Document:

Exhibit 10.3 Form of Registration Rights Agreement

    Exhibit
      10.3

    Form
      8-K

    Viking
      Systems, Inc.

    File
      No.
      000-49636

    

    EXHIBIT
      B

    

    REGISTRATION
      RIGHTS AGREEMENT

    

    This
      Registration Rights Agreement (this “Agreement”)
      is
      made and entered into as of February 23, 2007, among Viking Systems, Inc.,
      a
      Delaware corporation (the “Company”)
      and
      the several purchasers signatory hereto (each such purchaser, a “Purchaser”
and,
      collectively, the “Purchasers”).

    

    This
      Agreement is made pursuant to the Securities Purchase Agreement, dated as of
      the
      date hereof, between the Company and each Purchaser (the “Purchase
      Agreement”).

    

    The
      Company and the Purchasers acknowledge the recent uncertainty as to limitations
      regarding the registration of securities for resale pursuant to Section 415
      of
      the Securities Act of 1933, as amended. The staff of the Commission has put
      certain restrictions on resale registrations under Rule 415 but has not provided
      specific guidance as to such restrictions (the “SEC Registration Restrictions”).
      The Company and Purchasers desire to register the Registrable Securities as
      soon
      as possible but understand the exact SEC Registration Restrictions are not
      currently known. The Company and the Purchasers acknowledge that the amount
      and
      the timing of the registration of the Registrable Securities will be subject
      to
      the SEC Registration Restrictions and agree to fairly apportion the risks
      between the parties.

    

    The
      Company and each Purchaser hereby agrees as follows:

    

    1.
       Definitions

    

    Capitalized
      terms used and not otherwise defined herein that are defined in the Purchase
      Agreement shall have the meanings given such terms in the Purchase
      Agreement.
      As used
      in this Agreement, the following terms shall have the following
      meanings:

    

    “Advice”
shall
      have the meaning set forth in Section 6(d).

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    “Effectiveness
      Date”
means,
      with respect to the initial Registration Statement required to be filed
      hereunder, the June 1, 2007 (or the July 1, 2007 in the event of a “full review”
of the initial Registration Statement by the Commission) and, with respect
      to
      any Subsequent Registration Statements which may be required pursuant to this
      Agreement, the 120th
      calendar
      day following the date on which the prior Registration Statement has been
      declared effective; provided,
      however,
      that in
      the event the Company is notified by the Commission that one of the above
      Registration Statements will not be reviewed or is no longer subject to further
      review and comments, the Effectiveness Date as to such Registration Statement
      shall be the fifth Trading Day following the date on which the Company is so
      notified if such date precedes the dates required above.

    

    “Effectiveness
      Period”
shall
      have the meaning set forth in Section 2(d).

    

    “Event”
shall
      have the meaning set forth in Section 2(f).

    

    “Event
      Date”
shall
      have the meaning set forth in Section 2(f).

    

    “Filing
      Date”
means,
      with respect to the initial Registration Statement required hereunder, April
      2,
      2007 and, with respect to each Subsequent Registration Statements, twenty (20)
      days after the prior Registration Statement is declared effective by the
      Commission.

    

    “Holder”
or
      “Holders”
means
      the holder or holders, as the case may be, from time to time of Registrable
      Securities.

    

    “Indemnified
      Party”
shall
      have the meaning set forth in Section 5(c).

    

    “Indemnifying
      Party”
shall
      have the meaning set forth in Section 5(c).

    

    “Initial
      Registration Statement”
means
      the first Registration Statement filed pursuant to the requirements of this
      Agreement.

    

    “Losses”
shall
      have the meaning set forth in Section 5(a).

    

    “Plan
      of Distribution”
shall
      have the meaning set forth in Section 2(c). 

    

    “Prospectus”
means
      the prospectus included in a Registration Statement (including, without
      limitation, a prospectus that includes any information previously omitted from
      a
      prospectus filed as part of an effective registration statement in reliance
      upon
      Rule 430A promulgated under the Securities Act), as amended or supplemented
      by
      any prospectus supplement, with respect to the terms of the offering of any
      portion of the Registrable Securities covered by a Registration Statement,
      and
      all other amendments and supplements to the Prospectus, including post-effective
      amendments, and all material incorporated by reference or deemed to be
      incorporated by reference in such Prospectus.

    
      
        
        

      

      
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    “Registrable
      Securities”
means
      (i) all of the shares of Common Stock issuable upon conversion in full of the
      Debentures, (ii) all shares of Common Stock issuable as interest or principal
      on
      the Debentures assuming all permissible interest and principal payments are
      made
      in shares of Common Stock and the Debentures are held until maturity, (iii)
      all
      Warrant Shares, (iv) any additional shares of Common Stock issuable in
      connection with any anti-dilution provisions in the Debentures or the Warrants
      (in each case, without giving effect to any limitations on conversion set forth
      in the Debenture or limitations on exercise set forth in the Warrant), (v)
      shares of Common Stock issuable to the holders in lieu of cash liquidated
      damages pursuant to the Waiver Agreement and (vi) any securities issued or
      issuable upon any stock split, dividend or other distribution, recapitalization
      or similar event with respect to the foregoing. 

    

    “Registration
      Statement”
means
      the registration statements required to be filed hereunder including (in each
      case) the Prospectus, amendments and supplements to such registration statement
      or Prospectus, including pre- and post-effective amendments, all exhibits
      thereto, and all material incorporated by reference or deemed to be incorporated
      by reference in such registration statement.

    

    “Rule
      415”
means
      Rule 415 promulgated by the Commission pursuant to the Securities Act, as such
      Rule may be amended from time to time, or any similar rule or regulation
      hereafter adopted by the Commission having substantially the same purpose and
      effect as such Rule.

    

    “Rule
      424”
means
      Rule 424 promulgated by the Commission pursuant to the Securities Act, as such
      Rule may be amended from time to time, or any similar rule or regulation
      hereafter adopted by the Commission having substantially the same purpose and
      effect as such Rule.

    

    “Selling
      Shareholder Questionnaire”
shall
      have the meaning set forth in Section 3(a).

    

    “Subsequent
      Registration Statements”
means
      each Registration Statement after the Initial Registration Statement filed
      pursuant to the requirements of this Agreement.

    

    2.
       Shelf
      Registration

    

    (a) The
      Company shall prepare and file Registration Statements in order to register
      all
      of the Registrable Securities. The Company shall file two or more Registration
      Statements in compliance with the SEC Registration Restrictions. The Initial
      Registration Statement shall cover that number of the Registrable Securities
      which equal thirty three percent (33%) of the total number of shares of the
      Company’s Common Stock issued and outstanding as of the date of the filing of
      the Initial Registration Statement. Each Subsequent Registration Statement
      shall
      cover the greater of (i) thirty three percent (33%) of the total number of
      shares of the Company’s Common Stock issued and outstanding as of the date of
      the filing of such Subsequent Registration Statement; or 

    
      
        
        

      

      
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    (ii)
      the
      number of Registrable Securities that comply with the SEC Registration
      Restrictions. In the event that, after all Registrable Securities are initially
      filed, an event should arise, such as an adjustment to the conversion or
      exercise price of an overlying security, that causes Registrable Securities
      to
      be unregistered, the Company shall use best efforts to seek to register such
      Registrable Securities as soon as possible thereafter. All Registrable
      Securities included in a Registration Statement shall be allocated first to
      the
      shares of common stock underlying the Debentures, then to the Warrant Shares and
      then to all other Registrable Securities unless otherwise directed by a Holder
      as to its Registrable Securities, in its sole discretion.

    

    (b) Subject
      to compliance with the SEC Registration Restrictions, the Company shall use
      its
      best efforts to register of the Registrable Securities as soon as possible.
      Subject to compliance with the SEC Registration Restrictions, each Registration
      Statement shall be filed on its applicable Filing Date.

