VIKING SYSTEMS INC
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>4
<FILENAME>ex10-2_0404.txt
<TEXT>
Exhibit 10.2
Form 8-K
Viking Systems, Inc.
File No. 000-49636

                              VIKING SYSTEMS, INC.
                 2004 NON-EMPLOYEE DIRECTOR STOCK OWNERSHIP PLAN

Section 1:  Purpose

The  purpose  of the Viking  Systems,  Inc.  2004  Non-Employee  Director  Stock
Ownership  Plan (the "Plan") is to promote the  long-term  growth and  financial
success of Viking  Systems,  Inc. (the  "Company")  by attracting  and retaining
non-employee  directors  of  outstanding  ability and  assisting  the Company in
promoting  a greater  identity of interest  between the  Company's  non-employee
directors and its shareholders.

Section 2:  Definitions

As used in the Plan, the following terms have the respective  meanings set forth
below:

     (a) "Award" means any Stock Option or Stock Award granted under the Plan.

     (b)  "Black-Scholes  Model" means the  Black-Scholes  Option Pricing Model,
which shall be used to calculate the fair value of Stock Option grants under the
Plan,  as of the date of such grant.  Six factors are required to calculate  the
value of a Stock  Option  using the  Black-Scholes  Model:  the  Stock  Option's
exercise price; the current price of the Common Stock; the dividend yield of the
Common Stock;  the Stock Option's time to expiration;  the risk-free market rate
of  return;  and the future  volatility  of the  Common  Stock.  Only the future
volatility of the Common Stock cannot be objectively  determined.  In connection
with using the  Black-Scholes  Model to calculate the fair value of Stock Option
grants  under  the  Plan,   the  Committee  may  use  such   variations  of  the
Black-Scholes  Model and parameters and procedures  respecting the Black-Scholes
Model, including, without limitation,  parameters and procedures used to measure
the historical  volatility of the Common Stock as of the relevant grant date, as
the Committee deems reasonably appropriate in its sole discretion.

     (c) "Board" means the Company's Board of Directors.

     (d) "Committee" means a committee of the Board that the Board designates to
administer the Plan. The Committee shall consist of not less than two directors,
each of whom shall qualify as a  "non-employee  director"  within the meaning of
Rule  16b-3  ("Rule  16b-3")  under the 1934 Act,  or any  successor  provisions
thereto,  as an "outside  director"  under Section  162(m)(4)(C) of the Internal
Revenue  Code of 1986,  as amended (the  "Code"),  or any  successor  provisions
thereto  and  as  an  "independent"  director  pursuant  to  the  definition  of
independence in the listing  requirements of the principal  national  securities



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exchange,  national securities  association or over-the-counter  market on which
the Common Stock is traded, if any. If at any time the Committee shall not be in
existence,  then the  members  of the  Board  that do  qualify  as  non-employee
directors, outside directors and independent directors shall administer the Plan
and shall be deemed to be the Committee for purposes of the Plan.

     (e) "Common Stock" means the Common Stock,  $.001 par value, of the Company
and such other  securities or property as may become subject to Awards  pursuant
to an adjustment made under Section 4(b) of the Plan.

     (f) "Fair  Market  Value"  means the fair market  value of the Common Stock
determined by such methods or procedures  as shall be  established  from time to
time by the Committee;  provided,  however, that the Fair Market Value shall not
be less than the par value of the Common Stock;  and provided  further,  that so
long as the Common  Stock is traded on the Nasdaq  National  Market,  the Nasdaq
Smallcap Market or another  over-the-counter market, the Fair Market Value shall
be the  average  of the bid and asked  prices of a share of Common  Stock in the
applicable  over-the-counter  market on the  specified  date, as reported by the
National  Association  of  Securities  Dealers (or if no sales  occurred on such
date, the last preceding date on which sales occurred);  provided, however, that
if the  principal  market  for the Common  Stock is then a  national  securities
exchange,  the Fair Market Value shall be the average of the high and low prices
of a share of Common  Stock on the  principal  securities  exchange on which the
Common Stock is traded on the  specified  date (or if no sales  occurred on such
date, the last preceding date on which sales occurred).

     (g) "1934 Act" means the  Securities  Exchange Act of 1934, as amended from
time to time.

     (h)  "Participant"  means a director of the Board who is not an employee of
the  Company,  or any entity that is directly or  indirectly  controlled  by the
Company  or any  entity in which  the  Company  has a  significant  interest  as
determined by the Committee.

