SECURITIES PURCHASE AGREEMENT

Exhibit 10.1

Form 8-K

Viking Systems, Inc.

File No. 000-49636

SECURITIES PURCHASE AGREEMENT

SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of March 22,

2005, among (i) Viking Systems, Inc., a Nevada corporation ("Viking"), (ii) St.

Cloud Capital Partners, L.P., a Delaware limited partnership ("St. Cloud"), as

"Lead Lender" and "Collateral Agent" and (iii) St. Cloud, Donald Tucker, Brian

Miller, and any other Person signing the signature page of this Agreement as an

Investor or that becomes an Investor after the date hereof in accordance with

this Agreement (collectively, the "Investors").

Recitals

The capitalized terms used in these Recitals shall have the respective

meanings set forth for such terms in Section 1 hereof.

Viking desires to borrow up to $2,750,000 from Investors on the terms and

conditions of this Agreement and each of the Investors hereby agrees to make a

Loan to Viking on the terms and conditions of this Agreement.

Viking has agreed to secure the Obligations by granting to the Investors a

Second Priority Lien on the Collateral. Such Second Priority Lien is junior to

and subordinate to a first priority Lien of Silicon Valley Bank.

As additional consideration for each of the Investors making a Loan to

Viking, each Investor will be given the right to convert his, her or its Loan

into shares of Viking's Common Stock and each Investor will be given a Warrant

to purchase additional shares of Viking Common Stock.

Each of the Investors hereby appoints St. Cloud as the "Collateral Agent"

to act hereunder on behalf of all of the Investors under the Security Agreement.

Simultaneously with the execution and delivery of this Agreement by each of

the Investors (or an Addendum Agreement to this Agreement, as applicable), (a)

each Investor shall lend Viking the amount set forth opposite such Investor's

name on Annex A of this Agreement, which maximum Loan to be made by all

Investors as a group is an aggregate of $2,750,000, (b) Viking shall issue to

each of the Investors a Promissory Note in the principal amount of such

Investor's Loan substantially in the form of Exhibit A, (c) Viking shall grant

each of the Investors a Warrant to purchase shares of Viking's Common Stock

substantially in the form of Exhibit B, and (d) each of the Investors and Viking

shall execute and deliver a Registration Rights Agreement substantially in the

form of Exhibit C (or a Joinder to such Registration Rights Agreement, as

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applicable). In addition, as of the date hereof, each of the Collateral Agent

and Viking shall execute and deliver a Security Agreement substantially in the

form of Exhibit D.

NOW, THEREFORE, in consideration of the premises and the agreements,

provisions and covenants herein contained, the parties hereto agree as follows:

Agreement

1. Definitions. For purposes of this Agreement, the following terms shall

have the meaning set forth below:

(a) "Acceptance Period" is defined in Section 15.1.

(b) "Agent-Related Persons" is defined in Section 18.2.

(c) "Agent's Liens" is defined in Section 18.8.

(d) "Business" is defined in Section 11.18.

(e) "CERCLA" is defined in Section 11.15.

(f) "Closings" is defined in Section 3.

(g) "Closing Fee" is defined in Section 2.3.

(h) "Closing Date" is defined in Section 3.

(i) "Code" is defined in Section 11.16.

(j) "Collateral" means Viking's right, title and interest in, to and

under all tangible and intangible personal property of Viking, in each case

whether now owned or existing or hereafter acquired or arising and wherever

located.

(k) "Collateral Agent" is defined in the preamble of this Agreement.

(l) "Common Stock" means the $.001 par value common stock of Viking.

(m) "Conversion Notice" is defined in Section 4.1.

(n) "Conversion Price" is $0.20 per share, subject to adjustment as

set forth in Section 7 of this Agreement.

(o) "Conversion Rights" means each Investor's right under the

Promissory Note, to convert all or part of the outstanding balance of the

Promissory Note into Common Stock at the Conversion Price.

(p) "Convertible Securities" means any securities of Viking

convertible into or exercisable or exchangeable for Common Stock.

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(q) "Co-Sale Right" is defined in Section 15.2.

(r) "Current Balance Sheet" is defined in Section 11.6.

(s) "Default" means a condition or event that, after notice or lapse

of time, or both, would constitute an Event of Default.

(t) "Default Conversion Price" is $0.05 per share, subject to

adjustment as set forth in Section 7 of this Agreement.

(u) "Eligible Preemptive Shares" is defined in Section 15.1.

(v) "Environment" means soil, land surface or subsurface strata,

surface waters (including navigable waters, ocean waters, streams, ponds,

drainage basins and wetlands), groundwater, drinking water supply, stream

sediments, ambient air (including indoor air), plant and animal life and

any other environmental medium or natural resource.

(w) "Environmental and Safety Requirements" shall mean all federal,

state, local and foreign statutes, regulations, rules, ordinances, and

similar provisions having the force or effect of law, all judicial and

administrative orders, judgments, directives, and determinations, all

contractual obligations, permits, licenses and all common law, in each case

concerning public health and safety, worker health and safety and pollution

or protection of the environment (including, without limitation, all those

relating to the presence, use, production, generation, handling,

transportation, treatment, storage, disposal, distribution, labeling,

testing, processing, discharge, release, threatened release, control or

cleanup of any hazardous or otherwise regulated materials, substances or

wastes, chemical substances or mixtures, pesticides, pollutants,

contaminants, toxic chemicals, petroleum products or byproducts, asbestos,

polychlorinated biphenyls, noise or radiation), each as amended and as now

or hereafter in effect.

(x) "Event of Default" means the occurrence of any of the conditions

or events set forth in Section 6 of the Promissory Notes.

(y) "Exchange Act" is defined in Section 11.5

(z) "Financial Statements" is defined in Section 11.5.

(aa) "First Closing Date" means March 22, 2005, or such other date as

Viking and St. Cloud mutually agree upon.

(bb) "GAAP" is defined in Section 11.5.

(cc) "Governmental Agency" means any government or any agency, bureau,

commission, court, department, official, political subdivision, tribunal or

other instrumentality of any government, whether federal, state or local,

domestic or foreign.

(dd) "Indemnified Liabilities" is defined in Section 19.

(ee) "Indemnified Person" is defined in Section 19.