    

    (c) On
      or
      prior to each Filing Date, the Company shall prepare and file with the
      Commission a Registration Statement covering the resale of of the Registrable
      Securities to which such Registration Statement relates for an offering to
      be
      made on a continuous basis pursuant to Rule 415. The Registration Statement
      shall be on Form S-3 (except if the Company is not then eligible to register
      for
      resale the Registrable Securities on Form S-3, in which case such registration
      shall be on another appropriate form in accordance herewith) and shall contain
      (unless otherwise directed by at least an 85% majority in interest of the
      Holders) substantially the “Plan
      of Distribution”
      attached hereto as Annex
      A.
      

    

    (d) Subject
      to the terms of this Agreement, the Company shall use its best efforts to cause
      a Registration Statement to be declared effective under the Securities Act
      as
      promptly as possible after the filing thereof, but in any event prior to the
      applicable Effectiveness Date, and shall use its best efforts to keep such
      Registration Statement continuously effective under the Securities Act until
      all
      Registrable Securities covered by such Registration Statement have been sold,
      or
      may be sold without volume restrictions pursuant to Rule 144(k), as determined
      by the counsel to the Company pursuant to a written opinion letter to such
      effect, addressed and acceptable to the Company’s transfer agent and the
      affected Holders (the “Effectiveness
      Period”).
      

    

    (e) The
      Company shall telephonically request effectiveness of a Registration Statement
      as of 5:00 p.m. New York City time on a Trading Day. The Company shall
      immediately notify the Holders via facsimile of the effectiveness of a
      Registration Statement on the same Trading Day that the Company telephonically
      confirms effectiveness with the Commission, which shall be the date requested
      for effectiveness of a Registration Statement. The Company shall, by 9:30 a.m.
      New York City time on the Trading Day after the Effective Date (as defined
      in
      the Purchase Agreement), file a final Prospectus with the Commission as required
      by Rule 424. Failure to so notify the Holder within 1 Trading Day of such
      notification of effectiveness or failure to file a final Prospectus as foresaid
      shall be deemed an Event under Section 2(f). 

    
      
        
        

      

      
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    (f) If:
      (i) a
      Registration Statement is not filed on or prior to its Filing Date (if the
      Company files a Registration Statement without affording the Holders the
      opportunity to review and comment on the same as required by Section 3(c)
      herein, the Company shall be deemed to have not satisfied this clause (i)),
      or
      (ii) the Company fails to file with the Commission a request for acceleration
      in
      accordance with Rule 461 promulgated under the Securities Act, within five
      Trading Days of the date that the Company is notified (orally or in writing,
      whichever is earlier) by the Commission that a Registration Statement will
      not
      be “reviewed,” or not subject to further review, or (iii) prior to its
      Effectiveness Date, the Company fails to file a pre-effective amendment and
      otherwise respond in writing to comments made by the Commission in respect
      of
      such Registration Statement within 10 calendar days after the receipt of
      comments by or notice from the Commission that such amendment is required in
      order for a Registration Statement to be declared effective, or (iv) a
      Registration Statement filed or required to be filed hereunder is not declared
      effective by the Commission by its Effectiveness Date, or (v) after the
      Effectiveness Date, a Registration Statement ceases for any reason to remain
      continuously effective as to all Registrable Securities for which it is required
      to be effective, or the Holders are otherwise not permitted to utilize the
      Prospectus therein to resell such Registrable Securities, for more than 10
      consecutive calendar days or more than an aggregate of 15 calendar days during
      any 12-month period (which need not be consecutive calendar days) (any such
      failure or breach being referred to as an “Event”,
      and
      for purposes of clause (i) or (iv) the date on which such Event occurs, or
      for
      purposes of clause (ii) the date on which such five Trading Day period is
      exceeded, or for purposes of clause (iii) the date which such 10 calendar day
      period is exceeded, or for purposes of clause (v) the date on which such 10
      or
      15 calendar day period, as applicable, is exceeded being referred to as
“Event
      Date”),
      then,
      in addition to any other rights the Holders may have hereunder or under
      applicable law, on each such Event Date and on each monthly anniversary of
      each
      such Event Date (if the applicable Event shall not have been cured by such
      date)
      until the applicable Event is cured, the Company shall pay to each Holder an
      amount in cash, as partial liquidated damages and not as a penalty, equal to
      2%
      of the aggregate purchase price paid by such Holder pursuant to the Purchase
      Agreement for any Registrable Securities then held by such Holder (calculated
      as
      if all convertible securities had been fully converted). 

     

    (g) The
      parties agree that (1) the Company shall not be liable for liquidated damages
      under this Agreement with respect to any Warrants or Warrant Shares, (2) in
      no
      event shall the Company be liable for liquidated damages under this Agreement
      in
      excess of 2% of the aggregate Subscription Amount of the Holders in any 30-day
      period and (3) the maximum aggregate liquidated damages payable to a Holder
      under this Agreement shall be 18% of the aggregate Subscription Amount paid
      by
      such Holder pursuant to the Purchase Agreement. If the Company fails to pay
      any
      partial liquidated damages pursuant to this Section in full within seven days
      after the date payable, the Company will pay interest thereon at a rate of
      18%
      per annum (or such lesser maximum amount that is permitted to be paid by
      applicable law) to the Holder, accruing daily from the date such partial
      liquidated damages are due until such amounts, plus all such interest thereon,
      are paid in full. The partial liquidated damages pursuant to the terms hereof
      shall apply on a daily pro-rata basis for any portion of a month prior to the
      cure of an Event.

    
      
        
        

      

      
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    3.
       Registration
      Procedures.

    

    In
      connection with the Company’s registration obligations hereunder, the Company
      shall:

    

    (a) Not
      less
      than five Trading Days prior to the filing of each Registration Statement and
      not less than one Trading Day prior to the filing of any related Prospectus
      or
      any amendment or supplement thereto (including any document that would be
      incorporated or deemed to be incorporated therein by reference), the Company
      shall (i) furnish to each Holder copies of all such documents proposed to be
      filed, which documents (other than those incorporated or deemed to be
      incorporated by reference) will be subject to the review of such Holders and
      (ii) cause its officers and directors, counsel and independent certified public
      accountants to respond to such inquiries as shall be necessary, in the
      reasonable opinion of respective counsel to each Holder, to conduct a reasonable
      investigation within the meaning of the Securities Act. The Company shall not
      file a Registration Statement or any such Prospectus or any amendments or
      supplements thereto to which the Holders of a majority of the Registrable
      Securities shall reasonably object in good faith, provided that the Company
      is
      notified of such objection in writing no later than 5 Trading Days after the
      Holders have been so furnished copies of a Registration Statement or 1 Trading
      Day after the Holders have been so furnished copies of any related Prospectus
      or
      amendments or supplements thereto. Each Holder agrees to furnish to the Company
      a completed questionnaire in the form attached to this Agreement as Annex
      B
      (a
“Selling
      Shareholder Questionnaire”)
      not
      less than two Trading Days prior to the Filing Date or by the end of the fourth
      Trading Day following the date on which such Holder receives draft materials
      in
      accordance with this Section. 

    

    (b) (i)
      Prepare and file with the Commission such amendments, including post-effective
      amendments, to a Registration Statement and the Prospectus used in connection
      therewith as may be necessary to keep a Registration Statement continuously
      effective as to the applicable Registrable Securities for the Effectiveness
      Period and prepare and file with the Commission such additional Registration
      Statements in order to register for resale under the Securities Act all of
      the
      Registrable Securities; (ii) cause the related Prospectus to be amended or
      supplemented by any required Prospectus supplement (subject to the terms of
      this
      Agreement), and, as so supplemented or amended, to be filed pursuant to Rule
      424; (iii) respond as promptly as reasonably possible to any comments received
      from the Commission with respect to a Registration Statement or any amendment
      thereto and provide as promptly as reasonably possible to the Holders true
      and
      complete copies of all correspondence from and to the Commission relating to
      a
      Registration Statement (provided that the Company may excise any information
      contained therein which would constitute material non-public information as
      to
      any Holder which has not executed a confidentiality agreement with the Company);
      and (iv) comply in all material respects with the provisions of the Securities
      Act and the Exchange Act with respect to the disposition of all Registrable
      Securities covered by a Registration Statement during the applicable period
      in
      accordance (subject to the terms of this Agreement) with the intended methods
      of
      disposition by the Holders thereof set forth in such Registration Statement
      as
      so amended or in such Prospectus as so supplemented.

