Document:

Exhibit 4.4

 

 

REGISTRATION RIGHTS AGREEMENT

 

This
Registration Rights Agreement (this “Agreement”) is made and entered
into as of
                         ,
2003, among Hypertension Diagnostics, Inc., a Minnesota corporation (the “Company”),
and each person executing a counterpart signature page hereto (referred to
herein as a “Purchaser” and collectively as the “Purchasers”).

 

This Agreement
is made pursuant to the Securities Purchase Agreements (the “Purchase
Agreements”) between the Company and each Purchaser relating to the private
placement offering (the “Offering”) described in the Company’s
Confidential Private Placement Memorandum dated August 4, 2003.

 

The Company
and the Purchasers hereby agree as follows:

 

1.                                       Definitions

 

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

 

“Affiliate” means, with respect to any
Person, any other Person that directly or indirectly controls or is controlled
by or under common control with such Person. 
For the purposes of this definition, “control,” when used with respect
to any Person, means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms of “affiliated”, “controlling” and “controlled” have meanings correlative
to the foregoing.

 

“Business Day” means a day other than
a Saturday, Sunday or day on which banking institutions in New York are
authorized or required to remain closed.

 

“Commission” means the U.S. Securities
and Exchange Commission.

 

“Common Stock” means the common stock,
$0.01 par value per share, of the Company issued to the Purchasers pursuant to
the Purchase Agreements and stock of any other class into which such shares may
hereafter have been reclassified or changed.

 

“Common Warrants” means the Company’s
common stock purchase warrants issued to the Purchasers pursuant to the
Purchase Agreements.

 

“Exchange Act” means the Securities
Exchange Act of 1934, as amended.

 

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

 

 

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

 

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

 

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

 

“Person” means any individual, sole
proprietorship, partnership, limited liability company, joint venture, trust,
incorporated organization, association, corporation, institution, public
benefit corporation, government (whether federal, state, country, city,
municipal or otherwise, including, without limitation, any instrumentality,
division, agency, body or department thereof) or other entity any kind.

 

“Preferred Warrants” means the
Company’s Series A Preferred Stock purchase warrants issued to the Purchasers
pursuant to the Purchase Agreements.

 

“Proceeding” means an action, claim,
suit, investigation or proceeding (including, without limitation, an
investigation or partial proceeding, such as a deposition), whether commenced
or threatened.

 

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

 

“Registrable Securities” means the
Underlying Shares and the Common Stock.

 

“Registration Statement” means any
registration statement filed by the Company with the Commission for a public
offering and sale of the Registrable Securities (other than (i) a Registration
Statement on Form S-8 or Form S-4, or their successors, or any other form for a
similar limited purpose, or (ii) any registration statement covering only
securities proposed to be issued in exchange for securities or assets of
another corporation), including (in each such case) the Prospectus, amendments
and supplements to such registration statement or Prospectus, including pre-
and post-effective amendments, all exhibits thereto, and all material
incorporated by reference or deemed to be incorporated by reference in such
registration statement.

 

“Rule 144” means Rule 144 promulgated
by the Commission pursuant to the Securities Act, as such Rule 144 may be
amended from time to time, or any similar rule or regulation hereafter adopted
by the Commission having substantially the same effect as such Rule 144.

 

“Series A Preferred Stock” means the
shares of Series A Convertible Preferred Stock, par value $0.01 per share, of
the Company created pursuant to the Certificate of Designation, Preferences and
Rights of the Series A Convertible Preferred Stock and issued to the Purchasers

 

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pursuant to the Purchase Agreements or
issuable upon exercise of the Preferred Warrants, or issuable upon exercise of
the Common Warrants in accordance with the terms thereof.

 

“Securities Act” means the Securities
Act of 1933, as amended.

 

“Underlying Shares” means the shares
of the Company’s common stock (a) issuable upon proper conversion of the Series
A Preferred Stock (b) issuable upon proper exercise of the Common Warrants and
(c) issuable upon proper conversion of the Series A Preferred Stock acquired
through the proper exercise of the Preferred Warrants.

 

2.                                       Registration.

 

(a)                                  Commencing one
hundred and twenty (120) days following the termination of the Offering and
continuing for a period of forty-eight (48) consecutive months thereafter, the
holders of a majority of the Series A Preferred Stock may demand on the same
Registration Statement a registration under the Securities Act of all of the
Registrable Securities.  The Company
shall, as expeditiously as possible, prepare and file with the Commission a
Registration Statement with respect to the Registrable Securities and use its
best efforts to cause the Registration Statement to become effective and to
remain effective for the Applicable Period (as defined below) to enable the
resale of the Registrable Securities in accordance with the method or methods
of distribution reasonably requested by Purchasers and disclosed in the
Registration Statement (the “Demand Registration”).  The Company shall not include in any Demand Registration any
securities which are not Registrable Securities without the written consent of
the Holders of a majority of the Registrable Securities to be included in such
registration; provided, however, that the Company may include in the Demand
Registration (i) up to 300,000 shares of the Company’s common stock issued to
HRI Consultants, a division of Homeowner’s Realty, Inc. (“HRI”) in connection
with that certain Consulting Agreement (the “Consulting Agreement”), dated as
of June 21, 2002, by and between the Company and HRI, and (ii) up to 37,500
shares of the company’s common stock issued or issuable in connection with the
Common Stock Purchase Warrant, dated as of September 30, 2002, issued to HRI in
connection with the Consulting Agreement, and (iii) up to 62,500 shares of the
Company’s common stock issued or issuable in connection with the Common Stock
Purchase Warrant, dated as of December 31, 2002, issued to HRI in connection
with the Consulting Agreement.  A
registration shall not count as the Demand Registration (A) until the
Registration Statement filed in connection with such Demand Registration has
become effective, and (B) if each of the Holders is not able to register and
offer for sale all of the Registrable Securities requested by such Holders to
be included in such registration.

 

(b)                                 Whenever the Company proposes to
file a Registration Statement, prior to such filing it shall give written
notice to each Holder of its intention to do so, and upon the written request
of any Holder given within twenty (20) days after the Company provides such
notice (which request shall state the intended method of disposition of such
Underlying Shares), the Company shall cause all Registrable Securities which
the Company has been requested to register to be registered under the
Securities Act to the extent necessary to permit their sale or other
disposition in accordance with the reasonable intended methods of distribution
specified in the request of such Holder(s) (the “Piggyback Registration”).  In connection with any Demand Registration
or an offering under this Section 2(b), the Company shall not be required to
include any Registrable 

 

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Securities
in such underwriting unless the holders thereof accept the terms of the
underwriting as agreed upon between the Company and the underwriters and then
only in such quantity as will not, in the opinion of the underwriters,
jeopardize the success of the offering by the Company.  If in the opinion of the managing
underwriter the registration of all, or part of, the Registrable Securities
which the Holders have requested to be included would materially and adversely
affect such public offering, then the Company shall be required to include in
the underwriting subject to the priority provisions of Sections 2(c) or (d) as
applicable, only that number of shares of Registrable Securities which the
managing underwriter believes may be sold without causing such adverse
effect.  In the event of such a
reduction in the number of shares to be included in the underwriting, the
Holders of who have requested registration shall participate in the
underwriting pro rata based upon their total ownership of Registrable
Securities (or in any other proportion as agreed upon by such Holders) and if
any of such Holders would thus be entitled to include more shares than such
Holder requested to be registered, the excess shall be allocated among such
other requesting Holders pro rata based on their ownership of Registrable
Securities.  No Holder shall be required
to make any representations or warranties to or agreements with the Company or
the underwriters other than representations, warranties or agreements regarding
such Holder, such Holder’s Registrable Securities and such Holder’s intended
method of distribution and any other representation required by law.  If any of the Registrable Securities covered
by a Demand Registration is to be sold in an underwritten offering, the holders
of a majority of the Registrable Securities shall have the right to select the
managing underwriter(s) to administer the offering subject to the approval of
the Company, which will not be unreasonably withheld.

