder a certificate or certificates representing the Warrant
      Shares pursuant to this Section 2(e)(iv) by the Warrant Share Delivery Date,
      then the Holder will have the right to rescind such exercise.

     

    
      
         

      

      
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    v.      Compensation
      for Buy-In on Failure to Timely Deliver Certificates Upon
      Exercise.  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 Warrant Shares 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) or the Holder’s brokerage firm otherwise purchases, shares of
      Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant
      Shares 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 Warrant Shares 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 Warrant Shares 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 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 of 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 and,
      upon
      request of the Company, evidence of the amount of such loss.  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 the Warrant as required pursuant to the terms hereof.

     

    vi.           No
      Fractional Shares or Scrip.  No fractional shares or scrip
      representing fractional shares shall be issued upon the exercise of this
      Warrant.  As to any fraction of a share which Holder would otherwise
      be entitled to purchase upon such exercise, the Company shall at its election,
      either pay a cash adjustment in respect of such final fraction in an amount
      equal to such fraction multiplied by the Exercise Price or round up to the
      next
      whole share.

     

    vii.           Charges,
      Taxes and Expenses.  Issuance of certificates for Warrant Shares
      shall be made without charge to the Holder for any issue or transfer tax or
      other incidental expense in respect of the issuance of such certificate, all
      of
      which taxes and expenses shall be paid by the Company, and such certificates
      shall be issued in the name of the Holder or in such name or names as may be
      directed by the Holder; provided, however, that in the event
      certificates for Warrant Shares are to be issued in a name other than the name
      of the Holder, this Warrant when surrendered for exercise shall be accompanied
      by the Assignment Form attached hereto duly executed by the Holder; and the
      Company may require, as a condition thereto, the payment of a sum sufficient
      to
      reimburse it for any transfer tax incidental thereto.

     

    viii.           Closing
      of Books.  The Company will not close its stockholder books or
      records in any manner which prevents the timely exercise of this Warrant,
      pursuant to the terms hereof.

     

    
      
         

      

      
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    Section
      3.             CertainAdjustments.

     

    a)           Stock
      Dividends and Splits. If the Company, at any time while this Warrant is
      outstanding: (A) pays a stock dividend or otherwise make a distribution or
      distributions on shares of its Common Stock or any other equity or equity
      equivalent securities payable in shares of Common Stock (which, for avoidance
      of
      doubt, shall not include any shares of Common Stock issued by the Company upon
      exercise of this Warrant), (B) subdivides outstanding shares of Common Stock
      into a larger number of shares, (C) combines (including by way of reverse stock
      split) outstanding shares of Common Stock into a smaller number of shares,
      or
      (D) issues by reclassification of shares of the Common Stock any shares of
      capital stock of the Company, then in each case the Exercise Price shall be
      multiplied by a fraction of which the numerator shall be the number of shares
      of
      Common Stock (excluding treasury shares, if any) outstanding immediately before
      such event and of which the denominator shall be the number of shares of Common
      Stock outstanding immediately after such event and the number of shares issuable
      upon exercise of this Warrant shall be proportionately adjusted.  Any
      adjustment made pursuant to this Section 3(a) shall become effective immediately
      after the record date for the determination of stockholders entitled to receive
      such dividend or distribution and shall become effective immediately after
      the
      effective date in the case of a subdivision, combination or
      re-classification.

     