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(ff) "Investor" is defined in the preamble of this Agreement.

(gg) "Lead Lender/Collateral Agent" is defined in the preamble of this

Agreement.

(hh) "Lead Lender Director" is defined in Section 10.1.

(ii) "Lien" means any lien, mortgage, pledge, assignment, security

interest, charge or encumbrance of any kind (including any agreement to

give any of the foregoing, any conditional sale or other title retention

agreement, and any lease in the nature thereof) and any option, trust or

other preferential arrangement having the practical effect of any of the

foregoing.

(jj) "Loan" means the loan to be made by each of the Investors to

Viking pursuant to the terms of this Agreement as evidenced by the

Promissory Notes in the amount set forth opposite such Investors' names on

Annex A of this Agreement.

(kk) "Loan Documents" means, collectively, the Promissory Note,

Security Instruments, Registration Rights Agreement, the Warrant and this

Agreement, as each may be amended, supplemented or restated from time to

time.

(ll) "Major Shareholder" is defined in Section 15.2.

(mm) "Major Shareholder Notice" is defined in Section 15.2.

(nn) "Mandatory Conversion Notice" is defined in Section 4.3.

(oo) "Mandatory Conversion Right" means Viking's right to require all

or part of the Loan of each Investor to be converted into Common Stock

pursuant to Section 4.2 of this Agreement.

(pp) "Material Adverse Change" is defined in Section 11.6.

(qq) "Material Adverse Effect" is defined in Section 11.6.

(rr) "Maturity Date" is defined in Section 2.

(ss) "Multiemployer Plan" is defined in Section 11.16.

(tt) "New Issuance" is defined in Section 7.

(uu) "Obligations" means obligations of Viking from time to time

arising under or in respect of (i) the Loans, (ii) this Agreement and/or

(iii) the other Loan Documents owing to Investors.

(vv) "Observer" is defined in Section 10.1.

(ww) "Parties" means Viking, the Lead Lender/Collateral Agent and the

Investors.

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(xx) "Pension Plan" is defined in Section 11.16.

(yy) "Permitted Transferee" is defined in Section 15.2.

(zz) "Person" shall mean any corporation, limited liability company,

trust, partnership, individual, association or other entity.

(aaa) "Preemptive Right" is defined in Section 15.1.

(bbb) "Preemptive Right Notice" is defined in Section 15.1.

(ccc) "Promissory Note" shall mean and refer to each of the Secured

Convertible Promissory Notes substantially in the form of Exhibit "A,"

dated as of the applicable Closing Date, and issued by Viking to evidence

the Loans by each of the Secured Parties, as the same may be amended,

restated or supplemented from time to time.

(ddd) "Proprietary Information" is defined in Section 11.10.

(eee) "Registration Rights Agreement" means a registration rights

agreement substantially in the form of Exhibit "C" attached hereto, as the

same may be amended, restated or supplemented from time to time.

(fff) "Regulatory Problem" shall mean any transaction, circumstance or

situation whereby (i) a Person and such Person's affiliates would own,

control or have power over a quantity of securities of any kind issued by

Viking or any other entity greater than is permitted under any requirement

of any applicable governmental authority, or (ii) it has been asserted by

any governmental regulatory agency, or such Person believes, that such

Person or its affiliates are not entitled to hold, or exercise any

significant right under or with respect to, the Securities.

(ggg) "Regulatory Violation" shall mean, with respect to Lead Lender,

(i) a diversion of the proceeds of the issuance by Viking of the Securities

from the use reported thereof on the SBA form No. 1031 delivered at

Closing, if such diversion was effected without obtaining the prior written

consent of Lead Lender (which may be withheld in its sole discretion) or

(ii) a change in the principal business activity of Viking to an ineligible

business activity (within the meaning of the SBIC Regulations) if such

change occurs within one year after the date of the Closing.

(hhh) "Required Investors" means Investors holding a majority in

interest of the outstanding principal amount of the Promissory Notes,

including the affirmative vote, consent or approval (as applicable) of St.

Cloud.

(iii) "St. Cloud" is defined in the preamble of this Agreement.

(jjj) "SBA" is defined in Section 3.1.

(kkk) "SBIC" means a small business investment company licensed under

the SBIC Act.

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(lll) "SBIC Act" means the Small Business Investment Act of 1958, as

amended.

(mmm) "SBIC Regulations" means the Small Business Investment Company

Act of 1958, as amended, and the regulations issued by the SBA thereunder,

codified at Title 13 of the Code of Federal Regulations ("13 C.F.R."), 107

and 121, as amended.

(nnn) "SEC Filings" is defined in Section 11.

(ooo) "SEC Reports" is defined in Section 11.11.

(ppp) "Second Priority" means, with respect to any Lien purported to

be created in any Collateral pursuant to the Security Instruments, that

such Lien is the only Lien to which such Collateral is subject, other than

the first priority Lien of Silicon Valley Bank granted to Silicon Valley

Bank pursuant to that certain Silicon Valley Bank Loan and Security

Agreement, dated as of September 14, 2004, between Silicon Valley Bank and

Viking (the "SVB Loan Agreement").

(qqq) "Secured Parties" means each of the Investors.

(rrr) "Securities" means the Promissory Notes, the Warrants and the

Common Stock issuable upon conversion or exercise of the Promissory Notes

and the Warrants.

(sss) "Securities Act" is defined in Section 2.4.

(ttt) "Security Agreement" means a security agreement substantially in

the form of Exhibit "D" attached hereto, as the same may be amended,

restated or supplemented from time to time.

(uuu) "Security Instruments" means the Security Agreement, and UCC-1

Financing Statement and such other documents as may be reasonably required

by the Investors to establish, preserve and perfect the Second Priority

Lien on the Collateral and secure the Promissory Note.

(vvv) "Shareholders" is defined in Section 13.5.

