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                                                                   EXHIBIT 10.21

                  FIRST AMENDMENT TO THE WATERS LEASE OF SPACE

         THIS FIRST AMENDMENT OF THE WATERS LEASE OF SPACE (this "First
Amendment") is made as of the 31 day of July, 2000, by and between THOMAS S.
SCHREIER,(the "Landlord"), and Hypertension Diagnostics, Inc. (the "Tenant").

                                   WITNESSETH

         A.       Landlord and Tenant entered into that certain Waters Lease of
                  Space dated as of October 24, 1997 (the "Lease"), pursuant to
                  which Tenant leased 6,947 square feet (the "Demised Premises")
                  in the building commonly known as The Waters Phase II, 2915
                  Waters Road, Eagan, Minnesota 55121 (the "Building").

         B.       Tenant desires to extend the term of the Lease and Landlord is
                  willing to accept such amendments upon terms and conditions
                  hereinafter set forth.

         NOW, THEREFORE, for good and valuable consideration, the receipt and
legal sufficiency of which are hereby acknowledged, it is hereby agreed as
follows:

         1.       TERM - The term of the Lease shall be extended for thirty-six
                  (36) months expiring October 31, 2003, unless sooner
                  terminated as set forth in the Lease or this First Amendment.

         2.       BASE RENT - Monthly Base Rent for the period November 1, 2000,
                  through October 31, 2003, shall be as follows:

<TABLE>
<CAPTION>
                  Period                                           Monthly Base Rent
                  ------------------------------------------------------------------
<S>                                                                <C>
                  November 1, 2000 through and                         $4,462.35
                  Including October 31, 2001

                  November 1, 2001 through and                         $4,607.10
                  Including October 31, 2002

                  November 1, 2002 through and                         $4,751.85
                  Including October 31, 2003
</TABLE>

3.                EARLY TERMINATION - Provided Tenant is not in default as to
                  any of the Terms and Conditions of the Lease, Tenant shall
                  have the right to terminate the Lease on either April 30, 2002
                  or January 31, 2003 with six (6) months prior written notice
                  to Landlord and payment at the time of notice of the following
                  early termination fee:

<TABLE>
<S>                                                                   <C>
                  If terminated on April 30, 2002                     $13,000.00
</TABLE>

<PAGE>   2

<TABLE>
<S>                                                                    <C>
                  If terminated on January 31, 2003                    $9,000.00
</TABLE>

         All other terms and conditions of the Lease shall remain in full force
and effect.

         IN WITNESS WHEREOF, Landlord and Tenant have caused this First
Amendment to be executed by their duly authorized officers as of the day and
year first above written.

LANDLORD:                                   THOMAS S. SCHREIER

                                             /s/ Thomas S. Schreier
                                            ------------------------------------

TENANT:                                     HYPERTENSION DIAGNOSTICS, INC.
                                            (A Minnesota Corporation)

                                            By: /s/ James S. Murphy
                                                --------------------------------

                                            Its: Senior Vice President - Finance
                                                    and Chief Financial Officer<PAGE>   1

                                                                   EXHIBIT 10.22

                              EMPLOYMENT AGREEMENT
                           BETWEEN E. PAUL MALONEY AND
                         HYPERTENSION DIAGNOSTICS, INC.

         THIS AGREEMENT is entered into as of March 28, 2001, by and between
Hypertension Diagnostics, Inc., a Minnesota corporation (the "Company"), and E.
Paul Maloney ("Executive").

         WHEREAS, the Company wishes to retain Executive to render services for
the Company on the terms and conditions set forth in this Agreement, and
Executive wishes to be retained and employed by the Company on such terms and
conditions;

         WHEREAS, the Company desires to engage Executive in a position of trust
and confidence to aid the Company in connection with the Company's business;

         WHEREAS, the Company and Executive desire to set forth in writing the
terms and conditions with respect to employment, remuneration and the right,
title and interest of the Company in proprietary information or inventions
produced during Executive's employment with the Company and assignment of
proprietary information or inventions produced while employed with the Company;

         WHEREAS, the Company desires that Executive enter into a covenant not
to compete so as to protect the business and goodwill of the Company from
competition;

         NOW, THEREFORE, in consideration of the premises and the respective
undertakings of the Company and Executive set forth below, and for other good
and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound hereby, the Company and
Executive agree as follows:

         1. Employment. Upon the other terms and conditions set forth in this
Agreement, the Company hereby employs Executive, and Executive accepts such
employment, as its Vice President-Engineering. Except as expressly provided
herein, termination of this Agreement by either party shall also terminate
Executive's employment by the Company.

         2. Term. Subject to Executive's full compliance with Section 3 hereof
and subject to the provisions of Sections 8 and 10 hereof, Executive's
employment shall commence as of April 2, 2001 and continue through April 1,
2003. This Agreement may be extended beyond April 1, 2003 by mutual agreement of
the parties.

         3. Position and Duties.

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                  3.01 Service with Company. During the term of this Agreement,
Executive agrees to perform such reasonable employment duties as the Company
shall assign to Executive from time to time, including, but not limited to, a
variety of general, design, development, prototype and proof of concept
engineering tasks and activities. Executive's engineering position will involve
the supervision of others and will require that the implementation and conduct
of all tasks and activities undertaken by Executive as well as those supervised
by Executive be at all times in full compliance with the Company's ISO
Certification and status as a FDA registered manufacturer of medical devices
(that is, in adherence to FDA's GMP and QSR requirements). Executive will work
with others at the Company to ensure that the design, development, manufacture
and delivery of medical electronic products and services to customers is at all
times at the highest quality possible based on the assignment and availability
of Company resources. There will be a need for Executive to participate in a
wide range of duties and responsibilities generally involving the engineering
aspects of the Company's projects and products. Of course, all endeavors and
efforts on Executive's part will be in order to help the Company "get the job
done right the first time". In furtherance thereof, Executive shall report to
the Board of Directors of the Company (the "Board"). In addition, the Executive
shall perform such other duties of a senior executive nature as the Board and
the Executive from time to time determine to be mutually acceptable. Executive
accepts such employment on the terms and conditions set forth in this Agreement.

                  3.02 Performance of Duties. Executive agrees to serve the
Company faithfully and to the best of his ability and to devote his full time,
attention and best efforts to the business and affairs of the Company during the
term of this Agreement. Executive represents to the Company that he has no
contractual commitments inconsistent with his obligations set forth in this
Agreement, and that during the term of this Agreement, he will not render or
perform services for any other corporation, firm entity, organization or person
which are inconsistent with the provisions of this Agreement.

     4. Compensation.

                  4.01 Base Salary. As compensation for all services to be
rendered by Executive under this Agreement during the full term of this
Agreement, the Company shall pay to Executive a minimum base Salary ("Base
Salary" shall mean regular cash compensation paid on a periodic basis exclusive
of benefits, bonuses or incentive payments) at the annual rate of $140,000,
payable bi-weekly. On or before April 2nd of each year during the term of this
Agreement, Executive will receive a performance evaluation and the Base Salary
shall be subject to increase at the discretion of the Company. If the
Executive's Base Salary is increased during the term of this Agreement, the
increased amount shall be the new Base Salary until subsequently adjusted by the
Company, if at all.