 

(c)                                  Priority on Primary Registrations. 
If a Piggyback Registration is an underwritten primary registration on
behalf of the Company, and the managing underwriters advise the Company in
writing that in their opinion the number of securities requested to be included
in such registration exceeds the number which can be sold in such offering
and/or that the number of shares of Registrable Securities proposed to be
included in any such registration would adversely affect the price per share of
the Company’s equity securities to be sold in such offering, the Company shall
include in such registration (i) first, the securities the Company proposes to
sell, (ii) second, the Registrable Securities requested to be included therein
by the Holders, pro rata among the Holders of such Registrable Securities on
the basis of the number of shares requested to be registered by such Holders,
and (iii) third, other securities requested to be included in such registration
pro rata among the holders of such securities on the basis of the number of
shares requested to be registered by such holders or as such holders may otherwise
agree.

 

(d)                                 Priority on Secondary Registrations. 
If a Piggyback Registration is an underwritten secondary registration on
behalf of a holder of the Company’s securities other than Underlying Shares,
and the managing underwriters advise the Company in writing that in their
opinion the number of securities requested to be included in such registration
exceeds the number which can be sold in such offering and/or that the number of
shares of Registrable Securities proposed to be included in any such registration
would adversely affect the price per share of the Company’s equity securities
to be sold in such offering, the Company shall include in such registration (i)
first the securities requested to be included therein by the holders requesting
such registration and the Registrable Securities requested to be included in
such registration, pro rata among the holders of such securities on the basis
of the number of shares requested to be registered by such holders, and (ii)
second, other securities requested to be included in such registration pro 

 

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rata
among the holders of such securities on the basis of the number of shares
requested to be registered by such holders or as such holders may otherwise
agree.

 

(e)                                  The Company shall not
be obligated to register or to keep a Registration Statement effective with
respect to any Registrable Securities: 
(i) if a Registration Statement with respect to the sale of such
securities shall have become effective under the Securities Act and such
securities shall have been disposed of in accordance with such Registration
Statement or, if earlier, when the Applicable Period shall have expired with
respect to such securities; (ii) if counsel to the Company reasonably determines
they are eligible to be distributed to the public pursuant to Rule 144(k) (or
any successor provision) under the Securities Act and, if requested by the
Company’s transfer agent in connection with any sale by a Holder of the
Registrable Securities, provides a legal opinion to the Company’s transfer
agent to such effect;  or (iii) when new
certificates for the Registrable Securities not bearing a legend restricting
further transfer shall have been delivered by the Company and subsequent
disposition of them shall not require registration or qualification of them
under the Securities Act or any similar state law then in force. If the Company
shall withdraw any Registration Statement (a “Withdrawn Registration
Statement”), the Holders of the Underlying Shares remaining unsold and
originally covered by such Withdrawn Registration Statement shall be entitled
to an additional Demand Registration which (subject to the provisions of this
Section 2) the Company shall use its best efforts to keep effective for a period
commencing on the effective date of such Registration Statement and ending on
the earlier to occur of the date (i) which is one hundred eighty (180) days
from the effective date of such Registration Statement and (ii) on which all of
the Registrable Securities covered by such Demand Registration has been
sold.  Such additional Demand
Registration otherwise shall be subject to all of the provisions of this
Agreement.

 

3.                                       Registration
Procedures.  If and whenever the
Company is required by the provisions of Section 2 to effect the registration
of any Registrable Securities under the Securities Act, the Company will:

 

(a)                                  prepare
and file with the Commission a Registration Statement with respect to such
securities, and to cause such Registration Statement to become and to use its
best efforts to cause such Registration Statement to remain effective for such
period as may be reasonably necessary to effect the sale of the Underlying
Shares, not to exceed six (6) months with respect to the Registration Statement
described in Section 2(b) and not to exceed two (2) years with respect to the
Registration Statement described in Section 2(a) (respectively, the “Applicable
Period”);

 

(b)                                 prepare
and file with the Commission such amendments to such Registration Statement and
supplements to the prospectus contained therein as may be necessary to keep
such Registration Statement effective for the Applicable Period:

 

(c)                                  furnish
to the Holders participating in such registration such reasonable number of
copies of the Registration Statement, preliminary prospectus, final prospectus
and such other documents as such Holders may reasonably request in order to
facilitate the public offering of such securities;

 

(d)                                 use
its best efforts to register or qualify the securities covered by such 

 

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Registration Statement under
such state securities or blue sky laws of such jurisdictions as such
participating Holders may reasonably request within 20 days following the
original filing of such Registration Statement and do any and all other acts
and things which may be reasonably necessary or advisable to enable such seller
to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller; provided, that the Company will not be
required to (i) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this subparagraph (d), (ii)
subject itself to taxation in any such jurisdiction or (iii) consent to general
service of process in any such jurisdiction;

 

(e)                                  notify
the Holders participating in such registration, promptly after it shall receive
notice thereof, of the time when such Registration Statement has become
effective or that a supplement to any prospectus forming a part of such
Registration Statement has been filed;

 

(f)                                    notify
such Holders promptly of any request by the Commission for the amending or
supplementing of such Registration Statement or prospectus or for additional
information;

 

(g)                                 prepare
and file with the Commission, promptly upon the request of any Holder, any
amendments or supplements to such Registration Statement or prospectus which,
in the opinion of counsel for such Holder(s) and concurred in by counsel for
the Company, is required under the Securities Act or the rules and regulations
thereunder in connection with the distribution of the Registrable Securities by
such Holder;

 

(h)                                 prepare
and promptly file with the Commission and promptly notify such Holders of the
filing of such amendment or supplement to such Registration Statement or
prospectus as may be necessary to correct any statements or omissions if, at
the time when a prospectus relating to such securities is required to be
delivered under the Securities Act, any event shall have occurred as the result
of which any such prospectus or any other prospectus as then in effect would
include an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the circumstances
in which they were made, not misleading;

 

(i)                                     advise
such Holders, promptly after it shall receive notice or obtain knowledge
thereof, of the issuance of any stop order by the Commission suspending the
effectiveness of such Registration Statement or the initiation or threatening
of any proceeding for that purpose and promptly use its commercially reasonable
efforts to prevent the issuance of any stop order or to obtain its withdrawal
if such stop order should be issued;

 

(j)                                     not
file any amendment or supplement to such Registration Statement or prospectus
to which a majority in interest of the Holders shall have reasonably objected
on the grounds that such amendment or supplement does not comply in all
material respects with the requirements of the Securities Act or the rules and
regulations thereunder, after having been furnished with a copy thereof at
least five (5) Business Days prior to the filing thereof, unless in the opinion
of counsel for the Company the filing of such amendment or supplement is
reasonably necessary to protect the Company from any liabilities under any
applicable federal or state law and such filing will not violate applicable
law; and

 