    b)           Subsequent
      Equity Sales. If the Company or any Subsidiary thereof, as applicable, at
      any time while this Warrant is outstanding, shall sell or grant any option
      to
      purchase, or sell or grant any right to reprice its securities, or otherwise
      dispose of or issue (or announce any offer, sale, grant or any option to
      purchase or other disposition) any Common Stock or Common Stock Equivalents
      entitling any Person to acquire shares of Common Stock, at an effective price
      per share less than the then Exercise Price (such lower price, the “Base
      Share Price” and such issuances collectively, a “Dilutive Issuance”)
      (if the holder of the Common Stock or Common Stock Equivalents so issued shall
      at any time, whether by operation of purchase price adjustments, reset
      provisions, floating conversion, exercise or exchange prices or otherwise,
      or
      due to warrants, options or rights per share which are issued in connection
      with
      such issuance, be entitled to receive shares of Common Stock at an effective
      price per share which is less than the Exercise Price, such issuance shall
      be
      deemed to have occurred for less than the Exercise Price on such date of the
      Dilutive Issuance), then the Exercise Price shall be reduced and only reduced
      to
      equal the Base Share Price and the number of Warrant Shares issuable hereunder
      shall be increased such that the aggregate Exercise Price payable hereunder,
      after taking into account the decrease in the Exercise Price, shall be equal
      to
      the aggregate Exercise Price prior to such adjustment; provided,
however, in no event shall the Exercise Price be adjusted pursuant
      to
      this Section 3(b) to less than $0.05, subject to adjustment for reverse and
      forward stock splits, stock dividends, stock combinations and other similar
      transactions of the Common Stock that occur after the date of this
      Warrant.  Such adjustment shall be made whenever such Common Stock or
      Common Stock Equivalents are issued.  Notwithstanding the foregoing,
      no adjustments shall be made, paid or issued under this Section 3(b) in respect
      of an Exempt Issuance.  The Company shall notify the Holder in
      writing, no later than the Trading Day following the issuance of any Common
      Stock or Common Stock Equivalents subject to this Section 3(b), indicating
      therein the applicable issuance price, or applicable reset price, exchange
      price, conversion price and other pricing terms (such notice the “Dilutive
      Issuance Notice”).  For purposes of clarification, whether or not
      the Company provides a Dilutive Issuance Notice pursuant to this Section 3(b),
      upon the occurrence of any Dilutive Issuance, after the date of such Dilutive
      Issuance the Holder is entitled to receive a number of Warrant Shares based
      upon
      the Base Share Price regardless of whether the Holder accurately refers to
      the
      Base Share Price in the Notice of Exercise.

     

    
      
         

      

      
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    c)           Subsequent
      Rights Offerings.  If the Company, at any time while the Warrant
      is outstanding, shall issue rights, options or warrants to all holders of Common
      Stock (and not to Holders) entitling them to subscribe for or purchase shares
      of
      Common Stock at a price per share less than the VWAP at the record date
      mentioned below, then the Exercise Price shall be multiplied by a fraction,
      of
      which the denominator shall be the number of shares of the Common Stock
      outstanding on the date of issuance of such rights or warrants plus the number
      of additional shares of Common Stock offered for subscription or purchase,
      and
      of which the numerator shall be the number of shares of the Common Stock
      outstanding on the date of issuance of such rights or warrants plus the number
      of shares which the aggregate offering price of the total number of shares
      so
      offered (assuming receipt by the Company in full of all consideration payable
      upon exercise of such rights, options or warrants) would purchase at such
      VWAP.  Such adjustment shall be made whenever such rights or warrants
      are issued, and shall become effective immediately after the record date for
      the
      determination of stockholders entitled to receive such rights, options or
      warrants.

     

    d)           Pro
      Rata Distributions.  If the Company, at any time prior to the
      Termination Date, shall distribute to all holders of Common Stock (and not
      to
      Holders of the Warrants) evidences of its indebtedness or assets (including
      cash
      and cash dividends) or rights or warrants to subscribe for or purchase any
      security other than the Common Stock (which shall be subject to Section 3(b)),
      then in each such case the Exercise Price shall be adjusted by multiplying
      the
      Exercise Price in effect immediately prior to the record date fixed for
      determination of stockholders entitled to receive such distribution by a
      fraction of which the denominator shall be the VWAP determined as of the record
      date mentioned above, and of which the numerator shall be such VWAP on such
      record date less the then per share fair market value at such record date of
      the
      portion of such assets or evidence of indebtedness so distributed applicable
      to
      one outstanding share of the Common Stock as determined by the Board of
      Directors in good faith.  In either case the adjustments shall be
      described in a statement provided to the Holder of the portion of assets or
      evidences of indebtedness so distributed or such subscription rights applicable
      to one share of Common Stock.  Such adjustment shall be made whenever
      any such distribution is made and shall become effective immediately after
      the
      record date mentioned above.