     (i) "Shares" means shares of Common Stock.

     (j)  "Stock  Award"  means an Award to a  Participant  comprised  of Shares
granted under Section 5(b) or 5(c) of the Plan.

     (k) "Stock  Option"  means an award in the form of the right to  purchase a
specified  number of Shares  at a  specified  price  during a  specified  period
granted under Section 5(a) or 5(c) of the Plan.

Section 3:  Effective Dates

The Plan shall become  effective  on April 30, 2004,  subject to the approval of
the Plan by the shareholders of the Company within six months from the effective
date.  To the extent  that any Awards  are  granted  under the Plan prior to its
approval by shareholders, the grants shall be contingent on approval of the Plan

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by the  shareholders of the Company.  No Awards may be made under the Plan after
April 30, 2014 or earlier termination of the Plan by the Board.

Section 4:  Stock Available for Awards

     (a) Common Shares  Available.  The maximum  number of Shares  available for
Awards under the Plan may not exceed  500,000 shares of Common Stock (subject to
adjustment pursuant to Section 4(b) hereof).

     (b) Adjustments and Reorganizations.  In the event that the Committee shall
determine  that any  dividend  (other  than a  normal  cash  dividend)  or other
distribution  (whether in the form of cash,  Common Stock,  other  securities or
other   property),   recapitalization,   stock  split,   reverse   stock  split,
reorganization,   merger,   consolidation,   split-up,  spin-off,   combination,
repurchase  or  exchange of Common  Stock or other  securities  of the  Company,
issuance  of  warrants  or  other  rights  to  purchase  Common  Stock  or other
securities  of the Company,  or other  similar  corporate  transaction  or event
affects the Common Stock such that an  adjustment is determined by the Committee
to be  necessary  or  appropriate  to prevent  dilution  or  enlargement  of the
benefits or potential  benefits  intended to be made  available to  Participants
under the Plan, then the Committee may, in such manner as it may deem equitable,
adjust any or all of the

     (i) number and type of Shares  available under the Plan and that thereafter
     may be made the subject of Awards under the Plan, and

     (ii) number and type and exercise  price of Shares  subject to  outstanding
     Stock Options, provided any such adjustments are consistent with the effect
     on other shareholders arising from any such action.

     The Committee  may also make such similar  appropriate  adjustments  in the
calculation  of Fair  Market  Value as it deems  necessary  or  appropriated  to
prevent dilution or enlargement of the benefits or potential  benefits  intended
to be made  available  to  Participants  under  the  Plan.  Notwithstanding  the
foregoing,  (x) Stock Options  subject to grant or previously  granted under the
Plan at the time of any event  described  above  shall be  subject  to only such
adjustment as shall be necessary to maintain the  proportionate  interest of the
Participant and preserve,  without  exceeding,  the value of such Stock Options,
and (y) the number of Shares  subject to Stock Awards under the Plan at the time
of any event  described  above shall be subject to only such adjustment as shall
be necessary to maintain the relative proportionate interest represented by such
Shares immediately prior to any such event.

     (c) Change of Control. In order to preserve a Participant's  rights under a
Stock  Option  granted  under  the  Plan  in the  event  of any  sale  of all or
substantially all of the Company's assets, merger, consolidation, combination or
other  corporate  reorganization,  restructuring  or  change of  control  of the
Company  ("Change  of  Control")  (the  Committee  in its sole  discretion  will
determine  if  there  has  been a  Change  of  Control),  the  Committee  in its

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discretion  may,  at the  time  the  Stock  Option  is  granted  or at any  time
thereafter, take one or more of the following actions:

     (i)  provide  for the  acceleration  of any  time  period  relating  to the
     exercise of the Stock Option;

     (ii)  provide for the purchase of the Stock Option for an amount of cash or
     other property that could have been received upon the exercise of the Stock
     Option had the Stock Option been currently exercisable or payable;

     (iii) adjust the terms of the Stock Option in the manner  determined by the
     Committee to reflect the Change of Control;

     (iv) cause the Stock Option to be assumed, or new right substituted for the
     Stock Option, by another entity; or

     (v) make such other  provision as the Committee may consider  equitable and
     in the best interests of the Company.

If the terms of Section 4(b) and Section 4(c) would apply to a transaction, then
the transaction will be subject to this Section 4(c) and not Section 4(b).