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(k)                                  
at the request of any Holder, furnish on the effective date of the Registration
Statement: (i) opinions, dated such effective date, of counsel representing the
Company for the purposes of such registration, addressed to the Holder or
Holders making such request, covering such matters as such Holder or Holders
may reasonably request, in which opinion such counsel shall state (without
limiting the generality of the foregoing) that (A) the Registration Statement
has become effective under the Securities Act; (B) to the best of such counsel’s
knowledge, no stop order suspending the effectiveness thereof has been issued
and no proceedings for that purpose have been instituted or are pending or
contemplated under the Securities Act; (C) the Registration Statement complies
as to form in all material respects with the requirements of the Securities Act
and the applicable rules and regulations of the Commission thereunder (except
that such counsel need express no opinion as to financial statements contained
therein); (D) to the best of the knowledge of such counsel, the Registration
Statement does not contain any untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading (except that such counsel need express no
opinion as to financial statements contained therein); (E) the description in
the Registration Statement of legal and governmental proceedings and contracts
are accurate and fairly present the information required to shown; and (F) such
counsel does not know of any legal or governmental proceedings, pending or
threatened, required to be described in the Registration Statement which are
not described as required nor of any contracts or documents or instruments of
the character required to be described in the Registration Statement or to be
filed as exhibits to the Registration Statement, which are not described or
filed as required; and (ii) letters, dated such effective date, from the
independent certified public accountants of the Company, addressed to the
Holder or Holders making such request, covering such matters as such Holder or
Holders may reasonably request, in which letters such accountants shall state
(without limiting the generality of the foregoing) that they are independent
certified public accountants within the meaning of the Securities Act and that
in the opinion of such accountants the financial statements and other financial
data of the Company included in the Registration Statement complies in all
material respects with the applicable accounting requirements of the Securities
Act;

 

(l)                                     in
the case of an underwritten offering, enter into such customary agreements
(including underwriting agreements in customary form) and take all such other
actions as the Holders of a majority of the Registrable Securities being sold
or the underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities;

 

(m)                               use
its best efforts to cause all such Registrable Securities to be listed on each securities
exchange on which securities of the same class issued by the Company are then
listed or, if no such similar securities are then listed, on Nasdaq or the
OTCBB as selected by the Company;

 

(n)                                 provide
a transfer agent and registrar for all such Registrable Securities not later
than the effective date of such Registration Statement;

 

(o)                                 provide
a CUSIP number for all Registrable Securities, not later than the effective
date of such Registration Statement.

 

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4.                                       Registration
Expenses.  With respect to the
inclusion of Registrable Securities in a Registration Statement pursuant to
Section 2, the Company shall bear all of the fees and expenses including
without limitation the following fees, costs and expenses: all registration,
filing and NASD fees, printing expenses, prospectus and other information
distribution costs, fees and disbursements of counsel and accountants for the
Company, all internal Company expenses and all legal fees and disbursements and
other expenses of complying with state securities or blue sky laws of any
jurisdictions in which the securities to be offered are to be registered or
qualified.  In addition, the Company
shall pay its internal expenses (including, without limitation, all salaries
and expenses of its officers and employees performing legal or accounting
duties), the expense of any annual audit or quarterly review, the expense of
any liability insurance and the expenses and fees for listing the securities to
be registered on each securities exchange on which they are to be listed. Fees
and disbursements of counsel and accountants for the Holders, underwriting
discounts and commissions and transfer taxes for Holders and any other expenses
incurred by the Holders not expressly included above shall be borne by such
Holders.  The obligation of the Company
to bear the expenses described in this Section and to reimburse the Holders for
the expenses described in this Section shall apply irrespective of whether a
registration, once properly demanded, if applicable, becomes effective, is
withdrawn or suspended, is converted to another form of registration and
irrespective of when any of the foregoing shall occur.

 

5.                                       Registration
of Series A Preferred Stock.  If
within one hundred and twenty (120) days following the termination of the
Offering, the Company’s shareholders do not duly approve an increase in the
number of authorized shares of Common Stock to one hundred and fifty million
(150,000,000) or such other number as may be sufficient to allow for the
reservation for issuance of all shares of Common Stock underlying each
outstanding security convertible or exercisable for, or exchangeable into,
Common Stock, then the definition in this Agreement of “Registrable Securities”
shall automatically include for all purposes the Series A Preferred Stock.  In the event the Series A Preferred Stock
receive the rights as set forth in this paragraph, the Holders of the
Registrable Securities shall be entitled to one (1) additional Demand Registration
pursuant to and in accordance with the terms of this Agreement including
without limitation Section 3 and 4.

 

6.                                       Indemnification.

 

(a)                                  Indemnification by
the Company.  The Company shall,
notwithstanding any termination of this Agreement, defend, indemnify and hold
harmless each Holder, the officers, directors, agents, investment advisors and
employees of each of them, each Person who controls any such Holder (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
and the officers, directors, agents and employees of each such controlling
Person, to the fullest extent permitted by applicable law, from and against any
and all losses, claims, damages, liabilities, costs (including, without
limitation, reasonable attorneys’ fees) and expenses (collectively, “Losses”),
as incurred, arising out of or relating to any untrue or alleged untrue
statement of a material fact contained in any Registration Statement, any
Prospectus or any form of prospectus covering the Registrable Securities or in
any amendment or supplement thereto or in any preliminary prospectus covering
the Registrable Securities, or arising out of or relating to any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein (in the case of any Prospectus or form of
prospectus or supplement thereto, in light of the circumstances under which
they were made) not misleading, except to the extent, but only to the extent,
that such untrue or alleged untrue statement or omissions or alleged omission
are

 

8

 

based solely upon information regarding such
Holder or such Holder’s proposed method of distribution of the Registrable
Securities furnished to the Company by such Holder for use therein.  The Company shall notify the Holders
promptly of the institution, threat or assertion of any Proceeding of which the
Company is aware in connection with the transactions contemplated by this
Agreement.

 

(b)                                 Indemnification by
Holders.  Each Holder shall,
severally and not jointly, indemnify and hold harmless the Company, its
directors, officers, agents and employees, each Person who controls the Company
(within the meaning of Section 15 of the Securities Act and Section 20 of the
Exchange Act), and the directors, officers, agents or employees of such
controlling Persons, to the fullest extent permitted by applicable law, from
and against all Losses (as determined by a court of competent jurisdiction in a
final judgment not subject to appeal or review) arising out of or based upon
any untrue or alleged untrue statement of a material fact contained in any
Registration Statement, any Prospectus, or any form of prospectus covering the
Registrable Securities or in any amendment or supplement thereto or in any
preliminary prospectus covering the Registrable Securities, or arising out of
or based upon any omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading to the extent, but only
to the extent, that such untrue statement or omission is contained in any
written information so furnished by such Holder to the Company for the express
inclusion in such Registration Statement or such Prospectus and that such
information was reasonably relied upon by the Company for use in such
Registration Statement, such Prospectus or such form of prospectus. In no event
shall the liability of any selling Holder hereunder be greater in amount than
the dollar amount of the net proceeds received by such Holder upon the sale of
the Registrable Securities.

 

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

 

An Indemnified Party shall have the right to
employ separate counsel in any such Proceeding and to participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party
has agreed in writing to pay such fees and expenses; or (2) the Indemnifying
Party shall have failed promptly to assume the defense of such Proceeding and
to employ counsel reasonably satisfactory to such Indemnified Party in any such
Proceeding; or (3) the named parties to any such Proceeding (including any
impleaded parties) include both such Indemnified Party and the Indemnifying
Party, and such Indemnified Party shall have been advised by counsel that a
conflict of interest is likely to exist if the same counsel were to represent
such Indemnified Party and the Indemnifying Party (in which case, if such
Indemnified Party notifies the Indemnifying Party in writing that it elects to
employ separate counsel at the expense of the Indemnifying Party, the Indemnifying
Party shall not

 

9

 

have the right to assume the defense thereof
and such counsel shall be at the expense of the Indemnifying Party); provided
that if more than one Indemnified Party is seeking indemnification with respect
to the same Proceeding, the Indemnifying Party shall not be required to pay for
more than one separate counsel for all such Indemnified Parties as a
group.  The Indemnifying Party shall not
be liable for any settlement of any such Proceeding effected without its
written consent, which consent shall not be unreasonably withheld.  No Indemnifying Party shall, without the
prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party
from all liability on claims that are the subject matter of such Proceeding.

