Document:

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                                                                    EXHIBIT 10.3

THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT
AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO HYPERTENSION DIAGNOSTICS, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED.

SUBJECT TO THE TERMS AND CONDITIONS OF THAT CERTAIN SUBSCRIPTION AGREEMENT DATED
AS OF MARCH __, 2002 BETWEEN HYPERTENSION DIAGNOSTICS, INC. AND THE HOLDER
HEREOF.

                                              Right to Purchase  ______   shares
                                              of Common  Stock of  Hypertension
                                              Diagnostics, Inc. (subject to
                                              adjustment as provided herein)

                          COMMON STOCK PURCHASE WARRANT

No. 2002-_                                         Issue Date:  March ____, 2002

        HYPERTENSION DIAGNOSTICS, INC., a corporation organized under the laws
of Minnesota (the "Company"), hereby certifies that, for value received,
______________ (the "Holder"), or assigns, is entitled, subject to the terms set
forth below, to purchase from the Company from and after the Issue Date of this
Warrant and at any time or from time to time before 5:00 p.m., New York time,
through five (5) years after such date (the "Expiration Date"), up to ________
fully paid and nonassessable shares of Common Stock (as hereinafter defined),
$.01 par value per share, of the Company at a per share purchase price of $____.
The aforedescribed purchase price per share, as adjusted from time to time as
herein provided, is referred to herein as the "Purchase Price". The number and
character of such shares of Common Stock and the Purchase Price are subject to
adjustment as provided herein.

        As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:

                (a) The term "Company" shall include Hypertension Diagnostics,
        Inc. and any corporation which shall succeed or assume the obligations
        of Hypertension Diagnostics, Inc. hereunder.

                (b) The term "Common Stock" includes (a) the Company's Common
        Stock, $.01 par value per share, as authorized on the date of the
        Subscription Agreement referred to in Section 9 hereof, (b) any other
        capital stock of any class or classes (however designated) of the
        Company, authorized on or after such date, the Holders of which shall
        have the right, without limitation as to amount, either to all or to a
        share of the balance of current dividends and liquidating dividends
        after the payment of dividends and distributions on any shares entitled
        to preference, and the Holders of which shall ordinarily, in the absence
        of contingencies, be entitled to vote for the election of a majority of
        directors of the Company (even if the right so to vote has been
        suspended by the happening of such a contingency) and (c) any other
        securities into which or for which any of the securities described in
        (a) or (b) may be converted or exchanged pursuant to a plan of
        recapitalization, reorganization, merger, sale of assets or otherwise.

                                       1

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                (c) The term "Other Securities" refers to any stock (other than
        Common Stock) and other securities of the Company or any other person
        (corporate or otherwise) which the Holder of the Warrant at any time
        shall be entitled to receive, or shall have received, on the exercise of
        the Warrant, in lieu of or in addition to Common Stock, or which at any
        time shall be issuable or shall have been issued in exchange for or in
        replacement of Common Stock or Other Securities pursuant to Section 4 or
        otherwise.

        1.      Exercise of Warrant.

                1.1. Number of Shares Issuable upon Exercise. From and after the
        date hereof through and including the Expiration Date, the Holder hereof
        shall be entitled to receive, upon exercise of this Warrant in whole in
        accordance with the terms of subsection 1.2 or upon exercise of this
        Warrant in part in accordance with subsection 1.3, shares of Common
        Stock of the Company, subject to adjustment pursuant to Section 4.

                1.2. Full Exercise. This Warrant may be exercised in full by the
        Holder hereof by delivery of an original or facsimile copy of the form
        of subscription attached as Exhibit A hereto (the "Subscription Form")
        duly executed by such Holder and surrender of the original Warrant
        within seven (7) days of exercise, to the Company at its principal
        office or at the office of its Warrant Agent (as provided hereinafter),
        accompanied by payment, as provided in Section 2.2(a)(i)-(iii), in the
        amount obtained by multiplying the number of shares of Common Stock for
        which this Warrant is then exercisable by the Purchase Price then in
        effect.

                1.3. Partial Exercise. This Warrant may be exercised in part
        (but not for a fractional share) by surrender of this Warrant in the
        manner and at the place provided in subsection 1.2 except that the
        amount payable by the Holder on such partial exercise shall be the
        amount obtained by multiplying (a) the number of shares of Common Stock
        designated by the Holder in the Subscription Form by (b) the Purchase
        Price then in effect. On any such partial exercise, the Company, at its
        expense, will forthwith issue and deliver to or upon the order of the
        Holder hereof a new Warrant of like tenor, in the name of the Holder
        hereof or as such Holder (upon payment by such Holder of any applicable
        transfer taxes) may request, the number of shares of Common Stock for
        which such Warrant may still be exercised.