     

    e)           Fundamental
      Transaction. If, at any time while this Warrant is outstanding, (A) the
      Company effects any merger or consolidation of the Company with or into another
      Person, (B) the Company effects any sale of all or substantially all of its
      assets in one or a series of related transactions, (C) any tender offer or
      exchange offer (whether by the Company or another Person) is completed pursuant
      to which holders of Common Stock are permitted to tender or exchange their
      shares for other securities, cash or property, or (D) the Company effects any
      reclassification of the Common Stock or any compulsory share exchange pursuant
      to which the Common Stock is effectively converted into or exchanged for other
      securities, cash or property (each “Fundamental Transaction”), then, upon
      any subsequent exercise of this Warrant, the 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, 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 as a result of such merger,
      consolidation or disposition of assets by a Holder of the number of shares
      of
      Common Stock for which this Warrant is exercisable immediately prior to such
      event. 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 the 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 the Holder a new warrant consistent with the
      foregoing provisions and evidencing the 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(e)
      and insuring that this Warrant (or any such replacement security) will be
      similarly adjusted upon any subsequent transaction analogous to a Fundamental
      Transaction. Notwithstanding anything to the contrary, in the event of a
      Fundamental Transaction that is (1) an all cash transaction, (2) a “Rule 13e-3
      transaction” as defined in Rule 13e-3 under the Securities Exchange Act of 1934,
      as amended, or (3) a Fundamental Transaction involving a person or entity not
      traded on a national securities exchange, the Nasdaq Global Select Market,
      the
      Nasdaq Global Market, the Nasdaq Capital Market, the Company or any successor
      entity shall pay at the Holder’s option, exercisable at any time concurrently
      with or within 30 days after the consummation of the Fundamental Transaction,
      an
      amount of cash equal to the value of this Warrant as determined in accordance
      with the Black-Scholes option pricing formula using an expected volatility
      equal
      to the 100 day historical price volatility obtained from the HVT function on
      Bloomberg L.P. as of the trading day immediately prior to the public
      announcement of the Fundamental Transaction. 

     

    
      
         

      

      
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    f)           Calculations.
      All calculations under this Section 3 shall be made to the nearest cent or
      the
      nearest 1/100th of a share, as the case may be. For purposes of this Section
      3,
      the number of shares of Common Stock deemed to be issued and outstanding as
      of a
      given date shall be the sum of the number of shares of Common Stock (excluding
      treasury shares, if any) issued and outstanding.

     

    g)           Voluntary
      Adjustment By Company. The Company may at any time during the term of this
      Warrant reduce the then current Exercise Price to any amount and for any period
      of time deemed appropriate by the Board of Directors of the
      Company.

     

    h)           Notice
      to Holder.

     

    i.      Adjustment
      to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any
      provision of this Section 3, the Company shall promptly mail to the Holder
      a
      notice setting forth the Exercise Price after such adjustment and setting forth
      a brief statement of the facts requiring such adjustment. If the Company enters
      into a Variable Rate Transaction (as defined in the Purchase Agreement) despite
      the prohibition thereon in the Purchase Agreement, the Company shall be deemed
      to have issued Common Stock or Common Stock Equivalents at the lowest possible
      conversion or exercise price at which such securities may be converted or
      exercised.

     

    ii.           Notice
      to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or
      any other distribution in whatever form) on the Common Stock; (B) the Company
      shall declare a special nonrecurring cash dividend on or a redemption of the
      Common Stock; (C) the Company shall authorize the granting to all holders of
      the
      Common Stock rights or warrants to subscribe for or purchase any shares of
      capital stock of any class or of any rights; (D) the approval of any
      stockholders of the Company shall be required in connection with any
      reclassification of the Common Stock, any consolidation or merger to which
      the
      Company is a party, any sale or transfer of all or substantially all of the
      assets of the Company, of any compulsory share exchange whereby the Common
      Stock
      is converted into other securities, cash or property; (E) the Company shall
      authorize the voluntary or involuntary dissolution, liquidation or winding
      up of
      the affairs of the Company; then, in each case, the Company shall cause to
      be
      mailed to the Holder at its last address as it shall appear upon the Warrant
      Register of the Company, at least 20 calendar days prior to the applicable
      record or effective date hereinafter specified, a notice stating (x) the date
      on
      which a record is to be taken for the purpose of such dividend, distribution,
      redemption, rights or warrants, or if a record is not to be taken, the date
      as
      of which the holders of the Common Stock of record to be entitled to such
      dividend, distributions, redemption, rights or warrants are to be determined
      or
      (y) the date on which such reclassification, consolidation, merger, sale,
      transfer or share exchange is expected to become effective or close, and the
      date as of which it is expected that holders of the Common Stock of record
      shall
      be entitled to exchange their shares of the Common Stock for securities, cash
      or
      other property deliverable upon such reclassification, consolidation, merger,
      sale, transfer or share exchange; provided that the failure to mail such notice
      or any defect therein or in the mailing thereof shall not affect the validity
      of
      the corporate action required to be specified in such notice.  The
      Holder is entitled to exercise this Warrant during the 20-day period commencing
      on the date of such notice to the effective date of the event triggering such
      notice.