 

(d)                                 Contribution.  If a claim for indemnification under Section
6(a) or 6(b) is unavailable to an Indemnified Party because of a failure or
refusal of a governmental authority to enforce such indemnification in
accordance with its terms (by reason of public policy or otherwise), then each
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Losses, in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party and Indemnified Party in connection with the
actions, statements or omissions that resulted in such Losses, as well as any
other relevant equitable considerations. 
The relative fault of such Indemnifying Party and Indemnified Party shall
be determined by reference to, among other things, whether any action in
question, including any untrue or alleged untrue statement of a material fact
or omission or alleged omission of a material fact, has been taken or made by,
or relates to information supplied by, such Indemnifying Party or Indemnified
Party, and the parties’ relative intent, knowledge, access to information and
opportunity to correct or prevent such action, statement or omission.  The amount paid or payable by a party as a
result of any Losses shall be deemed to include, subject to the limita­tions
set forth in Section 6(c), any reasonable attorneys’ or other reasonable fees
or expenses incurred by such party in connection with any Proceeding to the
extent such party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party in
accordance with its terms.

 

The parties hereto agree that it would not be
just and equitable if contribution pursuant to this Section 6(d) were
determined by pro  rata allocation or by any other method of
allocation that does not take into account the equitable considerations
referred to in the immediately preceding paragraph.  Notwithstanding the provisions of this Section 6(d), the Purchaser
shall not be required to contribute, in the aggregate, any amount in excess of
the amount by which the proceeds actually received by the Purchaser from the
sale of the Registrable Securities to the Proceeding exceeds the amount of any
damages that the Purchaser has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission.  No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.

 

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

 

10

 

7.                                       Miscellaneous

 

(a)                                  Remedies.  In the event of a breach by the Company or
by a Holder, of any of their obligations under this Agreement, each Holder or
the Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this
Agreement.  The Company and each Holder
agree that monetary damages would not provide adequate compensation for any
losses incurred by reason of a breach by any party of any of the provisions of
this Agreement and hereby further agree that, in the event of any action for
specific performance in respect of such breach, each of the Company and each
Holder shall waive the defense that a remedy at law would be adequate.

 

(b)                                 Amendments and
Waivers.  The provisions of this
Agreement, including the provisions of this sentence, may not be amended,
modified or supplemented, and waivers or consents to departures from the provisions
hereof may not be given, unless the same shall be in writing and signed by the
Company and the Holders of a majority of the then outstanding shares of the
Registrable Securities.  Notwithstanding
the foregoing, a waiver or consent to depart from the provisions hereof with
respect to a matter that relates exclusively to the rights of Holders and that
does not directly or indirectly affect the rights of other Holders may be given
by Holders of at least a majority of the Registrable Securities to which such
waiver or consent relates; provided, however, that the provisions
of this sentence may not be amended, modified, or supplemented except in
accordance with the provisions of the immediately preceding sentence.

 

(c)                                  Notices.  Any and all notices or other communications
or deliveries required or permitted to be provided hereunder shall be in
writing and shall be deemed given and effective on the earliest of: (i) the
date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section prior to
4:30 p.m. (Central Time) on a Business Day; (ii) the Business Day after the
date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in the Purchase
Agreements later than 4:30 p.m. (Central Time) on any date and earlier than
11:59 p.m. (Central Time) on such date; (iii) the Business Day following the
date of mailing, if sent by nationally recognized overnight courier service; or
(iv) upon actual receipt by the party to whom such notice is required to be
given.

 

	
  If to the
  Company:

  	
   

  	
  Hypertension
  Diagnostics, Inc.

  
	
   

  	
   

  	
  2915 Waters
  Road, Suite 108

  
	
   

  	
   

  	
  Eagan, MN
  55121-1562

  
	
   

  	
   

  	
  Attn:     President

  
	
   

  	
   

  	
  Fax:      (651)
  687-0485

  

 

	
  With copies
  to:

  	
   

  	
  Lindquist
  & Vennum P.L.L.P.

  
	
   

  	
   

  	
  4200 IDS
  Center

  
	
   

  	
   

  	
  80 South
  Eighth Street

  
	
   

  	
   

  	
  Minneapolis,
  MN 55402

  
	
   

  	
   

  	
  Attn:     Girard
  P. Miller

  
	
   

  	
   

  	
  Fax:      (612)
  371-3207

  

 

11

 

	
  If to the Purchasers:

  	
   

  	
  To the address of record for each

  

 

 

or such other address as may be designated in
writing hereafter, in the same manner, by such Person.

 

(d)                                 Successors and
Assigns.  This Agreement shall inure
to the benefit of and be binding upon the successors and permitted assigns of
each of the parties and shall inure to the benefit of each Holder.  The Company may not assign its rights or
obligations hereunder without the prior written consent of each Holder.  A Purchaser may assign its rights or
obligations hereunder only in accordance with Section 6(e).

 

(e)                                  Assignment of
Registration Rights.  The rights of
each Purchaser hereunder, including the right to have the Company register for
resale the Registrable Securities in accordance with the terms of this
Agreement, shall be freely assignable by the Purchaser to any assignee or
transferee of all or a portion of the shares of the Series A Preferred Stock or
Registrable Securities , provided that no Series A Preferred Stock,
Preferred Warrants, Common Warrants, Common Stock or Underlying Shares may be
assigned or transferred without registration under the Securities Act and any
applicable state securities laws, or an exemption from the requirements of the
Securities Act and applicable state securities laws and further provided
that: (i) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (A) the name and address of such
transferee or assignee, and (B) the securities with respect to which such
registration rights are being transferred or assigned; (ii) at or before the
time the Company receives the written notice contemplated by clause (i) of this
Section, the transferee or assignee agrees in writing with the Company to be
bound by all of the provisions of this Agreement; and (v) such transfer shall
have been made in accordance with the applicable requirements of the Purchase
Agreements.  The rights to assignment
shall apply to the Purchaser’s (and to subsequent) successors and assigns.

 

(f)                                    Counterparts.  This Agreement may be executed in any number
of counterparts, each of which when executed and delivered shall be deemed to
be an original and, all of which taken together shall constitute one and the
same Agreement.  In the event that any
signature is delivered by facsimile transmission, such signature shall create a
valid binding obligation of the party executing (or on whose behalf such
signature is executed) the same with the same force and effect as if such
facsimile signature were the original thereof.

 

(g)                                 Governing Law.  This Agreement shall be governed by and
construed in accordance with the laws of the State of Minnesota, without regard
to principles of conflicts of law. Any and all actions brought by one party
against any other party concerning the terms and provisions of this Agreement
shall be solely venued in State Court in Hennepin County, Minnesota or Federal
Court located in Minneapolis, Minnesota and all parties agree to submit to the
jurisdiction of such courts and waive any claim or defense that such forums are
inconvenient.

 

12

 

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

 

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

 

(j)                                     Headings.  The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.

 

(k)                                  Shares Held by The
Company and its Affiliates. 
Whenever the consent or approval of Holders of a specified percentage of
the Registrable Securities is required hereunder, Registrable Securities held
by the Company or its Affiliates (other than the Purchasers or transferees or
successors or assigns thereof if such Persons are deemed to be Affiliates
solely by reason of their holdings of such Registrable Securities) shall not be
counted in determining whether such consent or approval was given by the
Holders of such required percentage.

 

(l)                                     Stockholder
Representations.  Each Holder
represents and warrants that this Agreement has been duly authorized, executed
and delivered by such Holder and constitutes the valid and binding obligation
of such Holder, enforceable against such Holder in accordance with its terms,
subject to bankruptcy, insolvency, reorganization, fraudulent transfer,
moratorium and other similar laws now or hereafter in effect relating to or
affecting creditors’ rights generally and the rights of creditors of insurance
companies generally.