(www) "Transaction Expenses" shall mean and include (i) all

out-of-pocket fees and expenses incurred by Lead Lender and Collateral

Agent in connection with its due diligence review of Viking, the

preparation, negotiation, execution, interpretation and enforcement of this

Agreement, the Securities and the other Loan Documents and the agreements

contemplated hereby and thereby, and the consummation of all of the

transactions contemplated hereby and thereby (including, without

limitation, all travel expenses incurred by representatives or agents of

Lead Lender and Collateral Agent and all reasonable fees and expenses of

legal counsel, accountants and other third parties), (ii) all reasonable

fees and expenses incurred with respect to any amendments or waivers

(whether or not the same become effective) under or in respect of each of

the Loan Documents and the other agreements and instruments contemplated

hereby and thereby, (iii) all recording and filing fees, stamp and other

taxes which may be payable in respect of the execution and delivery of the

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Loan Documents or the issuance, delivery or acquisition of the Securities,

and (iv) the fees and expenses incurred by Lead Lender and Collateral Agent

in any filing with any governmental agency with respect to its investment

in Viking or in any other filing with any governmental agency with respect

to Viking which mentions Lead Lender and Collateral Agent.

(xxx) "Viking" is defined in the preamble of this Agreement.

(yyy) "Viking Benefit Plan" is defined in Section 11.16.

(zzz) "Warrant" means the Warrant issued to each Investor as

additional consideration for an Investor's Loan substantially in the form

attached hereto as Exhibit B, as the same may be amended, restated or

supplemented from time to time.

2. The Loan. Viking agrees to borrow from the Investors, and each Investor,

severally and not jointly, agrees to lend to Viking, subject to the terms and

conditions set forth herein, the amount set forth opposite such Investor's name

on Annex A, which Loan by such Investors in the aggregate shall be (a) in the

minimum aggregate principal amount of $1,300,000 as of the First Closing Date

and (b) in the maximum aggregate principal amount of $2,750,000 (the "Maximum

Aggregate Principal Amount"). Each Loan shall be due on the date that is twelve

months from the date hereof ("Maturity Date"). If on the First Closing Date, the

Company shall not have issued to the Investors Promissory Notes in the maximum

aggregate principal amount of $2,750,000, Viking shall have the right, at any

time on or prior to the date that is two (2) weeks after the First Closing Date,

to issue Promissory Notes to one or more Investors in an amount not to exceed

the Maximum Aggregate Principal Amount, provided that any such additional

Investor shall be required to execute an Addendum Agreement to this Agreement

substantially in the form of Exhibit E. Any such additional Person so making a

Loan to Viking pursuant to the terms of this Agreement shall be considered an

"Investor" for purposes of this Agreement.

2.1. Use of Loan Proceeds. The Loan proceeds shall be used by Viking

pursuant to the use of proceeds as set forth on the certificate delivered

pursuant to Section 3.1.10.

2.2. Promissory Note and Grant of Security Interest. Each Loan shall

be evidenced by a Promissory Note and secured by a Second Priority Lien

against all of the Collateral as set forth in the Security Instruments. On

the First Closing Date, Viking shall execute a Security Agreement which

shall grant to each Investor and Collateral Agent a security interest in

the Collateral in order to secure prompt repayment of any and all

Obligations owed by Viking to each Investor and in order to secure prompt

performance by Viking of its covenants and obligations under the Loan

Documents. The Investors agree to enter into a customary subordination

agreement as may reasonably be requested by Silicon Valley Bank relating to

the subordination of Investor's loan to the rights and preferences of

Silicon Valley Bank pursuant to the SVB Loan Agreement.

2.3 Loan Closing Fee. On the applicable Closing Date for each such

Investor, a total of two percent (2%) of the Loan from an Investor shall be

deducted from the Loan proceeds from such Investor and shall be retained by

such Investor as a closing fee (the "Closing Fee"). Accordingly, on such

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Closing Date, Viking shall receive ninety-eight percent (98%) of the total

Loan proceeds and each of the Investors shall retain two percent (2%) of

such Investor's Loan as a Closing Fee.

2.4 Accredited Investors Only. The Promissory Notes will be offered

and sold to only a limited number of selected sophisticated Investors, each

of whom Viking has reasonable grounds to believe and does believe,

immediately before making an offer, qualifies as an "accredited investor,"

as that term is defined in Rule 501 of Regulation D promulgated under the

Securities Act of 1933, as amended (the "Securities Act"), and has such

knowledge and experience of financial and business matters that such

prospective purchaser is capable of evaluating the merits and risks of

investing in the Promissory Notes.

3. Deliveries at Closing. Subject to the terms and conditions set forth

herein, the closings of the transactions contemplated herein (each, a "Closing")

shall take place at the offices of Latham & Watkins LLP, 633 West Fifth Street,

Los Angeles, California, (i) on the First Closing Date, with respect to St.

Cloud, and (ii) on such other dates as Viking and such other Investor mutually

agree upon, with respect to the other Investor, provided that such date shall be

on or prior to two (2) weeks from the First Closing Date (as applicable to each

such Investor, a "Closing Date").

3.1 Deliveries by Viking at Closing. The obligations of each Investor

under this Agreement are subject to the fulfillment, on or before the

Closing of each of the following conditions, unless otherwise waived. At

the Closing, Viking will have delivered to each Investor or its counsel all

of the following documents:

3.1.1 This Agreement, signed by a duly authorized officer of

Viking;

3.1.2 A Promissory Note, in the aggregate principal amount of the

Loan, signed by a duly authorized officer of Viking;

3.1.3 A Warrant to purchase the number of shares of Common Stock

("Warrant Shares") set forth opposite such Investor's name on Annex A,

signed by a duly authorized officer of Viking;

3.1.4 The Security Agreement, signed by a duly authorized officer

of Viking;

3.1.5 The Registration Rights Agreement, signed by a duly

authorized officer of Viking;

3.1.6 A certificate, dated as of the Closing Date, signed by the

Chief Executive Officer and President of Viking, in the form

reasonably acceptable to Lead Lender's counsel, certifying (i) that

the representations and warranties of Viking contained in Section 11

are true and correct in all respects on and as of the Closing with the

same effect as though such representations and warranties had been

made on and as of the Closing Date (except, with respect to Closings

subsequent to the First Closing Date, for changes resulting from the

transactions contemplated by this Agreement); (ii) that Viking has

performed and complied with all covenants, agreements, obligations and

conditions contained in the Agreement that are required to be

performed or complied with by it on or before the Closing; (iii) a

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true and complete copy of the Articles of Incorporation and Bylaws of

Viking, as amended or supplemented to the Closing Date, (iv)

resolutions of the Board of Directors of Viking (and, if required, the

stockholders of Viking) authorizing the execution, delivery and

performance of this Agreement, the other Loan Documents and the

consummation of the transactions contemplated thereby, and (v)

resolutions of the Board electing Cary Fitchey as director and

designee of Lead Lender to serve on the Board, and Larry Haimovitch as

Observer (as defined below), effective as of the Closing Date.

