Exhibit 10.3 Series A Warrant


    Exhibit
      10.3

    Form
      8-K

    Viking
      Systems, Inc.

    File
      No.
      000-49636

    


    THE
      SALE
      AND ISSUANCE OF THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN
      REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER
      THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. THESE SECURITIES MAY
      NOT
      BE OFFERED, SOLD, PLEDGED, OR TRANSFERRED, UNLESS A REGISTRATION STATEMENT
      UNDER
      THE ACT IS IN EFFECT AS TO THESE SECURITIES OR AN EXEMPTION FROM SUCH
      REGISTRATION REQUIREMENTS IS AVAILABLE, AND SUCH OFFER, SALE, PLEDGE, OR
      TRANSFER IS IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER
      JURISDICTION.

    


    WARRANT
      TO PURCHASE COMMON STOCK

    


    of

    


    VIKING
      SYSTEMS, INC.

    


    This
      certifies that VISION OPPORTUNITY MASTER FUND, LTD. (“VOMF”), and its assignees
      (collectively the “Holder”) are entitled, subject to the terms set forth below,
      to purchase from Viking Systems, Inc., a Nevada corporation (the “Company”), the
      greater of (i) One Million Two Hundred Fifty Thousand (1,250,000) shares, and
      (ii) the Principal Amount of the Loan ($250,000) divided by the effective price
      per share of common stock provided for in the Subsequent Financing (the “Warrant
      Shares”) of common stock, $.001 par value, of the Company (the “Common Stock”)
      upon surrender of this warrant at the principal office of the Company referred
      to below, together with a notice of exercise in the form of annex 1 duly
      completed and executed (the “Notice of Exercise”), and simultaneous payment for
      the Warrant Shares in lawful money of the United States, or otherwise as
      provided below, at the exercise price referred to in section 2. This warrant
      is
      issued to VOMF pursuant to the terms and conditions of that certain Loan
      Agreement dated as of April 7, 2006, and any amendments, supplements or
      addendums thereto (the “Loan Agreement”) entered into by the Company and VOMF.
      Capitalized terms not otherwise defined herein shall have the meanings ascribed
      to them in the Loan Agreement. 

    


    1. Term.
      Subject
      to the terms set forth in this warrant, this warrant shall be exercisable by
      the
      Holder, in whole or in part, at any time before 5:00 p.m., California time,
      on
      April 7, 2011 (the “Expiration Date”), and shall not be exerciseable
      thereafter.

    


    2. Exercise
      Price.
      The
      exercise price at which this warrant may be exercised shall equal $.50 per
      share
      of Common Stock (the “Exercise Price”), as adjusted from time to time pursuant
      to section 9. If the Exercise Price is reduced, it is referred to as the
“Adjusted Exercise Price.” 


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    


    3. Exercise
      of Warrant.
      This
      warrant is exercisable by the Holder in whole at any time or in part from time
      to time by the surrender of this warrant and the Notice of Exercise duly
      completed and executed by the Holder, at the principal office of the Company,
      and upon payment to the Company by wire transfer of the exercise price referred
      to in section 2 provided that the warrant is exercised for at least 25% of
      the
      Warrant Shares. If this warrant shall be exercised in part only, the Company
      shall, upon surrender of this warrant for cancellation, issue to or on the
      order
      of the Holder a new warrant evidencing the rights of the Holder thereof to
      purchase the balance of the Warrant Shares purchasable hereunder as to which
      the
      warrant has not been exercised.

    


    4. Fractional
      Shares.
      No
      fractional shares shall be issued upon exercise of this warrant. At the
      Company’s sole discretion, in lieu of any fractional share to which the Holder
      would otherwise be entitled, the Company may make a cash payment equal to the
      fair market value of a share of Common Stock on the date of exercise multiplied
      by that fraction. 

    


    5. 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 loss, theft,
      or
      destruction, on delivery of an indemnity agreement reasonably satisfactory
      in
      form and substance to the Company or, in the case of mutilation, on surrender
      and cancellation of this warrant, the Company, at its expense, shall execute
      and
      deliver, in lieu of this warrant, a new warrant of identical tenor and
      amount.

