Exhibit 10.03 Common Stock Purchase Warrant


    Exhibit
      10.03

    Form
      8-K

    Viking
      Systems, Inc.

    File
      No.
      000-49636

     

    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

    


    To
      Purchase __________ Shares of Common Stock of

    


    VIKING
      SYSTEMS, INC.

    


    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 fifth anniversary of the Initial Exercise
      Date (the “Termination
      Date”)
      but
      not thereafter, to subscribe for and purchase from Viking Systems, Inc., a
      Nevada 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
      May ___, 2006, 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.

    


    b) Exercise
      Price.
      The
      exercise price per share of the Common Stock under this Warrant shall be
$0.35,
      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)] 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.

            


    


    
      
         

      

      
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    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).

    


    d) Exercise
      Limitations.
      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 Preferred Stock 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), 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 


    
      
         

      

      
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    (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)
      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) 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.

    


    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). 

    



    
      
         

      

      
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    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 second
      Trading Day following 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 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.

    



    
      
         

      

      
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    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.

    


    Section
      3. Certain Adjustments.

    


    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.

    



    
      
         

      

      
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    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. 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, 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. 

    


    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. 


    
      
         

      

      
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    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
      (in any such case, a “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, at the
      option of the Holder, (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 a Holder of the number of shares
      of
      Common Stock for which this Warrant is exercisable immediately prior to such
      event or 


    
      
         

      

      
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    (b)
      if
      the Company is acquired in an all cash transaction, cash equal to the value
      of
      this Warrant as determined in accordance with the Black-Scholes option pricing
      formula. 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.

    


    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 issues a variable rate
      security, 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 in the case of a Variable Rate Transaction (as defined
      in
      the Purchase Agreement).

    



    
      
         

      

      
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    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.

    


    Section
      4. Transfer
      of Warrant.

    



    
      
         

      

      
        11

        
          

        

      

      
         

      

    


    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 (i) that 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, (ii)
        that
        the holder or transferee execute and deliver to the Company an investment
        letter
        in form and substance acceptable to the Company and (iii) that 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) under the Securities Act.

    

    
      
         

      

      
        12

        
          

        

      

      
         

      

    


    Section
      5. Miscellaneous.

    


    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.
      

    



    
      
         

      

      
        13

        
          

        

      

      
         

      

    


    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.

    


    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.


    
      
         

      

      
        14

        
          

        

      

      
         

      

    


    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.

    


    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.

    


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


    
      
         

      

      
        15

        
          

        

      

      
         

      

    


    


    


    IN
      WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
      officer thereunto duly authorized.

    


    Dated:
      May 22, 2006

     

    
      	
              VIKING
                SYSTEMS, INC.

               

            
	
              By:/s/
                Nathan Harrison, MD

              Name:
                Nathan Harrison, MD

              Title:
                Acting CEO

            


    

    


     

    



    
      
        
        

         

      

      
        16

        
          

        

      

      
         

        
        

      

    



     

    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.