    
      
        
        

      

      
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    (c) Notify
      the Holders of Registrable Securities to be sold (which notice shall, pursuant
      to clauses (iii) through (vi) hereof, be accompanied by an instruction to
      suspend the use of the Prospectus until the requisite changes have been made)
      as
      promptly as reasonably possible (and, in the case of (i)(A) below, not less
      than
      one Trading Day prior to such filing) and (if requested by any such Person)
      confirm such notice in writing no later than one Trading Day following the
      day
      (i)(A) when a Prospectus or any Prospectus supplement or post-effective
      amendment to a Registration Statement is proposed to be filed; (B) when the
      Commission notifies the Company whether there will be a “review” of such
      Registration Statement and whenever the Commission comments in writing on such
      Registration Statement; and (C) with respect to a Registration Statement or
      any
      post-effective amendment, when the same has become effective; (ii) of any
      request by the Commission or any other federal or state governmental authority
      for amendments or supplements to a Registration Statement or Prospectus or
      for
      additional information; (iii) of the issuance by the Commission or any other
      federal or state governmental authority of any stop order suspending the
      effectiveness of a Registration Statement covering any or all of the Registrable
      Securities or the initiation of any Proceedings for that purpose; (iv) of the
      receipt by the Company of any notification with respect to the suspension of
      the
      qualification or exemption from qualification of any of the Registrable
      Securities for sale in any jurisdiction, or the initiation or threatening of
      any
      Proceeding for such purpose; (v) of the occurrence of any event or passage
      of
      time that makes the financial statements included in a Registration Statement
      ineligible for inclusion therein or any statement made in a Registration
      Statement or Prospectus or any document incorporated or deemed to be
      incorporated therein by reference untrue in any material respect or that
      requires any revisions to a Registration Statement, Prospectus or other
      documents so that, in the case of a Registration Statement or the Prospectus,
      as
      the case may be, it will not contain any untrue statement of a material fact
      or
      omit to state any material fact required to be stated therein or necessary
      to
      make the statements therein, in light of the circumstances under which they
      were
      made, not misleading; and (vi) the occurrence or existence of any pending
      corporate development with respect to the Company that the Company believes
      may
      be material and that, in the determination of the Company, makes it not in
      the
      best interest of the Company to allow continued availability of a Registration
      Statement or Prospectus, provided that any and all of such information shall
      remain confidential to each Holder until such information otherwise becomes
      public, unless disclosure by a Holder is required by law; provided,
      further,
      that
      notwithstanding each Holder’s agreement to keep such information confidential,
      the Holders make no acknowledgement that any such information is material,
      non-public information.

    

    (d) Use
      its
      best efforts to avoid the issuance of, or, if issued, obtain the withdrawal
      of
      (i) any order suspending the effectiveness of a Registration Statement, or
      (ii)
      any suspension of the qualification (or exemption from qualification) of any
      of
      the Registrable Securities for sale in any jurisdiction, at the earliest
      practicable moment.

    

    
      
        
        

      

      
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    (e) Furnish
      to each Holder, without charge, at least one conformed copy of each such
      Registration Statement and each amendment thereto, including financial
      statements and schedules, all documents incorporated or deemed to be
      incorporated therein by reference to the extent requested by such Person, and
      all exhibits to the extent requested by such Person (including those previously
      furnished or incorporated by reference) promptly after the filing of such
      documents with the Commission.

    

    (f) Subject
      to the terms of this Agreement, the Company hereby consents to the use of such
      Prospectus and each amendment or supplement thereto by each of the selling
      Holders in connection with the offering and sale of the Registrable Securities
      covered by such Prospectus and any amendment or supplement thereto, except
      after
      the giving of any notice pursuant to Section 3(c).

    

    (g) Upon
      the
      request of a Holder if required by such holder’s broker in order to effect a
      resale of the Registrable Securities on the Trading Market, the Company shall
      effect a filing with respect to the public offering contemplated by the
      Registration Statement (an “Issuer
      Filing”)
      with
      the National Association of Securities Dealers, Inc. (“NASD”)
      Corporate Financing Department pursuant to NASD Rule 2710(b)(10)(A)(i) within
      one Trading Day of the date that the Registration Statement is first filed
      with
      the Commission and pay the filing fee required by such Issuer Filing. The
      Company shall use commercially reasonable efforts to pursue the Issuer Filing
      until the NASD issues a letter confirming that it does not object to the terms
      of the offering contemplated by the Registration Statement.

    

    (h) Prior
      to
      any resale of Registrable Securities by a Holder, use its commercially
      reasonable efforts to register or qualify or cooperate with the selling Holders
      in connection with the registration or qualification (or exemption from the
      Registration or qualification) of such Registrable Securities for the resale
      by
      the Holder under the securities or Blue Sky laws of such jurisdictions within
      the United States as any Holder reasonably requests in writing, to keep each
      registration or qualification (or exemption therefrom) effective during the
      Effectiveness Period and to do any and all other acts or things reasonably
      necessary to enable the disposition in such jurisdictions of the Registrable
      Securities covered by each Registration Statement; provided, that the Company
      shall not be required to qualify generally to do business in any jurisdiction
      where it is not then so qualified, subject the Company to any material tax
      in
      any such jurisdiction where it is not then so subject or file a general consent
      to service of process in any such jurisdiction.

    

    (i) If
      requested by the Holders, cooperate with the Holders to facilitate the timely
      preparation and delivery of certificates representing Registrable Securities
      to
      be delivered to a transferee pursuant to a Registration Statement, which
      certificates shall be free, to the extent permitted by the Purchase Agreement,
      of all restrictive legends, and to enable such Registrable Securities to be
      in
      such denominations and registered in such names as any such Holders may
      request.

    
      
        
        

      

      
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    (j) Upon
      the
      occurrence of any event contemplated by this Section 3, as promptly as
      reasonably possible under the circumstances taking into account the Company’s
      good faith assessment of any adverse consequences to the Company and its
      stockholders of the premature disclosure of such event, prepare a supplement
      or
      amendment, including a post-effective amendment, to a Registration Statement
      or
      a supplement to the related Prospectus or any document incorporated or deemed
      to
      be incorporated therein by reference, and file any other required document
      so
      that, as thereafter delivered, neither a Registration Statement nor such
      Prospectus will contain an untrue statement of a material fact or omit to state
      a material fact required to be stated therein or necessary to make the
      statements therein, in light of the circumstances under which they were made,
      not misleading. If
      the
      Company notifies the Holders in accordance with clauses (iii) through (vi)
      of
      Section 3(d) above to suspend the use of any Prospectus until the requisite
      changes to such Prospectus have been made, then the Holders shall suspend use
      of
      such Prospectus. The Company will use its best efforts to ensure that the use
      of
      the Prospectus may be resumed as promptly as is practicable. The Company shall
      be entitled to exercise its right under this Section 3(k) to suspend the
      availability of a Registration Statement and Prospectus, subject to the payment
      of partial liquidated damages pursuant to Section 2(b), for a period not to
      exceed 60 calendar days (which need not be consecutive days) in any 12 month
      period.

    

    (k) Comply
      with all applicable rules and regulations of the Commission, including the
      SEC
      Registration Restrictions. 

    

    (l) The
      Company may require each selling Holder to furnish to the Company a certified
      statement as to the number of shares of Common Stock beneficially owned by
      such
      Holder and, if required by the Commission, the natural persons thereof that
      have
      voting and dispositive control over the Shares. During any periods that the
      Company is unable to meet its obligations hereunder with respect to the
      registration of the Registrable Securities solely because any Holder fails
      to
      furnish such information within three Trading Days of the Company’s request, any
      liquidated damages that are accruing at such time as to such Holder only shall
      be tolled and any Event that may otherwise occur solely because of such delay
      shall be suspended as to such Holder only, until such information is delivered
      to the Company.