     (d) Common  Stock  Usage.  If, after the  effective  date of the Plan,  any
Shares  covered  by an Award  granted  under  the  Plan,  or to which  any Award
relates,  are  forfeited  or if an Award  otherwise  terminates,  expires  or is
cancelled  prior to the delivery of all of the Shares or of other  consideration
issuable or payable pursuant to such Award and if such forfeiture,  termination,
expiration  or  cancellation  occurs  prior to the payment of  dividends  or the
exercise by the holder of other  indicia of ownership of the Shares to which the
Award relates,  then the number of Shares  counted  against the number of Shares
available  under the Plan in  connection  with the grant of such  Award,  to the
extent of any such forfeiture,  termination,  expiration or cancellation,  shall
again be available for granting of additional Awards under the Plan.

Section 5:  Awards

     (a) Stock Options.  Commencing  with April 30, 2004 and continuing on April
30th of each year thereafter,  the Company shall issue to each  Participant,  on
the first business day following each annual meeting of  shareholders  until the
Plan is terminated or amended,  Stock Options having a fair value (calculated as
of the date of the Stock Option grant using the Black-Scholes Model) of $10,000,
or such other amount as the Committee may approve in connection  with a specific
grant (each an "Annual Stock Option").

     The  Committee  shall  specifically  approve  each grant of an Annual Stock
Option to a continuing director in advance. The per share exercise price of each
such Stock  Option  shall be the Fair Market Value of a Share of Common Stock on

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the date of the  grant.  The  exercise  price  shall be  payable  at the time of
exercise in cash,  previously  acquired Shares valued at their Fair Market Value
or such other forms or combinations of forms of  consideration  as the Committee
may  approve.  Each such Stock  Option  shall have a term of ten years and shall
become  fully  exercisable  one year  following  the date on which it is granted
unless vesting is accelerated pursuant to Section 4(c) or Section 6(d) or (f).

     (b) Stock Awards.  Commencing  with April 30, 2004 and  continuing on April
30th of each year  thereafter,  the  Company  shall  issue to each  Participant,
Shares  having a Fair  Market  Value  (calculated  as of the date of such  Stock
Award)  of  $10,000,  or such  other  amount as the  Committee  may  approve  in
connection  with a specific grant (each an "Annual Stock Award").  The Committee
shall  specifically  approve each grant of an Annual Stock Award to a continuing
director in advance.

     (c) Awards Upon Election. If a Participant is first elected or appointed as
a director of the Company  following April 30th of any year during the existence
of the Plan, such Participant  shall  automatically  receive as an initial grant
the Awards referenced above,  (collectively,  "Initial  Awards").  The Committee
shall  specifically  approve  each  grant of Initial  Awards to a newly  elected
director in advance. These Awards shall be valued as of the date of grant.

Section 6:  General Provisions Applicable to Awards

     (a) Transferability of Stock Options.  Stock Options granted under the Plan
shall not be  transferable  other than by will or under the laws of descent  and
distribution, except as otherwise provided by the Committee.

     (b)  Non-Transferability of Stock Awards. Shares awarded under Section 5(b)
or Section 5(c) hereof shall not be assignable, alienable, saleable or otherwise
transferable by the respective Participant until such Participant ceases for any
reason to serve on the Board or a Change of Control is effected. Notwithstanding
the preceding  sentence,  the following transfers or other dispositions will not
be deemed to be a violation of the transfer restrictions set forth herein:

          A gift or other  transfer  of Shares  issued to (i) any trust or other
     estate in which such Participant has a substantial  beneficial  interest or
     as to which such  Participant  serves as a trustee or in a similar capacity
     or (ii) any relative or spouse of such Participant, or any relative of such
     spouse, who has the same home as the Participant which in either case would
     not change  the  Participant's  beneficial  ownership  of those  Shares for
     purposes of reporting under Section 16(a) of the 1934 Act;  provided,  that
     any Shares  transferred by gift or otherwise  pursuant to this subparagraph
     will  continue  to be  subject  to the  non-transfer  restrictions  of this
     Section as though such Shares were held by the Participant.

     (c) Legend on Certificates.  The Committee may cause a legend or legends to
be put on any  certificates  for shares delivered under the Plan pursuant to any

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Stock  Award  or upon the  exercise  of any  Stock  Option  to make  appropriate
references to any applicable transfer restrictions.

