Document:

Secured Convertible Promissory Note

 Exhibit 10.2 
  
 THIS NOTE AND THE COMMON STOCK REFERENCED HEREIN HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “1933
ACT”), OR UNDER THE PROVISIONS OF ANY APPLICABLE STATE SECURITIES LAWS, BUT HAVE BEEN ACQUIRED BY THE REGISTERED HOLDER HEREOF FOR PURPOSES OF INVESTMENT AND IN RELIANCE ON STATUTORY EXEMPTIONS UNDER THE 1933 ACT, AND UNDER ANY APPLICABLE STATE
SECURITIES LAWS. NEITHER THE NOTE NOR THE COMMON STOCK MAY BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER PROVISIONS OF THE 1933 ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT; AND IN THE CASE OF AN EXEMPTION, ONLY IF THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION OF THIS NOTE AND THE COMMON STOCK REFERENCED HEREIN.

  
 This note is one of a series issued in the aggregate principal amount of up to
Two Million Seven Hundred Fifty Thousand Dollars ($2,750,000). 
  
 VIKING SYSTEMS, INC. 
  

			
	 March 22, 2005
	 	$750,000.00

  
 10% SECURED
CONVERTIBLE PROMISSORY NOTE 
  
 Viking Systems, Inc. (the
“Company”), for value received, hereby promises to pay to ST. CLOUD CAPITAL PARTNERS, L.P. or registered assigns (the “Holder”) on March 22, 2006, or such earlier date as this Note may become due and payable pursuant to Section 6
hereof (the “Maturity Date”), the principal sum of Seven Hundred and Fifty Thousand Dollars ($750,000.00), and to pay interest on the outstanding principal sum hereof at the rate of ten percent (10%) per annum. This 10% Secured Convertible
Promissory Note (this “Note”) is issued to the Holder pursuant to the terms and conditions of that certain Securities Purchase Agreement, dated as of the date hereof, and any amendments thereto (the “Securities Purchase
Agreement”) entered into by the Company, the Lead Lender and Collateral Agent, and those persons and entities described in the Securities Purchase Agreement as an “Investor.” All capitalized terms used herein without definitions shall
have the respective meanings provided therefore in the Securities Purchase Agreement. 
  
 1. Repayment. Monthly payments of interest only shall be paid by the Company to Holder commencing on March 31, 2005, and on the last business day of each succeeding month through and including February
28, 2006. The unpaid principal amount of this Note and accrued but unpaid interest thereon, if any, shall be paid on the Maturity Date by the Company to the Holder. 
  
 Both principal hereof and interest thereon are payable at the address of the Holder designated in the Securities Purchase
Agreement or at such other place as the Holder may from time to time designate in writing. Any payment otherwise due on a Saturday, Sunday or legal bank holiday may be paid on the following business day. Payments shall be made in lawful money of the
United States of America. Interest hereunder shall be computed on the basis of a year of three hundred sixty (360) days for the actual number of days elapsed. 

 2. Security. This Note is secured as provided for in the Securities Purchase Agreement and
the Security Agreement referred to therein. 
  
 3. Transfers
of Note to Comply with the 1933 Act. The Holder agrees that this Note may not be sold, transferred, pledged, hypothecated or otherwise disposed of except as follows: (1) to a Person whom the Note may legally be transferred without
registration and without delivery of a current prospectus under the 1933 Act with respect thereto and then only against receipt of an agreement of such Person to comply with the provisions of this Section 3 with respect to any resale or other
disposition of the Note; or (2) to any Person upon delivery of a prospectus then meeting the requirements of the 1933 Act relating to such securities and the offering thereof for such sale or disposition, and thereafter to all successive assignees.

  
 4. Prepayment; Repayment Upon Consolidation or
Merger. The principal amount of this Note may be prepaid by the Company, in whole or in part without premium or penalty, at any time in installments not less than the lesser of (i) twenty-five percent (25%) of the original principal amount
of the Note and (ii) the remaining outstanding principal balance of this Note; provided that the Company gives not less than thirty (30) days’ prior written notice to Holder of the Company’s election to prepay this Note. Upon any
prepayment of the entire principal amount of this Note, all accrued, but unpaid, interest shall be paid to the Holder on the date of prepayment. 
  
 This Note shall be paid in full, without premium, in the event the Company (i) sells, leases or transfers all or a substantial portion of the assets of
the Company or (ii) reorganizes, consolidates or merges with or into another Person, unless (A) the Company shall be the surviving corporation and the shareholders of the Company immediately prior to such reorganization, consolidation or merger own
more than fifty (50%) of the voting securities of the Company immediately after such transaction or (B) the other corporation controls, is under common control with or is controlled by the Company immediately prior to the consolidation or merger
whether or not the Company shall be the surviving corporation in such consolidation or merger, in which event this Note shall remain outstanding as an obligation of the consolidated or surviving corporation. 
  