    

    4.
       Registration
      Expenses.
      All
      fees and expenses incident to the performance of or compliance with this
      Agreement by the Company shall be borne by the Company whether or not any
      Registrable Securities are sold pursuant to a Registration Statement. The fees
      and expenses referred to in the foregoing sentence shall include, without
      limitation: 

    

    
      
        
        

      

      
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    (i)
      all
      registration and filing fees (including, without limitation, fees and expenses)
      (A) with respect to filings required to be made with any Trading Market on
      which
      the Common Stock is then listed for trading, (B) in compliance with applicable
      state securities or Blue Sky laws reasonably agreed to by the Company in writing
      (including, without limitation, fees and disbursements of counsel for the
      Company in connection with Blue Sky qualifications or exemptions of the
      Registrable Securities) and (C) if not previously paid by the Company in
      connection with an Issuer Filing, with respect to any filing that may be
      required to be made by any broker through which a Holder intends to make sales
      of Registrable Securities with NASD Regulation, Inc. pursuant to the NASD Rule
      2710, so long as the broker is receiving no more than a customary brokerage
      commission in connection with such sale,

    

    (ii)
      printing expenses (including, without limitation, expenses of printing
      certificates for Registrable Securities), 

    

    (iii)
      messenger, telephone and delivery expenses, 

    

    (iv)
      fees
      and disbursements of counsel for the Company, 

    

    (v)
      Securities Act liability insurance, if the Company so desires such insurance,
      and  

    

    (vi)
      fees
      and expenses of all other Persons retained by the Company in connection with
      the
      consummation of the transactions contemplated by this Agreement. In addition,
      the Company shall be responsible for all of its internal expenses incurred
      in
      connection with the consummation of the transactions contemplated by this
      Agreement (including, without limitation, all salaries and expenses of its
      officers and employees performing legal or accounting duties), the expense
      of
      any annual audit and the fees and expenses incurred in connection with the
      listing of the Registrable Securities on any securities exchange as required
      hereunder. In no event shall the Company be responsible for any broker or
      similar commissions of any Holder or, except to the extent provided for in
      the
      Transaction Documents, any legal fees or other costs of the
      Holders.

    

    5.
       Indemnification.

    

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    (a) Indemnification
      by the Company.
      The
      Company shall, notwithstanding any termination of this Agreement, indemnify
      and
      hold harmless each Holder, the officers, directors, members, partners, agents,
      brokers (including brokers who offer and sell Registrable Securities as
      principal as a result of a pledge or any failure to perform under a margin
      call
      of Common Stock), investment advisors and employees (and any other Persons
      with
      a functionally equivalent role of a Person holding such titles, notwithstanding
      a lack of such title or any other title) of each of them, each Person who
      controls any such Holder (within the meaning of Section 15 of the Securities
      Act
      or Section 20 of the Exchange Act) and the officers, directors, members,
      shareholders, partners, agents and employees (and any other Persons with a
      functionally equivalent role of a Person holding such titles, notwithstanding
      a
      lack of such title or any other title) of each such controlling Person, to
      the
      fullest extent permitted by applicable law, from and against any and all losses,
      claims, damages, liabilities, costs (including, without limitation, reasonable
      attorneys’ fees) and expenses (collectively, “Losses”),
      as
      incurred, arising out of or relating to 

    

    (i)
       any
      untrue or alleged untrue statement of a material fact contained in a
      Registration Statement, any Prospectus or any form of prospectus or in any
      amendment or supplement thereto or in any preliminary prospectus, or arising
      out
      of or relating to any omission or alleged omission of a material fact required
      to be stated therein or necessary to make the statements therein (in the case
      of
      any Prospectus or form of prospectus or supplement thereto, in light of the
      circumstances under which they were made) not misleading or 

    

    (ii)
       any
      violation or alleged violation by the Company of the Securities Act, the
      Exchange Act or any state securities law, or any rule or regulation thereunder,
      in connection with the performance of its obligations under this Agreement,
      except to the extent, but only to the extent, that 

    

    (A) such
      untrue statements or omissions are based solely upon information regarding
      such
      Holder furnished in writing to the Company by such Holder expressly for use
      therein, or to the extent that such information relates to such Holder or such
      Holder’s proposed method of distribution of Registrable Securities and was
      reviewed and expressly approved in writing by such Holder expressly for use
      in a
      Registration Statement, such Prospectus or such form of Prospectus or in any
      amendment or supplement thereto (it being understood that the Holder has
      approved Annex A hereto for this purpose) or 

    

    (B)
       in
      the
      case of an occurrence of an event of the type specified in Section
      3(d)(iii)-(vi), the use by such Holder of an outdated or defective Prospectus
      after the Company has notified such Holder in writing that the Prospectus is
      outdated or defective and prior to the receipt by such Holder of the Advice
      contemplated in Section 6(d). 

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

    The
      Company shall notify the Holders promptly of the institution, threat or
      assertion of any Proceeding arising from or in connection with the transactions
      contemplated by this Agreement of which the Company is aware.

    

    (b) Indemnification
      by Holders.
      Each
      Holder shall, severally and not jointly, indemnify and hold harmless the
      Company, its directors, officers, agents and employees, each Person who controls
      the Company (within the meaning of Section 15 of the Securities Act and Section
      20 of the Exchange Act), and the directors, officers, agents or employees of
      such controlling Persons, to the fullest extent permitted by applicable law,
      from and against all Losses, as incurred, to the extent arising out of or based
      solely upon: (x) such Holder’s failure to comply with the prospectus delivery
      requirements of the Securities Act or (y) any untrue or alleged untrue statement
      of a material fact contained in any Registration Statement, any Prospectus,
      or
      any form of prospectus, or in any amendment or supplement thereto or in any
      preliminary prospectus, or arising out of or relating to any omission or alleged
      omission of a material fact required to be stated therein or necessary to make
      the statements therein not misleading (i) to the extent, but only to the extent,
      that such untrue statement or omission is contained in any information so
      furnished in writing by such Holder to the Company specifically for inclusion
      in
      such Registration Statement or such Prospectus or (ii) to the extent that such
      information relates to such Holder’s proposed method of distribution of
      Registrable Securities and was reviewed and expressly approved in writing by
      such Holder expressly for use in a Registration Statement (it being understood
      that the Holder has approved Annex A hereto for this purpose), such Prospectus
      or such form of Prospectus or in any amendment or supplement thereto or (ii)
      in
      the case of an occurrence of an event of the type specified in Section
      3(d)(iii)-(vi), the use by such Holder of an outdated or defective Prospectus
      after the Company has notified such Holder in writing that the Prospectus is
      outdated or defective and prior to the receipt by such Holder of the Advice
      contemplated in Section 6(d). In no event shall the liability of any selling
      Holder hereunder be greater in amount than the dollar amount of the net proceeds
      received by such Holder upon the sale of the Registrable Securities giving
      rise
      to such indemnification obligation.

    

    (c) Conduct
      of Indemnification Proceedings.
      If any
      Proceeding shall be brought or asserted against any Person entitled to indemnity
      hereunder (an “Indemnified
      Party”),
      such
      Indemnified Party shall promptly notify the Person from whom indemnity is sought
      (the “Indemnifying
      Party”)
      in
      writing, and the Indemnifying Party shall have the right to assume the defense
      thereof, including the employment of counsel reasonably satisfactory to the
      Indemnified Party and the payment of all fees and expenses incurred in
      connection with defense thereof; provided, that the failure of any Indemnified
      Party to give such notice shall not relieve the Indemnifying Party of its
      obligations or liabilities pursuant to this Agreement, except (and only) to
      the
      extent that it shall be finally determined by a court of competent jurisdiction
      (which determination is not subject to appeal or further review) that such
      failure shall have prejudiced the Indemnifying Party.