                1.4. Fair Market Value. Fair Market Value of a share of the
        Company's Common Stock as of a particular date (a "Determination Date")
        shall mean:

                        (a) If the Company's Common Stock is traded on an
                exchange or is quoted on the National Association of Securities
                Dealers, Inc. Automated Quotation ("NASDAQ") National Market
                System, the NASDAQ SmallCap Market or the American Stock
                Exchange, Inc., then the closing or last bid price,
                respectively, reported for the last business day immediately
                preceding the Determination Date.

                        (b) If the Company's Common Stock is not traded on an
                exchange or on the NASDAQ National Market System, the NASDAQ
                SmallCap Market or the American Stock Exchange, Inc., but is
                traded in the over-the-counter market, then the mean of the
                closing bid and asked prices reported for the last business day
                immediately preceding the Determination Date.

                        (c) Except as provided in clause (d) below, if the
                Company's Common Stock is not publicly traded, then as the
                Holder and the Company agree or in the absence of agreement by
                arbitration in accordance with the rules then standing of the
                American Arbitration Association, before a single arbitrator to
                be chosen from a panel of persons qualified by education and
                training to pass on the matter to be decided.

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                        (d) If the Determination Date is the date of a
                liquidation, dissolution or winding up, or any event deemed to
                be a liquidation, dissolution or winding up pursuant to the
                Company's charter, then all amounts to be payable per share to
                Holders of the Common Stock pursuant to the charter in the event
                of such liquidation, dissolution or winding up, plus all other
                amounts to be payable per share in respect of the Common Stock
                in liquidation under the charter, assuming for the purposes of
                this clause (d) that all of the shares of Common Stock then
                issuable upon exercise of all of the Warrants are outstanding at
                the Determination Date.

        1.5. Company Acknowledgment. The Company will, at the time of the
exercise of the Warrant, upon the request of the Holder hereof acknowledge in
writing its continuing obligation to afford to such Holder any rights to which
such Holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant. If the Holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such Holder any such rights.

        1.6. Trustee for Warrant Holders. In the event that a bank or trust
company shall have been appointed as trustee for the Holders of the Warrants
pursuant to Subsection 3.2, such bank or trust company shall have all the powers
and duties of a warrant agent (as hereinafter described) and shall accept, in
its own name for the account of the Company or such successor person as may be
entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this
Section 1.

        2.1 Delivery of Stock Certificates, etc. on Exercise. The Company agrees
that the shares of Common Stock purchased upon exercise of this Warrant shall be
deemed to be issued to the Holder hereof as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within seven (7) days thereafter, the Company at its expense (including
the payment by it of any applicable issue taxes) will cause to be issued in the
name of and delivered to the Holder hereof, or as such Holder (upon payment by
such Holder of any applicable transfer taxes) may direct in compliance with
applicable securities laws, a certificate or certificates for the number of duly
and validly issued, fully paid and nonassessable shares of Common Stock (or
Other Securities) to which such Holder shall be entitled on such exercise, plus,
in lieu of any fractional share to which such Holder would otherwise be
entitled, cash equal to such fraction multiplied by the then Fair Market Value
of one full share, together with any other stock or other securities and
property (including cash, where applicable) to which such Holder is entitled
upon such exercise pursuant to Section 1 or otherwise.

        2.2. Cashless Exercise.

                (a) Payment may be made either in (i) cash or by certified or
        official bank check payable to the order of the Company equal to the
        applicable aggregate Purchase Price, (ii) by delivery of Common Stock
        issuable upon exercise of the Warrants in accordance with Section (b)
        below or (iii) by a combination of any of the foregoing methods, for the
        number of Common Shares specified in such form (as such exercise number
        shall be adjusted to reflect any adjustment in the total number of
        shares of Common Stock issuable to the Holder per the terms of this
        Warrant) and the Holder shall thereupon be entitled to receive the
        number of duly authorized, validly issued, fully-paid and non-assessable
        shares of Common Stock (or Other Securities) determined as provided
        herein.

