EMPLOYMENT AGREEMENT

Agreement (“Agreement”), by and between Viking Systems, Inc, a Nevada corporation (“Viking”), and Lonna J. Williams (“Executive”) is executed on the 10th day of October 2005 but effective on July 1, 2005.

The Company is engaged primarily in the business of the development and supply of high performance 3D endoscopic vision systems to hospitals for minimally invasive surgery (the “Business”).

Executive currently serves as a Senior Vice President of Commercial Operations of Viking and Executive is willing to continue to serve as an employee of Viking upon the terms and conditions herein set forth. In respect of such employment, Executive has also executed that certain Proprietary Information and Inventions Agreement of even date herewith (the “Proprietary Information and Inventions Agreement”), which is attached hereto as Exhibit A and incorporated herein by reference.

The Board of Directors of Viking (the “Board”) has determined that it is in the best interests of Viking and its stockholders to assure that Viking will have the continued dedication of Executive despite the possibility, threat, or occurrence of a Change of Control (as defined below) of Viking.

The Board believes it is imperative to diminish the inevitable distraction of Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control, to encourage Executive's full attention and dedication to Viking currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation arrangements upon a Change of Control that afford Executive with a requisite amount of individual financial security and are competitive with those of other corporations. In order to accomplish these, and other, objectives, the Board has caused Viking to enter into this Agreement.

In consideration for the options granted to Executive pursuant to Section 3.3 of this Agreement, Executive has agreed not to compete with the Company in accordance with the provisions of Section 11 of this Agreement.

NOW, THEREFORE, in consideration of the mutual promises, terms, covenants, and conditions set forth herein and the performance of each, it is hereby agreed as follows:

1.   Definitions .

1.1   Change of Control Period . The “Change of Control Period” is the period commencing on the date of a Change of Control and ending on the first anniversary of such date.

1.2   Change of Control. For the purpose of this Agreement, a “Change of Control” shall mean:

(a)     Change Of Control . A “Change in Control” shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended, or if Item 6(e) is no longer in effect, any regulations issued by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, which serve similar purposes; provided further that, without limitation, a Change in Control shall be deemed to have occurred if and when:

(b)     Turnover of Board . The following individuals no longer constitute a majority of the members of the Board: (A) the individuals who, as of the date of this Agreement constitute the Board (the “Current Directors”); (B) the individuals who thereafter are elected to the Board and whose election, or nomination for election, to the Board was approved by a vote of all of the Current Directors then still in office (such directors becoming “Additional Directors” immediately following their election); and (C) the individuals who are elected to the Board and whose election, or nomination for election, to the Board was approved by a vote of all of the Current Directors and Additional Directors then still in office (such directors also becoming “Additional Directors” immediately following their election);

(c)   Tender Offer . A tender offer or exchange offer is made whereby the effect of such offer is to take over and control Viking, and such offer is consummated for the equity securities of Viking representing thirty-three percent (33%) or more of the combined voting power of Viking's then outstanding voting securities;

(d)     Merger or Consolidation . The stockholders of Viking shall approve a merger, consolidation, recapitalization, or reorganization of Viking, a reverse stock split of outstanding voting securities, or consummation of any such transaction if stockholder approval is not obtained, other than any such transaction that would result in at least 75% of the total voting power represented by the voting securities of the surviving entity outstanding immediately after such transaction being beneficially owned by the holders of outstanding voting securities of Viking immediately prior to the transaction, with the voting power of each such continuing holder relative to other such continuing holders not substantially altered in the transaction;

(e)     Liquidation or Sale of Assets . The stockholders of Viking shall approve a plan of complete liquidation of Viking or an agreement for the sale or disposition by Viking of all or a substantial portion of Viking's assets to another person, which is not a wholly owned subsidiary of Viking (i.e., 50% or more of the total assets of Viking); or

(f)     Stockholdings . Any “person” (as that term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under that act), directly or indirectly of more than thirty-three percent (33%) of the total voting power represented by Viking's then outstanding voting Securities.

1.3.   Change of Control Effective Date . The “Change of Control Effective Date” shall be the first date during the “Change of Control Period” (as defined below) on which a Change of Control occurs.