                  4.02 Bonus and Incentive. Executive shall be eligible to
participate in the Company's executive incentive bonus plans and shall be
eligible to receive grants or awards pursuant to the Company's stock option
plans, all in accordance with the terms and conditions of those plans and on a
basis consistent with that customarily provided for senior officers at the
highest level of the Company. Each year Executive shall be eligible to receive
stock options to

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purchase shares of the Company's Common Stock according to the terms of the
Company's stock option plan as determined by the Company's Compensation
Committee.

                  4.03 Fringe Benefits. In addition to the compensation payable
to Executive as provided in Sections 4.01 and 4.02 above:

                           (a) Automobile. The Company shall reimburse Executive
                  for all Company related mileage at the then current rate
                  allowed by the Internal Revenue Service. Executive shall
                  receive no automobile allowance.

                           (b) Paid Time Off ("PTO"). During the term of the
                  Agreement, Executive shall be entitled to paid time off in
                  accordance with the Company's Paid Time Off ("PTO") Plan as
                  specified in Exhibit "A", attached hereto and made a part
                  hereof.

                           (c) Holidays. The Company shall provide eight (8)
                  paid holidays and two paid personal holidays per calendar year
                  consistent with the Company's Holiday Policy.

                           (d) Other Benefits. Executive shall be entitled to
                  participate in all employee benefit plans or programs of the
                  Company to the extent that Executive's position, title,
                  tenure, salary, age, health and other qualifications make
                  Executive eligible to participate. The Company does not
                  guarantee the adoption or continuance of any particular
                  employee benefit plan or program during the term of this
                  agreement, and Executive's participation in any such plan or
                  program shall be subject to the provisions, rules and
                  regulations applicable thereto.

                  Executive shall be eligible to participate in the Company
                  health/dental plan partially paid by the Company beginning 30
                  days after the Executive's first day of employment.
                  Executive's pre-tax contributions to the health plan shall be
                  based on the number of persons covered by such health plan.
                  These contribution amounts are subject to change at the
                  discretion of the Company.

                  To the extent available or offered, and beginning 30 days
                  after Executive's first day of employment, Executive shall be
                  entitled to participate in all other benefit programs offered
                  by the Company to its full time employees, including, but not
                  limited to, term life insurance equal to two (2) times
                  Executive's annual earnings; long-term disability insurance; a
                  401(k) SIMPLE Plan; and a flexible spending account ("FSA").
                  Executive's eligibility for the 401(k) SIMPLE Plan will be
                  July 1, 2001 and, for the FSA, will be in the month following
                  the completion of the initial 30-day waiting period following
                  the start date of employment.

                  4.04 Stock Options. The Company may at its discretion grant
Executive incentive stock options or nonqualified stock options of the Company's
$.01 par value Common Stock, pursuant to the terms and conditions set forth in
the respective stock option agreements.

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                  The Company shall grant Executive on the first day of
employment nonqualified stock options for 60,000 shares of the Company's $.01
par value Common Stock, pursuant to the terms and conditions set forth in the
Stock Option Agreement (to be delivered to Executive following the first day of
employment). These options will fully vest at the completion of a period of four
(4) years of continuous employment by the Executive according to the following
vesting schedule:

                           (a) 20% of the options will vest on the Executive's
                  first day of employment with the Company; and

                           (b) 20% of the options will vest each year on the
                  anniversary date of the Executive's employment start date.

                  4.05 Business Expenses. The Company will pay or reimburse
Executive for all reasonable and necessary out-of-pocket expenses incurred by
Executive in the performance of Executive's duties under this Agreement subject
to compliance by Executive with the Company's policies for expense
reimbursements.

         5. Confidential Information.

                  5.01 "Confidential Information" Defined. "Confidential
Information" means information not generally known, and proprietary to the
Company or to a third party for whom the Company is performing work, including,
without limitation, information concerning any patents or trade secrets,
confidential or secret designs, processes, formulae, source codes, plans,
devices or material (whether or not patented or patentable) directly or
indirectly useful in any aspect of the business of the Company, any customer or
supplier lists of the Company, any confidential secret development or research
work of the Company, or any other confidential information or secret aspects of
the business of the Company. All information which Executive acquires or becomes
acquainted with during the period of his employment by the Company (including
employment by an affiliated company), whether developed by Executive or by
others, which he has reasonable basis to believe to be Confidential Information,
or which is treated by the Company as being Confidential Information, shall be
presumed to be Confidential Information.

                  5.02 Obligations of Executive. Except as permitted or directed
by the Company, Executive shall not, either during his employment by the Company
or thereafter, divulge, furnish or make accessible to anyone or use in any way
(other than in the ordinary course of the business of the Company) any
Confidential Information. Executive acknowledges that the Confidential
Information constitutes a unique and valuable asset of the Company and
represents a substantial investment of time and expense by the Company and its
predecessors, and that any disclosure or other use of such Confidential
Information other than for the sole benefit of the Company would be wrongful and
would cause irreparable harm to the Company. Both during and after the term of
this Agreement, Executive will refrain from any acts or omissions that would
reduce the value of such knowledge or information to the Company.

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                  5.03 Scope of Obligation. The foregoing obligations of
confidentiality shall not apply to any knowledge or information which is now
published or which subsequently becomes generally publicly known in the form in
which it was obtained from the Company, other than as a direct or indirect
result of the breach of this Agreement by Executive.

         6. Ventures. If, during the term of this Agreement, Executive is
engaged in or associated with the planning or implementing of any project,
program or venture involving the Company and a third party or parties, all
rights in such project, program or venture shall belong to the Company. Except
as formally approved by the Company, Executive shall not be entitled to any
interest in such project, program or venture or to any commission, finder's fee
or other compensation in connection therewith other than the salary to be paid
to Executive as provided in this Agreement.

         7. Patent and Related Matters.

                  7.01 Disclosure and Assignment. Executive will promptly
disclose in writing to the Company complete information concerning each and
every invention, discovery, improvement, device, design, apparatus, practice,
process, method or product, whether patentable or not, made, developed,
perfected, devised, conceived or first reduced to practice by Executive, whether
or not during regular working hours, either solely or in collaboration with
others, during the term of this Agreement, or the twelve months thereafter,
relating either directly or indirectly to the business, products, practices or
techniques of the Company (hereinafter referred to as "Developments").
Executive, to the extent that he has the legal right to do so, hereby
acknowledges that any and all of said Developments are the property of the
Company and hereby assigns and agrees to assign to the Company any and all of
Executive's right, title and interest in and to any and all of such
Developments.