 

13

 

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

 

 

	
   

  	
   

  	
  HYPERTENSION DIAGNOSTICS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Greg H.
  Guettler

  
	
   

  	
   

  	
  Its:

  	
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  PURCHASER:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Signature

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name [typed
  or printed]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  State of
  Domicile or Principal office

  
	
   

  	
   

  	
  (if
  different than above)

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Telephone
  Number

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  SSN or TIN:

  	
   

  	
   

  
								

 

14Exhibit 4.5

 

 

HYPERTENSION DIAGNOSTICS, INC.

 

SHAREHOLDERS’ AGREEMENT

 

THIS SHAREHOLDERS’ AGREEMENT (this “Agreement”), dated as of
                 ,
2003, is made by and among Hypertension Diagnostics, Inc., a Minnesota
corporation (the “Company”), and the holders of shares of the Company’s Series
A Convertible Preferred Stock, par value $0.01 per share (the “Series A
Preferred Stock”), identified as “Series A Investors” on Schedule A attached
hereto or those persons who hereafter become parties to this Agreement in
accordance with Section 6 (each, an “Investor,” and collectively, the
“Investors”).

 

RECITALS

 

WHEREAS, as part of the transactions contemplated by the Securities
Purchase Agreement, dated as of
                  ,
2003 (the “Securities Purchase Agreement”), by and among the Company and the
Investors, the Investors are participating in the offering by the Company of a
minimum of $1,300,000 and a maximum of $2,300,000 of units, each consisting of
one share of the Company’s Series A Convertible Preferred Stock (the “Series A
Preferred Stock”), 15.903 shares of the Company’s common stock, $0.01 par value
per share (the “Common Stock”) and a series of six (6) Purchase Warrants, three
(3) of which entitle the holder to acquire Series A Preferred Stock and three
(3) of which entitle the holder to acquire Common Stock;

 

WHEREAS, the Company and the Investors desire to enter into this
Agreement for the purpose of governing certain aspects of the Investors’
relationships with each other and the Company; and

 

WHEREAS, it is in the best interests of the Company and the Investors
that such aspects of their relationships be so governed.

 

NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein and intending to be legally bound the parties
hereto hereby agree as follows:

 

AGREEMENT

 

Section 1.                                          Definitions.  As used in this Agreement, the following
terms shall have the meanings ascribed to them below.

(a)                          “Acceptance Period” shall
have the meaning ascribed to it in Section 5(a).

 

(b)                         “Accepted Number” shall have
the meaning ascribed to it in Section 5(b).

 

 

(c)                          “Accepting Investor” shall
have the meaning ascribed to it in Section 5(c).

 

(d)                         “Act” means the Securities Act
of 1933, as amended.

 

(e)                          “Affiliate” of any Person
means any other Person which directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
such Person.  The term “control”
(including the terms “controlled by” and “under common control with”) as used
with respect to any Person means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by contract or
otherwise.

 

(f)                            “Articles” means the
Articles of Incorporation of the Company, including any amendments thereto.

 

(g)                         “Board of Directors” means the
board of directors of the Company.

 

(h)                         “Certificate of Designation”
means the Certificate of Designation, Preferences and Rights of Series A
Convertible Preferred Stock.

 

(i)                             “Common Stock” shall have
the meaning ascribed to it in the recitals.

 

(j)                             “Company Offered
Securities” shall have the meaning ascribed to it in Section 4.

 

(k)                          “Competitor” shall mean any
Person, or an Affiliate of any Person, which directly or indirectly engages in
the type of business substantially similar to the type of business in which the
Company is engaged

 

(l)                             “Excluded Stock” means:
(i) any shares of Common Stock issuable upon conversion of shares of Series A
Preferred Stock; (ii) options, warrants, Common Stock or other equity
securities (x) issued or issuable in connection with the acquisition of another
corporation, partnership, limited liability company or other entity or (y)
issued or issuable in connection with a collaboration, co-marketing or similar
agreement which, in the case of either clause (x) or clause (y), has
been approved by the Board of Directors; (iii) Stock outstanding as of the date
hereof; (iv) options, warrants, Common Stock or other equity securities issued
to a financial institution or lessor in connection with a commercial credit
arrangement or an equipment financing, which is approved by the Board of
Directors; (v) shares of Common Stock issued or issuable upon exercise of any
option or warrant issued to any Person under any management compensation, stock
option, stock incentive, equity incentive or employee benefit plan; (vi) shares
of Stock issued to the holders of the Company’s 8% Convertible Notes due March
27, 2005 pursuant to an arrangement approved by the Board of Directors; (vii)
shares of Stock distributed pro rata to holders of any class of Stock as a
class; and (viii) any Stock or any Stock Equivalent issued in an offering
registered under the Act that has

 

2

 

been approved by a majority of the Series A Directors (as hereinafter
defined) in which the cash proceeds to the Company would be at least $5 million
upon completion of such offering.

 

(m)                       “Exchange Act” means the
Securities Exchange Act of 1934, as amended.

 

(n)                         “First Offer” shall have the
meaning ascribed to it in Section 5(a).

 

(o)                         “Governmental Entity” means
any national, federal, state, municipal, local, territorial, foreign or other
government or any department, commission, board, bureau, agency, regulatory
authority or instrumentality thereof, or any court, judicial, administrative or
arbitral body or public or private tribunal.

 

(p)                         “Intellectual Property” means
trademarks, service marks, trade names, Internet domain names, designs, logos,
slogans, and general intangibles of like nature, together with all goodwill,
registrations and applications related to the foregoing; patents and industrial
designs (including any continuations, divisionals, continuations-in-part,
renewals, reissues, and applications for any of the foregoing); copyrights
(including any registrations and applications for any of the foregoing) and all
content and information contained on any website; Software; “mask works” (as
defined under 17 U.S.C. § 901) and any registrations and applications for
“mask works;” technology, trade secrets and other confidential information,
know-how, inventions, proprietary processes, formulae, algorithms, models, and
methodologies; rights of publicity and privacy relating to the use of the
names, likenesses, voices, signatures and biographical information of real
persons; in each case used in or necessary for the conduct of the Company’s
business as currently conducted or contemplated to be conducted.

 

(q)                          “Majority Holders” means the
holders of more than fifty percent (50%) of the issued and outstanding shares
of Series A Preferred Stock.

 

(r)                            “Minimum Threshold” shall
mean fifty percent (50%) or more of the Series A Preferred Stock originally
issued to the Investors as of the Closing Date (including shares of Common
Stock issued upon the conversion thereof), as appropriately adjusted for any
stock dividend, stock split, recapitalization or consolidation.

 

(s)                          “Non-Responding Holder” shall
have the meaning ascribed to it in Section 4(b).

 

(t)                            “Offered Shares” shall have
the meaning ascribed to it in Section 5(a).

 

(u)                         “Offeror” shall have the
meaning ascribed to it in Section 5(a).

 

3

 

(v)                         “Person” means any individual,
sole proprietorship, partnership, limited liability company, joint venture,
trust, incorporated organization, association, corporation, institution, public
benefit corporation, government (whether federal, state, county, city,
municipal or otherwise, including, without limitation, any instrumentality,
division, agency, body or department thereof) or other entity.

 

(w)                       “Preemptive Rights Offer” shall
have the meaning ascribed to it in Section 4(a).

 

(x)                           “Preemptive Rights Offer
Notice” shall have the meaning ascribed to it in Section 4(a).

 

(y)                         “Preemptive Rights
Transaction” shall have the meaning ascribed to it in Section 4(a).