                (b) Notwithstanding any provisions herein to the contrary, if
        the Fair Market Value of one share of Common Stock is greater than the
        Purchase Price (at the date of calculation as set forth below), in lieu
        of exercising this Warrant for cash, upon consent of the Company, the
        Holder may elect to receive shares equal to the value (as determined
        below) of this Warrant (or the portion thereof being cancelled) by
        surrender of this Warrant at the principal office of the Company
        together with the properly endorsed Subscription Form in which event the
        Company shall issue to the Holder a number of shares of Common Stock
        computed using the following formula:

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                           X=Y (A-B)
                             -------
                                A

                  Where    X=    the number of shares of Common Stock to be
                                 issued to the Holder

                           Y=    the number of shares of Common Stock
                                 purchasable under the Warrant or, if only a
                                 portion of the Warrant is being exercised,
                                 the portion of the Warrant being exercised
                                 (at the date of such calculation)

                           A=    the Fair Market Value of one share of the
                                 Company's Common Stock (at the date of such
                                 calculation)

                           B=    Purchase Price (as adjusted to the date of such
                                 calculation)

                (c) The Holder may not employ the cashless exercise feature
        described above at any time that the Warrant Stock to be issued upon
        exercise is included for unrestricted resale in an effective
        registration statement.

        3. Adjustment for Reorganization, Consolidation, Merger, etc.

                3.1. Reorganization, Consolidation, Merger, etc. In case at any
        time or from time to time, the Company shall (a) effect a
        reorganization, (b) consolidate with or merge into any other person or
        (c) transfer all or substantially all of its properties or assets to any
        other person under any plan or arrangement contemplating the dissolution
        of the Company, then, in each such case, as a condition to the
        consummation of such a transaction, proper and adequate provision shall
        be made by the Company whereby the Holder of this Warrant, on the
        exercise hereof as provided in Section 1, at any time after the
        consummation of such reorganization, consolidation or merger or the
        effective date of such dissolution, as the case may be, shall receive,
        in lieu of the Common Stock (or Other Securities) issuable on such
        exercise prior to such consummation or such effective date, the stock
        and other securities and property (including cash) to which such Holder
        would have been entitled upon such consummation or in connection with
        such dissolution, as the case may be, if such Holder had so exercised
        this Warrant, immediately prior thereto, all subject to further
        adjustment thereafter as provided in Section 4.

                3.2. Dissolution. In the event of any dissolution of the Company
        following the transfer of all or substantially all of its properties or
        assets, the Company, prior to such dissolution, shall at its expense
        deliver or cause to be delivered the stock and other securities and
        property (including cash, where applicable) receivable by the Holders of
        the Warrants after the effective date of such dissolution pursuant to
        this Section 3 to a bank or trust company having its principal office in
        New York, NY, as trustee for the Holder or Holders of the Warrants.

                3.3. Continuation of Terms. Upon any reorganization,
        consolidation, merger or transfer (and any dissolution following any
        transfer) referred to in this Section 3, this Warrant shall continue in
        full force and effect and the terms hereof shall be applicable to the
        shares of stock and other securities and property receivable on the
        exercise of this Warrant after the consummation of such reorganization,
        consolidation or merger or the effective date of dissolution following
        any such transfer, as the case may be, and shall be binding upon the
        issuer of any such stock or other securities, including, in the case of
        any such transfer, the person acquiring all or substantially all of the
        properties or assets of the Company, whether or not such person shall
        have expressly assumed the terms of this Warrant as provided in Section

                                       4

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        4. In the event this Warrant does not continue in full force and effect
        after the consummation of the transaction described in this Section 3,
        then only in such event will the Company's securities and property
        (including cash, where applicable) receivable by the Holders of the
        Warrants be delivered to the Trustee as contemplated by Section 3.2.

        4. Extraordinary Events Regarding Common Stock. In the event that the
Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock or (c) combine its outstanding shares of the Common Stock
into a smaller number of shares of the Common Stock, then, in each such event,
the Purchase Price shall, simultaneously with the happening of such event, be
adjusted by multiplying the then Purchase Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such event and the denominator of which shall be the number of shares
of Common Stock outstanding immediately after such event, and the product so
obtained shall thereafter be the Purchase Price then in effect. The Purchase
Price, as so adjusted, shall be readjusted in the same manner upon the happening
of any successive event or events described herein in this Section 4. The number
of shares of Common Stock that the Holder of this Warrant shall thereafter, on
the exercise hereof as provided in Section 1, be entitled to receive shall be
increased to a number determined by multiplying the number of shares of Common
Stock that would otherwise (but for the provisions of this Section 4) be
issuable on such exercise by a fraction of which (a) the numerator is the
Purchase Price that would otherwise (but for the provisions of this Section 4)
be in effect, and (b) the denominator is the Purchase Price in effect on the
date of such exercise.

        5. Certificate as to Adjustments. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of the Warrants, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding and (c) the Purchase Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the Holder of the Warrant and any
Warrant Agent of the Company (appointed pursuant to Section 12 hereof).