                  7.02 Future Developments. As to any future Developments made
by Executive which relate to the business, products or practices of the Company,
and which are first conceived or reduced to practice during the term of this
Agreement, or within twelve (12) months thereafter, but which Executive claimed
for any reason to belong to an entity or person other than the Company,
Executive will promptly disclose the same in writing to the Company and shall
not disclose the same to others if the Company, within twenty (20) days
thereafter, shall claim ownership of such Developments under the terms of this
Agreement. If the Company makes no such claim, Company shall not be obligated to
maintain in confidence any such information disclosed by Executive.

                  7.03 Limitation on Section 7.01 and 7. 02. The provisions of
Sections 7.01 and 7.02 shall not apply to any Development meeting the following
conditions:

                           (a) such Development was developed entirely on
                  Executive's own time; and

                           (b) such Development was made without the use of any
                  Company equipment, supplies, facility or trade secret
                  information, and without use of any

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                  Company personnel; and

                           (c) such Development does not relate (i) directly to
                  the business of the Company, or (ii) to the Company's actual
                  or demonstrably anticipated future business, research or
                  development; and

                           (d) such Development does not result, directly or
                  indirectly, from any work performed by Executive for the
                  Company.

                  7.04 Assistance of Executive. Upon request and without further
compensation therefor, but at no expense to Executive, and whether during the
term of this Agreement or thereafter, Executive will do all lawful acts,
including, but not limited to, the execution of papers and lawful oaths and the
giving of testimony, that in the opinion of the Company, its successors and
assigns, may be necessary or desirable in obtaining, sustaining, reissuing,
extending and enforcing United States and foreign patents, including, but not
limited to, design patents, on any and all of such Developments, and for
perfecting, affirming and recording the Company's complete ownership and title
thereto, and to cooperate otherwise in all proceedings and matters relating
thereto.

                  7.05 Records. Executive will keep complete, accurate and
authentic accounts, notes, data and records of all Developments in the manner
and form requested by the Company. Such accounts, notes, data and records shall
be the property of the Company, and, upon its request, Executive will promptly
surrender same to it or, if not previously surrendered upon its request or
otherwise, Executive will surrender the same, and all copies thereof, to the
Company upon the conclusion of Executive's employment.

         8. Termination.

                  8.01 Grounds for Termination. This Agreement shall terminate
prior to the expiration of the initial term set forth in Section 2 or any
extension thereof in the event that any time during such initial term or any
extension thereof:

                           (a) Executive dies, or

                           (b) Executive becomes disabled (as defined below), so
                  that he cannot perform the essential functions of his
                  position, or

                           (c) The Company elects to terminate this Agreement
                  for "Cause" and notifies Executive in writing of such
                  election, or

                           (d) The Company elects to terminate this Agreement
                  without "Cause" and notifies Executive in writing of such
                  election, or

                           (e) Executive elects to terminate this Agreement and
                  notifies the Company in writing of such election.

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If this Agreement is terminated pursuant to subsection (a), (b) or (c) of this
Section 8.01, such termination shall be effective immediately provided, however,
a termination pursuant to subsection 8.01(c) shall include the notice and right
to cure referenced, and related to, a termination for Cause described in
subsection 8.02(a). If this Agreement is terminated pursuant to subsection (d)
or (e) of this Section 8.01, such termination shall be effective on the date set
forth in the notice of termination.

                  8.02 "Cause" Defined.

                           (a) Executive has breached the provisions of this
                  Agreement in any material respect (provided, that the Company
                  gives written notice of its intention to terminate Executive's
                  employment for Cause, and such notice shall state in
                  reasonable detail the particular act(s) or failure(s) to act
                  that constitute grounds on which the termination is based,
                  and, provided that Executive shall have ten (10) business days
                  to cure any such breach), or

                           (b) Executive has engaged in material misconduct,
                  including, without limitation, willful and material failure to
                  perform Executive's duties as an officer or employee of the
                  Company, or

                           (c) Executive has committed fraud, misappropriation
                  or embezzlement in connection with the Company's business, or

                           (d) Executive has been convicted or has pleaded nolo
                  contendere to criminal misconduct (except for parking
                  violations, minor traffic violations, and other petty or
                  insignificant misdemeanors, or other misconduct which does not
                  relate to or involve or adversely affect Executive's duties
                  for the Company, as reasonably determined by the Company'
                  Board of Directors).

                  8.03 "Disability" Defined. As used in this Agreement, the term
"disability" means any mental or physical condition that renders Executive
unable to perform the essential functions of his position, with or without
reasonable accommodation, as defined by various state and federal disability
laws. Executive shall be presumed to have such a disability, for the purpose of
this Agreement, in the event Executive qualifies, because of illness or
incapacity, to begin receiving disability income insurance payments under any
long-term disability income insurance policy that the Company maintains for the
benefit of Executive. If there is no such policy in effect at the date of
Executive's illness or incapacity, Executive shall be presumed to have such a
disability for the purpose of this Agreement if Executive is substantially
incapable of performing his duties for a period of more than eight (8) weeks,
after also including any available "paid time off (PTO) days," if any, as may be
adopted for employees of the Company (and as referenced in Section 4.03(b));
provided, however, at least thirty (30) days prior to the end of such period
referenced in this sentence, the Company shall notify Executive in writing of
its determination that, with the passage of requisite balance of time remaining,
Executive shall be deemed to be disabled; provided, further, during such thirty
(30) day period, Executive shall be permitted to make a presentation to the
Board of Directors, or a committee of the Board of

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Directors constituted for such presentation, for its consideration with respect
to a finding of Disability on the part of Executive.

                  8.04 Effect of Termination. Notwithstanding any termination of
this Agreement, Executive, in consideration of his employment hereunder to the
date of such termination, shall remain bound by the provisions of this Agreement
which specifically relate to periods, activities or obligations upon or
subsequent to the termination of Executive's employment.

                  8.05 Surrender of Records and Property. Upon termination of
his employment with the Company, Executive shall deliver or shall cause to be
delivered promptly to the Company all copies of all records, manuals, books,
blank forms, documents, letters, memoranda, notes, notebooks, reports, data,
tables, calculations or copies thereof, which are the property of the Company or
which relate in any way to the business products, practices or techniques of the
Company, and all other property, trade secrets and confidential information of
the Company, including, but not limited to, all documents which in whole or in
part contain any trade secrets or confidential information of the Company, which
in any of the cases are in his possession or under his control.

         9. Remedies for Early Termination. In the event of Termination pursuant
to Section 8, Base Salary shall be paid as follows:

                  9.01 In the event of termination for Cause (Section 8.01(c)),
Base Salary shall continue to be paid on a bi-weekly basis prorated through the
date of termination specified in any notice of termination.

                  9.02 In the event of termination pursuant to Section 8.01(e),
compensation shall continue to be paid as follows: if the notice of termination
is given by Executive at any time, Base Salary shall continue to be paid on a
bi-weekly basis prorated through the date of termination specified in such
notice (not to exceed two weeks' pay or such greater period as determined in the
sole discretion of the Company) and thereafter Executive shall be entitled to
such benefits accrued as of the date of termination to the extent required by
law.