     (d)  Termination  of  Directorship.  If for any  reason  other than death a
Participant  ceases to be a director  of the  Company one year or more after the
director's  initial  election or appointment to the Board while holding a vested
Stock Option  granted  under the Plan,  such Stock  Option shall  continue to be
exercisable for a period of three years after such  termination or the remainder
of the Stock Option term,  whichever is shorter (any unvested Stock Option shall
be cancelled as of the date of such  termination).  If for any reason other than
death a  Participant  ceases to be a director of the Company  within one year of
the director's  initial  election or appointment to the Board,  the Stock Option
granted  under the Plan and held by the  director  shall be  cancelled as of the
date of such  termination.  In the event a Participant  dies, any unvested Stock
Option granted under the Plan to such Participant  shall immediately vest and be
exercisable  by the designated  beneficiary,  or, in the absence of a designated
beneficiary,  by will or in accordance with the laws of descent and distribution
for a period of three years following the date of death.

     (e) Documentation of Grants.  Awards made under the Plan shall be evidenced
by written  agreements or such other appropriate  documentation as the Committee
shall prescribe,  including an option agreement.  The Committee need not require
the execution of any  instrument or  acknowledgment  of notice of an Award under
the Plan, including an option agreement,  in which case acceptance of such Award
by the  respective  Participant  will  constitute  agreement to the terms of the
Award.

     (f) Plan  Amendment.  The  Board  may at any time  amend,  alter,  suspend,
discontinue or terminate the Plan,  including without limitation an amendment to
decrease  or  increase  the amount of the  Awards  under  Section  4;  provided,
however,  that  shareholder  approval  of any  amendment  of the  Plan  shall be
obtained  if  otherwise  required  by (a)  the  Code  or any  rules  promulgated
thereunder,  (b) the listing  requirements of the principal national  securities
exchange,  national securities  association or over-the-counter  market on which
the Common Stock is then traded,  or (c) any other applicable law. To the extent
permitted by applicable  law, the  Committee may also amend the Plan,  including
without limitation an amendment to decrease or increase the amount of the Awards
under  Section 4, provided  that any such  amendments by the Committee  shall be
reported  to the  Board.  Termination  of the Plan shall not affect the right of
Participants with respect to Stock Options  previously  granted to them, and all
unexpired Stock Options shall continue in force and effect after  termination of
the Plan  except  as they may  lapse or be  terminated  by their  own  terms and
conditions.   Notwithstanding  the  foregoing,   the  Board  and  Committee  are
prohibited from amending Section 6(g) of the Plan without shareholder approval.

     (g)  Repricing  Prohibited.  Notwithstanding  anything  in the  Plan to the
contrary, and except for the adjustments provided in Section 4(b), the Committee
and the  Board  are  prohibited  from  decreasing  the  exercise  price  for any
outstanding  Stock Option granted to a Participant under the Plan after the date
of grant or allowing a  Participant  to  surrender an  outstanding  Stock Option

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granted  under the Plan to the Company as  consideration  for the grant of a new
Stock Option with a lower exercise price.

     (h) No Rights as  Shareholder.  No  Participant  shall  have any  voting or
dividend  rights or other  rights as a  shareholder  with  respect to any Shares
subject to a Stock Option  granted under the Plan before the date of transfer to
the Participant of a certificate or  certificates  for such Shares and recording
of the Participant's  name on the Company's  shareholder ledger as the holder of
record of such Shares.

     (i) No Right to Continue as Director.  Nothing contained in the Plan or any
agreement  under the Plan will confer upon any Participant any right to continue
to serve as a director of the Company.

     (j) Severability.  If any provision of the Plan or any option agreement, if
any,  or any Award (a) is or  becomes  or is deemed to be  invalid,  illegal  or
unenforceable  in any  jurisdiction,  or as to any person or Award, or (b) would
disqualify the Plan or any option  agreement under any law deemed  applicable by
the  Committee,  then such  provision  shall be construed  or deemed  amended to
conform to applicable  laws,  or if it cannot be so construed or deemed  amended
without,  in the determination of the Committee,  materially altering the intent
of the Plan, any option  agreement,  if any, or Award,  such provision  shall be
stricken as to such  jurisdiction,  person or Award,  and the  remainder  of the
Plan,  any such option  agreement  and any such Award shall remain in full force
and effect.

     (k) Governing Law. The validity,  construction  and effect of the Plan, any
option  agreement and any Award,  and any actions taken under or relating to the
Plan, any option  agreement and any Award shall be determined in accordance with
the laws of the State of Nevada and applicable federal law.


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