 5. Conversion of Note. The Holder shall have the right from
time to time, and at any time on or prior to the Maturity Date, to convert all or any part of the entirety of the debt then outstanding under this Note into fully-paid and non-assessable shares of Common Stock, or any shares of capital stock or
other securities of the Company into which such Common Stock shall hereafter be changed or reclassified, in accordance with the terms of Section 4 of the Securities Purchase Agreement. 
  
 Notwithstanding the foregoing, in the event that any sums due under this Note are not repaid on the Maturity Date, in lieu
of accepting repayment of the Note from the Company, the Holder will have the option at any time and from time to time to convert the entirety of the debt then outstanding, plus any accrued but unpaid interest thereon, under this Note into fully
paid and non-assessable shares of Common Stock, or any shares of capital stock or other securities of the Company into which such Common Stock shall hereafter be changed or reclassified, pursuant to the terms of Section 4 of the Securities Purchase
Agreement. 
  

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 The Company may require the Holder to convert this Note into shares of Common Stock pursuant to the terms
and conditions of the Securities Purchase Agreement. 
  
 As long
as this Note is outstanding, the Company shall reserve and keep available, free from preemptive rights, out of its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of Common Stock upon the conversion in
full of this Note and, from time to time, shall take all steps necessary to amend its certificate of incorporation to provide sufficient reserves of shares of Common Stock issuable upon conversion in whole of this Note. The Company covenants that
all shares of Common Stock which may be issued upon conversion of this Note will, upon issue, be fully paid, nonassessable, free of preemptive rights and free from all taxes, liens, charges and security interests with respect to the issue thereof.

  
 6. Events of Default and Remedies. 

 
 (a) Any one or more of the following events which shall
have occurred and be continuing shall constitute an event of default (“Event of Default”): 
  
 (i) Failure to make any payment hereunder when due or interest thereon within five days of the date when due; or 
  
 (ii) Any representation or warranty made by the Company or
any officer of the Company in the Securities Purchase Agreement, this Note, the Security Instruments, or in any agreement, report, certificate or other document delivered to the Holder pursuant to the Loan Documents shall have been incorrect in any
material respect when made which shall not have been remedied ten (10) days after written notice thereof shall have been given to the Company; or 
  
 (iii) The Company shall fail to perform or observe any covenant contained in the Securities Purchase Agreement or any other Loan Document
and such default, if capable of being remedied, shall not have been remedied ten (10) days after written notice thereof shall have been given to the Company; or 
  
 (iv) The Company (A) shall institute any proceeding or voluntary case seeking to adjudicate it bankrupt or
insolvent, or seeking dissolution, liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry of any order for relief or the appointment of a receiver, trustee, custodian or other similar official for the Company or for any substantial part of its property, or shall consent to the commencement against it of such a
proceeding or case, or shall file an answer in any such case or proceeding commenced against it consenting to or acquiescing in the commencement of such case or proceeding, or shall consent to or acquiesce in the appointment of such a receiver,
trustee, custodian or similar official; (B) shall be unable to pay its debts as such debts become due, or shall admit in writing its inability to apply its debts generally; (C) shall make a general assignment for the benefit of creditors; or (D)
shall take any action to authorize or effect any of the actions set fort above in this subsection; or 
  

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 (v) Any proceeding shall be instituted against the Company seeking to adjudicate it
bankrupt or insolvent, or seeking dissolution, liquidation, winding up, reorganization, arrangement, adjustment, protection, relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other
similar official for the Company or for any substantial part of its property, and either such proceeding shall not have been dismissed or shall not have been stayed for a period of sixty (60) days or any of the actions sought in such proceeding
(including, without limitation, the entry of any order for relief against it or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property) shall occur; or 
  
 (vi) The occurrence of any event of default or other event
triggering acceleration of any indebtedness by the Company under any note, agreement or other instrument involving the issuance of indebtedness (but not including any trade payables incurred in the ordinary course of business), whether such
indebtedness now exists or may hereafter be created, if, as a result of such event of default or other event, the maturity of such indebtedness has been accelerated or has otherwise become or been declared to be due prior to its stated maturity and
the principal amount of such indebtedness which has been accelerated or has otherwise become or been declared to be due exceeds, individually or in the aggregate, One Hundred Thousand Dollars ($100,000); or 
  