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    i)           Adjustment
      on the Filing Date of the Registration Statement.  If the average
      of the VWAPs for 20 Trading Days immediately prior to the later of (i) April
      2,
      2007 or (ii) the actual initial filing date of the Registration Statement (such
      later date, the “Reset Date” and the average of the VWAPs for such 20
      Trading Day period, the “Reset Price”) is less than the then applicable
      Exercise Price as of the Reset Date, the Exercise Price shall be reduced
      effective as of such Reset Date to the greater of (x) $0.12 (subject to
      adjustment for forward and reverse stock splits, stock dividends,
      recapitalizations and the like) and (y) the Reset Price, and the number of
      Warrant Shares issuable hereunder shall be increased such that the aggregate
      Exercise Price payable hereunder, after taking into account the decrease in
      the
      Exercise Price, shall be equal to the aggregate Exercise Price prior to such
      adjustment.  For clarity, the Exercise Price can only be adjusted
      downward pursuant to this Section 3(i).

    


    j)           Adjustment
      upon Failure to Obtain Certain Operational Milestones.   In
      the event that the Company fails to achieve any of the following
      milestones:

    


    
      	
            	
              (A)

            	
              gross
                revenue of more than $650,000 for the fiscal quarter ending March
                31,
                2007;

            


    

    
      	
            	
              (B)

            	
              sales
                of at least ten “3D Vision System Units” to unaffiliated third parties
                during the fiscal quarter ending March 31,
                2007;

            


    

    
      	
            	
              (C)

            	
              gross
                revenue of more than $800,000 for the fiscal quarter ending June
                30,
                2007;

            


    

    
      	
            	
              (D)

            	
              sales
                of at least twelve “3D Vision System Units” to unaffiliated third parties
                during the fiscal quarter ending June 30,
                2007;

            


    

    
      	
            	
              (E)

            	
              gross
                revenue of more than $1,250,000 for the fiscal quarter ending September
                30, 2007; or

            


    

    
      	
            	
              (F)

            	
              sales
                of at least eighteen “3D Vision System Units” to unaffiliated third
                parties during the fiscal quarter ending September 30,
                2007;

            


    

    


    then,
      immediately upon a milestone not being met (as determined below), the Exercise
      Price shall be reduced to $0.12 (subject to adjustment for forward and reverse
      stock splits, stock dividends, recapitalizations and the like).  For
      purposes of determining whether or not the Company has satisfied one of the
      foregoing milestones, the parties shall rely on information contained in the
      Company’s 10-QSBs for the quarter ending March 31, 2007 (as to clauses (A) and
      (B)), June 30, 2007 (as to clauses (C) and (D)) and September 30, 2007 (as
      to
      clauses (E) and (F)) or as to each corresponding milestone, Current Reports
      on
      Form 8-K filed prior to April 2, 2007 (as to clauses (A) and (B), July 2, 2007
      (as to clauses (C) and (D) and October 2, 2007 (as to clauses (E) and
      (F).  If the Company does not file a Form 10-QSB or Form 8-K that
      confirms that it has satisfied all of the milestones set forth in this Section
      3(j) prior to April 2, 2007 (as to clauses (A) and (B)), July 2, 2007 (as to
      clauses (C) and (D)) or October 2, 2007 (as to clauses (E) and (F)), the Company
      shall be deemed to have not satisfied all of such milestones, and the Exercise
      Price shall be reduced as provided in this Section 3(j).  For clarity,
      the Exercise Price can only be adjusted downward pursuant to this Section
      3(j).

    


    Section
      4.              Transfer
      of Warrant.