3.1.7 A closing statement (substantially in the form provided by

Lead Lender), signed by a duly authorized officer of Viking;

3.1.8 With respect to each Investor, the Closing Fees and, with

respect to the Lead Lender, the Transaction Expenses, an estimate of

which shall be provided by Lead Lender to Viking and which Transaction

Expenses may be deducted or withheld from the amount paid by Lead

Lender to Viking in connection with the Lead Lender's Loan at the

First Closing; provided, however, that Lead Lender shall provide

Viking with the aggregate amount of Transaction Expenses as of the

First Closing Date within thirty (30) days after the First Closing

Date and to the extent such amount is less than the estimated amount

deducted at the Closing on the First Closing Date, such difference

shall be promptly paid by Lead Lender to Viking, and to the extent

such amount is greater than the estimated amount deducted at the

Closing on the First Closing Date, such difference shall be promptly

paid by Viking to Lead Lender;

3.1.9 Completed Small Business Administration ("SBA") forms No.

480 (Size Status Declaration), No. 652 (Assurance of Compliance) and

No. 1031 (Portfolio Financing Report, Parts A and B);

3.1.10 A certificate, dated as of the Closing Date, signed by the

Chief Executive Officer and President of Viking, certifying as to the

use of proceeds from the issuance of the Promissory Note.

3.1.11 An opinion from Cohne, Rappaport & Segal, counsel to

Viking, dated as of the Closing Date and addressed to Lead Lender, in

the form acceptable to Lead Lender.

3.1.12 Such other documents relating to the transactions

contemplated by this Agreement as Lead Lender or its counsel may

reasonably request.

3.2 Deliveries by Investor at Closing. The obligations of Viking under

this Agreement are subject to the fulfillment, on or before the Closing of

each of the following conditions, unless otherwise waived. At the Closing,

each Investor will have delivered to Viking or its counsel:

3.2.1. A wire transfer to the account listed in Schedule 3.2.1

hereto in an amount equal to such Investor's Loan less the Closing

Fees (and in the case of Lead Lender, less the Transaction Expenses);

and

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3.2.2 This Agreement, signed by a duly authorized officer of each

Investor, or if Investor is an individual, by such Investor (or, if

after the First Closing Date, an Addendum Agreement to this

Agreement);

3.2.3 The Registration Rights Agreement, signed by a duly

authorized officer of each Investor, or if Investor is an individual,

by such Investor (or, if after the Closing Date, a Joinder to the

Registration Rights Agreement); and

3.2.4 The Security Agreement, signed by a duly authorized officer

of each Investor, or if Investor is an individual, by such Investor.

4. Note Conversion Rights. Each Investor shall have the right from time to

time, and at any time on or prior to the Maturity Date of such Investor's

Promissory Note, to convert all or any part of the amount then outstanding under

such Investor's Promissory Note into fully paid and non-assessable shares of

Common Stock, at the Conversion Price. Notwithstanding the foregoing, in the

event that any sums due under a Promissory Note are not repaid on the Maturity

Date, in lieu of accepting repayment of the Promissory Note from Viking, the

Investor 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 such Promissory Note into fully paid and non-assessable shares of

Common Stock, at the Default Conversion Price.

4.1. Conversion Procedure. To convert a Promissory Note into Common

Stock, the holder thereof shall surrender to Viking the Promissory Note,

and give written notice ("Conversion Notice") to Viking that such holder

elects to convert all or a portion of such Promissory Note into Common

Stock. The Conversion Notice shall specify (i) the amount of the Promissory

Note to be converted and the name or names in which such holder wishes the

certificate or certificates for Common Stock and any portion of the

Promissory Note not to be so converted to be issued and (ii) the address to

which such holder wishes delivery to be made of such new certificates (and,

if applicable, a replacement Promissory Note reflecting the portion of such

Promissory Note that shall not have been converted) to be issued upon such

conversion. As promptly as practicable on or after the conversion date,

Viking shall issue and shall deliver a certificate or certificates for the

number of full shares of Common Stock issuable upon conversion, together

with payment in lieu of any fractional share, as hereinafter provided, to

the person or persons entitled to receive the same. In the event that there

shall have been surrendered a Promissory Note only part of which is to be

converted, Viking shall issue and deliver to such holder or such holder's

designee a new Promissory Note representing that portion of the Promissory

Note which shall not have been converted.

4.2. Mandatory Conversion Rights. Viking shall have the right to

require an Investor to convert all or a portion of such Investor's Loan at

the Conversion Price in the event that:

(i) no Event of Default exists or is continuing at the time of

such mandatory conversion; and

(ii) Viking has raised a minimum of $3,000,000 in public and/or

private equity offerings on or prior to the one-year anniversary date

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of the Closing at an average price equal to or greater than $0.30 per

share of Common Stock. For purposes of this Section 4.2, equity

attributed to the issuance or conversion of the Promissory Notes or

the Warrants shall not be included in the calculation of such average

price.

4.3. Procedure for Mandatory Conversion. In the event that Viking

elects to cause the mandatory conversion of Promissory Notes into Common

Stock pursuant to Section 4.2 of this Agreement, Viking shall give written

notice of mandatory conversion ("Mandatory Conversion Notice") to each

Investor instructing the Investor to surrender to Viking the Promissory

Note, and give written notice to each of the Investors that Viking elects

to convert all or a portion of a holder's Promissory Note into Common Stock

pursuant to Section 4.2 of this Agreement. Such Mandatory Conversion Notice

shall specify the amount of the Promissory Note to be converted. If less

than all of the entire unpaid balance of all of the Promissory Notes are

converted in full, then in such event, the mandatory conversion shall be

effected on a pro rata basis for all Investors. Immediately upon Viking's

mailing of a Mandatory Conversion Notice, the Promissory Notes shall, to

the extent of the amount to be converted as set forth in the Mandatory

Conversion Notice, be deemed to be converted into Common Stock and no

interest shall thereafter accrue on the amount to be converted as set forth

in the Mandatory Conversion Notice. As promptly as practicable after

Viking's receipt of an Investor's Promissory Note, Viking shall issue and

shall deliver a certificate or certificates for the number of full shares

of Common Stock issuable upon such conversion, together with a new

Promissory Note for the remaining outstanding principal balance of each

Promissory Note if less than the entire original Promissory Note is

converted.