 

(z)                           “Responding Holder” shall
have the meaning ascribed to it in Section 4(b).

 

(aa)                    “Sale Transaction” means a sale, conveyance
or disposition of all or substantially all of the assets of the Company; or the
effectuation by the Company of a transaction or series of related transactions
in which more than fifty percent (50%) of the voting power of the Company is
disposed of or transferred, including without limitation the acquisition by any
person or group (as such term is defined in Section 13(d)(3) of the Exchange
Act) of persons of more than fifty percent (50%) of the voting power of the
Company; or a consolidation or merger of the Company with or into any other
Person following which the shareholders of the Company immediately prior to
such consolidation or merger own less than fifty percent (50%) of the capital
stock of the surviving entity immediately after such consolidation or merger.

 

(bb)                  “Securities Purchase Agreement” shall
have the meaning ascribed to it in the recitals.

 

(cc)                    “Series A Preferred Stock” shall
have the meaning ascribed to it in the recitals.

 

(dd)                  “Software” means any and all (a)
computer programs, including any and all software implementation of algorithms,
models and methodologies, whether in source code or object code form, (b)
computerized databases and compilations, including any and all data and
collections of data, and (c) all documentation, including user manuals and
training materials, relating to any of the foregoing.

 

(ee)                    “Stock” shall mean shares of Common
Stock, preferred stock and any other class of equity securities of the Company
and shall include any shares of Common Stock issuable upon exercise, exchange
or conversion of securities exercisable or exchangeable for or convertible into
shares of Common Stock.  Each share of
Common Stock shall count as one share of Stock, each share of preferred stock
shall count as a number of shares of Stock equal to the number of shares of
Common Stock

 

4

 

into which such share of preferred stock is then convertible and each
share of any other class of equity securities of the Company constituting Stock
shall count as a number of shares of Stock equal to the number of shares of
Common Stock into which such share of Stock is then convertible, exchangeable
or exercisable, as the case may be.

 

(ff)                        “Stock Equivalents” means any
right, warrant, option or security of the Company which is exercisable or
exchangeable for or convertible into, or represents the right to otherwise
acquire, directly or indirectly, Stock, whether at the time of issuance or upon
the passage of time or the occurrence of some future event.  Each Stock Equivalent shall count as a
number of shares of Stock equal to the number of shares of Common Stock into
which such Stock Equivalent is then convertible, exchangeable or exercisable.

 

(gg)                  “Securities Purchase Agreement” shall
have the meaning ascribed to it in the recitals.

 

(hh)                  “Subsidiary” means any corporation,
association, partnership, limited liability company, joint venture or other
business entity at least fifty percent (50%) of the outstanding voting
securities of which are at the time owned or controlled, directly or
indirectly, by the Company.

 

(ii)                          “Third Party” means any
Person (other than the Company or an Investor or an Affiliate of an Investor)
that is a prospective transferee of Stock from an Investor.

 

(jj)                          “Transfer” shall have the
meaning ascribed to it in Section 5(a).

 

(kk)                    “Unsubscribed Securities” shall
have the meaning ascribed to it in Section 4(b).

 

(ll)                          “Vote” shall mean (i) to cast
a ballot, or to otherwise indicate approval or disapproval of any matter at any
meeting of holders of Stock and at any adjournment or postponement thereof and
(ii) to act by written consent in lieu of any meeting of holders of Stock.

 

Section
2.                                          Intentionally Omitted.

 

Section 3.                                          Preferred
Shareholder Approval; Actions by the Company.

 

(a)                          So long as any shares of
Series A Preferred Stock remain outstanding, the Company shall not, and shall
not permit any of its Subsidiaries to, without first obtaining the affirmative
Vote of the Majority Holders:

 

(i)                           alter or adversely change the
powers, preferences or rights given to the Series A Preferred Stock;

 

5

 

(ii)                          alter or amend the
Certificate of Designation in a manner adverse to the holders of the Series A
Preferred Stock;

 

(iii)                     authorize or issue (by
reclassification or otherwise) any class of equity security having any right,
preference or privilege senior to or pari
passu with the Series A Preferred Stock with respect to voting,
dividend, redemption, conversion or liquidation, or any other rights;

 

(iv)                    amend the Articles, bylaws or other
charter documents of the Company in a manner adverse to the Series A Preferred
Stock;

 

(v)                       increase the authorized number of
shares of Series A Preferred Stock;

 

(vi)                    declare or cause any dividend to be
paid to the holders of the Common Stock;

 

(vii)                 consummate a Sale Transaction; or

 

(viii)              authorize or cause the repurchase of any
of the Company’s equity securities.

 

(b)                         From and after the date hereof
until the termination of this Agreement as provided herein, the Company
covenants and agrees to:

 

(i)                             maintain and preserve its
corporate existence and all rights, franchises, licenses, Intellectual Property
and other authority reasonably deemed adequate by the Company for the conduct
of its business; maintain its properties, equipment and facilities in good
order and repair; and conduct its business in an orderly manner without
voluntary interruption;

 

(ii)                          maintain in full force and
effect a policy or policies of insurance, including, without limitation, a
directors and officers liability insurance policy, issued by insurers of
recognized responsibility, insuring it, its directors and officers, its
properties and its business against such losses and risks, and in such amounts,
as are customary in the case of corporations of established reputation engaged
in the same or a similar business;

 

(iv)                      maintain a system of internal
accounting controls administered in accordance with Section 13(b)(2) of the
Exchange Act;

 

(v)                         conduct its business in
material compliance with all applicable provisions of federal, state, local and
foreign law;

 

(vi)                      perform and observe all of its
obligations to the holders of all of its securities set forth in the Articles;

 

6

 

(vii)                   reimburse all directors of the
Company for their reasonable out-of-pocket expenses in connection with
attending meetings of the Company’s Board of Directors and all committees
thereof and all reasonable out-of-pocket expenses otherwise incurred in
fulfilling their duties as directors; and

 

(viii)                promptly provide to the Investors (or
their respective counsel) copies of all filings made by the Company or any
Affiliate with any Governmental Entity in connection with this Agreement, the
Securities Purchase Agreement and the transactions contemplated hereby and
thereby, except those filings which are made with the U.S. Securities and
Exchange Commission via the EDGAR system.

 

Section 4.                                          Preemptive
Rights.

 

(a)                          Subject to Section 4(c), in
case the Company proposes to issue or sell any Stock or Stock Equivalents of
the Company, other than Excluded Stock (collectively, the “Company Offered
Securities”) and if the Investors hold the Minimum Threshold, the Company
shall, no later than twenty-five (25) days prior to the consummation of such
transaction (a “Preemptive Rights Transaction”), give notice in writing of such
Preemptive Rights Transaction (the “Preemptive Rights Offer Notice”) to each
Investor.  The Preemptive Rights Offer
Notice shall describe the proposed Preemptive Rights Transaction, identify the
proposed purchaser, and contain an offer (the “Preemptive Rights Offer”) to
sell to each Investor, at the same price and for the same consideration to be
paid by the proposed purchaser (provided, that, in the event any of such
consideration is non-cash consideration, at the election of such Investor to
whom the Preemptive Rights Offer is made, such Investor may pay cash equal to
the Fair Market Value of such non-cash consideration as determined in
accordance with the Certificate of Designation), all or any part of such
Investor’s pro rata portion of the Company Offered Securities (which shall be a
fraction of the Company Offered Securities determined by dividing the number of
shares of outstanding Series A Preferred Stock owned by such Investor by the
total number of shares of Series A Preferred Stock issued and outstanding).