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    a)           Transferability.  Subject
      to compliance with any applicable securities laws and the conditions set forth
      in Section 4(d) hereof and to the provisions of Section 4.1 of the Purchase
      Agreement, this Warrant and all rights hereunder (including, without limitation,
      any registration rights) are transferable, in whole or in part, upon surrender
      of this Warrant at the principal office of the Company or its designated agent,
      together with a written assignment of this Warrant substantially in the form
      attached hereto duly executed by the Holder or its agent or attorney and funds
      sufficient to pay any transfer taxes payable upon the making of such
      transfer.  Upon such surrender and, if required, such payment, the
      Company shall execute and deliver a new Warrant or Warrants in the name of
      the
      assignee or assignees and in the denomination or denominations specified in
      such
      instrument of assignment, and shall issue to the assignor a new Warrant
      evidencing the portion of this Warrant not so assigned, and this Warrant shall
      promptly be cancelled.  A Warrant, if properly assigned, may be
      exercised by a new holder for the purchase of Warrant Shares without having
      a
      new Warrant issued.

     

    b)           New
      Warrants. This Warrant may be divided or combined with other Warrants upon
      presentation hereof at the aforesaid office of the Company, together with a
      written notice specifying the names and denominations in which new Warrants
      are
      to be issued, signed by the Holder or its agent or attorney.  Subject
      to compliance with Section 4(a), as to any transfer which may be involved in
      such division or combination, the Company shall execute and deliver a new
      Warrant or Warrants in exchange for the Warrant or Warrants to be divided or
      combined in accordance with such notice.

     

    c)           Warrant
      Register. The Company shall register this Warrant, upon records to be
      maintained by the Company for that purpose (the “Warrant Register”), in
      the name of the record Holder hereof from time to time.  The Company
      may deem and treat the registered Holder of this Warrant as the absolute owner
      hereof for the purpose of any exercise hereof or any distribution to the Holder,
      and for all other purposes, absent actual notice to the contrary.

     

    d)           Transfer
      Restrictions. If, at the time of the surrender of this Warrant in connection
      with any transfer of this Warrant, the transfer of this Warrant shall not be
      registered pursuant to an effective registration statement under the Securities
      Act and under applicable state securities or blue sky laws, the Company may
      require, as a condition of allowing such transfer, that (i) the Holder or
      transferee of this Warrant, as the case may be, furnish to the Company a written
      opinion of counsel (which opinion shall be in form, substance and scope
      customary for opinions of counsel in comparable transactions) to the effect
      that
      such transfer may be made without registration under the Securities Act and
      under applicable state securities or blue sky laws, and (ii) the Holder or
      transferee execute and deliver to the Company an investment letter in form
      and
      substance acceptable to the Company, and (iii) the transferee be an “accredited
      investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8)
      promulgated under the Securities Act or a “qualified institutional buyer” as
      defined in Rule 144A(a) promulgated under the Securities Act.

     

    Section
      5.             Miscellaneous.

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    a)           No
      Rights as Shareholder Until Exercise.  This Warrant does not
      entitle the Holder to any voting rights or other rights as a shareholder of
      the
      Company prior to the exercise hereof as set forth in Section
      2(e)(ii).

     

    b)           Loss,
      Theft, Destruction or Mutilation of Warrant. The Company covenants that upon
      receipt by the Company of evidence reasonably satisfactory to it of the loss,
      theft, destruction or mutilation of this Warrant or any stock certificate
      relating to the Warrant Shares, and in case of loss, theft or destruction,
      of
      indemnity or security reasonably satisfactory to it (which, in the case of
      the
      Warrant, shall not include the posting of any bond), and upon surrender and
      cancellation of such Warrant or stock certificate, if mutilated, the Company
      will make and deliver a new Warrant or stock certificate of like tenor and
      dated
      as of such cancellation, in lieu of such Warrant or stock
      certificate.

     

    c)           Saturdays,
      Sundays, Holidays, etc.  If the last or appointed day for the
      taking of any action or the expiration of any right required or granted herein
      shall not be a Business Day, then such action may be taken or such right may
      be
      exercised on the next succeeding Business Day.

     

    d)           Authorized
      Shares.