 (vii) The making or filing of any money judgment, writ or
similar process in excess of One Hundred Thousand Dollars ($100,000) against the Company or any of the property or other assets of the Company which shall remain unsatisfied, unvacated, unhanded or unstayed until the date that is the earlier to
occur of thirty (30) days after such judgment, writ or similar process is entered and five (5) days prior to the date of any proposed sale thereunder; or 
  
 (viii) The levying of any writ of attachment against any property or other assets of the Company not fully covered by insurance in force
valued individually or in the aggregate at an amount equal to or greater than One Hundred Thousand Dollars ($100,000) unless the Company posts a bond or obtains other relief for the release of such attachment within thirty (30) days; or 

 
 (ix) The suspension of the usual business activities of
the Company or the winding up or the complete or partial liquidation of the Company’s business; or 
  
 (x) The Company shall challenge, or institute or join in any proceedings to challenge the validity, binding effect or enforceability of
this Note or any endorsement of this Note or any other obligation to Holder; or 
  
 (xi) The Security Agreement or any provision thereof shall cease to be in full force or effect or shall be declared to be null or void or
otherwise unenforceable in whole or in part; or Holder shall not have or shall cease to have a valid and perfected security interest in the collateral described in the Security Agreement; or 
  

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 (xii) The removal of the Lead Lender Director for any reason without the approval of St.
Cloud. 
  
 (b) In the event of and immediately upon the occurrence
of an Event of Default, the Note shall become immediately due and payable without any action by the Holder and the Note shall bear interest until paid at the rate of 15% per annum (the “Default Interest Rate”). If an Event of Default
occurs and is continuing, Holder may pursue any remedy available at law or in equity or provided for in any Loan Document to collect the payment of all amounts due under the Note or to enforce the performance of any provision of the Note, and all
expenses incurred by Holder in connection with any remedy shall be deemed indebtedness of the Company. For the avoidance of doubt, the occurrence of an Event of Default as set forth in Section 6(a)(iv) and Section 6(a)(v) above shall make all sums
of principal and interest then remaining unpaid and all other amounts payable hereon due and payable, all without demand, presentment, notice or protest, all of which hereby are expressly waived, and will permit Holder to exercise any other right
available to it at law or in equity, all which rights and powers may be exercised cumulatively. No delay or failure of Holder in the exercise of any right or remedy provided for under this Note or under any of the Loan Documents shall be deemed a
waiver of such right by Holder. No exercise or partial exercise or waiver of any right or remedy shall be deemed a waiver of any further exercise of such right or remedy or of any other right or remedy that Holder may have under this Note or under
any of the Loan Documents. Enforcement of any of Holder’s rights as to any security for the Promissory Note shall not affect Holder’s right to enforce payment of the Promissory Note and to recover judgment for any portion thereof remaining
unpaid. The rights and remedies set forth in this Note and in any of the Loan Documents are cumulative and not exclusive of any other right or remedy that Holder may have. 
  
 (c) In no event shall Holder be entitled to interest exceeding the maximum rate permitted by law or under the applicable
regulations promulgated by the United States Small Business Administration (the “SBA”). If any excess interest is provided for or shall be adjudicated to be so provided for in this Note, or if any payment or other consideration under this
Note or the Securities Purchase Agreement is determined by the SBA to exceed the amount permitted under applicable regulations promulgated by the SBA, then in such event: (i) the provisions of this paragraph shall govern and control; (ii) the
Company shall not be obligated to pay the amount of such interest or other payment or consideration to the extent that it is in excess of the maximum amount permitted by law, and the same shall be construed as a mutual mistake of the parties; and
(iii) any such excess which may have been collected or attributed shall, at the option of Holder, be subtracted from the then unpaid principal amount hereof or refunded to the Company. 
  
 7. Failure to Pay Upon Maturity. In the event that the sum due under the Note is not repaid on the Maturity
Date, the Holder will have the option to either have the Note accrue interest at the Default Interest Rate or such amount as legally allowed until paid, or to convert the entirety of the debt then outstanding under the Note into the shares of Common
Stock at the a price equal to $.05 per share. Such conversion price in the event of default is subject to adjustment pursuant to the terms of the Securities Purchase Agreement. 
  

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 8. Unconditional Obligation; Fees, Waivers, Other. 
  
 (a) The obligations to make the payments provided for in this Note are
absolute and unconditional and not subject to any defense, set-off, counterclaim, rescission, recoupment or adjustment whatsoever. 
  