                  9.03 In the event of termination of this Agreement by reason
of Executive's death (Section 8.01(a)), the Executive's designated beneficiary
or, in the absence of such designation, the Executive's estate shall be entitled
to benefits, if any, payable under any life insurance program maintained by the
Company.

                  9.04 In the event of disability (Section 8.01(b)), the Company
shall continue to pay Base Salary to the Executive until the earlier of such
time as the Executive is determined to be eligible for long-term disability
benefits, if any, under any disability benefit plan of the Company then in
effect, or the end of the sixth (6th) month following the month in which the
event causing the disability occurred.

                  9.05 In the event of termination without Cause pursuant to
Section 8.01(d), compensation shall continue to be paid as follows:

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                           (a) Executive shall be entitled to a severance
                  payment equal to the Executive's Base Salary from the date of
                  termination until the end of twelve (12) months thereafter.
                  Such Base Salary shall continue to be paid on a bi-weekly
                  basis prorated through the end of the applicable payment
                  period referenced immediately above; and

                           (b) Executive shall be entitled to such benefits
                  accrued as of the date of termination to the extent required
                  by law.

         10. Change in Control. It is expressly recognized by the parties that a
Change in Control would necessarily result in material alteration or
diminishment of Executive's position and responsibilities. Therefore, if during
the term of this Agreement, there shall occur, with or without the consent of
the Company, a Change in Control, the Company and Executive agree to abide by
the terms and conditions set forth in the Change in Control Severance Agreement
attached hereto as Exhibit "C" and made a part hereof. Any severance payable
pursuant to the Change in Control Severance Agreement shall be in lieu of, and
not in addition to, any payments provided for in this Agreement, and, except to
the extent modified or superceded by the Change in Control Severance Agreement,
the provisions of this Agreement shall continue to apply following a Change in
Control.

         11. Covenant Not to Compete.

                  11.01 Executive expressly acknowledges that Executive is
entering into this covenant not to compete so as to protect the business and
goodwill of the Company from competition in the event of a termination of the
employment relationship and Executive further acknowledges the reasonableness of
the restriction imposed herein. Accordingly, in the event that Executive's
employment with the Company is terminated voluntarily by the Executive or by the
Company for Cause as defined in Section 8.02, it is agreed that:

                           (a) Executive will inform any new employer, before
                  accepting employment, of the existence of this Agreement and
                  give such a copy of this Section 11, Covenant Not to Compete;
                  and

                           (b) Executive will not, for a period beginning from
                  the date of this Agreement and for twelve (12) months after
                  Executive's employment with the Company ends, sell to,
                  solicit, serve, or attempt to sell to, solicit, or serve any
                  customer, client or account or any prospective customer,
                  client or account of the Company, provided, however, that the
                  foregoing limitation shall only apply to sales, solicitations,
                  services or attempts to do any of the foregoing which involve
                  a Competing Product. A "customer, client or account" is any
                  person, firm or entity to whom or to which the Company
                  furnished any services, materials, or products at any time
                  during Executive's employment with the Company. A "prospective
                  customer, client or account" is one which, during Executive's
                  employment with the Company, is solicited, successfully or
                  unsuccessfully, to become a customer, client or account of the
                  Company. As used herein, a "Competing Product" is a

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                  product similar to or in competition with any product, or
                  planned product, of the Company as of the date Executive's
                  employment is terminated.

                           (c) Executive will not, from a period beginning with
                  the date of this Agreement and for twelve (12) months after
                  Executive's employment with the Company ends, cause or attempt
                  to cause any customer, client or account or any prospective
                  customer, client or account, to divert, terminate, limit or in
                  any manner modify or fail to enter into any actual or
                  potential business relationship with the Company.

                           (d) Executive will not, for a period beginning with
                  the date of this Agreement and for twelve (12) months after
                  Executive's employment with the Company ends, divert, solicit,
                  or employ, or attempt to divert, solicit, or employ any
                  employees of the Company.

                           (e) Executive shall not, directly or indirectly, from
                  a period beginning from the date of this Agreement and for
                  twelve (12) months after Executive's employment with the
                  Company ends, engage in competition with the Company in any
                  manner or capacity (e.g., as an advisor, principal, agent,
                  partner, officer, director, stockholder, employee, member of
                  any association, or otherwise) for a competitor of the
                  Company. The obligations of Executive under Section 11.01(e)
                  shall apply to any geographic area in which the Company: (i)
                  has engaged in business during the term of this Agreement
                  through production, promotional, sales or marketing activity,
                  or otherwise, (ii) has otherwise established the Company's
                  goodwill, business reputation or any customer or supplier
                  relations, or (iii) has been directly involved in the
                  expansion of the Company's business and development of the
                  Company's customer base.

         12. Settlement of Disputes.

                  12.01 Arbitration. Except as provided in section 12.02, any
claims or disputes of any nature between the Company and Executive arising from
or related to the performance, breach, termination, expiration, application, or
meaning of this Agreement or any matter relating to Executive's employment and
the termination of that employment by the Company shall be resolved exclusively
by arbitration in Minneapolis, Minnesota (or other locale convenient to the
Company's principal executive offices), in accordance with the applicable rules
then obtaining of the American Arbitration Association. The fees of the
arbitrator(s) and other costs incurred by Executive and the Company in
connection with such arbitration shall be paid by the party who is unsuccessful
in such arbitration.

The decision of the arbitrator(s) shall be final and binding upon both parties.
Judgment of the award rendered by the arbitrator(s) may be entered in any court
having jurisdiction thereof. In the event of submission of any dispute to
arbitration, each party shall, not later than thirty (30) days prior to the date
set for hearing, provide to the other party and to the arbitrator(s) a copy of

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all exhibits upon which the party intends to rely at the hearing and a list of
all persons each party intends to call at the hearing.

                  12.02 Resolution of Certain Claims - Injunctive Relief.
Executive agrees that, in addition to, but not to the exclusion of any other
available remedy, the Company shall have the right to enforce the provisions of
Section 7 and 11 by applying for and obtaining temporary and permanent
restraining orders or injunctions from a court of competent jurisdiction (the
jurisdiction of which is consented to in Section 12.03) without the necessity of
filing a bond therefor. The prevailing party in any such action shall be
entitled to recover from the other party reasonable attorneys' fees and costs
incurred by the prevailing party in such action.

                  12.03 Venue. Any action at law, suit in equity, or judicial
proceeding arising directly, indirectly, or otherwise in connection with, out
of, related to or from this Agreement or any provision hereof, shall be
litigated only in the courts of the State of Minnesota, County of Dakota, County
of Hennepin or County of Ramsey, or the Federal District Court, District of
Minnesota, Fourth Division. Executive waives any right Executive may have to
transfer or change the venue of any litigation brought against Executive by the
Company. Executive also waives any claim of inconvenient forum.