    


    6. Rights
      of Stockholders.
      The
      Holder, as such, shall not be entitled to vote or receive dividends or be deemed
      the holder of Common Stock or any other securities of the Company that may
      at
      any time be issuable on the exercise of this warrant for any purpose, nor shall
      anything in this warrant be construed to confer upon the Holder, as such, any
      rights of a stockholder of the Company or any right to vote for the election
      of
      directors or upon any matter submitted to stockholders at any meeting, or to
      give or withhold consent to any corporate action or to receive notice of
      meetings, or to receive dividends or subscription rights or otherwise, until
      this warrant shall have been exercised.

    


    7. Transfers. The
      Holder may transfer this warrant by executing an assignment in the form of
      annex
      2 and delivering this warrant and the executed assignment form in the same
      manner as a negotiable instrument. The Company, on surrender of this warrant
      for
      exchange properly endorsed on the assignment form and at its expense, shall
      issue to or on the order of the Holder a new warrant or warrants of like tenor,
      in the name of the Holder or as the Holder may direct (on payment by the Holder
      of any applicable transfer taxes), for the number of shares then issuable upon
      exercise of this warrant. The Holder, by acceptance of this warrant,
      acknowledges that this warrant and the shares of Common Stock to be issued
      upon
      exercise of this warrant are being or will be acquired by the Holder for
      investment, and that the Holder shall not offer, sell, or otherwise dispose
      of
      this warrant or any shares of Common Stock to be issued upon exercise of this
      warrant, except under circumstances that will not result in a violation of
      the
      Act or any state securities laws. 


    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    


    8. Reservation
      of Stock.
      As long
      as this warrant is exercisable, the Company shall reserve and keep available,
      free from preemptive rights, out of its authorized and unissued Common Stock
      a
      sufficient number of shares to provide for the issuance of Common Stock upon
      the
      exercise in whole of this warrant and, from time to time, shall take all steps
      necessary to amend its certificate of incorporation to provide sufficient
      reserves of shares of Common Stock issuable upon exercise in whole of this
      warrant. The Company covenants that all Warrant Shares which may be issued
      upon
      exercise of this warrant will, upon issue and full payment thereof by Holder
      in
      accordance with the terms of this warrant, be fully paid, nonassessable, free
      of
      preemptive rights and free from all taxes, liens, charges and security interests
      with respect to the issue thereof.

    


    9. Adjustments.
      The
      Exercise Price in effect at any time and the number and kind of securities
      issuable upon exercise of this warrant shall be subject to adjustment from
      time
      to time upon the happening of certain events as follows:

    


    (a)
       New
      Issuances.
      If, at
      any time after the issuance of this warrant and prior to the Expiration Date,
      the Company issues or sells any shares of Common Stock, or any warrants, options
      or other rights to purchase Common Stock (a “New Issuance”), for a consideration
      per share (the “New Issuance Price”), which is less than the lower of (x) the
“Initial Base Price” (as defined below) or (y) the “Adjusted Base Price” (as
      defined below), the Exercise Price of this warrant shall be reduced to an amount
      equal to the product of (A) the Exercise Price in effect immediately prior
      to
      the New Issuance and (B) an amount determined by dividing the New Issuance
      Price
      by the lower of the Initial Base Price or the Adjusted Base Price.

      


      


      (i) For
        purposes of this Agreement, the “Initial Base Price” shall be $.18 per share.
        The Initial Base Price shall be reduced to the New Issuance Price if the
        New
        Issuance Price is less than the Initial Base Price. The result of such reduction
        is referred to as the “Adjusted Base Price.” An example of the adjustments
        required by this section 9(a) is as follows:



    
      	 	 	
              At
                a time when the Exercise Price is $.50 per share and the Initial
                Base
                Price is $.18 per share, the Company sells shares of Common Stock
                at $.15
                per share (i.e., the New Issuance Price). The Exercise Price of the
                warrant shall be reduced as
                follows:

            


    

    


    $.50
      x
      ($.15 ÷ $.18) = $.417, the new Exercise Price.