 (b) The Company promises to pay all costs and expenses, including reasonable attorneys’ fees, all as provided in the Securities Purchase Agreement,
incurred in the collection and enforcement of this Note and to indemnify Holder against any losses, claims, damages and liabilities and related expenses, including counsel fees and expenses, incurred by Holder in connection with the collection and
enforcement of this Note (including, without limitation, in connection with any bankruptcy, insolvency, reorganization or workout). In addition, the Company agrees to pay, and to save Holder harmless from all liability for, any stamp or other
documentary taxes which may be payable in connection with the Company’s execution or delivery of this Note. 
  
 All payments made by the Company under this Note shall be made free and clear of, and without deduction or withholding for or on account of, any present
or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any governmental authority, excluding net income taxes and franchise
taxes (imposed in lieu of net income taxes) imposed on Holder as a result of a present or former connection between Holder and the jurisdiction of the governmental authority imposing such tax or any political subdivision or taxing authority thereof
or therein (other than any such connection arising solely from Holder having executed, delivered or performed its obligations or received a payment under, or enforced, this Note). If any such non-excluded taxes, levies, imposts, duties, charges,
fees deductions or withholdings (“Non-Excluded Taxes”) are required to be withheld from any amounts payable to Holder under this Note, the amounts so payable to Holder shall be increased to the extent necessary to yield to Holder (after
payment of all Non-Excluded Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Note. Whenever any Non-Excluded Taxes are payable by the Company, as promptly as possible thereafter (and, in
any event, within five (5) business days) the Company shall send to Holder for its own account a certified copy of an original official receipt received by the Company showing payment thereof. If the Company fails to pay any Non-Excluded Taxes when
due to the appropriate taxing authority or fails to remit to Holder the required receipts or other required documentary evidence, the Company shall indemnify, defend and hold Holder harmless for any incremental taxes, interest or penalties that may
become payable by Holder as a result of any such failure. 
  
 (c)
No forbearance, indulgence, delay or failure to exercise any right or remedy with respect to this Note shall operate as a waiver or as an acquiescence in any default, nor shall any single or partial exercise of any right or remedy preclude any other
or further exercise thereof or the exercise of any other right or remedy. 
  
 (d) This Note may not be modified or discharged (other than by payment or conversion) except in a writing duly executed by the Company and Holder. 
  

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 (e) Holder hereby expressly waives demand and presentment for payment, notice of nonpayment, notice of
dishonor, protest, notice of protest, bringing of suit, and diligence in taking any action to collect amounts called for hereunder, and shall be directly and primarily liable for the payment of all sums owing and to be owing hereon, regardless of
and without any notice, diligence, act or omission with respect to the collection of any amount called for hereunder or in connection with any right, lien, interest or property at any and all times which the Company had or is existing as security
for any amount called for hereunder. 
  
 9.
Miscellaneous. 
  
 (a) The headings of the various
paragraphs of this Note are for convenience of reference only and shall in no way modify any of the terms or provisions of this Note. 
  
 (b) Any notice required or desired to be given by the parties hereto shall be in writing and may be personally delivered; mailed by regular mail or
certified mail, return receipt requested; sent by telephone facsimile with a hard copy sent by regular mail; or sent by a nationally recognized receipted overnight delivery service, including, by example and not limitation, United Parcel Service,
Federal Express, or Airborne Express. Any such notice shall be deemed given when personally delivered; if mailed by regular mail, three (3) days after deposit in the United States mail, postage prepaid; if mailed by certified mail, return receipt
requested, three (3) days after deposit in the United States mail, postage prepaid, or on the day of receipt by the recipient, whichever is sooner; if sent by telephone facsimile, on the day sent if sent on a business day during normal business
hours of the recipient or on the next business day if sent at any other time; or if sent by overnight delivery service, one (1) business day after deposit in the custody of the delivery service. The addresses and telephone numbers for the mailing,
transmitting, or delivering of notices shall be as follows: 
  

			
	 If to Holder to:
	    	 St. Cloud Capital Partners, L.P.

	 	    	 10866 Wilshire Boulevard, Suite 1450

	 	    	 Los Angeles, California 90024

	 	    	 Facsimile: (310)475-0550

	 	    	 Attn: Cary S. Fitchey

		
	 If to the Company, to:
	    	 Viking Systems, Inc.

	 	    	 7514 Girard Avenue, Suite 1509

	 	    	 La Jolla, CA 92037

	 	    	 Facsimile: 858-225-0467

	 	    	 Attn: Tom Marsh

		
	 With copies to:
	    	 Cohne, Rappaport & Segal

	 	    	 257 East 200 South, Suite 700

	 	    	 Salt Lake City, UT 84111

	 	    	 Facsimile: 801-355-1813

	 	    	 Attn: A. O. Headman, Jr.