                  12.04 Severability. To the extent any provision of this
Agreement shall be invalid or unenforceable, it shall be considered deleted
herefrom and the remainder of such provision and of this Agreement shall be
unaffected and shall continue in full force and effect. In furtherance and not
in limitation of the foregoing, should the duration or geographical extent of,
or business activities covered by, any provision of this Agreement be in excess
of that which is valid and enforceable under applicable law, then such provision
shall be construed to cover only that duration, geographical extent or business
activities which may be valid and enforceable under applicable law. Executive
acknowledges the uncertainty of the law in this respect and expressly stipulates
that this Agreement be given the construction that renders its provisions valid
and enforceable to the maximum extent (not exceeding its express terms possible
under applicable law.)

         13. Miscellaneous.

                  13.01 Governing Law. This Agreement is made under and shall be
governed by and construed in accordance with the laws of the State of Minnesota
other than its law dealing with conflicts of law.

                  13.02 Prior Agreements. This Agreement contains the entire
agreement of the parties relating to the employment of Executive by the Company
and the ancillary matters discussed herein and supersedes all prior agreements
and understandings with respect to such matters, and the parties hereto have
made no agreements, representations or warranties relating to such employment or
ancillary matters which are not set forth within.

                  13.03 Withholding Taxes. The Company may withhold from any
benefits

                                       11
<PAGE>   12

payable under this Agreement all federal, state, city or other taxes as shall be
required pursuant to any law or governmental regulation or ruling.

                  13.04 Amendments. No amendment or modification of this
Agreement shall be deemed effective unless made in writing and signed by the
both Executive and the Company.

                  13.05 No Waiver. No term or condition of this Agreement shall
be deemed to have been waived, nor shall there be by any estoppel to enforce any
provision of this Agreement, except by a statement in writing signed by the
party against whom enforcement of the waiver or estoppel is sought. Any written
waiver shall not be deemed a continuing waiver unless specifically stated, shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.

                  13.06 Assignment. This Agreement shall not be assignable, in
whole or in part, by Executive without the written consent of the Company.

                  13.07 Notices. All notices, requests and demands given to or
made pursuant hereto shall, except as otherwise specified herein, be in writing
and be delivered, mailed or faxed to any such party at its address or fax number
which:

                  In the case of the Company shall be:

                           Hypertension Diagnostics, Inc.
                           2915 Waters Road, Suite 108
                           Eagan, Minnesota 55121-1562

                           Fax No.:  (651) 687-0485

                  If the case of the Executive shall be:

                           Mr. E. Paul Maloney
                           16975 124th Street North
                           Stillwater, Minnesota 55082

                           Home Phone No.:  (651) 430-0863

                  Either party may, by notice hereunder, designate a changed
address. Any notice, if mailed properly addressed, postage prepaid, registered
or certified mail, shall be deemed dispatched on the registered date or that
stamped on the certified mail receipt, and shall be deemed received within the
second business day thereafter or when it is actually received, whichever is
sooner. Any notice that is delivered via telefax shall be deemed dispatched when
it is actually sent, and shall be deemed received when it is actually received.

                                       12
<PAGE>   13

                  13.08 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument.

                  13.09 Time of the Essence. Time is of the essence in the
performance of the obligations hereunder.

                  13.10 Captions and Headings. The captions and paragraph
headings used in this Agreement are for convenience of reference only, and shall
not affect the construction or interpretation of this Agreement or any of the
provisions hereof.

         IN WITNESS WHEREOF, Executive and the Company have executed this
Agreement as of the date set forth in the first paragraph.

                                     HYPERTENSION DIAGNOSTICS, INC.

                                     By:       /s/ Charles F. Chesney
                                         ---------------------------------------

                                     Its: Executive Vice President

                                     EXECUTIVE

                                       /s/ E. Paul Maloney
                                     -------------------------------------------
                                     E. Paul Maloney

                                       13
<PAGE>   14

                                                                       EXHIBIT A

                           Paid Time Off ("PTO") Plan
                                 E. Paul Maloney

The purpose of the Company's Paid Time Off ("PTO") policy is to allow employees
paid time away from work ("PTO" time) for vacation, recuperation from illnesses
and to conduct personal business. Under this policy, these reasons for being
absent from work have been grouped together. Benefits for the Executive will
accrue as follows:

<TABLE>
<CAPTION>
----------------------- --------------------- -------------------- --------------------- -------------------- ---------------------
Number of               Period of             PTO Accrual          PTO Accrual           PTO Work             PTO
Years of                Employment            Hours per            Hours per Year        Days per Year        Carryover
Employment                                    Week                                                            Maximum
At the
Company
----------------------- --------------------- -------------------- --------------------- -------------------- ---------------------
<S>                     <C>                   <C>                  <C>                   <C>                  <C>
1st Year                April 2, 2001         3.231                168 Hours             21 Days              36 Days
                        through                                                                               (288 Hours)
                        April 1, 2002
----------------------- --------------------- -------------------- --------------------- -------------------- ---------------------
2nd Year                April 2, 2002         3.231                168 Hours             21 Days              36 Days
                        through                                                                               (288 Hours)
                        April 1, 2003
----------------------- --------------------- -------------------- --------------------- -------------------- ---------------------
</TABLE>

If the carryover maximum is reached, PTO time accrual will be suspended until
the Executive uses PTO benefits, at which time the accrual will resume.

Upon termination of employment, the Executive shall be paid for all such accrued
but unused PTO time at the Executive's then current Base Salary rate.

                                       14
<PAGE>   15

                                                                       EXHIBIT B

                      CHANGE IN CONTROL SEVERANCE AGREEMENT

         THIS AGREEMENT is made and entered into by and between Hypertension
Diagnostics, Inc., a Minnesota corporation with its principal offices at 2915
Waters Road, Suite 108, Eagan, Minnesota 55121-1562 ("HDI") and E. Paul Maloney,
residing at 16975 124th Street North, Stillwater, Minnesota 55082 (the
"Executive"), and shall be effective as of this 2nd day of April, 2001.

         WHEREAS, HDI considers the establishment and maintenance of a sound and
vital management to be essential to protecting and enhancing the best interests
of HDI and its shareholders; and

         WHEREAS, the Executive has made and is expected to make, due to
Executive's intimate knowledge of the business and affairs of HDI, its policies,
methods, personnel, and problems, a significant contribution to the
profitability, growth, and financial strength of HDI; and

         WHEREAS, HDI, as a publicly held corporation, recognizes that the
possibility of a Change in Control may exist, and that such possibility and the
uncertainty and questions which it may raise among management may result in the
departure or distraction of the Executive in the performance of the Executive's
duties, to the detriment of HDI and its shareholders; and

         WHEREAS, it is in the best interests of HDI and its shareholders to
reinforce and encourage the continued attention and dedication of management
personnel, including Executive, to their assigned duties without distraction and
to ensure the continued availability to HDI of the Executive in the event of a
Change in Control.