    


    Thereafter,
      the Adjusted Base Price is $.15 per share. If the Company then sells shares
      of
      its Common Stock at $.12 per share (i.e., the New Issuance Price), the Exercise
      Price of the warrant shall be reduced as follows:

    


    $.417
      x
      ($.12 ÷ $.15) = $.334, the new Exercise Price.


    
      
        
        

      

      
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      (ii)
        For
        purposes of this Agreement, the New Exercise Price of a warrant, option or
        other
        right to purchase shares of the Common Stock shall be the exercise or conversion
        price of such warrant, option or other right plus any consideration paid
        to
        acquire such warrant, option or other right.

      


      (iii)
        Notwithstanding anything in this Agreement to the contrary, the issuance
        of any
        shares of Common Stock to the Investors under the terms of the Loan Agreement
        shall not affect the Exercise Price or the Initial Base Price or Adjusted
        Base
        Price for purposes of this section 9(a).

    

    


    (b) Splits
      and Subdivisions.
      If the
      Company should at any time or from time to time prior to the Expiration Date
      fix
      a record date for the effectuation of a split or subdivision of the outstanding
      shares of Common Stock or the determination of the holders of Common Stock
      entitled to receive a dividend or other distribution payable in additional
      shares of Common Stock or other securities or rights convertible into, or
      entitling the holder thereof to receive directly or indirectly, additional
      shares of Common Stock (hereinafter referred to as the “Warrant Stock
      Equivalents”) without payment of any consideration by such holder for the
      additional shares of Common or Warrant Stock Equivalents, then, as of such
      record date (or the date of such distribution, split or subdivision if no record
      date is fixed), the Exercise Price shall be proportionately decreased and the
      number of shares of Common Stock which this warrant is exercisable for, if
      any,
      shall be appropriately increased in proportion to such increase of outstanding
      shares. 

    


    (c) Combination
      of Shares.
      If
      prior to the Expiration Date, the number of shares of Common Stock outstanding
      at any time after the date hereof is decreased by a combination of the
      outstanding shares of Common Stock, the Exercise Price shall be proportionately
      increased and the number of shares of Common Stock which this warrant is
      exercisable for, if any, shall be appropriately decreased in proportion to
      such
      decrease in outstanding shares. 

    



    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    


    (d) Reorganization,
      Merger, Consolidation or Sale.
      If at
      any time or from time to time prior to the Expiration Date, there shall be
      a
      capital reorganization (other than a subdivision, combination, reclassification
      or exchange of shares provided for elsewhere in this Section 9) or a merger
      or
      consolidation of the Company with or into another corporation, or the sale
      or
      transfer of all or substantially all of the Company’s assets to another Person
      shall be effected in such a way that holders of shares of Common Stock shall
      be
      entitled to receive stock, securities or assets with respect to or in exchange
      for their shares of Common Stock, then as a part of such reorganization, merger,
      consolidation, sale or transfer, provision shall be made so that the Holder
      shall thereafter be entitled to receive upon the exercise of this warrant,
      the
      number of shares of stock or other securities or property of the Company, or
      of
      the successor corporation resulting from such reorganization, merger,
      consolidation, sale or transfer, to which a holder of the number of shares
      of
      Common Stock (or any shares of stock or other securities which may be) issuable
      upon the exercise of this warrant would have received if this warrant had been
      exercised immediately prior to such reorganization, merger, consolidation,
      sale
      or transfer. The Company will not effect any such consolidation, merger, sale
      or
      transfer unless prior to the consummation thereof the successor entity (if
      other
      than the Company) resulting from such consolidation, merger or the entity
      purchasing such assets shall assume by written instrument (i) the obligation
      to
      deliver to the Holder such securities or assets as, in accordance with the
      foregoing provisions, the Holder may be entitled to purchase, and (ii) all
      other
      obligations of the Company under this warrant. The provisions of this section
      9(d) shall similarly apply to successive consolidations, mergers, exchanges,
      sales and transfers. In the event that in connection with any such capital
      reorganization, consolidation, merger, sale or transfer, additional shares
      of
      Common Stock shall be issued in exchange, conversion, substitution or payment,
      in whole or in part, for a security of the Company other than Common Stock,
      any
      such issue shall be treated as an issue of Common Stock covered by the
      provisions of section 9(d) hereof.