    

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    An
      Indemnified Party shall have the right to employ separate counsel in any such
      Proceeding and to participate in the defense thereof, but the fees and expenses
      of such counsel shall be at the expense of such Indemnified Party or Parties
      unless: (1) the Indemnifying Party has agreed in writing to pay such fees and
      expenses; (2) the Indemnifying Party shall have failed promptly to assume the
      defense of such Proceeding and to employ counsel reasonably satisfactory to
      such
      Indemnified Party in any such Proceeding; or (3) the named parties to any such
      Proceeding (including any impleaded parties) include both such Indemnified
      Party
      and the Indemnifying Party, and counsel to the Indemnified Party shall
      reasonably believe that a material conflict of interest is likely to exist
      if
      the same counsel were to represent such Indemnified Party and the Indemnifying
      Party (in which case, if such Indemnified Party notifies the Indemnifying Party
      in writing that it elects to employ separate counsel at the expense of the
      Indemnifying Party, the Indemnifying Party shall not have the right to assume
      the defense thereof and the reasonable fees and expenses of no more than one
      separate counsel shall be at the expense of the Indemnifying Party). The
      Indemnifying Party shall not be liable for any settlement of any such Proceeding
      effected without its written consent, which consent shall not be unreasonably
      withheld or delayed. No Indemnifying Party shall, without the prior written
      consent of the Indemnified Party, effect any settlement of any pending
      Proceeding in respect of which any Indemnified Party is a party, unless such
      settlement includes an unconditional release of such Indemnified Party from
      all
      liability on claims that are the subject matter of such Proceeding.

    

    Subject
      to the terms of this Agreement, all reasonable fees and expenses of the
      Indemnified Party (including reasonable fees and expenses to the extent incurred
      in connection with investigating or preparing to defend such Proceeding in
      a
      manner not inconsistent with this Section) shall be paid to the Indemnified
      Party, as incurred, within ten Trading Days of written notice thereof to the
      Indemnifying Party; provided, that the Indemnified Party shall promptly
      reimburse the Indemnifying Party for that portion of such fees and expenses
      applicable to such actions for which such Indemnified Party is judicially
      determined to be not entitled to indemnification hereunder.

    

    (d) Contribution.
      If the
      indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified
      Party or insufficient to hold an Indemnified Party harmless for any Losses,
      then
      each Indemnifying Party shall contribute to the amount paid or payable by such
      Indemnified Party, in such proportion as is appropriate to reflect the relative
      fault of the Indemnifying Party and Indemnified Party in connection with the
      actions, statements or omissions that resulted in such Losses as well as any
      other relevant equitable considerations. The relative fault of such Indemnifying
      Party and Indemnified Party shall be determined by reference to, among other
      things, whether any action in question, including any untrue or alleged untrue
      statement of a material fact or omission or alleged omission of a material
      fact,
      has been taken or made by, or relates to information supplied by, such
      Indemnifying Party or Indemnified Party, and the parties’ relative intent,
      knowledge, access to information and opportunity to correct or prevent such
      action, statement or omission. 

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    The
      amount paid or payable by a party as a result of any Losses shall be deemed
      to
      include, subject to the limitations set forth in this Agreement, any reasonable
      attorneys’ or other fees or expenses incurred by such party in connection with
      any Proceeding to the extent such party would have been indemnified for such
      fees or expenses if the indemnification provided for in this Section was
      available to such party in accordance with its terms.

    

    The
      parties hereto agree that it would not be just and equitable if contribution
      pursuant to this Section 5(d) were determined by pro rata allocation or by
      any
      other method of allocation that does not take into account the equitable
      considerations referred to in the immediately preceding paragraph.
      Notwithstanding the provisions of this Section 5(d), no Holder shall be required
      to contribute, in the aggregate, any amount in excess of the amount by which
      the
      net proceeds actually received by such Holder from the sale of the Registrable
      Securities subject to the Proceeding exceeds the amount of any damages that
      such
      Holder has otherwise been required to pay by reason of such untrue or alleged
      untrue statement or omission or alleged omission.

    

    The
      indemnity and contribution agreements contained in this Section are in addition
      to any liability that the Indemnifying Parties may have to the Indemnified
      Parties.

    

    6.
       Miscellaneous.

    

    (a) Remedies.
      In the
      event of a breach by the Company or by a Holder of any of their respective
      obligations under this Agreement, each Holder or the Company, as the case may
      be, in addition to being entitled to exercise all rights granted by law and
      under this Agreement, including recovery of damages, shall be entitled to
      specific performance of its rights under this Agreement. The Company and each
      Holder agree that monetary damages would not provide adequate compensation
      for
      any losses incurred by reason of a breach by it of any of the provisions of
      this
      Agreement and hereby further agrees that, in the event of any action for
      specific performance in respect of such breach, it shall not assert or shall
      waive the defense that a remedy at law would be adequate. Notwithstanding
      anything else contained herein to the contrary and subject to the payment of
      partial liquidated damages under this Agreement, the inability of the Company
      to
      file or have declared effective a Registration Statement in the time periods
      required by this Agreement due solely to SEC Registration Restrictions shall
      not
      result any a breach of this Agreement, the Purchase Agreement or any other
      transaction document required by the Purchase Agreement.

    

    (b) No
      Piggyback on Registrations.
      Except
      as set forth on Schedule
      6(b)
      attached
      hereto, neither the Company nor any of its security holders (other than the
      Holders in such capacity pursuant hereto) may include securities of the Company
      in the Registration Statements other than the Registrable Securities. The
      Company shall not file any other registration statements until all Registrable
      Securities are registered pursuant to a Registration Statement that is declared
      effective by the Commission, provided that this Section 6(b) shall not prohibit
      the Company from filing amendments to registration statements filed prior to
      the
      date of this Agreement.  There are no currently outstanding Registration
      Statements filed by the Company prior to the date of this
      Agreement.

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

    (c) Compliance.
      Each
      Holder covenants and agrees that it will comply with the prospectus delivery
      requirements of the Securities Act as applicable to it in connection with sales
      of Registrable Securities pursuant to a Registration Statement.

    

    (d) Discontinued
      Disposition.
      By its
      acquisition of Registrable Securities, each Holder agrees that, upon receipt
      of
      a notice from the Company of the occurrence of any event of the kind described
      in Section 3(d)(iii) through (vi), such Holder will forthwith discontinue
      disposition of such Registrable Securities under a Registration Statement until
      it is advised in writing (the “Advice”)
      by the
      Company that the use of the applicable Prospectus (as it may have been
      supplemented or amended) may be resumed. The Company will use its best efforts
      to ensure that the use of the Prospectus may be resumed as promptly as it
      practicable. The Company agrees and acknowledges that any periods during which
      the Holder is required to discontinue the disposition of the Registrable
      Securities hereunder shall be subject to the provisions of Section
      2(b).

    

    (e) Piggy-Back
      Registrations.
      If at
      any time during the Effectiveness Period there is not an effective Registration
      Statement covering all of the Registrable Securities and the Company shall
      determine to prepare and file with the Commission a registration statement
      relating to an offering for its own account or the account of others under
      the
      Securities Act of any of its equity securities, other than on Form S-4 or Form
      S-8 (each as promulgated under the Securities Act) or their then equivalents
      relating to equity securities to be issued solely in connection with any
      acquisition of any entity or business or equity securities issuable in
      connection with the stock option or other employee benefit plans, then the
      Company shall send to each Holder a written notice of such determination and,
      if
      within fifteen days after the date of such notice, any such Holder shall so
      request in writing, the Company shall include in such registration statement
      all
      or any part of such Registrable Securities such Holder requests to be
      registered; provided,
      however,
      that
      the Company shall not be required to register any Registrable Securities
      pursuant to this Section 6(e) that are eligible for resale pursuant to Rule
      144(k) promulgated under the Securities Act or that are the subject of a then
      effective Registration Statement.