         THEREFORE, in consideration of the foregoing and other respective
covenants and agreements of the parties herein contained, the parties hereto
agree as follows:

         1. Term of Agreement. This Agreement shall commence on the date hereof
and shall continue in effect through April 1, 2003, unless further extended by
action of the Board of Directors of the Company (the "Board"); provided,
however, that if a Change in Control shall have occurred during the original or
extended term of this Agreement, this Agreement shall continue in effect for a
period of twenty-four (24) months from the date of the occurrence of a Change in
Control. In the event that more than one Change in Control shall occur during
the original or extended term of this Agreement, the twenty-four (24) month
period shall follow the last Change in Control. This Agreement shall neither
impose nor confer any further rights or obligations on HDI or the Executive on
the day after the end of the term of this Agreement.

                                       15
<PAGE>   16

Expiration of the term of this Agreement of itself and without subsequent action
by HDI or Executive shall not end the employment relationship between HDI and
Executive.

         Notwithstanding the foregoing, the Board may terminate this Agreement
only if the Board determines based upon a written opinion from HDI's independent
auditors or tax counsel, that: (a) but for this Agreement (individually or
together with other similar arrangements), "pooling of interest" accounting
would apply to a contemplated transaction that would constitute a Change in
Control, and (b) such accounting treatment is an essential condition to the
consummation of such transaction.

         2. Change in Control. No benefits shall be payable hereunder unless
there shall have been a Change in Control and the Executive's employment is
terminated. For purposes of this Agreement, a "Change in Control" of HDI shall
mean a change in control which would be required to be reported in response to
item 6(e) on Schedule 14A of Regulation 14A promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), whether or not HDI is
then subject to such reporting requirement, including, without limitation, if:

                  (a) Any "person" (as such term is used in Sections 13(d) and
         14(d) of the Exchange Act), other than HDI or a trustee or other
         fiduciary holding securities under any employee benefit plan sponsored
         and maintained by HDI, becomes a "beneficial owner" (as defined in Rule
         13d-3 under the Exchange Act), directly or indirectly, of securities of
         HDI representing 30% or more of the combined voting power of HDI's then
         outstanding securities and is required to file a Schedule 13D under the
         Exchange Act; or

                  (b) The Incumbent Directors cease for any reason to constitute
         at least a majority of the Board. The term, "Incumbent Directors,"
         shall mean those individuals who are members of the Board on the
         effective date of this Agreement and any individual who subsequently
         becomes a member of the Board and whose election or nomination for
         election by HDI's shareholders was approved by a vote of at least a
         majority of the then Incumbent Directors; or

                  (c) (i) HDI consummates a merger, consolidation, share
         exchange or other reorganization of HDI with any corporation or entity,
         other than an entity owned at least 80% by HDI, unless the shareholders
         of HDI immediately prior to such transaction beneficially own, directly
         or indirectly, 51% or more of the combined voting power of the
         resulting entity's outstanding voting securities as well as 51% or more
         of the total market value of the resulting entity's outstanding equity
         securities immediately after such transaction; (ii) HDI consummates a
         division of HDI, unless the shareholders of HDI immediately prior to
         such division beneficially own, directly or indirectly, 51% or more of
         the combined voting power of the outstanding voting securities as well
         as 51% or more of the total market value of each such entity's
         outstanding equity securities of each entity resulting from the
         division, and in substantially the same proportion as such shareholders
         owned shares of HDI prior to such division; or (iii) the shareholders
         of HDI approve an agreement for the sale or disposition (in one
         transaction or a series of transactions) of assets of HDI, the total
         consideration of which is greater than 51% of the market value of all
         of the outstanding equity securities of HDI, , and the Board determines
         in good faith

                                       16
<PAGE>   17

         that the total consideration for any transaction described in
         subsection (c)(i) through (iii) represents an amount in excess of the
         liquidation value of HDI.

         3. Termination Following Change in Control. If a Change in Control
shall have occurred and the Executive's employment is terminated during the term
of this Agreement, Executive shall be entitled to the benefits provided in
subsection 4(d) unless such termination is (A) because of Executive's death or
Retirement, (B) by HDI for Cause or Disability, or (C) by Executive other than
for Good Reason.

                  (a) Disability; Retirement. If, as a result of incapacity due
         to physical or mental illness, the Executive shall have been absent
         from the full-time performance of Executive's duties with HDI for six
         consecutive months, and within 30 days after written Notice of
         Termination is given the Executive shall not have returned to the
         full-time performance of the Executive's duties, HDI may terminate
         Executive's employment for "Disability". Any question as to the
         existence of Executive's Disability upon which Executive and HDI cannot
         agree shall be determined by a qualified independent physician selected
         by Executive (or, if the Executive is unable to make such selection, it
         shall be made by any adult member of the Executive's immediate family),
         and approved by HDI. The determination of such physician made in
         writing to HDI and to Executive shall be final and conclusive for all
         purposes of this Agreement. Termination by HDI or Executive of
         Executive's employment based on "Retirement" shall mean termination on
         or after attaining age 65.

                  (b) Cause. For purposes of this Agreement, "Cause" shall mean:

                           (i) Executive has breached the provisions of this
                  Agreement in any material respect (provided, that HDI gives
                  written notice of its intention to terminate Executive's
                  employment for Cause, and such notice shall state in
                  reasonable detail the particular act(s) or failure(s) to act
                  that constitute grounds on which the termination is based,
                  and, provided that Executive shall have ten (10) business days
                  to cure any such breach), or

                           (ii) Executive has engaged in material misconduct,
                  including, without limitation, willful and material failure to
                  perform Executive's duties as an officer or employee of HDI,
                  or

                           (iii) Executive has committed fraud, misappropriation
                  or embezzlement in connection with HDI's business, or

                           (iv) Executive has been convicted or has pleaded nolo
                  contendere to criminal misconduct (except for parking
                  violations, minor traffic violations, and other petty or
                  insignificant misdemeanors, or other misconduct which does not
                  relate to or involve or adversely affect Executive's duties
                  for HDI, as reasonably determined by HDI's Board).

                                       17
<PAGE>   18

         Executive shall not be terminated for Cause unless and until HDI shall
         have delivered to Executive a copy of a resolution duly adopted by the
         affirmative vote of not less than three-quarters of the entire
         membership of the Board at a meeting of the Board called and held for
         such purpose and, except for the reasons set forth in (iii) above,
         after reasonable notice to Executive and an opportunity for Executive,
         together with Executive's counsel, to be heard before the Board,
         finding that, in the good faith opinion of the Board, Executive's
         conduct was Cause and specifying the particulars thereof in detail.