  

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 Notices of a change of address of a party shall be given in the same manner as all other notices as hereinabove provided.

  
 (c) Except as set forth in the Loan Documents, the Holder
shall not, by virtue, hereof, be entitled to any rights of a shareholder in the Company, whether at law or in equity, and the rights of the Holder are limited to those expressed in this Note and in the other Loan Documents. 
  
 (d) Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Note, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Note, if mutilated, the Company shall execute and
deliver a new Note of like tenor and date. 
  
 (e) At any time or
from time to time upon the request of Holder, the Company will execute and deliver such further documents and do such other acts and things as Holder may reasonably request in order fully to effectuate the purposes of this Note, and to provide for
the payment of the principal and interest due hereunder. 
  
 (f)
This Note shall be construed and enforced in accordance with the laws of the State of California, without giving effect to the conflicts of law principles thereof or the actual domiciles of the parties. The Company and the Holder hereby consent to
the jurisdiction of the Courts of the State of California and the United States District Courts situated therein in connection with any action concerning the provisions of this Note instituted by the Holder against the Company. 
  
 (g) No recourse shall be had for the payment of the principal or interest of
this Note against any incorporator or any past, present or future stockholder officer, director, agent or attorney of the Company, or of any successor corporation, either directly or through the Company or any successor corporation, otherwise all
such liability of the incorporators, stockholders, officers, directors, attorneys and agents being waived, released and surrendered by the Holder hereof by the acceptance of this Note. 
  
 (h) This Note shall bind the Company and its successors and assigns. 
  
 [Signature Page Follows] 
  

 8 

 IN WITNESS WHEREOF, the undersigned has duly executed and delivered this Note as of the day and year
first above written. 
  

			
	VIKING SYSTEMS, INC.
		
	 By:
	 	 /s/ Thomas B. Marsh

	 Name:
	 	 Thomas B. Marsh

	 Title:
	 	 President and Chief Executive Officer

  

 9Warrant

 Exhibit 10.3 
  
 THE SALE AND ISSUANCE OF THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. THESE SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED, OR TRANSFERRED, UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO THESE
SECURITIES OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS IS AVAILABLE, AND SUCH OFFER, SALE, PLEDGE, OR TRANSFER IS IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. 
  
 WARRANT TO PURCHASE COMMON STOCK 
  
 of 
  
 VIKING SYSTEMS, INC. 
  
 This certifies that ST. CLOUD CAPITAL PARTNERS, L.P., and its assignees (the “Holder”) are entitled, subject to the terms set forth below, to
purchase from Viking Systems, Inc., a Nevada corporation (the “Company”), Nine Hundred Thirty-Seven Thousand Five Hundred (937,500) shares (the “Warrant Shares”) of common stock, $.001 par value, of the Company (the “Common
Stock”) upon surrender of this warrant at the principal office of the Company referred to below, together with a notice of exercise in the form of annex 1 duly completed and executed (the “Notice of Exercise”), and simultaneous
payment for the Warrant Shares in lawful money of the United States, or otherwise as provided below, at the exercise price referred to in section 2. This warrant is issued to the Holder pursuant to the terms and conditions of that certain Securities
Purchase Agreement dated as of the date hereof, and any amendments, supplements or addendums thereto (the “Securities Purchase Agreement”) entered into by the Company, the Lead Lender and Collateral Agent and those Persons described in the
Securities Purchase Agreement as an “Investor.” Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Securities Purchase Agreement. 
  
 1. Term. Subject to the terms set forth in this warrant, this warrant shall be exercisable by the Holder, in whole or
in part, at any time before 5:00 p.m., California time, on September 22, 2008 (the “Expiration Date”), and shall not be exerciseable thereafter. 
  
 2. Exercise Price. The exercise price at which this warrant may be exercised shall equal $.40 per share of Common Stock (the “Exercise
Price”), as adjusted from time to time pursuant to section 9. If the Exercise Price is reduced, it is referred to as the “Adjusted Exercise Price.”  
  
 3. Exercise of Warrant. This warrant is exercisable by the Holder in whole at any time or in part from time to
time by the surrender of this warrant and the Notice of Exercise duly completed and executed by the Holder, at the principal office of the Company, and upon 
  

 1 

 payment to the Company by wire transfer of the exercise price referred to in section 2 provided that the warrant is
exercised for at least 25% of the Warrant Shares. If this warrant shall be exercised in part only, the Company shall, upon surrender of this warrant for cancellation, issue to or on the order of the Holder a new warrant evidencing the rights of the
Holder thereof to purchase the balance of the Warrant Shares purchasable hereunder as to which the warrant has not been exercised. 
  