1.4   Employment Period .   The Employment Period is the period during which Viking employs the Executive.

1.5   Good Cause . For purposes of this Agreement Good Cause shall mean any one or more of the following:

(a)   Executive's willful, material, and irreparable breach of this Agreement;

(b)   Executive's violation of Company policies and procedures, Code of Ethics, gross negligence in the performance or intentional nonperformance (continuing for thirty (30) days after receipt of written notice of need to cure) of any of Executive's material duties and responsibilities hereunder;

(c)   Executive's material willful dishonesty, fraud, misrepresentation, or misconduct with respect to the business or affairs of Viking, which materially and adversely affects the operations or reputation of Viking;

(d)   Executive's indictment for, conviction of, or guilty plea to a felony crime involving dishonesty or moral turpitude whether or not relating to Viking; or

(e)   a confirmed positive illegal drug test result.

1.6   Good Reason Termination . Executive shall have “Good Reason” to terminate Executive's employment upon the occurrence of any of the following events without Executive's prior written approval:

(a)   Executive is demoted by means of a substantive reduction in authority, responsibilities, or duties, including but not limited to a substantive change in the Executive’s reporting relationship(s);

(b)   Executive's Base Salary for a fiscal year as determined pursuant to paragraph 3.1 is reduced;

(c)   Executive is required to render her primary employment services from a location more than 30 miles from Viking's offices at the time Executive began her employment with Viking;

(d)   Viking breaches a material provision of this Agreement;

(e)   Viking fails to obtain the assumption of this Agreement by any successor or assign of Viking or its principal business activities; or

(f)   There is a change in the reporting structure of Executive relative to the authority of the Executive’s immediate supervisor.

1.7   Severance Compensation. Severance Compensation means those payments required by Section 6 or 7 of this Agreement.

2.   Employment and Duties .

2.1   Employment ; Term of Employment. The Company hereby agrees to continue Executive in its employ, and the Executive hereby agrees to remain in the employ of Viking. The term of this Agreement shall continue until such time as the employment of Executive is terminated pursuant to Section 6 below.

2.2   Duties .   Subject to the terms and provisions of this Agreement, Executive is employed by Viking as an executive employee of Viking. Executive’s specific position shall be as the Senior Vice President of Commercial Operations reporting to the President and CEO. Executive covenants to perform Executive’s employment duties in good faith.

2.3   Exclusive Services . Executive’s entire business time, attention, energies, skills, learning and best efforts shall be devoted to the business of Viking; provided, however, that this Section 2.3 shall not be construed as preventing Executive from participating in social, civic or professional associations or engaging in passive outside investment activities which may require a limited portion of time and effort to manage, consistent with Company’s policies and procedures and so long as such activities do not interfere with the performance of Executive’s duties nor compete, in any way, with the products or services offered by or through Viking.

2.4   Place of Performance . Executive shall not be required by Viking or by the performance of Executive's duties under this Agreement either to perform Executive's principal duties at a work location more than thirty (30) miles from Viking's current principal executive offices at the date of this Agreement.

3.   Compensation . For all services rendered by Executive during the Employment Period, Viking shall compensate Executive as follows:

3.1   Base Salary . Executive shall receive a monthly base salary of $15,417 (“Base Salary”) if annualized would be $185,000 per year. During the Employment Period, the Base Salary shall be reviewed at least annually and if increased at any time shall be substantially consistent with increases in base salary awarded in the ordinary course of business to other key executives of Viking and its subsidiaries. Any increase in Base Salary shall not serve to limit or reduce any other obligation to Executive under this Agreement. Base Salary shall not be reduced after any such increase.

3.2   Annual Bonus . Executive shall be eligible for an annual performance cash bonus of up to 30% of Executive’s applicable annual base salary (the “Target Bonus”), less standard deductions and withholdings. Viking will determine the amount of the bonus, if any, based on Executive’s performance against specific measurable corporate and personal goals approved annually by the Compensation Committee of the Board, and payable within the first quarter of the year following the bonus period.