    


    (e) Reclassification,
      Conversion or Reorganization.
      If the
      Common Stock (or any shares of stock or other securities which may be) issuable
      upon the exercise of this Common shall be changed into the same or different
      number of shares of any class or classes of stock, whether by capital
      reorganization, conversion, reclassification or otherwise (other than a
      subdivision or combination of shares or stock dividend provided for in sections
      9(b) and 9(c) above, or a reorganization, merger, consolidation, sale or
      transfer provided for in section 9(d) above), then and in each such event the
      Holder shall be entitled to receive upon the exercise of this warrant the kind
      and amount of shares of stock and other securities and property receivable
      upon
      such reorganization, conversion, reclassification or other change, to which
      a
      holder of the number of shares of Common Stock (or any shares of stock or other
      securities which may be) issuable upon the exercise of this warrant would have
      received if this warrant had been exercised immediately prior to such
      reorganization, conversion, reclassification or other change, all subject to
      further adjustment as provided herein. 

    



    
      
        
        

      

      
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    (f) Notice
      of Adjustment.
      Upon
      any adjustment of the Exercise Price and the number of Warrant Shares or other
      capital stock, as applicable, issuable upon exercise of the warrant, then and
      in
      each such case the Company, at its sole expense, shall give written notice
      thereof (i) by certified or registered mail, postage prepaid, (ii) by a
      nationally known overnight delivery service, or (iii) delivered by hand,
      addressed to the Holder at his address as shown on the books of the Company,
      which notice shall state the exercise price resulting from such adjustment
      and
      adjusted number of Warrant Shares or other capital stock, as applicable,
      issuable upon exercise of the warrant, setting forth in reasonable detail the
      method upon which such calculation is based. 

    


    (g) Limitations
      on Adjustments.
      Anything in this warrant to the contrary notwithstanding, no adjustment of
      the
      exercise price shall be required, unless such adjustment, either by itself
      or
      with other adjustments not previously made, would require a change of at least
      $0.01 in such exercise price; provided, that any adjustment that, by reason
      of
      this section 9(g), is not required to be made shall be carried forward and
      taken
      into account in any subsequent adjustment. 

    


    10. Early
      Termination. The
      Holder shall have no right to exercise this warrant at any time after the later
      of (a) the consummation of a Termination Event (as defined below), and (b)
      the
      20th
      trading
      day following the date on which the Company gives the Holder the written notice
      referred to in the next sentence. The Company shall give the Holder not fewer
      than 20 trading days’ advance written notice of the consummation of a
      Termination Event. As used in this agreement, the term “Termination Event” means
      (y) the consummation of a merger of the Company with an unaffiliated third
      party, in which the shares of Common Stock are converted solely into the right
      to receive cash, or (z) if the Common Stock is quoted on NASDAQ or the New
      York
      Stock Exchange (the “NYSE”) or American Stock Exchange (the “AMEX”), the average
      of the closing price of the Common Stock on any 30 consecutive trading days
      on
      NASDAQ, the NYSE, or the AMEX, as the case may be, during the exercise period
      equals or exceeds 300% of the exercise price at which this warrant may then
      be
      exercised.

    


    11. Expenses.
      The
      Company shall pay all expenses and other charges payable in connection with
      the
      preparation, issuance and delivery of this warrant and all substitute warrants.
      and all taxes (other than any issuance taxes, including, without limitation,
      documentary stamp taxes, transfer taxes and other governmental charges, which
      shall be paid by the Company) in connection with such issuance and delivery
      of
      this warrant and the Warrant Shares.

    


    12. Severability.
      If
      any
      provision of this warrant or the application thereof to any person or
      circumstances shall be invalid or unenforceable to any extent, the remainder
      of
      this warrant and the application of such provisions to other persons or
      circumstances shall not be affected thereby and shall be enforced to the
      greatest extent permitted by law.