        6. Reservation of Stock, etc. Issuable on Exercise of Warrant; Financial
Statements. From and after forty-five (45) days after the Issue Date of this
Warrant, the Company will at all times reserve and keep available, solely for
issuance and delivery on the exercise of the Warrants, all shares of Common
Stock (or Other Securities) from time to time issuable on the exercise of the
Warrant. This Warrant entitles the Holder hereof to receive copies of all
financial and other information distributed or required to be distributed to the
Holders of the Company's Common Stock.

        7. Assignment; Exchange of Warrant. Subject to compliance with
applicable securities laws, this Warrant, and the rights evidenced hereby, may
be transferred by any registered Holder hereof (a "Transferor") with respect to
any or all of the Shares. On the surrender for exchange of this Warrant, with
the Transferor's endorsement in the form of Exhibit B attached i hereto (the
"Transferor Endorsement Form") and together with evidence reasonably
satisfactory to the Company demonstrating compliance with applicable securities
laws, the Company at its expense, but with payment by the Transferor of any
applicable transfer taxes) will issue and deliver to or on the order of the
Transferor thereof a new Warrant or Warrants of like tenor, in the name

                                       5

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of the Transferor and/or the transferee(s) specified in such Transferor
Endorsement Form (each a "Transferee"), calling in the aggregate on the face or
faces thereof for the number of shares of Common Stock called for on the face or
faces of the Warrant so surrendered by the Transferor.

        8. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.

         9. Registration Rights. The Holder of this Warrant has been granted
certain registration rights by the Company. These registration rights are set
forth in a Subscription Agreement entered into by the Company and Subscriber of
the Company's 8% Convertible Notes at or prior to the issue date of this
Warrant. THE TERMS OF THE SUBSCRIPTION AGREEMENT ARE INCORPORATED HEREIN BY THIS
REFERENCE. Upon the occurrence of a Non-Registration Event, as defined in the
Subscription Agreement, in the event the Company is unable to issue Common Stock
upon exercise of this Warrant that has been registered in the Registration
Statement described in Section 10.1 of the Subscription Agreement, within the
time periods described in the Subscription Agreement, which Registration
Statement must be effective for the periods set forth in the Subscription
Agreement, or upon the occurrence of an Approval Default as described in the
Subscription Agreement, then upon written demand made by the Holder, the Company
will pay to the Holder of this Warrant, in lieu of delivering Common Stock, a
sum equal to the closing price of the Company's Common Stock on the Principal
Market (as defined in the Subscription Agreement) or such other principal
trading market for the Company's Common Stock on the trading date immediately
preceding the date notice is given by the Holder, less the Purchase Price, for
each share of Common Stock designated in such notice from the Holder.

         10. Maximum Exercise. The Holder shall not be entitled to exercise this
Warrant on an exercise date, in connection with that number of shares of Common
Stock which would be in excess of the sum of (i) the number of shares of Common
Stock beneficially owned by the Holder and its affiliates on an exercise date,
and (ii) the number of shares of Common Stock issuable upon the exercise of this
Warrant with respect to which the determination of this limitation is being made
on an exercise date, which would result in beneficial ownership by the Holder
and its affiliates of more than 4.99% of the outstanding shares of Common Stock
of the Company on such date. For the purposes of the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3
thereunder. Subject to the foregoing, the Holder shall not be limited to
aggregate exercises which would result in the issuance of more than 4.99%. The
restriction described in this paragraph may be revoked upon seventy-five (75)
days prior notice from the Holder to the Company. The Holder may allocate which
of the equity of the Company deemed beneficially owned by the Subscriber shall
be included in the 4.99% amount described above and which shall be allocated to
the excess above 4.99%.

         11. Warrant Agent. The Company may, by written notice to the each
Holder of the Warrant, appoint an agent for the purpose of issuing Common Stock
(or Other Securities) on the exercise of this Warrant pursuant to Section 1,
exchanging this Warrant pursuant to Section 7, and replacing this Warrant
pursuant to Section 8, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such
office by such agent.

                                       6

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        12. Transfer on the Company's Books. Until this Warrant is transferred
on the books of the Company, the Company may treat the registered Holder hereof
as the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.

        13. Notices. All notices and other communications from the Company to
the Holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such Holder or, until any such Holder furnishes to the
Company an address, then to, and at the address of, the last Holder of this
Warrant who has so furnished an address to the Company.

        14. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of New York. Any dispute relating to this Warrant shall be
adjudicated in New York County in the State of New York. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.

        IN WITNESS WHEREOF, the Company has executed this Warrant as of the date
first written above.