3.3   Inducement Stock Option . Effective as of July 1, 2005, Viking granted to Executive a stock option to purchase an aggregate of 500,000 shares of the common stock of Viking, $0.001 par value per share (the “Common Stock”). The exercise price for such stock is $.40 per share. Such stock option shall have a 10 year term and become exercisable or “vest” as described in the stock option agreement (200,000 shares as of July 1, 2005, 150,000 shares as of July 1, 2006 and 150,000 shares as of July 1, 2007, subject to acceleration as set forth below. The other terms and conditions of such stock options shall be set forth in the individual stock option agreements, which shall be Viking’s standard form of option agreement and consistent with its 2004 Stock Incentive Plan (the “ Option Plan ” ). This stock option is in addition to options previously awarded and any future options that Executive would otherwise be eligible for based on annual Company or individual performance, or available under other Company compensation programs.

3.4   Incentive, Savings, and Retirement Plans . In addition to Base Salary and Annual Bonus payable as above provided, Executive shall be entitled to participate during the Employment Period in all current incentive, savings, and retirement plans, practices, policies and programs applicable to other key executives of Viking (including its successors or assigns) and its affiliates.

3.5   Welfare Benefit Plans . Executive and/or Executive's family who are qualified to participate, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies, and programs provided by Viking and its subsidiaries, as in effect at any time thereafter with respect to other key executives.

3.6   Expenses. During the Employment Period, Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by Executive in connection with the business of Viking in accordance with the policies, practices, and procedures of Viking and its subsidiaries in effect with respect to other key executives.

3.7   Vacation . During the Employment Period, Executive shall be entitled to four weeks paid vacation per year.

4.     Nondisclosure of Confidential, Proprietary or Trade Secret Information . As a condition of employment, Executive agrees to execute, deliver to the Company and abide by a Proprietary Information and Inventions Agreement (the “ Inventions Agreement ”), the form of which is attached hereto as Exhibit A. The termination of employment shall not release Executive from Executive’s obligations under the Inventions Agreement or as established by applicable laws or the Company’s policies.

5.     No Solicitation of Customers or Employees . Executive acknowledges that the Company has invested substantial time, effort and expense in compiling its confidential, proprietary and trade secret information and in assembling its present staff of personnel. In order to protect the business value of the Company’s confidential, proprietary and trade secret information, during Executive’s employment with the Company and for one year immediately following the termination of that employment with the Company:

(a) Executive agrees that information regarding all customers and all prospective customers of the Company, of which Executive learns during Executive’s employment with the Company, may constitute “Proprietary Information” of the Company as defined in the Inventions Agreement.

(b) Executive agrees not to, directly or indirectly, induce or solicit any of the Company’s employees to leave their employment with the Company.

6.   Termination; Rights On Termination .

6.1   Termination . Executive's employment under this Agreement may be terminated in any one of the followings ways:

(a)   Death of Executive . The employment of Executive shall terminate immediately upon Executive's death provided that Viking shall, for a period of one (1) month following such death, pay to the estate of Executive an amount equal to Executive's Base Salary and continue the welfare benefit programs contemplated by Section 3.5 including paying all premiums for coverage for Executive's dependent family members under all health, hospitalization, disability, dental, life, and other insurance plans that Viking maintained at the time of Executive's death.

(b)   Disability of Executive . If, as a result of incapacity due to physical or mental illness or injury, Executive shall have been absent from Executive's full-time duties hereunder for two (2) consecutive months, then fourteen (14) days after giving written notice to Executive (which notice may occur before or after the end of such two (2) month period, but which shall not be effective earlier than the last day of such two (2) month period), Viking may terminate Executive's employment provided Executive is unable to resume Executive's full-time duties at the conclusion of such notice period.

(c)   Termination by Viking for Good Cause. Viking may terminate Executive's employment without notice to Executive for Good Cause. In the event of a termination by Viking for Good Cause, Executive shall have no right to any severance compensation except for compensation already earned.

(d)     Termination by Viking Without Good Cause or Termination by Executive With Good Reason . Viking may terminate Executive's employment without Good Cause and without notice during the Employment Period upon the approval of a majority of the members of the Board, excluding Executive if Executive is a member of the Board. Executive may terminate Executive's employment under this Agreement for Good Reason upon fourteen (14) days prior notice to Viking.