    


    13. Amendments.
      .This
      warrant may be amended only by an instrument executed by the Company and the
      Holder.


    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    


    14. Governing
      Law.
      This
      warrant shall be governed by and construed in accordance with the law of the
      State of New York, applicable to agreements made and to be performed in
      California, without giving effect to its conflict of laws principles.


    


    


    Dated:
      April 7, 2006

    


    
      	 	
              VIKING
                SYSTEMS, INC.

            
	 	 
	 	 
	 	
              By:
                /s/ Thomas B. Marsh

            
	 	
              Name:
                Thomas B. Marsh

            
	 	
              Title:
                President
                and Chief Executive Officer

            


    

    



    
      
        
        

      

      
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    ANNEX
      1

    


    NOTICE
      OF EXERCISE

    


    To:
      Viking Systems, Inc.

    


    (1) The
      undersigned hereby irrevocably elects to purchase _________ shares of Common
      Stock of Viking Systems, Inc. pursuant to the attached warrant, and tenders
      payment of the purchase price for such shares by a cash payment of
      $__________.

    


    (2) In
      exercising the warrant, the undersigned hereby confirms and acknowledges that
      the shares of Common Stock are being acquired for investment, and that the
      undersigned shall not offer, sell, or otherwise dispose of any such shares
      of
      Common Stock except under circumstances that will not result in a violation
      of
      the Securities Act of 1933, as amended, or any state securities
      laws.

    


    (3) Please
      issue a certificate or certificates representing such shares of Common Stock,
      and, to the extent the Company determines not to issue fractional shares, pay
      any cash for any fractional share, to:

    


    
      	
              Name

            	
              Address

            	
              Number
                of Shares

            


    

    


    


    


    


    


    


    


    (4) Please
      issue a new warrant for the unexercised portion of the attached warrant in
      the
      name of the undersigned and/or, if the undersigned has completed an assignment
      form in the form of annex 2 to the warrant, in such other names and amounts
      as
      specified in the assignment form.

    


    


    


    
      	
              Dated:
                

            	
              Holder:
                

            
	 	 
	 	 
	 	
              By:

            
	 	
              Name:

            
	 	
              Title:

            


    

    


    


    



    
      
        
          


        

        
        

      

      
        8

        
          

        

      

      
        
        

        
        

      

    



    ANNEX
      2

    


    


    


    ASSIGNMENT
      FORM

    


    For
      value
      received, the undersigned registered owner of this warrant hereby sells, assigns
      and transfers to the assignee named below all the rights of the undersigned
      under the warrant attached to this assignment with respect to the number of
      shares of Common Stock set forth below:

    


    
      	
              Name

            	
              Address

            	
              Number
                of Shares

            


    

    


    


    


    


    


    


    


    The
      undersigned represents and warrants to the Company that the assignee has
      represented and warranted to the undersigned that (a) it is an “accredited
      investor” within the meaning of Regulation D under the Securities Act of 1933,
      as amended (the “Act”), (b) by reason of its business or financial experience,
      it has the capacity to protect its own interests in connection with the
      acquisition of this warrant and the underlying shares of Common Stock, and
      (c)
      this warrant and the shares of Common Stock to be issued upon exercise of this
      warrant are being acquired for investment and that it shall not offer, sell,
      or
      otherwise dispose of this warrant or any shares of stock to be issued upon
      exercise of this warrant, except under circumstances that will not result in
      a
      violation of the Act or any state securities laws. Further, the undersigned
      represents and warrants to the Company that it has furnished the assignee a
      copy
      of this instrument, and the assignee has acknowledged that, upon exercise of
      this warrant, the assignee shall, if requested by the Company, confirm in
      writing, in a form satisfactory to the Company, that the shares of stock so
      purchased are being acquired for investment and not with a view toward
      distribution or resale in violation of the Act.

    


    
      	
              Dated:
                

            	
              Holder:
                

            
	 	 
	 	 
	 	
              By:

            
	 	
              Name:

            
	 	
              Title:

            


    

     

     

     

    
      
        
        

      

      
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