5. Warrants. As additional consideration for an Investor making a Loan to

Viking pursuant to this Agreement, Viking shall issue each Investor a Warrant to

purchase shares of Viking's Common Stock. Each Warrant is exercisable at $.40

per share, subject to adjustment pursuant to the terms of such Warrant, and each

Warrant shall be for a term of forty-two (42) months from the date hereof. An

Investor shall be issued a Warrant to purchase one (1) share of Common Stock for

each four (4) shares issuable upon conversion of the Promissory Note at the

Conversion Price, subject to adjustment pursuant to the terms of the Warrant.

For example, if an Investor loans $500,000 to Viking hereunder, such Investor

shall be issued Warrants to purchase 625,000 shares of Common Stock.

6. Registration Rights. The Common Stock issuable upon the conversion of

the Promissory Notes and the Common Stock issuable upon exercise of the Warrants

shall be subject to a Registration Rights Agreement substantially in the form

attached hereto as Exhibit "C."

7. Adjustments to Conversion Price and Warrant Exercise Price. The

Conversion Price and the Default Conversion Price in effect at any time and from

time to time shall be subject to adjustment from time to time upon the happening

of certain events as follows:

7.1 New Issuances. If at any time after the issuance of a Promissory

Note and prior to the repayment in full or conversion in full of such

Promissory Note, Viking issues or sells (a "New Issuance") any shares of

common stock for a consideration per share less than the Conversion Price

or Default Conversion Price in effect immediately prior to such New

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Issuance, then, immediately upon such New Issuance, the Conversion Price

and the Default Conversion Price, as applicable, of the unpaid portion of

the Promissory Note shall be reduced to an amount equal to the price per

share of common stock issued in the New Issuance. If the New Issuance

involves the issuance of Convertible Securities, the Conversion Price and

Default Conversion Price, as applicable, shall be reduced to the effective

price of the common stock issuable under such Convertible Securities if

such effective price is less than the Conversion Price or Default

Conversion Price, as applicable.

7.2 Reorganization, Reclassification, Consolidation, Merger or Sale.

If any capital reorganization, reclassification or any other change of

capital stock of Viking, or any consolidation or merger of Viking with

another Person, or the sale or transfer of all or substantially all of its

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 provision shall be made by Viking, in accordance with this Section

7.2, whereby each holder of the Promissory Note shall thereafter have the

right to receive, upon the basis and upon the terms and conditions

specified herein and in addition to or in exchange for, as applicable, the

shares of Common Stock subject to the Promissory Note immediately

theretofore receivable upon conversion of such Promissory Note at the

Conversion Price or Default Conversion Price (depending on which is

applicable at the time of the actual conversion of the Promissory Note),

such securities or assets as would have been issued or payable with respect

to or in exchange for the aggregate shares of Common Stock immediately

theretofore receivable upon conversion of the Promissory Note if conversion

of the Promissory Note had occurred immediately prior to such

reorganization, reclassification, consolidation, merger or sale. Viking

will not effect any such consolidation, merger, sale, transfer or lease

unless prior to the consummation thereof the successor entity (if other

than Viking) resulting from such consolidation or merger or the entity

purchasing such assets shall assume by written instrument (i) the

obligation to deliver to the holder of the Promissory Note such securities

or assets as, in accordance with the foregoing provisions, the holder of

the Promissory Note may be entitled to receive upon conversion of the

Promissory Note, and (ii) all other obligations of Viking under the

Promissory Note. The provisions of this Section 7.2 shall similarly apply

to successive consolidations, mergers, exchanges, sales, transfers or

leases. In the event that in connection with any such capital

reorganization or reclassification, 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

Viking other than Common Stock, any such issue shall be treated as an issue

of Common Stock covered by the provisions of Section 7.2 hereof.

7.3 Stock Dividends and Securities Distributions. If, at any time or

from time to time after the date hereof, Viking shall distribute to the

holders of shares of Common Stock (i) securities (including rights,

warrants, options or another form of convertible securities) other than

securities of Viking, (ii) property, other than cash, or (iii) cash,

without fair payment therefor, then, and in each such case, the holder of

the Promissory Note, upon conversion of the Promissory Note at the

Conversion Price or Default Conversion Price (depending on which is

applicable at the time of the actual conversion of the Promissory Note),

shall be entitled to receive such securities, property and cash which the

holder of the Promissory Note would hold on the date of such conversion if,

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on the date of the distribution, the holder of the Promissory Note had been

the holder of record of the shares of Common Stock issued upon such

conversion and, during the period from the date hereof to and including the

date of such conversion, had retained such shares of Common Stock and the

securities, property and cash receivable by the holder of the Promissory

Note during such period, subject, however, to the holder of the Promissory

Note agreeing to any conditions to such distribution as were required of

all other holders of shares of Common Stock in connection with such

distribution.

7.4 Other Adjustments. In addition to those adjustments set forth in

Section 7.2 and Section 7.3, but without duplication of the adjustments to

be made under such Sections, if Viking:

(i) makes a distribution on its Common Stock in shares of its

Common Stock;

(ii) subdivides or reclassifies its outstanding shares of Common

Stock into a greater number of shares;

(iii) combines or reclassifies its outstanding shares of Common

Stock into a smaller number of shares;

(iv) makes a distribution on its Common Stock in shares of its

capital stock other than Common Stock; and/or

(v) issues, by reclassification of its Common Stock, any shares

of its capital stock;

then the Conversion Price in effect immediately prior to such action

(and the number and kind of capital stock purchasable upon conversion of

the Promissory Note, upon the occurrence of any of the events described in

(iv) and (v) above), shall be adjusted so that the holder of a Promissory

Note upon conversion thereof shall be entitled to receive the number of

shares of Common Stock (and such other securities) that the holder of the

Promissory Note would have owned or have been entitled to receive after the

happening of any of the events described above had the Promissory Note been

converted immediately prior to the happening of such event or any record

date with respect thereto, and the Default Conversion Price immediately

prior to such action shall be adjusted proportionately to the adjustment of

the Conversion Price. An adjustment made pursuant to this Section 7.4 shall

become effective immediately after the record date in the case of a

dividend or distribution and shall become effective immediately after the

effective date in the case of a subdivision, combination or issuance. If,

as a result of an adjustment made pursuant to this Section 7.4, the holder

of the Promissory Note thereafter surrendered for conversion shall become

entitled to receive shares of two (2) or more classes of capital stock or

shares of Common Stock and any other class of capital stock of Viking, the

Board of Directors in good faith shall determine the allocation of the

adjusted Conversion Price and Default Conversion Price between or among

shares of such classes of capital stock or shares of Common Stock and such

other class of capital stock.