                                         HYPERTENSION DIAGNOSTICS, INC.
                                         a Minnesota corporation

                                         By:
                                             -----------------------------------
                                                Greg H. Guettler, President

Witness:

--------------------------------

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                                    EXHIBIT A

                              FORM OF SUBSCRIPTION
                   (to be signed only on exercise of Warrant)

TO:  HYPERTENSION DIAGNOSTICS, INC.

The undersigned, pursuant to the provisions set forth in the attached Warrant
(No.____), hereby irrevocably elects to purchase (check applicable box):

___      ________ shares of the Common Stock covered by such Warrant; or

___ the maximum number of shares of Common Stock covered by such Warrant
pursuant to the cashless exercise procedure set forth in Section 2.

The undersigned herewith makes payment of the full purchase price for such
shares at the price per share provided for in such Warrant, which is
$___________. Such payment takes the form of (check applicable box or boxes):

___      $__________ in lawful money of the United States; and/or

___ the cancellation of such portion of the attached Warrant as is exercisable
for a total of _______ shares of Common Stock (using a Fair Market Value of
$_______ per share for purposes of this calculation); and/or

___ the cancellation of such number of shares of Common Stock as is necessary,
in accordance with the formula set forth in Section 2, to exercise this Warrant
with respect to the maximum number of shares of Common Stock purchasable
pursuant to the cashless exercise procedure set forth in Section 2.

The undersigned requests that the certificates for such shares be issued in the
name of, and delivered to _____________________________________________________

whose address is ______________________________________________________________

_______________________________________________________________________________

The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable upon exercise of the within Warrant shall
be made pursuant to registration of the Common Stock under the Securities Act of
1933, as amended (the "Securities Act"), or pursuant to an exemption from
registration under the Securities Act.

Dated:___________________                ______________________________________
                                         (Signature must conform to name of
                                         Holder as specified on the face of the
                                         Warrant)

                                         ______________________________________

                                         ______________________________________
                                         (Address)

                                       8

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                                    EXHIBIT B

                         FORM OF TRANSFEROR ENDORSEMENT
                   (To be signed only on transfer of Warrant)

        For value received, the undersigned hereby sells, assigns, and transfers
unto the person(s) named below under the heading "Transferees" the right
represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of HYPERTENSION DIAGNOSTICS, INC. to which the within
Warrant relates specified under the headings "Percentage Transferred" and
"Number Transferred," respectively, opposite the name(s) of such person(s) and
appoints each such person Attorney to transfer its respective right on the books
of HYPERTENSION DIAGNOSTICS, INC. with full power of substitution in the
premises.

<TABLE>
<CAPTION>
---------------------------------------- -------------------------------------- --------------------------------------
              Transferees                       Percentage Transferred                   Number Transferred
---------------------------------------- -------------------------------------- --------------------------------------
<S>                                      <C>                                     <C>

---------------------------------------- -------------------------------------- --------------------------------------

---------------------------------------- -------------------------------------- --------------------------------------

---------------------------------------- -------------------------------------- --------------------------------------
</TABLE>

Dated:  ______________, ___________      _______________________________________
                                         (Signature must conform to name of
                                         Holder as specified on the face of the
                                         warrant)

Signed in the presence of:

___________________________________      _______________________________________
         (Name)
                                         _______________________________________
                                                  (address)

ACCEPTED AND AGREED:
[TRANSFEREE]                             _______________________________________

                                         _______________________________________
                                                  (address)

___________________________________
         (Name)

                                       9<PAGE>
                                                                    EXHIBIT 10.4

                      THE LILLY DEFERRED COMPENSATION PLAN

                 (As Amended and Restated as of August 1, 1994)

SECTION 1. ESTABLISHMENT OF THE PLAN.

There is hereby established for the benefit of Participants an unfunded plan of
voluntarily deferred compensation known as "The Lilly Deferred Compensation
Plan."

SECTION 2. DEFINITIONS.

When used in the Plan, the following terms shall have the definitions set forth
in this Section 2:

         2.1. Base Salary. The term "Base Salary" means the base salary to which
         a management employee is entitled for services rendered to the Company
         as a management employee.

         2.2. Base Salary Year. The term "Base Salary Year" means each calendar
         year in which Base Salary deferred under the Plan is earned by a
         Participant.

         2.3. Beneficiary. The term "Beneficiary" means the beneficiary or
         beneficiaries (including any contingent beneficiary or beneficiaries)
         designated pursuant to subsection 6.2 hereof.

         2.4. Board of Directors. The term "Board of Directors" means the Board
         of Directors of Eli Lilly and Company.

         2.5. Bonus. The term "Bonus" means the payment to which an Eligible
         Employee is entitled pursuant to the Contingent Compensation Plan,the
         Senior Executive Bonus Plan or the

<PAGE>

         Lilly Executive Bonus Plan (the EVA Bonus Plan) of the Company or any
         other similar compensation plan as may from time to time be designated
         by the Committee.