 

(b)                         If any Investor to whom a
Preemptive Rights Offer is made fails to accept (a “Non-Responding Holder”) in
writing the Preemptive Rights Offer by the fifteenth (15th) day after the
Company’s delivery of the Preemptive Rights Offer Notice, such Non-Responding
Holders shall have no further rights with respect to the proposed Preemptive
Rights Transaction.  The Company shall
then give notice to each Investor who has accepted the Offer (a “Responding
Holder”) of the number of Company Offered Securities not subscribed for by the
Non-Responding Holders (the “Unsubscribed Securities”) no later than nine (9)
days prior to the consummation of the Preemptive Rights Transaction.  If any Responding Holder wishes to purchase
the Unsubscribed Securities, such Responding Holder may do so on a pro-rata
basis (calculated by dividing the number of shares of outstanding Series A
Preferred Stock owned by the Non-Responding Holders by the total number of
shares of outstanding Series A Preferred Stock owned by each of the Responding
Holders wishing to purchase the Unsubscribed Securities) by indicating in
writing to the Company no later than three (3) days prior to

 

7

 

the consummation of the Preemptive Rights Transaction, the maximum
number of Unsubscribed Securities they wish to purchase.  Prior to the consummation of the Preemptive
Rights Transaction, the Company will calculate the pro rata portion of the
Unsubscribed Securities each Responding Investor is entitled to and will
provide notice of the result of the calculation to each Responding Investor.

 

(c)                          The rights under this Section
4 shall terminate after the consummation of two (2) Preemptive Rights
Transactions, each resulting in net proceeds to the Company of at least Two
Million Dollars ($2,000,000).

 

Section 5.                                          Right
of First Refusal.

 

(a)                          Subject to the restrictions
set forth in Section 6 hereof, if at any time an Investor (the “Offeror”)
proposes to sell, transfer or otherwise dispose of, whether voluntarily or
involuntarily (a “Transfer”), any shares of Stock to any Third Party, the
Offeror shall, before such Transfer, deliver to the Company (with a copy to each
Investor) an offer (the “First Offer”) to Transfer such shares of Stock to the
Company and the Investors upon the terms set forth in this Section 5.  The First Offer shall state that the Offeror
proposes to Transfer shares of Stock and specify the number of shares of Stock
(the “Offered Shares”) and the terms (including the purchase price, terms of
payment, the identity of the Third Party purchasing such shares and the
identity of any Affiliate of such Third Party) of the proposed Transfer.  The First Offer shall remain open and
irrevocable for a period of thirty-five (35) days (the “Acceptance Period”)
from the date of its receipt by the Company.

 

(b)                         The Company may accept the
First Offer by delivering to the Offeror and all Investors written notice within
fifteen (15) days of receipt of the First Offer, which notice shall state the
number (the “Accepted Number”) of Offered Shares the Company desires to
purchase.  The Company may exercise its
right to purchase any or all of the Offered Shares pursuant to the First Offer.

 

(c)                          If the Company does not
accept the First Offer or does not exercise its right to purchase all of the
Offered Shares pursuant to the First Offer, then (i) the Company shall within
fifteen (15) days provide written notice to each Investor specifying the number
of shares of Offered Stock that were not subscribed for by the Company
exercising its right of first refusal (the “Company Notice”), and (ii) the
Investors may on a pro rata basis exercise their rights to purchase any or all
of the Offered Shares not purchased by the Company (which shall be a fraction
of the Offered Shares determined by dividing the number of shares of
outstanding Series A Preferred Stock owned by such Investor by the total number
of shares of issued and outstanding Series A Preferred Stock).  Each Investor may accept the First Offer by
delivering to the Offeror, the Company and all the other Investors written
notice within ten (10) days of receipt of the Company Notice, which notice
shall state the maximum number of Offered Shares the Investor desires to
purchase (the “Accepting Investor”).  If
any Investor to whom a First Offer is made fails to accept in writing the First
Offer within ten (10) days of receipt of the Company Notice, the Company shall
then give notice to each Accepting Investor of the number of Offered Shares not
subscribed for no later than seven (7) days

 

8

 

prior to the end of the Acceptance Period.  If any Accepting Investor wishes to purchase such unsubscribed
Offered Shares, such Accepting Investor may do so on a pro-rata basis
(calculated by dividing the number of shares of outstanding Stock owned by such
Investor by the total number of shares of Stock issued and outstanding Stock
owned by each of the Accepting Investors wishing to purchase the unsubscribed
Offered Shares) by indicating in writing to the Company no later than three (3)
days prior to the end of the Acceptance Period the maximum number of
unsubscribed Offered Shares it wishes to purchase. Prior to the end of the
Acceptance Period, the Company will calculate the pro rata portion of the
Offered Shares each Accepting Investor is entitled to and will provide notice
of the result of the calculation to each Accepting Investor.

 

(d)                         The Transfer of Offered Shares
to the Company and or the Accepting Investor(s), to the extent the Company and
or the Accepting Investor(s) have exercised their rights under this Section 5,
shall be made on a business day, as designated by the Offeror, not less than
thirty (30) days nor more than sixty (60) days after expiration of the
Acceptance Period on the terms and conditions specified in the First Offer,
which terms and conditions shall be identical to the terms of the proposed
Transfer to the Third Party, provided that if the First Offer provides for the
payment of non-cash consideration, the Company or an Investor, as the case may
be, at its option may pay the consideration in cash equal to the Board of
Directors’ good faith estimate of the present fair market value of the non-cash
consideration offered.

 

(e)                          If the number of Offered
Shares exceeds the Offered Shares with respect to which the Company and or
Accepting Investor(s) exercised their rights under this Section 5, the First
Offer shall be deemed to be withdrawn with respect to such excess and the
Offeror may Transfer such excess Offered Shares on the terms, conditions and
purchase price specified in the First Offer (which shall be the same terms,
conditions and purchase price available to the Company and or Accepting
Investor(s) exercising rights pursuant to this Section 5) to any Third Party
within ninety (90) days after expiration of the Acceptance Period, so long as
such Third Party agrees in writing to become a party to this Agreement and be
bound hereby.  If such Transfer is not
made within such 90-day period, the restrictions provided for in this Section 5
shall again become effective.

 

(f)                            In the event an Offeror or
such Third Party, as the case maybe, shall modify the terms of the proposed
Transfer of Offered Shares in any way, the Offeror shall send an amended First
Offer to the Company (with a copy to each Investor) and the Acceptance Period
shall be extended fifteen (15) days.

 

(g)                         Notwithstanding this Section
5, an Investor may transfer Stock to an Affiliate, provided that all Stock
owned by the transferring Investor is transferred to such Affiliate and that
such Affiliate agrees in writing to be bound by all of the terms and conditions
of this Agreement.

 

(h)                         Notwithstanding anything to
the contrary contained in this Section 5, the right of first refusal contained
in this Section 5 shall not apply to any Stock which is registered under the
Act and is otherwise freely tradable.

 

9

 

Section
6.                                          Transfer Restrictions.  Notwithstanding
any provision of this Agreement, no Stock shall or may be sold, exchanged,
delivered, assigned, bequeathed or gifted, pledged, mortgaged, hypothecated or
otherwise encumbered, transferred or permitted to be transferred, or otherwise
disposed of, whether voluntarily, involuntarily or by operation of law
(including, without limitation, the laws of bankruptcy, intestacy, descent and
distribution and succession) (“Transferred”) (a) to a Competitor or (b) unless
the Third Party or other person agrees to be bound to the provisions of this
Agreement.  In the event that any party
hereto should Transfer any Stock in contravention of this Section, such
Transfer shall be void, and the Company shall not effect such a Transfer nor
shall it treat any alleged Competitor as the holder of any such shares.  Notwithstanding anything to the contrary
contained in this Section 6, the transfer restrictions contained in this
Section 6 shall not apply to any Stock which is registered under the Act and
are otherwise freely tradable.