The adjustment to the Conversion Price and Default Conversion Price

(and number and kind of capital stock purchasable upon conversion of the

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Promissory Note) described in this Section 7.4 shall be made each time any

event listed in paragraphs (i) through (v) of this Section 7.4 occurs.

(vi) In the event that at any time, as a result of an adjustment

made pursuant to this Section 7.4, the holder of the Promissory Note

thereafter shall become entitled to receive any shares of Viking,

other than Common Stock, thereafter the Conversion Price and Default

Conversion Price shall be subject to adjustment from time to time in a

manner and on terms as nearly equivalent as practicable to the

provisions with respect to the Common Stock contained in this Section

7.4.

7.5 Notice of Adjustment. Upon any adjustment of the Conversion Price

or Default Conversion Price, then and in each such case Viking, 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 of the

Promissory Note at his address as shown on the books of Viking, which

notice shall state the conversion price resulting from such adjustment and

adjusted number of shares of Common Stock or other capital stock, as

applicable, issuable upon exercise of the Promissory Note, setting forth in

reasonable detail the method upon which such calculation is based.

7.6 Warrant Adjustments. The Warrant attached hereto as Exhibit "B"

contains a provision providing for the reduction of the Warrant exercise

price upon a New Issuance at less than the Conversion Price and for other

adjustments to the number of Warrant shares and the warrant exercise price.

8. [Reserved.]

9. Remedies. Upon the occurrence of an Event of Default and the expiration

of any notice and cure period provided for under the Loan Documents (if any),

the entire indebtedness owed to the Investor shall, at the option of the

Investor, immediately become due and payable without presentment, demand,

protest, or other notice of any kind, all of which are expressly waived by

Viking; provided that the occurrence of an Event of Default as set forth in

Section 6(iv) and Section 6(v) of the Promissory Note shall make all sums of

principal and interest then remaining unpaid and all other amounts payable under

the Loan Documents due and payable, all without demand, presentment, notice or

protest, all of which hereby are expressly waived, and will permit Investor to

exercise any other right available to it at law or in equity, all which rights

and powers may be exercised cumulatively. The Investor may proceed with every

remedy available at law or in equity or provided for in this Agreement or in any

of the Loan Documents, and all expenses incurred by the Investor in connection

with any remedy shall be deemed indebtedness of Viking to the Investor. The

Collateral Agent, on behalf of the Investor, may apply the proceeds from any

Collateral or from any other source against any part of the Loans as and in any

order the Collateral Agent sees fit but on a pro rata basis to each Investor.

No delay or failure of an Investor in the exercise of any right or remedy

provided for under this Agreement or under any of the Loan Documents shall be

deemed a waiver of such right by the Investor. 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 the

Investor may have under this Agreement or under any of the Loan Documents.

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Enforcement of any of the Investor's rights as to any security for the Loan

shall not affect the Investor's right to enforce payment of the Loan and to

recover judgment for any portion thereof remaining unpaid. The rights and

remedies set forth in this Agreement and in any of the Loan Documents are

cumulative and not exclusive of any other right or remedy that an Investor may

have.

10. Lead Lender.

10.1. Board of Directors Matters. Until the Loans are repaid in full,

Lead Lender shall have the option of designating one person to serve on the

Board of Directors of Viking ("Lead Lender Director") and/or one observer

(the "Observer") to attend meetings of the Board of Directors of Viking.

Viking shall reimburse the reasonable travel costs and expenses of such

Lead Lender Director and Observer incurred in attending any Viking Board of

Directors meetings or committee meetings. In addition, any Lead Lender

Director shall be entitled to such other compensation or benefits, Viking

makes available to its other outside directors. If Lead Lender designates

an Observer to Viking's Board of Directors, then:

(i) such Observer shall have the right to attend, as an observer,

all meetings of Viking's Board of Directors and all meetings of

committees of Viking Board of Directors;

(ii) receive copies of all written documents and other

information (including copies of meeting minutes) provided to Viking's

Board members in connection with Board Meetings and Board committee

meetings at the same time such materials and information are provided

to Viking's Board members;

(iii) if Viking proposes to take any action through the written

consent of its Board of Directors, then Viking shall provide such

Observer with a written notice of such proposed Board actions prior to

the effective date thereof, describing in reasonable detail the nature

and substance of such action.

10.2. Financial Information. Viking shall furnish to Lead Lender such

financial information as may be reasonably requested by Lead Lender. Such

financial information shall include, but not be limited to:

(i) audited financial statements within one hundred twenty (120)

days of Viking's fiscal year end;

(ii) internally prepared financial statements within thirty (30)

days of each calendar month end; and

(iii) an annual budget for the upcoming fiscal year by month

within thirty (30) days of fiscal year end. All financial reports

should include a balance sheet, income statement and statement of cash

flows prepared in accordance with GAAP, accompanied by a management

discussion and analysis of the appropriate reporting period.

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11. Representations and Warranties of Viking. Viking makes the following

representations and warranties to each Investor, which representations and

warranties shall be true and correct as of the date hereof and for so long as

any portion of any Promissory Note remains outstanding:

11.1. Existence; Qualification; No Subsidiary. Viking is a corporation

duly incorporated, validly existing and in good standing under the laws of

the State of Nevada, and has full corporate power and authority to conduct

its business and own and operate its business as now conducted and operated

and as proposed to be conducted. Viking is licensed or qualified as a

foreign corporation and is in good standing in each jurisdiction where it

is required to be so licensed or qualified, except where the failure to be

so licensed or qualified would not materially and adversely affect Viking.