 4. Fractional Shares. No fractional shares shall be issued upon exercise of this warrant. At the Company’s sole discretion, in lieu of any
fractional share to which the Holder would otherwise be entitled, the Company may make a cash payment equal to the fair market value of a share of Common Stock on the date of exercise multiplied by that fraction. 
  
 5. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of this warrant and, in the case of loss, theft, or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and substance to the Company or, in the
case of mutilation, on surrender and cancellation of this warrant, the Company, at its expense, shall execute and deliver, in lieu of this warrant, a new warrant of identical tenor and amount. 
  
 6. Rights of Stockholders. The Holder, as such, shall not be entitled
to vote or receive dividends or be deemed the holder of Common Stock or any other securities of the Company that may at any time be issuable on the exercise of this warrant for any purpose, nor shall anything in this warrant be construed to confer
upon the Holder, as such, any rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting, or to give or withhold consent to any corporate action or to receive
notice of meetings, or to receive dividends or subscription rights or otherwise, until this warrant shall have been exercised. 
  
 7. Transfers. The Holder may transfer this warrant by executing an assignment in the form of annex 2 and delivering this warrant and the executed
assignment form in the same manner as a negotiable instrument. The Company, on surrender of this warrant for exchange properly endorsed on the assignment form and at its expense, shall issue to or on the order of the Holder a new warrant or warrants
of like tenor, in the name of the Holder or as the Holder may direct (on payment by the Holder of any applicable transfer taxes), for the number of shares then issuable upon exercise of this warrant. The Holder, by acceptance of this warrant,
acknowledges that this warrant and the shares of Common Stock to be issued upon exercise of this warrant are being or will be acquired by the Holder for investment, and that the Holder shall not offer, sell, or otherwise dispose of this warrant or
any shares of Common Stock to be issued upon exercise of this warrant, except under circumstances that will not result in a violation of the Act or any state securities laws. 
  
 8. Reservation of Stock. As long as this warrant is exercisable, the Company shall reserve and keep available, free
from preemptive rights, out of its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of Common Stock upon 
  

 2 

 the exercise in whole of this warrant and, from time to time, shall take all steps necessary to amend its certificate of
incorporation to provide sufficient reserves of shares of Common Stock issuable upon exercise in whole of this warrant. The Company covenants that all Warrant Shares which may be issued upon exercise of this warrant will, upon issue and full payment
thereof by Holder in accordance with the terms of this warrant, be fully paid, nonassessable, free of preemptive rights and free from all taxes, liens, charges and security interests with respect to the issue thereof. 
  
 9. Adjustments. The Exercise Price in effect at any time and the
number and kind of securities issuable upon exercise of this warrant shall be subject to adjustment from time to time upon the happening of certain events as follows: 
  
 (a) New Issuances. If, at any time after the issuance of this warrant and prior to the Expiration Date, the
Company issues or sells any shares of Common Stock, or any warrants, options or other rights to purchase Common Stock (a “New Issuance”), for a consideration per share (the “New Issuance Price”), which is less than the lower of
(x) the “Initial Base Price” (as defined below) or (y) the “Adjusted Base Price” (as defined below), the Exercise Price of this warrant shall be reduced to an amount equal to the product of (A) the Exercise Price in effect
immediately prior to the New Issuance and (B) an amount determined by dividing the New Issuance Price by the lower of the Initial Base Price or the Adjusted Base Price. 
  
 (i) For purposes of this Agreement, the “Initial Base Price” shall be $.20 per share. The Initial
Base Price shall be reduced to the New Issuance Price if the New Issuance Price is less than the Initial Base Price. The result of such reduction is referred to as the “Adjusted Base Price.” An example of the adjustments required by this
section 9(a) is as follows: 
  
 At a time when the Exercise Price
is $.40 per share and the Initial Base Price is $.20 per share, the Company sells shares of Common Stock at $.15 per share (i.e., the New Issuance Price). The Exercise Price of the warrant shall be reduced as follows: 
  
 $.40 x ($.15 ÷ $.20) = $.30, the new Exercise Price.

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

$.30 x ($.12 ÷ $.15) = $.24, the new Exercise Price. 
  
 (ii) For purposes of this Agreement, the New Exercise Price of a warrant, option or other right to purchase
shares of the Common Stock shall be the exercise or conversion price of such warrant, option or other right plus any consideration paid to acquire such warrant, option or other right. 
  

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 (iii) Notwithstanding anything in this Agreement to the contrary, the issuance of any
shares of Common Stock to the Investors under the terms of the Securities Purchase Agreement shall not affect the Exercise Price or the Initial Base Price or Adjusted Base Price for purposes of this section 9(a). 
  