    

    (f) Amendments
      and Waivers.
      The
      provisions of this Agreement, including the provisions of this sentence, may
      not
      be amended, modified or supplemented, and waivers or consents to departures
      from
      the provisions hereof may not be given, unless the same shall be in writing
      and
      signed by the Company and the Holders of 67% of the then outstanding Registrable
      Securities. If a Registration Statement does not register all of the Registrable
      Securities pursuant to a waiver or amendment done in compliance with the
      previous sentence, then the number of Registrable Securities to be registered
      for each Holder shall be reduced pro rata among all Holders and each Holder
      shall have the right to designate which of its Registrable Securities shall
      be
      omitted from such Registration Statement. Notwithstanding the foregoing, a
      waiver or consent to depart from the provisions hereof with respect to a matter
      that relates exclusively to the rights of Holders and that does not directly
      or
      indirectly affect the rights of other Holders may be given by Holders of all
      of
      the Registrable Securities to which such waiver or consent relates; provided,
      however,
      that
      the provisions of this sentence may not be amended, modified, or supplemented
      except in accordance with the provisions of the immediately preceding sentence.
      

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

    (g) Notices.
      Any and
      all notices or other communications or deliveries required or permitted to
      be
      provided hereunder shall be delivered as set forth in the Purchase Agreement.
      

    

    (h) Successors
      and Assigns.
      This
      Agreement shall inure to the benefit of and be binding upon the successors
      and
      permitted assigns of each of the parties and shall inure to the benefit of
      each
      Holder. The Company may not assign (except by merger) its rights or obligations
      hereunder without the prior written consent of all of the Holders of the
      then-outstanding Registrable Securities. Each Holder may assign their respective
      rights hereunder in the manner and to the Persons as permitted under the
      Purchase Agreement.

    

    (i) No
      Inconsistent Agreements.
      Neither
      the Company nor any of its Subsidiaries has entered, as of the date hereof,
      nor
      shall the Company or any of its Subsidiaries, on or after the date of this
      Agreement, enter into any agreement with respect to its securities, that would
      have the effect of impairing the rights granted to the Holders in this Agreement
      or otherwise conflicts with the provisions hereof. Except as set forth on
Schedule
      6(i),
      neither
      the Company nor any of its subsidiaries has previously entered into any
      agreement granting any registration rights with respect to any of its securities
      to any Person that have not been satisfied in full.

    

    (j) Execution
      and Counterparts.
      This
      Agreement may be executed in two or more counterparts, all of which when taken
      together shall be considered one and the same agreement and shall become
      effective when counterparts have been signed by each party and delivered to
      the
      other party, it being understood that both parties need not sign the same
      counterpart. In the event that any signature is delivered by facsimile
      transmission or by e-mail delivery of a “.pdf” format data file, such signature
      shall create a valid and binding obligation of the party executing (or on whose
      behalf such signature is executed) with the same force and effect as if such
      facsimile or “.pdf” signature page were an original thereof.

    

    (k) Governing
      Law.
      All
      questions concerning the construction, validity, enforcement and interpretation
      of this Agreement shall be determined in accordance with the provisions of
      the
      Purchase Agreement.

    

    (l) Cumulative
      Remedies.
      The
      remedies provided herein are cumulative and not exclusive of any other remedies
      provided by law.

    

    (m) Severability.
      If any
      term, provision, covenant or restriction of this Agreement is held by a court
      of
      competent jurisdiction to be invalid, illegal, void or unenforceable, the
      remainder of the terms, provisions, covenants and restrictions set forth herein
      shall remain in full force and effect and shall in no way be affected, impaired
      or invalidated, and the parties hereto shall use their commercially reasonable
      efforts to find and employ an alternative means to achieve the same or
      substantially the same result as that contemplated by such term, provision,
      covenant or restriction. It is hereby stipulated and declared to be the
      intention of the parties that they would have executed the remaining terms,
      provisions, covenants and restrictions without including any of such that may
      be
      hereafter declared invalid, illegal, void or unenforceable.

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

    (n) Headings.
      The
      headings in this Agreement are for convenience only, do not constitute a part
      of
      the Agreement and shall not be deemed to limit or affect any of the provisions
      hereof.

    

    (o) Independent
      Nature of Holders’ Obligations and Rights.
      The
      obligations of each Holder hereunder are several and not joint with the
      obligations of any other Holder hereunder, and no Holder shall be responsible
      in
      any way for the performance of the obligations of any other Holder hereunder.
      Nothing contained herein or in any other agreement or document delivered at
      any
      closing, and no action taken by any Holder pursuant hereto or thereto, shall
      be
      deemed to constitute the Holders as a partnership, an association, a joint
      venture or any other kind of entity, or create a presumption that the Holders
      are in any way acting in concert with respect to such obligations or the
      transactions contemplated by this Agreement. Each Holder shall be entitled
      to
      protect and enforce its rights, including without limitation the rights arising
      out of this Agreement, and it shall not be necessary for any other Holder to
      be
      joined as an additional party in any proceeding for such purpose.

    

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

    

    IN
      WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
      as
      of the date first written above.

    

    
      	
              VIKING
                SYSTEMS, INC.

               

            
	
              By:__________________________________________

              Name:

              Title:

            

    

    

    

    

    

    

    

    

    

    [SIGNATURE
      PAGE OF HOLDERS FOLLOWS]

    

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

    [SIGNATURE
      PAGE OF HOLDERS TO VKSY RRA]

    

    Name
      of
      Holder: __________________________

    Signature
      of Authorized Signatory of Holder:
      __________________________

    Name
      of
      Authorized Signatory: _________________________

    Title
      of
      Authorized Signatory: __________________________

    

    

    

    [SIGNATURE
      PAGES CONTINUE]

    

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

    Annex
      A

    

    Plan
      of Distribution

    

    Each
      Selling Stockholder (the “Selling
      Stockholders”)
      of the
      common stock and any of their pledgees, assignees and successors-in-interest
      may, from time to time, sell any or all of their shares of common stock on
      the
      OTC Bulletin Board or any other stock exchange, market or trading facility
      on
      which the shares are traded or in private transactions. These sales may be
      at
      fixed or negotiated prices. A Selling Stockholder may use any one or more of
      the
      following methods when selling shares:

    

    
      	 	
              ·

            	
              ordinary
                brokerage transactions and transactions in which the broker-dealer
                solicits purchasers;

            

    

    

    
      	 	
              ·

            	
              block
                trades in which the broker-dealer will attempt to sell the shares
                as agent
                but may position and resell a portion of the block as principal to
                facilitate the transaction;

            

    

    

    
      	 	
              ·

            	
              purchases
                by a broker-dealer as principal and resale by the broker-dealer for
                its
                account;

            

    

    

    
      	 	
              ·

            	
              an
                exchange distribution in accordance with the rules of the applicable
                exchange;

            

    

    

    
      	 	
              ·

            	
              privately
                negotiated transactions;

            

    

    

    
      	 	
              ·

            	
              settlement
                of short sales entered into after the effective date of the registration
                statement of which this prospectus is a part;

            

    

    

    
      	 	
              ·

            	
              broker-dealers
                may agree with the Selling Stockholders to sell a specified number
                of such
                shares at a stipulated price per
                share;

            

    

    

    
      	 	
              ·

            	
              through
                the writing or settlement of options or other hedging transactions,
                whether through an options exchange or
                otherwise;

            

    

    

    
      	 	
              ·

            	
              a
                combination of any such methods of sale;
                or

            

    

    

    
      	 	
              ·

            	
              any
                other method permitted pursuant to applicable
                law.

            

    

    

    The
      Selling Stockholders may also sell shares under Rule 144 under the Securities
      Act of 1933, as amended (the “Securities
      Act”),
      if
      available, rather than under this prospectus.

    

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

    Broker-dealers
      engaged by the Selling Stockholders may arrange for other brokers-dealers to
      participate in sales. Broker-dealers may receive commissions or discounts from
      the Selling Stockholders (or, if any broker-dealer acts as agent for the
      purchaser of shares, from the purchaser) in amounts to be negotiated, but,
      except as set forth in a supplement to this Prospectus, in the case of an agency
      transaction not in excess of a customary brokerage commission in compliance
      with
      NASDR Rule 2440; and in the case of a principal transaction a markup or markdown
      in compliance with NASDR IM-2440. 