Viking has no subsidiaries.

11.2. Authorization and Enforceability; Issuance of Common Shares.

(a) Viking has the full power and authority and has taken all

required corporate and other action necessary to permit Viking to

execute, deliver, and perform this Agreement, the Promissory Note, the

Warrant, the Security Instruments and the Registration Rights

Agreement and to issue the Securities, and none of such actions do or

will violate any provision of Viking's certificate of incorporation or

by-laws, or conflict with, result in the breach of, constitute a

default (or an event that, with notice or lapse of time or both, would

constitute a default) under, result in the creation of a Lien upon

Viking's capital stock or the assets of Viking pursuant to, give any

third party the right to accelerate any material obligation under,

require any authorization, consent or approval or other action by or

notice to under, any agreement, instrument, or understanding to which

Viking is a party or by which it is bound or any applicable law,

regulation, order, or judgment. Each of these Loan Agreements

constitutes a legal, valid, and binding obligation of Viking,

enforceable against Viking in accordance with its terms, except to the

extent limited by applicable bankruptcy, insolvency, reorganization,

moratorium, and similar laws of general application related to the

enforcement of creditor's rights generally and general principles of

equity. (b) The Common Stock to be issued upon the conversion of the

Promissory Notes and the exercise of the Warrants will be duly

authorized and, when issued and delivered in accordance with the

Promissory Notes and Warrants, respectively, will be validly issued

and outstanding and will be fully paid and nonassessable. The copies

of the Articles of Incorporation and Bylaws of Viking furnished to

Lead Lender's counsel reflect all amendments made thereto at any time

prior to the Closing and are correct and complete in all respects.

11.3. Capitalization. As of the date of this Agreement, the authorized

capital stock of Viking is comprised of 100,000,000 shares of Common Stock

and 25,000,000 shares of preferred stock. As of the date of this Agreement,

there are 30,608,650 shares of Common Stock outstanding, and no shares of

preferred stock outstanding. All of Viking's outstanding shares of Common

Stock are duly and validly issued, fully paid, and nonassessable and have

been issued in compliance with all applicable laws. Except as set forth on

Schedule 11.3 or as contemplated by this Agreement, (i) there are no

outstanding options, convertible securities, warrants, debentures, phantom

stock, stock appreciation rights, preemptive rights, rights of first offer,

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rights of first refusal, antidilution rights, registration rights, or

commitments of any kind relating to any issued or unissued shares of

capital stock (or other equity interests) of Viking; (ii) Viking is not

subject to any obligation (contingent or otherwise) to repurchase or

otherwise acquire or retire any Common Stock; and (iii) there are no

proxies, voting trust agreements or similar agreements or options granted

by the holders of Common Stock.

11.4. Private Sale. Subject to the accuracy of an Investor's

representations and warranties in this Agreement, neither the offer, sale,

and issuance of the Securities as contemplated by this Agreement nor the

issuance and delivery of any Common Stock upon exercise of the Warrant or

pursuant to the conversion of the Promissory Notes requires or will require

registration or qualification under the Securities Act or any state

securities laws. Neither Viking, nor any agent acting on Viking's behalf,

has offered or solicited or will offer or solicit any offers to buy any

securities from, any Person or Persons so as to require the issuance or

sale of the Securities to be registered pursuant to the provisions of

Section 5 of the Securities Act or prevent Viking from utilizing the

provisions of Section 25102(f) of the California Corporate Securities Law

of 1968 or any other applicable state securities law exemption from

qualification.

11.5. Disclosure. Viking's Annual Report on Form 10-K for the fiscal

year ended December 31, 2003, its Quarterly Reports on Form 10-Q for the

fiscal quarters ended March 31, 2004, June 30, 2004 and September 30, 2004,

and its Current Reports filed with the Securities and Exchange Commission

(collectively, the "SEC Filings") comply with the requirements of the

Securities Exchange Act of 1934, as amended ("Exchange Act"), in all

material respects, do not contain any untrue statement of a material fact,

and do not omit to state a material fact necessary in order to make the

statements therein, in the light of the circumstances under which they were

made, not misleading. The financial statements (together with the notes to

the financial statements) included in the SEC Filings (the "Financial

Statements") are in accordance with the books and records of Viking and the

Financial Statements fairly and accurately present the financial condition

and results of operations, the shareholders' equity and cash flows of

Viking, as of the dates and for the periods indicated, in accordance with

generally accepted accounting principles ("GAAP") consistently applied.

Viking has no material liabilities or obligations, absolute, contingent or

otherwise, other than (a) liabilities set forth in the Financial

Statements, (b) liabilities incurred in the ordinary course of business

subsequent to September 30, 2004, and (c) obligations under contracts and

commitments incurred in the ordinary course of business and not required

under GAAP to be reflected in such financial statements, which, in both

cases, individually or in the aggregate, are not material to the financial

condition, operations or prospects of Viking.

11.6. Absence of Certain Changes.

(a) Except as set forth in Schedule 11.6, since September 30,

2004, Viking has not:

(i) incurred any liabilities, other than current liabilities

incurred, or obligations under contracts entered into, in the

ordinary course of business and consistent with past practice;

(ii) paid, discharged, or satisfied any claim, lien, or

liability, other than any claim, lien, or liability (A) reflected

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or reserved against on the consolidated balance sheet as of

September 30, 2004 included in the Financial Statements (the

"Current Balance Sheet") and paid, discharged, or satisfied in

the ordinary course of business and consistent with past practice

since the date of the Current Balance Sheet, or (B) incurred and

paid, discharged, or satisfied since the date of the Current

Balance Sheet in the ordinary course of business and consistent

with past practice;

(iii) sold, leased, assigned, or otherwise transferred any

of its assets or services, tangible or intangible (other than

sales in the ordinary course of business and consistent with past

practice);

(iv) permitted any of its assets, tangible or intangible, to

become subject to any lien, security interest, or other charge or

encumbrance (other than any Permitted Lien);

(v) written off as uncollectible any accounts receivable,

except for accounts receivable aggregating not more than $25,000;