     

    The
      Company covenants that during the period the Warrant is outstanding, it will
      reserve from its authorized and unissued Common Stock a sufficient number of
      shares to provide for the issuance of the Warrant Shares upon the exercise
      of
      any purchase rights under this Warrant.  The Company further covenants
      that its issuance of this Warrant shall constitute full authority to its
      officers who are charged with the duty of executing stock certificates to
      execute and issue the necessary certificates for the Warrant Shares upon the
      exercise of the purchase rights under this Warrant.  The Company will
      take all such reasonable action as may be necessary to assure that such Warrant
      Shares may be issued as provided herein without violation of any applicable
      law
      or regulation, or of any requirements of the Trading Market upon which the
      Common Stock may be listed.

     

    Except
      and to the extent as waived or consented to by the Holder, the Company shall
      not
      by any action, including, without limitation, amending its certificate of
      incorporation or through any reorganization, transfer of assets, consolidation,
      merger, dissolution, issue or sale of securities or any other voluntary action,
      avoid or seek to avoid the observance or performance of any of the terms of
      this
      Warrant, but will at all times in good faith assist in the carrying out of
      all
      such terms and in the taking of all such actions as may be necessary or
      appropriate to protect the rights of Holder as set forth in this Warrant against
      impairment.  Without limiting the generality of the foregoing, the
      Company will (a) not increase the par value of any Warrant Shares above the
      amount payable therefor upon such exercise immediately prior to such increase
      in
      par value, (b) take all such action as may be necessary or appropriate in order
      that the Company may validly and legally issue fully paid and nonassessable
      Warrant Shares upon the exercise of this Warrant, and (c) use commercially
      reasonable efforts to obtain all such authorizations, exemptions or consents
      from any public regulatory body having jurisdiction thereof as may be necessary
      to enable the Company to perform its obligations under this
      Warrant.

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    Before
      taking any action which would result in an adjustment in the number of Warrant
      Shares for which this Warrant is exercisable or in the Exercise Price, the
      Company shall obtain all such authorizations or exemptions thereof, or consents
      thereto, as may be necessary from any public regulatory body or bodies having
      jurisdiction thereof.

     

    e)           Jurisdiction.
      All questions concerning the construction, validity, enforcement and
      interpretation of this Warrant shall be determined in accordance with the
      provisions of the Purchase Agreement.

     

    f)           Restrictions.  The
      Holder acknowledges that the Warrant Shares acquired upon the exercise of this
      Warrant, if not registered, will have restrictions upon resale imposed by state
      and federal securities laws.

     

    g)           Nonwaiver
      and Expenses.  No course of dealing or any delay or failure to
      exercise any right hereunder on the part of Holder shall operate as a waiver
      of
      such right or otherwise prejudice Holder’s rights, powers or remedies,
      notwithstanding the fact that all rights hereunder terminate on the Termination
      Date.  If the Company willfully and knowingly fails to comply with any
      provision of this Warrant, which results in any material damages to the Holder,
      the Company shall pay to Holder such amounts as shall be sufficient to cover
      any
      costs and expenses including, but not limited to, reasonable attorneys’ fees,
      including those of appellate proceedings, incurred by Holder in collecting
      any
      amounts due pursuant hereto or in otherwise enforcing any of its rights, powers
      or remedies hereunder.

     

    h)           Notices.  Any
      notice, request or other document required or permitted to be given or delivered
      to the Holder by the Company shall be delivered in accordance with the notice
      provisions of the Purchase Agreement.

     

    i)           Limitation
      of Liability.  No provision hereof, in the absence of any
      affirmative action by Holder to exercise this Warrant to purchase Warrant
      Shares, and no enumeration herein of the rights or privileges of Holder, shall
      give rise to any liability of Holder for the purchase price of any Common Stock
      or as a stockholder of the Company, whether such liability is asserted by the
      Company or by creditors of the Company.

     

    j)           Remedies.  Holder,
      in addition to being entitled to exercise all rights granted by law, including
      recovery of damages, will be entitled to specific performance of its rights
      under this Warrant.  The Company agrees that monetary damages would
      not be adequate compensation for any loss incurred by reason of a breach by
      it
      of the provisions of this Warrant and hereby agrees to waive and not to assert
      the defense in any action for specific performance that a remedy at law would
      be
      adequate.