    

    In
      connection with the sale of the common stock or interests therein, the Selling
      Stockholders may enter into hedging transactions with broker-dealers or other
      financial institutions, which may in turn engage in short sales of the common
      stock in the course of hedging the positions they assume. The Selling
      Stockholders may also sell shares of the common stock short and deliver these
      securities to close out their short positions, or loan or pledge the common
      stock to broker-dealers that in turn may sell these securities. The Selling
      Stockholders may also enter into option or other transactions with
      broker-dealers or other financial institutions or the creation of one or more
      derivative securities which require the delivery to such broker-dealer or other
      financial institution of shares offered by this prospectus, which shares such
      broker-dealer or other financial institution may resell pursuant to this
      prospectus (as supplemented or amended to reflect such
      transaction).

    

    The
      Selling Stockholders and any broker-dealers or agents that are involved in
      selling the shares may be deemed to be “underwriters” within the meaning of the
      Securities Act in connection with such sales. In such event, any commissions
      received by such broker-dealers or agents and any profit on the resale of the
      shares purchased by them may be deemed to be underwriting commissions or
      discounts under the Securities Act. Each Selling Stockholder has informed the
      Company that it does not have any written or oral agreement or understanding,
      directly or indirectly, with any person to distribute the Common Stock. In
      no
      event shall any broker-dealer receive fees, commissions and markups which,
      in
      the aggregate, would exceed eight percent (8%).

    

    The
      Company is required to pay certain fees and expenses incurred by the Company
      incident to the registration of the shares. The Company has agreed to indemnify
      the Selling Stockholders against certain losses, claims, damages and
      liabilities, including liabilities under the Securities Act. 

    

    Because
      Selling Stockholders may be deemed to be “underwriters” within the meaning of
      the Securities Act, they will be subject to the prospectus delivery requirements
      of the Securities Act including Rule 172 thereunder. In addition, any securities
      covered by this prospectus which qualify for sale pursuant to Rule 144 under
      the
      Securities Act may be sold under Rule 144 rather than under this prospectus.
      There is no underwriter or coordinating broker acting in connection with the
      proposed sale of the resale shares by the Selling Stockholders.

    

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

    We
      agreed
      to keep this prospectus effective until the earlier of (i) the date on which
      the
      shares may be resold by the Selling Stockholders without registration and
      without regard to any volume limitations by reason of Rule 144(k) under the
      Securities Act or any other rule of similar effect or (ii) all of the shares
      have been sold pursuant to this prospectus or Rule 144 under the Securities
      Act
      or any other rule of similar effect. The resale shares will be sold only through
      registered or licensed brokers or dealers if required under applicable state
      securities laws. In addition, in certain states, the resale shares may not
      be
      sold unless they have been registered or qualified for sale in the applicable
      state or an exemption from the registration or qualification requirement is
      available and is complied with.

    

    Under
      applicable rules and regulations under the Exchange Act, any person engaged
      in
      the distribution of the resale shares may not simultaneously engage in market
      making activities with respect to the common stock for the applicable restricted
      period, as defined in Regulation M, prior to the commencement of the
      distribution. In addition, the Selling Stockholders will be subject to
      applicable provisions of the Exchange Act and the rules and regulations
      thereunder, including Regulation M, which may limit the timing of purchases
      and
      sales of shares of the common stock by the Selling Stockholders or any other
      person. We will make copies of this prospectus available to the Selling
      Stockholders and have informed them of the need to deliver a copy of this
      prospectus to each purchaser at or prior to the time of the sale (including
      by
      compliance with Rule 172 under the Securities Act).

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

    Annex
      B

    

    VIKING
      SYSTEMS, INC.

    Selling
      Securityholder Notice and Questionnaire

    

    The
      undersigned beneficial owner of common stock (the “Registrable
      Securities”)
      of
      Viking Systems, Inc., a Delaware corporation (the “Company”),
      understands that the Company has filed or intends to file with the Securities
      and Exchange Commission (the “Commission”)
      a
      registration statement (the “Registration
      Statement”)
      for
      the registration and resale under Rule 415 of the Securities Act of 1933, as
      amended (the “Securities
      Act”),
      of
      the Registrable Securities, in accordance with the terms of the Registration
      Rights Agreement (the “Registration
      Rights Agreement”)
      to
      which this document is annexed. A copy of the Registration Rights Agreement
      is
      available from the Company upon request at the address set forth below. All
      capitalized terms not otherwise defined herein shall have the meanings ascribed
      thereto in the Registration Rights Agreement.

    

    Certain
      legal consequences arise from being named as a selling securityholder in the
      Registration Statement and the related prospectus. Accordingly, holders and
      beneficial owners of Registrable Securities are advised to consult their own
      securities law counsel regarding the consequences of being named or not being
      named as a selling securityholder in the Registration Statement and the related
      prospectus.

    

    NOTICE

    

    The
      undersigned beneficial owner (the “Selling
      Securityholder”)
      of
      Registrable Securities hereby elects to include the Registrable Securities
      owned
      by it in the Registration Statement.

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

    The
      undersigned hereby provides the following information to the Company and
      represents and warrants that such information is accurate:

    

    QUESTIONNAIRE

    

    1. Name.

    

    
      	 	
              (a)

            	
              Full
                Legal Name of Selling
                Securityholder

            

    

    
      	 
	 

    

    

    
      	 	
              (b)

            	
              Full
                Legal Name of Registered Holder (if not the same as (a) above) through
                which Registrable Securities are
                held:

            

    

    
      	 
	 

    

    

    
      	 	
              (c)

            	
              Full
                Legal Name of Natural Control Person (which means a natural person
                who
                directly or indirectly alone or with others has power to vote or
                dispose
                of the securities covered by the
                questionnaire):

            

    

    
      	 
	 

    

    

    2.
      Address for Notices to Selling Securityholder:

    
      	 
	 
	 
	
              Telephone: 

            
	
              Fax: 

            
	
              Contact
                Person: 

            

    

    

    3.
      Broker-Dealer Status:

    
      	 	
              (a)

            	
              Are
                you a broker-dealer?

            

    

    

    Yes
      o No
      o

    

    
      	 	
              (b)

            	
              If
                “yes” to Section 3(a), did you receive your Registrable Securities as
                compensation for investment banking services to the
                Company.

            

    

    

    Yes
      o No
      o

    

    
      	 	
              Note:

            	
              If
                no, the Commission’s staff has indicated that you should be identified as
                an underwriter in the Registration
                Statement.

            

    

    

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

    
      	 	
              (c)

            	
              Are
                you an affiliate of a
                broker-dealer?

            

    

    

    Yes
      o No
      o

    

    
      	 	
              (d)

            	
              If
                you are an affiliate of a broker-dealer, do you certify that you
                bought
                the Registrable Securities in the ordinary course of business, and
                at the
                time of the purchase of the Registrable Securities to be resold,
                you had
                no agreements or understandings, directly or indirectly, with any
                person
                to distribute the Registrable
                Securities?

            

    

    

    Yes
      o No
      o

    

    
      	 	
              Note:

            	
              If
                no, the Commission’s staff has indicated that you should be identified as
                an underwriter in the Registration
                Statement.

            

    

    

    4.
      Beneficial Ownership of Securities of the Company Owned by the Selling
      Securityholder.

    

    Except
      as set forth below in this Item 4, the undersigned is not the beneficial or
      registered owner of any securities of the Company other than the securities
      issuable pursuant to the Purchase Agreement.

    

    
      	 	
              (a)

            	
              Type
                and Amount of other securities beneficially owned by the Selling
                Securityholder:

            

    

    

    
      	 
	 
	 

    

    

    5.
      Relationships with the Company:

    

    Except
      as set forth below, neither the undersigned nor any of its affiliates, officers,
      directors or principal equity holders (owners of 5% of more of the equity
      securities of the undersigned) has held any position or office or has had any
      other material relationship with the Company (or its predecessors or affiliates)
      during the past three years.