         2.6. Bonus Year. The term "Bonus Year" means each calendar year in
         which a Bonus deferred under the Plan is earned by a Participant.

         2.7. Committee. The term "Committee" means the committee designated in
         subsection 9.1 hereof to administer the Plan.

         2.8. Company. The term "Company" means Eli Lilly and Company and its
         affiliates and subsidiaries.

         2.9. Company Credit. The term "Company Credit" means an amount computed
         and credited annually to Participants' accounts hereunder at a rate
         that is two percent (2%) above the rate that the Treasurer of Lilly
         determines was the prime rate of interest charged by Chemical Bank, New
         York, New York (the "Bank") on loans made on the immediately preceding
         December 15 or, if the Bank was closed on December 15, the last day
         preceding December 15 on which the Bank was open for business.

         2.10. Disability. The term "Disability" means a condition that the
         Committee determines (i) is attributable to sickness, injury, or
         disease and (ii) renders a Participant incapable of engaging in any
         activity for remuneration or profit commensurate with the Participant's
         education, experience, and training.

         2.11. Eligible Employee. The term "Eligible Employee" means a
         management employee of the Company who is

                                      -2-
<PAGE>

         designated by the Committee as eligible to defer a Bonus earned in the
         following year.

         2.12. Lilly. The term "Lilly" means Eli Lilly and Company.

         2.13. Participant. The term "Participant" means an Eligible Employee
         who has elected to defer all or part of a Bonus pursuant to the Plan in
         accordance with Section 3.1 hereof or an SEC Executive Officer who has
         elected to defer all or part of Base Salary pursuant to the Plan in
         accordance with Section 3.2 hereof.

         2.14. Plan. The term "Plan" means "The Lilly Deferred Compensation
         Plan" as set forth herein and as it may be amended from time to time.

         2.15. Retirement. The term "Retirement" means the first day of the
         month next following the Participant's last day of work for the
         Company, but only if such first day of the month occurs on or after the
         first to occur of (i) the day on which the Participant attains age 65
         or (ii) the day on which the Participant is eligible to commence
         receiving a monthly retirement benefit under a funded, defined benefit
         retirement plan maintained by the Company and covering the Participant.

         2.16. SEC Executive Officers. The term "SEC Executive Officers" shall
         mean those officers and employees from time to time designated as
         Executive Officers for purposes of the proxy statement and Form 10-K.

                                      -3-
<PAGE>

SECTION 3. PARTICIPATION.

         3.1. Bonuses. Prior to the beginning of each Bonus Year, the Committee
         shall select those Eligible Employees who may elect to defer Bonuses
         pursuant to the Plan. Upon selection by the Committee and before the
         beginning of the applicable Bonus Year, an Eligible Employee may defer
         the receipt of a Bonus pursuant to the Plan by filing a written
         election with the Committee, in a form satisfactory to the Committee,
         that

                    (i)      defers payment of a designated amount (of One
                             Thousand Dollars ($1,000) or more) or percentage of
                             the Bonus, if any, to be earned in the Bonus Year,
                             and

                    (ii)     specifies the payment option selected by the
                             Participant pursuant to subsection 6.1 hereof.

         The amount deferred may not exceed the amount of the Bonus.
         Except as provided in subsections 6.1 and 6.3 hereof, any election made
         pursuant to this Section 3 (including any election made pursuant to
         paragraphs (i) and (ii), above) with respect to a Bonus Year shall be
         irrevocable when made.

         Selection of an Eligible Employee for deferral of a Bonus
         during one year does not confer upon the Eligible Employee a right to
         defer Bonuses for subsequent years. The Eligible Employees who shall be
         permitted to defer Bonuses pursuant to the Plan shall be selected
         annually by the Committee. If an Eligible Employee is also an SEC
         Executive Officer as of the beginning of the Bonus Year, the Eligible
         Employee may also defer the receipt of Base Salary as provided in
         Section 3.2.

                                      -4-
<PAGE>

         3.2. Base Salary. Subject to the right of the Committee to limit
         deferrals described below, prior to the beginning of each Compensation
         Year, an SEC Executive Officer may defer the receipt of up to one
         hundred percent (100%) of Base Salary pursuant to the Plan by filing a
         written election with the Committee, in a form satisfactory to the
         Committee, that

                    (i)      defers payment of a designated amount of One
                             Thousand Dollars ($1,000) or more or a percentage
                             of Base Salary, and

                    (ii)     specifies the payment option selected by the
                             Participation pursuant to subsection 6.1 hereof.