(e)   Termination by Executive Without Good Reason . Executive may, without cause, and without Good Reason terminate Executive's own employment under this Agreement, effective fourteen (14) days after written notice is provided to Viking or such earlier time as any such resignation may be accepted by Viking. If Executive resigns or otherwise terminates Executive's employment without Good Reason, Executive shall receive no Severance Compensation.

6.2   Severance Compensation Without Change in Control. Following termination of Executive’s employment without a Change of Control, all payments and benefits provided to Executive under this Agreement shall cease as of the date of such termination, except that in the event Executive’s employment is terminated by Viking Without Good Cause or by Executive Termination With Good Reason pursuant to Section 6.1(d), then subject to Executive’s execution and delivery to Viking of a Release and Waiver of claims in the form attached hereto as Exhibit B, Viking shall:

(a)   pay Executive severance pay in the form of continuation of Executive’s then current Base Salary, less standard deductions and withholdings, for a period of nine (9) months from the effective date of Executive’s termination of employment with Viking with such payments to be made at the same time as Executive’s base salary otherwise would have been payable;

(b)   pay Executive an amount equal to 50% of the Target Bonus on a prorated basis for the current year through the date of termination, less standard deductions and withholdings, in equal monthly installments during the period during which Executive is entitled to continuation of base salary under clause (i) of this Section 6.2;

(c)   if Executive elects continued coverage under COBRA, reimburse Executive for Executive’s health insurance premiums for Executive and Executive’s family for a period of nine (9) months from the effective date of Executive’s termination of employment with Viking, to the same extent Viking paid those premiums at the time of termination; and

(d)   accelerate the vesting of all of Executive’s stock options and other equity awards issued by Viking by a period of nine (9) months after the effective date of Executive’s termination of employment with Viking.

7.   Termination of Employment Following Change of Control . If any of the events described in Section 1 hereof constituting a Change of Control shall have occurred, Executive shall be entitled to the benefits provided in Section 7.5 hereof upon the actual termination by Viking or “Constructive Termination” of Executive’s employment within one year after such Change of Control, unless such termination is by Viking for Good Cause as defined in Section 1.5 of this Agreement.

7.1   Constructive Termination . For purposes of this Agreement, “Constructive Termination” shall mean a resignation by Executive for Good Reason as defined in section 1.6.

7.2   Notice of Termination . During that period commencing on the Change of Control Effective Date and ending twelve months thereafter, any termination of Executive’s employment by Viking or by Executive for any reason whatsoever during the term of this Agreement shall be communicated by fourteen (14) days written notice of termination to the other party hereto (“Notice of Termination”).

7.3   Date of Termination . For purposes of this Section 7, “Date of Termination” shall mean a date which is within twelve (12) months after a Change of Control and is either (1) the date specified in the Notice of Termination, if Executive’s employment is terminated by Executive during the term hereof: or (2) the date on which a Notice of Termination is given, if Executive’s employment is terminated for any other reason.

7.5   Benefits Upon Termination Following a Change Of Control. The Company shall provide Executive as soon as practicable, but not more than ten business days following the Date of Termination subsequent to a Change of Control of Viking, each of the following benefits:

(a)   Severance Benefit . The Company shall pay Executive a lump sum severance benefit, which shall equal the sum of (a) nine (9) months of Base Salary, plus (b) an amount equal to 50% of the Target Bonus on a prorated basis for the current year through the Date of Termination 

(b)   Equity Compensatio n. All unvested stock options, stock appreciation rights and restricted stock awards held by Executive at the time of Executive’s Date of Termination shall be deemed fully vested and exercisable as such Date of Termination, provided, that if any such option, right or award would, as a result of such early exercisability no longer qualify for exemption under Section 16 of the Exchange Act, then such option, right or award shall be fully vested but shall not become exercisable until the earliest date on which it could become exercisable and also qualify for exemption from Section 16 of the Exchange Act. All vested options held by Executive, including those deemed fully vested as of the Date of Termination shall become automatically exercisable for a period of one (1) year from the Date of Termination; provided, however, in no event shall any option remain exercisable beyond the maximum period allowed therefore in the stock option plan under which it was granted. This agreement shall serve as an amendment to