    

    State
      any
      exceptions here:

    
      	 
	 
	 

    

    

    The
      undersigned agrees to promptly notify the Company of any inaccuracies or changes
      in the information provided herein that may occur subsequent to the date hereof
      at any time while the Registration Statement remains effective.

    

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

    By
      signing below, the undersigned consents to the disclosure of the information
      contained herein in its answers to Items 1 through 5 and the inclusion of such
      information in the Registration Statement and the related prospectus
and
      any
      amendments or supplements thereto.
      The
      undersigned understands that such information will be relied upon by the Company
      in connection with the preparation or amendment of the Registration Statement
      and the related prospectus.

    

    IN
      WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice
      and Questionnaire to be executed and delivered either in person or by its duly
      authorized agent.

    

    
      	
              Dated:
                _______________________________

            	
              Beneficial
                Owner: ______________________

               

               

              By:
                __________________________________

              Name:

              Title:

            

    

    

    PLEASE
      FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN
      THE ORIGINAL BY OVERNIGHT MAIL, TO:

     

     

     

    
      
         

      

      
        25

        
          

        

      

      
         

      

    

    

      SCHEDULE
        6(b)

      

      No
        exceptions.

      
        
           

        

        
          26

          
            

          

        

        
           

        

      

      SCHEDULE
        6(i)

      Registration
        Rights

      

      Attached
        to this Schedule 3.1(v) is a description of all registration rights requiring
        Viking to register its securities for the registration rights
        holders.

      

      Outstanding
        Registration Rights

      1/9/2007

      

      
        	
                Shareholder

              	
                Shares

              	
                Warrants

              	
                Total
                  Shares

              
	 	 	 	 
	
                2nd
                  Convertible Debt Round August 2005

              	
                Shares

              	
                Warrants

              	
                Total
                  Shares

              
	
                Don
                  Tucker

              	
                2,500,000

              	
                87,500

              	
                2,587,500

              
	
                St.
                  Cloud

              	
                4,166,667

              	
                1,041,667

              	
                5,208,333

              
	
                Hebert
                  Trust Agreement

              	
                277,778

              	
                69,444

              	
                347,222

              
	
                Hebert
                  Trust Agreement

              	
                277,778

              	
                69,444

              	
                347,222

              
	
                John
                  & Theresa Rollins

              	
                277,778

              	
                69,444

              	
                347,222

              
	
                Michael
                  & Karen Stone Fund

              	
                277,778

              	
                69,444

              	
                347,222

              
	
                Golden
                  Den Corp

              	
                555,556

              	
                138,889

              	
                694,444

              
	
                Brian
                  Miller

              	
                1,666,667

              	
                416,667

              	
                2,083,333

              
	
                Glengar
                  Investments

              	
                1,388,889

              	
                347,222

              	
                1,736,111

              
	
                Crestview

              	
                -

              	
                625,000

              	
                625,000

              
	
                Vision
                  Opportunity Fund

              	
                1,666,667

              	
                416,667

              	
                2,083,333

              
	
                ComVest

              	
                833,333

              	
                208,333

              	
                1,041,667

              
	
                SUBTOTAL

              	
                13,888,889

              	
                3,559,722

              	
                17,448,611

              
	 	 	 	 
	
                Note
                  Conversion Don Tucker March 2005

              	
                1,250,000

              	 	
                1,250,000

              
	 	 	 	 
	
                Convertible
                  Debt Round March 2005

              	
                Shares

              	
                Warrants

              	
                Total
                  Shares

              
	
                Brian
                  Miller

              	
                1,666,667

              	
                416,667

              	
                2,083,333

              
	
                St.
                  Cloud

              	
                4,166,667

              	
                1,041,667

              	
                5,208,333

              
	
                Pacific
                  Asset Partners

              	
                1,111,111

              	
                277,778

              	
                1,388,889

              
	
                John
                  Lemak

              	
                555,556

              	
                138,889

              	
                694,444

              
	
                Sandor
                  Capital

              	
                1,666,667

              	
                416,667

              	
                2,083,333

              
	
                Aspen
                  Ventures

              	
                277,778

              	
                69,444

              	
                347,222

              
	
                Fred
                  & Lois Tarter

              	
                277,778

              	
                69,444

              	
                347,222

              
	
                Bedford
                  Oak Partners

              	
                1,111,111

              	
                277,778

              	
                1,388,889

              
	
                Prairie
                  Fire Capital

              	
                555,556

              	
                138,889

              	
                694,444

              
	
                Michael
                  Stone

              	
                555,556

              	
                138,889

              	
                694,444

              
	
                Bella
                  Capital

              	
                277,778

              	
                69,444

              	
                347,222

              
	
                Larry
                  Haimovitch

              	
                277,778

              	
                69,444

              	
                347,222

              
	
                SUBTOTAL

              	
                12,500,000

              	
                3,125,000

              	
                15,625,000

              
	 	 	 	 

      

      
        
           

        

        
          27

          
            

          

        

        
           

        

      

      

      
        	
                New
                  Equity Bridge

              	
                Shares

              	
                Warrants

              	
                Total
                  Shares

              
	
                Vision

              	 	
                2,777,778

              	
                2,777,778

              
	 	 	 	 
	
                Thomas
                  B. Marsh

              	
                837,000

              	 	
                837,000

              
	
                Remaining
                  reg rights of Series B Preferred Shareholders

              	
                13,644,444

              	
                22,222,222

              	
                35,866,666

              
	
                TOTAL

              	
                42,120,333

              	
                31,684,722

              	
                73,805,055

              

      

      

      Warrant
        holders and Series B Preferred Stockholders may have additional shares issued
        to
        them pursuant to anti-dilution rights and as payment of dividends such
        additionally issued shares will also carry registration rights. The Company
        has
        also agreed to issue up to 250,000 shares of common stock to The Investor
        Relations Group.

      

      

      

      

      

    

    

    

    

    

    

    

    

    
      
        
        

      

      
        28Exhibit 10.4 Form of Common Stock Purchase Warrant

    

      Exhibit
        10.4

      Form
        8-K

      Viking
        Systems, Inc.

      File
        No.
        000-49636

      

      EXHIBIT
        C

      

      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: February 23, 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 the seven year anniversary of the Initial
        Exercise Date (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
        February 23, 2007, 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
        $0.18,
        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.

      
        
           

        

        
          2

          
            

          

        

        
           

        

      

      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.
        

      

      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. 

      
        
           

        

        
          3

          
            

          

        

        
           

        

      

      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.

      

      e) Mechanics
        of Exercise.
        

      

      
        
           

        

        
          4

          
            

          

        

        
           

        

      

      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.

      

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

      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.

      
        
           

        

        
          6

          
            

          

        

        
           

        

      

      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.

      
        
           

        

        
          7

          
            

          

        

        
           

        

      

      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.

      

      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. 

      
        
           

        

        
          8

          
            

          

        

        
           

        

      

      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. 

      
        
           

        

        
          9

          
            

          

        

        
           

        

      

      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. 

      

      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.

      
        
           

        

        
          10

          
            

          

        

        
           

        

      

      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.

      

      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). 

      
        
           

        

        
          11

          
            

          

        

        
           

        

      

      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.

      

      
        
           

        

        
          12

          
            

          

        

        
           

        

      

      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.

      

      
        
           

        

        
          13

          
            

          

        

        
           

        

      

      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.
        

      

      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. 

      
        
           

        

        
          14

          
            

          

        

        
           

        

      

      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.

      

      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.

      
        
           

        

        
          15

          
            

          

        

        
           

        

      

      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.

      

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

      
        
           

        

        
          16

          
            

          

        

        
           

        

      

      

      

      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:

                Title:

              

      

      

       

      

      
        
          
          

           

        

        
          17

          
            

          

        

        
           

          
          

        

      

      

      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:
        _____________________________________________________________

      

      

      

      
        
           

        

        
          18

          
            

          

        

        
           

        

      

      

      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.

      

      

      
        
           

        

        
          19

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