                  (c) Good Reason. Executive shall be entitled to terminate his
         employment for Good Reason. For purposes of this Agreement, "Good
         Reason" shall mean, without Executive's express written consent, any of
         the following:

                           (i) The assignment to Executive of any duties
                  inconsistent with Executive's status or position with HDI, or
                  a substantial reduction in the nature or status of Executive's
                  responsibilities from those in effect immediately prior to the
                  Change in Control;

                           (ii) a reduction by HDI in Executive's annual
                  compensation in effect immediately prior to a Change in
                  Control;

                           (iii) the relocation of HDI's principal executive
                  offices to a location more than fifty miles from Eagan,
                  Minnesota or HDI requiring Executive to be based anywhere
                  other than HDI's principal executive offices except for
                  required travel on HDI's business to an extent substantially
                  consistent with Executive's business travel obligations
                  immediately prior to the Change in Control;

                           (iv) the failure by HDI to continue to provide
                  Executive with benefits at least as favorable to those enjoyed
                  by Executive under any of HDI's pension, profit sharing, life
                  insurance, medical, health and accident, disability, deferred
                  compensation, incentive awards, incentive or nonqualified
                  stock options, or savings plans in which Executive was
                  participating immediately prior to the Change in Control, the
                  taking of any action by HDI which would directly or indirectly
                  materially reduce any of such benefits or deprive Executive of
                  any material fringe benefit enjoyed immediately prior to the
                  Change in Control, or the failure by HDI to provide Executive
                  with the number of paid vacation days to which Executive is
                  entitled immediately prior to the Change in Control; provided,
                  however, that HDI may amend any such plan or programs as long
                  as such amendment applies to all senior executive officers of
                  HDI and does not reduce any benefits to which Executive would
                  be entitled by an amount, in the aggregate, in excess of 10%;

                           (v) the failure of HDI to obtain a satisfactory
                  agreement from any successor to assume and agree to perform
                  this Agreement, as contemplated in Section 7; or

                                       18
<PAGE>   19

                           (vi) any other material breach of this Agreement,
                  including but not limited to, any purported termination of
                  Executive's employment which is not made pursuant to a Notice
                  of Termination satisfying the requirements of subsection (d)
                  below; for purposes of this Agreement, no such purported
                  termination shall be effective.

                  Subsection 3(c)(i),(ii),(iii),(iv) and (vi) shall not
                  constitute Good Reason unless HDI shall have received written
                  notice from Executive that sets forth in detail the manner in
                  which HDI has breached this Agreement and HDI is afforded an
                  additional number of days sufficient to cure such breach in a
                  diligent manner.

                  (d) Notice of Termination. Any purported termination of
         Executive's employment by HDI or by Executive shall be communicated by
         written Notice of Termination to the other party hereto in accordance
         with Section 8. For purposes of this Agreement, a "Notice of
         Termination" shall mean a notice, which shall indicate the specific
         termination provision in this Agreement relied upon and shall set forth
         the facts and circumstances, claimed to provide a basis for termination
         of Executive's employment.

                  (e) Date of Termination. For purposes of this Agreement, "Date
         of Termination" shall mean:

                           (i) If Executive's employment is terminated for
                  Disability, 30 days after Notice of Termination is given
                  (provided that the Executive shall not have returned to the
                  full-time performance of the Executive's duties during such 30
                  day period); and

                           (ii) If Executive's employment is terminated pursuant
                  to subsections (b) or (c) above or for any other reason (other
                  than Disability), the date specified in the Notice of
                  Termination (which, in the case of a termination pursuant to
                  subsection (b) above shall not be less than 10 days, and in
                  the case of a termination pursuant to subsection (c) above
                  shall not be less than 10 nor more than 30 days, respectively,
                  from the date such Notice of Termination is given).

         4. Compensation Upon Termination or During Disability. Following a
Change in Control of HDI, as defined in Section 2, upon termination of
Executive's employment or during a period of Disability, Executive shall be
entitled to the following benefits:

                  (a) During any period that Executive fails to perform
         full-time duties with HDI as a result of a Disability, HDI shall pay
         Executive, the Executive's base salary as in effect at the commencement
         of any such period and any other form or type of compensation otherwise
         payable for such period as if the Executive were not so disabled, until
         such time as the Executive is determined to be eligible for long term
         disability benefits, if any, under any HDI's insurance programs then in
         effect.

                                       19
<PAGE>   20

                  (b) If Executive's employment shall be terminated (A) by HDI
         for Cause Executive's death, Disability or (B) Retirement by Executive
         other than for Good Reason, HDI shall pay to Executive his full base
         salary through the Date of Termination at the rate in effect at the
         time Notice of Termination is given and HDI shall have no further
         obligation to Executive under this Agreement, except as provided in
         Section 4(c) below.

                  (c) If Executive's employment shall be terminated by HDI or by
         Executive, HDI shall immediately commence payment to the Executive (or
         Executive's designated beneficiaries or estate, if no beneficiary is
         designated) of any and all benefits to which the Executive is entitled
         under HDI's retirement and insurance programs then in effect or as
         otherwise required by law.

                  (d) If Executive's employment shall be terminated (A) by HDI
         other than for Cause, Executive's death, Disability or Retirement or
         (B) by Executive for Good Reason, then Executive shall be entitled to
         the benefits provided below:

                           (i) HDI shall pay Executive, through the Date of
                  Termination, the Executive's base salary as in effect at the
                  time the Notice of Termination is given and any other form or
                  type of compensation otherwise payable for such period;

                           (ii) In lieu of any further salary payments for
                  periods subsequent to the Date of Termination, HDI shall pay a
                  severance payment (the "Severance Payment") equal to the
                  Executive's Monthly Compensation, as defined below, times
                  twelve (12) months. For purposes of this Section 4(d)(ii),
                  "Monthly Compensation" shall mean 1/12th of the Executive's
                  annual base salary (regardless of whether all or any portion
                  of such salary has been contributed to a deferred compensation
                  plan), without giving effect to any reduction in such
                  compensation which would constitute a breach of this
                  Agreement. The Severance Payment shall be paid in a single
                  lump sum within 60 days after the Date of Termination and upon
                  receipt by HDI of the Executive's full and complete release,
                  in a form acceptable to HDI, of any and all claims Executive
                  has or may have against HDI.

                           (iii) For the number of months following the Date of
                  Termination upon which the Severance Payment is determined in
                  subsection (d)(ii) above, HDI shall arrange to provide, at its
                  sole expense, Executive with life, disability, accident and
                  health insurance benefits substantially similar to those that
                  the Executive is receiving or entitled to receive immediately
                  prior to the Notice of Termination. The cost of providing such
                  benefits shall be in addition to (and shall not reduce) the
                  Severance Payment. In the event that Executive cannot be
                  covered under one or more of HDI benefit plans, HDI will
                  reimburse Executive for the full cost of obtaining comparable
                  alternative or individual coverage elsewhere. Benefits
                  otherwise receivable by Executive pursuant to this paragraph
                  (iii) shall be reduced to the extent comparable benefits are
                  actually received by Executive during such period, and any
                  such benefits actually received by Executive shall be reported
                  to HDI.