         The amount deferred may not exceed the amount of Base Salary. Except as
         provided in subsections 6.1 and 6.3 hereof, any election made pursuant
         to this Section 3 (including any election made pursuant to paragraphs
         (i) and (ii), above) with respect to a Bonus Year shall be irrevocable
         when made and shall not be affected by the Participant's ceasing to be
         an SEC Executive Officer after the beginning of the Bonus Year.

         The Committee reserves the right to limit the amount of Deferrals of
         Base Salary to assure that the Company has sufficient funds to cover
         taxes, benefit payments, and other necessary and appropriate
         deductions.

SECTION 4. INDIVIDUAL ACCOUNT.

The Treasurer of Lilly shall maintain an account in the name of

                                      -5-
<PAGE>

each Participant. In the year following the Bonus Year or Base Salary Year, each
Participant's account shall be credited, as of the first day of the month in
which Bonuses or Base Salary are paid, with the amount that the Participant has
elected to defer hereunder. Each Participant shall be given an annual statement,
as of December 31 of each year, showing for each year (i) the amount of Bonuses
or Base Salary deferred and (ii) the amount of the Company Credit to the
Participant's account.

SECTION 5. ACCRUAL OF COMPANY CREDIT.

The Treasurer of Lilly shall determine the applicable annual rate of Company
Credit on or before December 31 of each calendar year. This rate shall be
effective for the following calendar year. The Company Credit shall accrue
monthly, at one-twelfth of the applicable annual rate, on all amounts credited
to the Participant's account, including the Company Credits for prior years. The
Company Credit shall not accrue on any amount distributed to the Participant (or
to the Participant's Beneficiary) during the month for which the accrual is
determined, except where an amount is distributed to a Beneficiary in the month
of the Participant's death. The Company Credit for each year shall be credited
to each Participant's account as of December 31 of that year and shall be
compounded annually.

SECTION 6. PAYMENT.

         6.1. Payment Options. The Participant shall select a payment election
         from the payment options described below. A Participant may elect that
         his final payment election control over all prior payment elections.
         The payment option selected by a Participant shall provide for payment

                                      -6-
<PAGE>

         to the Participant of the amount credited to the Participant's account
         in

                    (i)      a lump sum in January of the second calendar year
                             following the calendar year in which the
                             Participant's employment terminates by reason of
                             Retirement or Disability; or

                    (ii)     annual installments over a period of two to ten
                             years commencing in January of the second calendar
                             year following the calendar year in which the
                             Participant's employment terminates by reason of
                             Retirement or Disability;

         provided, that in no event shall a lump sum be paid or installment
         payments begin under any payment option before the first January that
         begins after any Bonus that has been deferred under the payment option
         has been determined. The Company shall pay the aggregate amounts
         deferred, together with a proportionate part of the aggregate Company
         Credit accrued to the date (or dates) of payment, in the manner and on
         the date(s) specified by the Participant. If a payment option described
         in paragraph (i), above, has been elected, the amount of the lump sum
         shall be equal to the amount credited to the Participant's account as
         of the December 31 next preceding the date of the payment. If the
         payment option described in paragraph (ii), above, has been elected,
         the amount of each installment shall be equal to the amount credited to
         the Participant's account as of the December 31 next preceding the date
         of the installment payment divided by the number of installment
         payments that have not yet been made. If the Participant fails to elect
         a payment option, the amount credited to the Participant's account
         shall be distributed in a lump sum in accordance with the payment

                                      -7-
<PAGE>

         option described in paragraph (i), above. If the amount credited to the
         Participant's account is less than $25,00 at any time following the
         year in which the Participant's employment terminates by reason of
         Retirement of Disability, the Committee, in its sole discretion, may
         pay out the amount credited to the Participant's account in a lump sum.

         6.2. Payment upon Death. Within a reasonable period of time following
         the death of a Participant, the balance in the Participant's account
         shall be paid in a lump sum to the Participant's Beneficiary. For
         purposes of this subsection 6.2, the balance in the Participant's
         account shall be determined as of the date of payment. A Participant
         may designate the Beneficiary, in writing, in a form acceptable to the
         Committee, and filed with the Committee before the Participant's death.
         A Participant may, before the Participant's death, revoke a prior
         designation of Beneficiary and may also designate a new Beneficiary
         without the consent of the previously designated Beneficiary, provided
         that such revocation and new designation (if any) are in writing, in a
         form acceptable to the Committee, and filed with the Committee before
         the Participant's death. If the Participant does not designate a
         Beneficiary, or if no designated Beneficiary survives the Participant,
         any amount not distributed to the Participant during the Participant's
         life shall be paid to the Participant's estate in a lump sum in
         accordance with this subsection 6.2.