 (b) Splits and Subdivisions. If the Company should at any time
or from time to time prior to the Expiration Date fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of the holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as the
“Warrant Stock Equivalents”) without payment of any consideration by such holder for the additional shares of Common or Warrant Stock Equivalents, then, as of such record date (or the date of such distribution, split or subdivision if no
record date is fixed), the Exercise Price shall be proportionately decreased and the number of shares of Common Stock which this warrant is exercisable for, if any, shall be appropriately increased in proportion to such increase of outstanding
shares. 
  
 (c) Combination of Shares. If prior to
the Expiration Date, the number of shares of Common Stock outstanding at any time after the date hereof is decreased by a combination of the outstanding shares of Common Stock, the Exercise Price shall be proportionately increased and the number of
shares of Common Stock which this warrant is exercisable for, if any, shall be appropriately decreased in proportion to such decrease in outstanding shares. 
  
 (d) Reorganization, Merger, Consolidation or Sale. If at any time or from time to time prior to the Expiration Date, there shall be a
capital reorganization (other than a subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section 9) or a merger or consolidation of the Company with or into another corporation, or the sale or transfer of
all or substantially all of the Company’s assets to another Person shall be effected in such a way that holders of shares of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for their shares
of Common Stock, then as a part of such reorganization, merger, consolidation, sale or transfer, provision shall be made so that the Holder shall thereafter be entitled to receive upon the exercise of this warrant, the number of shares of stock or
other securities or property of the Company, or of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer, to which a holder of the number of shares of Common Stock (or any shares of stock or other
securities which may be) issuable upon the exercise of this warrant would have received if this warrant had been exercised immediately prior to such reorganization, merger, consolidation, sale or transfer. The Company will not effect any such
consolidation, merger, sale or transfer unless prior to the consummation thereof the successor entity (if other than the Company) resulting from such consolidation, merger or the entity purchasing such assets shall assume by written instrument (i)
the obligation to deliver to the Holder such securities or assets as, in accordance with the foregoing provisions, the Holder may be entitled to purchase, and (ii) all other obligations of the Company under this warrant. The provisions of this
section 9(d) shall similarly apply to successive consolidations, mergers, exchanges, sales and transfers. In the event that in connection with any such capital reorganization, consolidation, merger, sale or transfer, additional shares of Common
Stock shall be issued in exchange, conversion, substitution or payment, in whole or in part, for a security of the Company other than Common Stock, any such issue shall be treated as an issue of Common Stock covered by the provisions of section 9(d)
hereof. 
  

 4 

 (e) Reclassification, Conversion or Reorganization. If the Common Stock (or any shares of
stock or other securities which may be) issuable upon the exercise of this Common shall be changed into the same or different number of shares of any class or classes of stock, whether by capital reorganization, conversion, reclassification or
otherwise (other than a subdivision or combination of shares or stock dividend provided for in sections 9(b) and 9(c) above, or a reorganization, merger, consolidation, sale or transfer provided for in section 9(d) above), then and in each such
event the Holder shall be entitled to receive upon the exercise of this warrant the kind and amount of shares of stock and other securities and property receivable upon such reorganization, conversion, reclassification or other change, to which a
holder of the number of shares of Common Stock (or any shares of stock or other securities which may be) issuable upon the exercise of this warrant would have received if this warrant had been exercised immediately prior to such reorganization,
conversion, reclassification or other change, all subject to further adjustment as provided herein. 
  
 (f) Notice of Adjustment. Upon any adjustment of the Exercise Price and the number of Warrant Shares or other capital stock, as applicable,
issuable upon exercise of the warrant, then and in each such case the Company, at its sole expense, shall give written notice thereof (i) by certified or registered mail, postage prepaid, (ii) by a nationally known overnight delivery service, or
(iii) delivered by hand, addressed to the Holder at his address as shown on the books of the Company, which notice shall state the exercise price resulting from such adjustment and adjusted number of Warrant Shares or other capital stock, as
applicable, issuable upon exercise of the warrant, setting forth in reasonable detail the method upon which such calculation is based. 
  
 (g) Limitations on Adjustments. Anything in this warrant to the contrary notwithstanding, no adjustment of the exercise price shall be
required, unless such adjustment, either by itself or with other adjustments not previously made, would require a change of at least $0.01 in such exercise price; provided, that any adjustment that, by reason of this section 9(g), is not required to
be made shall be carried forward and taken into account in any subsequent adjustment. 
  