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

    k)           Successors
      and Assigns.  Subject to applicable securities laws, this Warrant
      and the rights and obligations evidenced hereby shall inure to the benefit
      of
      and be binding upon the successors of the Company and the successors and
      permitted assigns of Holder.  The provisions of this Warrant are
      intended to be for the benefit of all Holders from time to time of this Warrant
      and shall be enforceable by any such Holder or holder of Warrant
      Shares.

     

    l)           Amendment.  This
      Warrant may be modified or amended or the provisions hereof waived with the
      written consent of the Company and the Holder.

     

    m)           Severability.  Wherever
      possible, each provision of this Warrant shall be interpreted in such manner
      as
      to be effective and valid under applicable law, but if any provision of this
      Warrant shall be prohibited by or invalid under applicable law, such provision
      shall be ineffective to the extent of such prohibition or invalidity, without
      invalidating the remainder of such provisions or the remaining provisions of
      this Warrant.

     

    n)           Headings.  The
      headings used in this Warrant are for the convenience of reference only and
      shall not, for any purpose, be deemed a part of this Warrant.

     

    


    ********************

    


    
      
         

      

      
        13

        
          

        

      

      
         

      

    

    IN
      WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
      officer thereunto duly authorized as of the date first above
      indicated.


    
 

    
      	 	
              VIKING
                SYSTEMS, INC.

               

               

            
	 	
              By:__________________________________________

                   Name:
                Donald E. Tucker

                   Title:
                President and Chief Executice Officer

               

            


    

    


    


    


    
      
         

      

      
        14

        
          

        

      

      
         

      

    

    NOTICE
      OF EXERCISE

    


    TO:           VIKING
      SYSTEMS, INC.

    


    (1)           The
      undersigned hereby elects to purchase ________ Warrant Shares of the Company
      pursuant to the terms of the attached Warrant (only if exercised in full),
      and
      tenders herewith payment of the exercise price in full, together with all
      applicable transfer taxes, if any.

     

    (2)           Payment
      shall take the form of (check applicable box):

     

    [  ]
      in lawful money of the United States; or

     

    [
 ]
      [if permitted] the cancellation of such number of Warrant Shares as is
      necessary, in accordance with the formula set forth in subsection 2(c), to
      exercise this Warrant with respect to the maximum number of Warrant Shares
      purchasable pursuant to the cashless exercise procedure set forth in subsection
      2(c).

     

    (3)           Please
      issue a certificate or certificates representing said Warrant Shares in the
      name
      of the undersigned or in such other name as is specified below:

     

    _______________________________

    


    


    The
      Warrant Shares shall be delivered to the following DWAC Account Number or by
      physical delivery of a certificate to:

    


    _______________________________

    


    _______________________________

    


    _______________________________

    


    (4)          
      Accredited Investor.  The undersigned is an “accredited
      investor” as defined in Regulation D promulgated under the Securities Act of
      1933, as amended.

    


    [SIGNATURE
      OF HOLDER]

    


    Name
      of
      Investing Entity:
      ________________________________________________________________________

    Signature
      of Authorized Signatory of Investing Entity:
      _________________________________________________

    Name
      of
      Authorized Signatory:
      ___________________________________________________________________

    Title
      of
      Authorized Signatory:
      ____________________________________________________________________

    Date:
      ________________________________________________________________________________________

    


    


    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     

    ASSIGNMENT
      FORM

    


    (To
      assign the foregoing warrant, execute

    this
      form
      and supply required information.

    Do
      not
      use this form to exercise the warrant.)

    


    


    


    FOR
      VALUE
      RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all
      rights evidenced thereby are hereby assigned to

     

    


    _______________________________________________
      whose address is

    


    _______________________________________________________________.


    


    


    _______________________________________________________________

    


    Dated:  ______________,
      _______

    


    


    Holder’s
      Signature:              _____________________________

    


    Holder’s
      Address:                _____________________________

    


     _____________________________

    


     

    Signature
      Guaranteed:  ___________________________________________

     

    NOTE:  The
      signature to this Assignment Form must correspond with the name as it appears
      on
      the face of the Warrant, without alteration or enlargement or any change
      whatsoever, and must be guaranteed by a bank or trust
      company.  Officers of corporations and those acting in a fiduciary or
      other representative capacity should file proper evidence of authority to assign
      the foregoing Warrant.