 

Section
7.                                          Legend.  Each certificate representing shares of
Stock now or hereafter owned by the Investors or any other person who
subsequently becomes a party to this Agreement shall be endorsed with the
following legend:

 

“THE
SECURITIES REPRESENTED HEREBY MAY NOT BE SOLD, ASSIGNED, PLEDGED, ENCUMBERED,
OR OTHERWISE TRANSFERRED EXCEPT IN CONFORMITY WITH THE TERMS OF A SHAREHOLDERS’
AGREEMENT AMONG THE HOLDER (OR THE PREDECESSOR IN INTEREST TO THE HOLDER), THE
COMPANY AND CERTAIN OTHER SHAREHOLDERS OF THE COMPANY.  THE COMPANY WILL UPON WRITTEN REQUEST
FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER HEREOF WITHOUT CHARGE.”

 

The legend required under this Section 7 shall be removed upon
termination of this Agreement in accordance with the provisions of
Section 10.

 

Section
8.                                          Company to Reserve Common Stock.  If and only at such time as the Company’s shareholder approve an
amendment to the Company’s Articles of Incorporation to increase the number of
shares of common stock authorized to at least 150,000,000 (or such other number
as may be sufficient to allow for the reservation for issuance of all shares of
Common Stock underlying each outstanding security convertible or exercisable
for, or exchangeable into, Common Stock): (a) the Company will at all times
reserve and keep available out of its authorized and unissued Common Stock
solely for the purpose of issuance upon conversion of the Series A Preferred
Stock, free from preemptive rights or any other actual or contingent purchase
rights of persons other than the holders of the Series A Preferred Stock, not
less than such number of shares of Common Stock as shall be issuable upon the
conversion of all outstanding shares of the Series A Preferred Stock; and (b)
all shares of Common Stock that shall be so issuable shall, upon issue, be duly
authorized, validly issued and fully paid and nonassessable.

 

Section 9.                                          Amendments.  The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given without the prior written consent of the Majority Holders;
provided, however,

 

10

 

that without an Investor’s written consent, no such amendment or waiver
shall affect adversely such Investor’s rights hereunder in a discriminatory
manner inconsistent with its adverse effects on rights of other Investors
hereunder (other than as reflected by the different number of shares held by
such Investor); provided, further, that the consent or agreement
of the Company shall be required with regard to any termination, amendment,
modification or supplement of, or waivers or consents to departures from, the
terms hereof, which affect the Company’s obligations hereunder.

 

Section
10.                                   Termination.  This Agreement shall terminate upon the
first to occur of any of the following events:

 

(a)          the consummation of a Sale Transaction;

 

(b)         the execution by the Company of a general
assignment for the benefit of creditors or the appointment of a receiver or
trustee to take possession of the property and assets of the Company;

 

(c)          the written agreement of the Company and the
Majority Holders; or

 

(d)         two (2) years from the date of this Agreement.

 

Section 11.                                   No
Inconsistent Agreement.  Neither
the Company nor any Investor shall enter into any agreement with respect to the
Stock or Stock Equivalents beneficially owned or held of record by it which is
inconsistent with the rights granted to the Investors in this Agreement or
otherwise conflicts with the provisions hereof.

 

Section 12.                                   Notices.  All notices, requests, consents and
other communications required or permitted hereunder shall be in writing and
shall be hand delivered or mailed postage prepaid by registered or certified
mail or transmitted by facsimile transmission (with immediate telephonic
confirmation thereafter),

 

(a)                         If to the Investor, to the
addresses or the facsimile set forth on the counterpart signature pages of this
Agreement signed by such Investor:

 

with a copy to:

 

Liner Yankelevitz Sunshine & Regenstreif

1100 Glendon Avenue, 14th Floor

Los Angeles, California  90024

Attn:  
Joshua Grode, Esq.

Facsimile No.: (310) 500-3501

 

11

 

or                              (b)                      If to the Company:

 

Hypertension Diagnostics, Inc.

2915 Waters Road, Suite 108

Eagan, Minnesota 55121-1562

Attn:   
President

Facsimile No.: (651) 687-0485

 

With a copy to:

 

Lindquist & Vennum P.L.L.P.

4200 IDS Center

80 South Eighth Street

Minneapolis, Minnesota 55402

Attn:   
Girard P. Miller

Facsimile No.: (612) 371-3207

 

 

or at such other address as the Company or the Investors each may
specify by written notice to the others, and each such notice, request, consent
and other communication shall for all purposes of this Agreement be treated as
being effective or having been given when delivered if delivered personally,
upon receipt of facsimile confirmation if transmitted by facsimile, or, if sent
by mail, at the earlier of its receipt or seventy-two (72) hours after the same
has been deposited in a regularly maintained receptacle for the deposit of
United States mail, addressed and postage prepaid as aforesaid.

 

Section 13.                                   Ownership
of Stock.   The Company may
treat the Person in whose name any of the Stock is registered on such register
as the owner thereof and the Company shall not be affected by any notice to the
contrary.  All references in this
Agreement to a “holder” of Stock shall mean the Person in whose name such
shares are at the time registered on such register.

 

Section 14.                                   Replacement
of Certificates.  Upon receipt
of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of any certificate representing Stock and, in the
case of any such loss, theft or destruction, upon delivery of indemnity
reasonably satisfactory to the Company in form and amount or, in the case of
any such mutilation, upon surrender of such certificate for cancellation at the
office of the Company, the Company at its expense will execute and deliver, in
lieu thereof, a new certificate representing Stock of like tenor.

 

Section
15.                                   Successors and Assigns.   All
the terms and provisions of this Agreement shall be binding upon and inure to
the benefit of and be enforceable by the respective parties hereto, the
successors and permitted assigns of each party hereto and the respective
successors of the Company, whether so expressed or not.

 

12

 

Section 16.                                   Counterparts;
Effectiveness.  This Agreement
may be executed in any number of counterparts and by different parties hereto
in separate counterparts, with the same effect as if all parties had signed the
same document.  All such counterparts
shall be deemed an original, shall be construed together and shall constitute
one and the same instrument.

 

Section 17.                                   Headings.  The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.

 

Section
18.                                   Governing Law.  This
Agreement shall be governed by and construed in accordance with the laws of the
State of Minnesota, without regard to principles of conflicts of law. Any and
all actions brought by one party against any other party concerning the terms
and provisions of this Agreement shall be solely venued in State Court in
Hennepin County, Minnesota or Federal Court located in Minneapolis, Minnesota
and all parties agree to submit to the jurisdiction of such courts and waive
any claim or defense that such forums are inconvenient.

 

Section 19.                                   Severability.
 If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to any party.  Upon such a determination, the parties shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner in order
that the transactions contemplated hereby be consummated as originally
contemplated to the fullest extent possible.

 

Section 20.                                   Entire
Agreement.  This Agreement is
intended by the parties as a final expression of their agreement and intended
to be a complete and exclusive statement of the agreement and understanding of
the parties hereto in respect of the subject matter contained herein.  This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.

 

Section 21.                                   Specific
Performance.  Each party hereto,
in addition to being entitled to exercise all rights provided herein or granted
by law, including recovery of damages, will be entitled to specific performance
of its rights under this Agreement. 
Each party hereto hereby agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Agreement and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.

 

13

 

Section 22.                                   Waiver
of Jury Trial.  EACH OF THE
PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.

 

 

IN WITNESS WHEREOF, this Shareholders’ Agreement has been duly executed
by each of the parties hereto as of the date first written above.

 

 

	
   

  	
  HYPERTENSION DIAGNOSTICS, INC.:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Greg H. Guettler

  
	
   

  	
  Title:

  	
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  INVESTORS:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
						

 

14

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