                                       20
<PAGE>   21

                  (e) Executive shall be entitled to receive any benefits
         accrued as of the Date of Termination and payable to the Executive in
         accordance with the terms and conditions of the HDI 401(k) SIMPLE
         Profit Sharing Plan and Trust or any successor of such Plan and any
         other plan or agreement relating to retirement benefits. Nothing
         herein shall expand or accelerate the rights of Executive under the
         terms of any such plan or agreement.

                  (f) Executive may, from and after the Date of Termination,
         exercise any stock options previously granted, up to 100% of the shares
         for which the option(s) has not yet been vested and/or exercised, in
         accordance with the terms and conditions of any HDI stock purchase and
         stock option plans or programs, or any successor to any such plans or
         programs. Except as provided in the preceding sentence, nothing herein
         shall expand or accelerate the rights of Executive under the terms of
         any such plan or program.

                  (g) Executive shall not be required to mitigate the amount of
         any payment provided for in this Section 4 by seeking other employment
         or otherwise, nor, except as provided in Section 4(d)(iii), shall the
         amount of any payment or benefit provided for in this Section 4 be
         reduced by any compensation earned by Executive as the result of
         employment by another employer or by retirement benefits after the Date
         of Termination, or otherwise.

                  (h) The Severance Payment provided for in this Section 4 shall
         be in lieu of, and not in addition to, any other severance payments to
         which Executive may be or become entitled under any other plan or
         program established or maintained by HDI or pursuant to any termination
         provision under any employment agreement between Executive and HDI.

         5. Limitation on Parachute Payments. If, in the opinion of tax counsel
selected by HDI and acceptable to Executive, the Severance Payment plus all
other payments or benefits which constitute "parachute payments" within the
meaning of Internal Revenue Code Section 280G(b)(2) exceeds the amount that is
deductible by HDI by reason of Section 280G, and in the opinion of such tax
counsel, the Severance Payment (in its full amount or as partially reduced, as
the case may be) plus all other payments or benefits which constitute "parachute
payments" within the meaning of Section 280G(b)(2) are not reasonable
compensation for services actually rendered or to be rendered, within the
meaning of Section 280G(b)(4), the Severance Payment shall be reduced by the
excess of the aggregate "parachute payments" that would be paid to or for the
Executive without any portion of such "parachute payments" not being deductible
by reason of Code Section 280G. The value of any non-cash benefit or any
deferred cash payments shall be determined by HDI in accordance with the
principles of Code Sections 280G(d)(3) and (4).

If it is established pursuant to a final determination of a court or an Internal
Revenue Service proceeding that, notwithstanding the good faith of Executive and
HDI in applying the terms of this subsection, the aggregate "parachute payments"
paid to or for Executive's benefit are in an amount that would result in any
portion of such "parachute payments" not being deductible by HDI or its
Affiliates by reason of Code Section 280G, then Executive shall have an
obligation to

                                       21
<PAGE>   22

pay HDI upon demand an amount equal to the sum of (A) the excess of the
aggregate "parachute payments" paid to or for the Executive's benefit over the
aggregate "parachute payments" that would have been paid to or for the
Executive's benefit without any portion of such "parachute payments" not being
deductible by reason of Code Section 280G; and (B) interest on the amount set
forth in clause (A) of this sentence at the applicable Federal rate (as defined
in Code Section 1274(d)) from the date of Executive's receipt of such excess
until the date of such payment.

         6. Funding of Payments. In order to assure the performance of HDI or
its successor of its obligations under this Agreement, HDI may, but is not
required to, deposit in a so called "rabbi trust" an amount equal to the maximum
payment that will be due the Executive under the terms hereof. Under a written
trust instrument, the Trustee shall be instructed to pay to the Executive (or
the Executive's legal representative, as the case may be) the amount to which
the Executive shall be entitled under the terms hereof, and the balance, if any,
of the trust not so paid or reserved for payment shall be repaid to HDI. If HDI
elects to deposit funds in such a rabbi trust, such deposit to the trust shall
be made no later than the occurrence of a Change in Control. If and to the
extent there are not amounts in trust sufficient to pay Executive under this
Agreement, HDI shall remain liable for any and all payments due to Executive. In
accordance with the terms of such trust, at all times during the term of this
Agreement, Executive shall have no rights, other than as an unsecured general
creditor of HDI, to any amounts held in trust and all trust assets shall be
general assets of HDI and subject to the claims of creditors of HDI. Failure of
HDI to establish or fully fund such trust shall not be deemed a revocation or
termination of this Agreement by HDI.

         7. Successors; Binding Agreement.

                  (a) This agreement shall not be assignable, in whole or in
         part, by either party without the written consent of the other party,
         except that HDI may, without the consent of Executive, assign its
         rights and obligations under this agreement to any corporation, firm or
         other business entity with or into which HDI may merge or consolidate,
         or to which HDI may sell or transfer all or substantially all of its
         assets. After any such assignment, HDI shall be discharged from all
         further liability hereunder and such assignee shall thereafter be
         deemed to be HDI for purposes of all provisions of this agreement,
         including this Section 7.

                  (b) This Agreement shall inure to the benefit of and be
         enforceable by Executive's personal or legal representatives,
         successors, heirs, and designated beneficiaries. If Executive should
         die while any amount would still be payable to Executive hereunder if
         the Executive had continued to live, all such amounts, unless otherwise
         provided herein, shall be paid in accordance with the terms of this
         Agreement to the Executive's designated beneficiaries, or, if there is
         no such designated beneficiary, to the Executive's estate.

         8. Notice. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered or certified mail, return receipt requested,

                                       22
<PAGE>   23

postage prepaid, addressed to the last known residence address of the Executive
or in the case of HDI, to its principal office to the attention of each of the
then directors of HDI with a copy to its Secretary, or to such other address as
either party may have furnished to the other in writing in accordance herewith,
except that notice of change of address shall be effective only upon receipt.

         9. Attorneys Fees. In the event either party commences legal action or
other proceeding arising out of this Agreement, the prevailing party shall be
entitled to recover from the other party reasonable attorneys' fees and costs
incurred by the prevailing party in such action or proceeding.

         10. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the parties. No waiver by either party hereto at any
time of any breach by the other party to this Agreement of, or compliance with,
any condition or provision of this Agreement to be performed by such other-party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or similar time. No agreements or representations, oral
or otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this Agreement.
The validity, interpretation, construction and performance of this Agreement
shall be governed by the laws of the State of Minnesota.

         11. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.

         IN WITNESS WHEREOF, the undersigned officer, on behalf of Hypertension
Diagnostics, Inc., and the Executive have hereunto set their hands as of the
date first above written.

                                                 HYPERTENSION DIAGNOSTICS, INC.

                                            By:   /s/ Charles F. Chesney
                                                --------------------------------

                                            Its: Executive Vice President

                                            EXECUTIVE

                                              /s/ E. Paul Maloney
                                            ------------------------------------
                                            E. Paul Maloney

                                       23

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