 10. Early Termination. The Holder shall have no right to exercise this warrant at any time after the later of (a) the consummation of a Termination Event (as defined below), and (b) the 20th trading day following the date on which the Company gives the Holder the written notice referred to in the next sentence. The
Company shall give the Holder not fewer than 20 trading days’ advance written notice of the consummation of a Termination Event. As used in this agreement, the term “Termination Event” means (y) the consummation of a merger of the
Company with an unaffiliated third party, in which the shares of Common Stock are converted solely into the right to receive cash, or (z) if the Common Stock is quoted on NASDAQ or the New York Stock Exchange (the “NYSE”) or American Stock
Exchange (the “AMEX”), the average of the closing price of the Common Stock on any 30 consecutive trading days on NASDAQ, the NYSE, or the AMEX, as the case may be, during the exercise period equals or exceeds 300% of the exercise price at
which this warrant may then be exercised. 
  

 5 

 11. Equity Participation. This warrant is issued in connection with the Securities Purchase
Agreement. It is intended that this warrant constitute an equity participation under California law and not constitute interest on the Promissory Note. If under any circumstances whatsoever, fulfillment of any obligation of this warrant, the
Securities Purchase Agreement, or any other agreement or document executed in connection with the Securities Purchase Agreement, shall violate the lawful limit of any applicable usury statute or any other applicable law with regard to obligations of
like character and amount, then the obligation to be fulfilled shall be reduced to such lawful limit, such that in no event shall there occur, under this warrant, the Securities Purchase Agreement, or any other document or instrument executed in
connection with the Securities Purchase Agreement, any violation of such lawful limit, but such obligation shall be fulfilled to the lawful limit. If any sum is collected in excess of the lawful limit, such excess shall be applied to reduce the
principal amount of the Promissory Note and, following full payment of the Promissory Note, shall be returned to the Company. 
  
 12. Expenses. The Company shall pay all expenses and other charges payable in connection with the preparation, issuance and delivery of this
warrant and all substitute warrants. and all taxes (other than any issuance taxes, including, without limitation, documentary stamp taxes, transfer taxes and other governmental charges, which shall be paid by the Company) in connection with such
issuance and delivery of this warrant and the Warrant Shares. 
  
 13. Severability. If any provision of this warrant or the application thereof to any person or circumstances shall be invalid or unenforceable to any extent, the remainder of this warrant and the application of such provisions to
other persons or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law. 
  
 14. Amendments. This warrant may be amended only by an instrument executed by the Company and the Holder. 
  
 15. Governing Law. This warrant shall be governed by and
construed in accordance with the law of the State of California, applicable to agreements made and to be performed in California, without giving effect to its conflict of laws principles. 
  
 Dated: March 22, 2005 
  

			
	VIKING SYSTEMS, INC.
		
	 By:
	 	 /s/ Thomas B. Marsh

	 Name:
	 	 Thomas B. Marsh

	 Title:
	 	 President and Chief Executive Officer

  

 6 

 ANNEX 1 
  
 NOTICE OF EXERCISE 
  
 To: Viking Systems, Inc. 
  
 (1) The undersigned hereby irrevocably elects to purchase              shares of Common
Stock of Viking Systems, Inc. pursuant to the attached warrant, and tenders payment of the purchase price for such shares by a cash payment of $            . 
  
 (2) In exercising the warrant, the undersigned hereby confirms and
acknowledges that the shares of Common Stock are being acquired for investment, and that the undersigned shall not offer, sell, or otherwise dispose of any such shares of Common Stock except under circumstances that will not result in a violation of
the Securities Act of 1933, as amended, or any state securities laws. 
  
 (3) Please issue a certificate or certificates representing such shares of Common Stock, and, to the extent the Company determines not to issue fractional shares, pay any cash for any fractional share, to: 
  

					
	 Name

	 	 Address

	 	 Number of Shares

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

							
	 Dated:
	 	  

	  	 Holder:
	  	  

				
	 	 	 	  	 By:
	  	  

	 	 	 	  	 Name:
	  	 
	 	 	 	  	 Title:
	  	 

 ANNEX 2 
  
 ASSIGNMENT FORM 
  
 For value received, the undersigned registered owner of this warrant hereby sells, assigns and transfers to the assignee named below all the rights of the
undersigned under the warrant attached to this assignment with respect to the number of shares of Common Stock set forth below: 
  

					
	 Name of Assignee

	 	 Address

	 	 Number of Shares

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

							
	 Dated:
	 	  

	  	 Holder:
	  	  

	 	 	 	  	 By:
	  	  
  

	 	 	 	  	 Name:
	  	 
	 	 	 	  	 Title:

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