(vi) terminated or amended, or suffered the termination or

amendment of, other than in the ordinary course of business and

consistent with past practice, or failed to perform in all

material respects, all its obligations, or suffered or permitted

any material default to exist under, any material agreement,

license, or permit;

(vii) suffered any damage, destruction, or loss of tangible

property (whether or not covered by insurance) that, in the

aggregate, exceeds $25,000;

(viii) made any loan to any person or entity (other than

advances to employees in the ordinary course of business and

consistent with past practice that do not exceed $25,000 in the

aggregate);

(ix) cancelled, waived, or released any debt, claim, or

right in an amount or having a value exceeding $25,000;

(x) paid any amount to, or entered into any agreement,

arrangement, or transaction with, any affiliate (including its

officers, directors, and employees), other than payments of

salary and benefits to employees in the ordinary course of

business and consistent with past practice;

(xi) declared, set aside, or paid any dividend or

distribution with respect to its capital stock, or redeemed,

purchased, or otherwise acquired any of its capital stock;

(xii) other than in the ordinary course of business and

consistent with past practice, granted any increase in the

compensation of any officer or employee or made any other change

in employment terms of any officer or employee;

(xiii) issued or agreed to issue any securities of any kind,

whether or not pursuant to agreements or rights existing on or

before September 30, 2004, except pursuant to agreements listed

in Schedule 11.3;

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(xiv) made any change in accounting or cash management

practices;

(xv) suffered or caused any other occurrence, event, or

transaction outside the ordinary course of business; or

(xvi) agreed, in writing or otherwise, to any of the

foregoing.

(b) Since the September 30, 2004 Balance Sheet, there has not

been any material adverse change (a "Material Adverse Change" or a

"Material Adverse Effect") in the business, operations, properties,

prospects, assets or condition of Viking, excluding operating losses

in the ordinary course of business, an no event has occurred or

circumstance exists that may result in such a Material Adverse Change.

11.7. Litigation. As of the date of this Agreement, no claim, suit,

proceeding, or investigation is pending or, to the knowledge of Viking,

threatened against or affecting Viking or its officers or directors in

their capacities as such.

11.8. Licenses, Compliance with Law, Other Agreements. Viking has all

material franchises, permits, licenses, and other rights to allow it to

conduct its business and is not in violation, in any material respect, of

any order or decree of any court, or of any law, order, or regulation of

any governmental agency, or of the provisions of any material contract or

agreement to which it is a party or by it is bound, and neither the Loan

Documents, nor the transactions contemplated therein will result in any

such violation. Viking has conducted its business in compliance with all

applicable laws, rules, and regulations, except to the extent

non-compliance could not reasonably be expected to have a Material Adverse

Effect on Viking.

11.9. Third-Party Approvals. Except as set forth in Schedule 11.9,

Viking is not required to obtain any order, consent, approval, or

authorization of, or to make any declaration or filing with, any

Governmental Agency or other third party (including under any state

securities or "blue sky" laws) in connection with the execution, delivery

and performance of the Loan Documents and related documents.

11.10 Assets.

(a) Viking has good and marketable title to, or a valid leasehold

interest in, all of its properties of any kind other than Proprietary

Information (as defined below) and interests in such properties, which

constitute all the properties and interests in property other than

Proprietary Information that are used in the business of Viking as

conducted or as currently proposed to be conducted, free and clear of

restrictions or conditions on transfer or assignment and free and

clear of Lines.

(b) Except as set forth on Schedule 11.10(b), Viking has good

title to and exclusive ownership of all patents, patent applications,

trademarks, service marks and domain names, together with the goodwill

of the business associated therewith, copyrights, trade names, mask

works, proprietary information, know-how, processes, models, designs,

trade secrets, customer and supplier lists, market surveys, plans,

procedures and other intellectual property rights (collectively the

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"Proprietary Information"), which are used or held for use in the

operation or conduct of the business of Viking as presently conducted

and currently proposed to be conducted, free and clear of restrictions

or conditions on transfer or assignment and free and clear of payments

and fees and Liens. The business of Viking as presently conducted and

as currently proposed to be conducted does not and to the knowledge of

Viking, will not conflict or infringe with the Proprietary Information

of others. No affiliate, officer, consultant or employee of Viking has

any right in any of the Proprietary Information.

(c) Viking has taken commercially reasonable measures to protect

the secrecy, value and confidentiality of the Proprietary Information.

Viking has not disclosed the contents of any Proprietary Information

to Persons other than its officers and employees or to other Persons

who have executed appropriate confidentiality agreements. To the

knowledge of Viking, no officer, consultant or employee of Viking is

under any restriction, whether contractual, or by virtue of previous

employment or otherwise, that would prevent such Person from

performing his or her duties for Viking or prevent Viking from using

the Proprietary Information. Viking is not a party to any

nondisclosure or confidentiality agreements not entered into in the

ordinary course of business.

(d) Viking owns, or has a valid leasehold interest in, all of the

equipment and other fixed assets of Viking which are necessary and

sufficient for the efficient operation of the business of Viking as

currently conducted and currently proposed to be conducted and all of

such assets are in good operating condition, normal wear and tear

excepted.

11.11 Employee Compensation. All forms, reports and documents filed by

Viking with the SEC on or after January 28, 2004 ("SEC Reports") list all

executive officers of Viking and a description of all forms of compensation

and employee benefits payable to them required to be disclosed therein.

Except as set forth in the SEC Reports or on Schedule 11.11, Viking is not

a party to or bound by any employment agreement not terminable at will or

having more than one month's severance pay or which requires, or which

could require, compensation and benefits of more than Six Thousand Dollars

($6,000) per month, collective employment contracts, deferred compensation

agreements, bonus plans, profit sharing plans, pension plans or any other

plans or programs subject to ERISA or health, disability, sick pay or other

employee benefits. Viking believes that relations with its employees are

satisfactory

11.12 Material Agreements. Except as attached as exhibits to the SEC

Reports or on Schedule 11.12, Viking is not a party to, nor is any of its

property bound by, (a) any agreement requiring the performance by Viking of

any obligation for a period of time extending beyond one year from the date

hereof, calling for or which could result in the payment or receipt of

consideration of more than Fifty Thousand Dollars ($50,000), or licensing

any material Proprietary Information of Viking or any third party; (b) any

agreement or understanding between V