         6.3. Resignation or Dismissal. Within a reasonable time following
         termination of a Participant's employment by resignation or dismissal,
         the balance in the Participant's account shall be paid in a lump sum to
         the Participant. For purposes of this subsection 6.3, the balance in
         the

                                      -8-
<PAGE>

         Participant's account shall be determined as of a date determined by
         the Cormittee in its sole discretion.

         6.4. Payment on Unforeseeable Emergency. The Administrator may, in its
         sole discretion, direct payment to a Participant of all or of any
         portion of the Participant's Account balance, notwithstanding an
         election under Section 6.1. above, at any time that it determines that
         such Participant has an unforeseeable emergency and then only to the
         extent reasonably necessary to meet the emergency. For purposes of this
         rule, "unforeseeable emergency" means severe financial hardship to the
         Participant resulting from a sudden and unexpected illness or accident
         of the Participant or of a dependent of the Participant, loss of the
         Participant's property due to casualty, or other similar extraordinary
         and unforeseeable circumstances arising as a result of events beyond
         the control of the Participant. The circumstances that will constitute
         an unforeseeable emergency will depend upon the facts of each case,
         but, in any case, payment may not be made to the extent that such
         hardship is or may be relieved --

                    (i)      Through reimbursement or compensation by insurance
                             or otherwise,

                    (ii)     By liquidation of the Participant's assets, to the
                             extent the liquidation of such assets would not
                             itself cause severe financial hardship, or

                    (iii)    By cessation of deferrals under the Plan.

         Examples of what are not considered to be unforeseeable emergencies
         include the need to send a Participant's child to college or the desire
         to purchase a home.

                                      -9-
<PAGE>

         6.5. Cash Payments. All payments under the Plan shall be made in cash.

SECTION 7. PROHIBITION AGAINST TRANSFER.

The right of a Participant to receive payments under the Plan may not be
transferred except by will or applicable laws of descent and distribution. A
Participant may not assign, sell, pledge, or otherwise transfer any amount to
which he is entitled hereunder prior to transfer or payment thereof to the
Participant.

SECTION 8. PARTICIPANT'S RIGHTS UNSECURED.

The Plan is unfunded. The right of any Participant to receive payments under the
Plan shall be an unsecured claim against the general assets of the Company.

SECTION 9. ADMINISTRATION.

         9.1. Committee. The Plan shall be administered by the Compensation and
         Management Development Committee of the Board of Directors,the members
         of which shall be selected by the Board of Directors from among its
         members. No member of the Committee may be a salaried employee of the
         Company.

         9.2. Powers of the Committee. The Committee's powers shall include, but
         not be limited to, the power

                    (i)      to select Eligible Employees for participation in
                             the Plan,

                                      -10-
<PAGE>

                    (ii)     to interpret the terms and provisions of the Plan
                             and to determine any and all questions arising
                             under the Plan, including, without limitation, the
                             right to remedy possible ambiguities,
                             inconsistencies, or omissions by a general rule or
                             particular decision,

                    (iii)    to adopt rules consistent with the Plan, and

                    (iv)     to limit the deferrals of SEC Executive Officers to
                             assure that the Company has sufficient funds to
                             cover taxes,benefit payments,and other necessary or
                             appropriate deductions.

         9.3. Finality of Committee Determinations. Determinations by the
         Committee and any interpretation, rule, or decision adopted by the
         Committee under the Plan or in carrying out or administering the Plan
         shall be final and binding for all purposes and upon all interested
         persons, their heirs, and personal representatives.

         9.4. Claims Procedures. Any person making a claim for benefits
         hereunder shall submit the claim in writing to the Committee. If the
         Committee denies the claim in whole or in part, it shall issue to the
         claimant a written notice explaining the reason for the denial and
         identifying any additional information or documentation that might
         enable the claimant to perfect the claim. The claimant may, within 60
         days of receiving a written notice of denial, submit a written request
         for reconsideration to the Committee, together with a written
         explanation of the basis of the request. The Committee shall consider
         any such

                                      -11-
<PAGE>

         request and shall provide the claimant with a written decision together
         with a written explanation thereof. All interpretations,
         determinations, and decisions of the committee in respect of any claim
         shall be final and conclusive.

         9.5. Withholding. The Company shall have the right to deduct from all
         payments hereunder any taxes required by law to be withheld from such
         payments. The recipients of such payments shall bear all taxes on
         amounts paid under the Plan to the extent that no taxes are withheld
         thereon, irrespective of whether withholding is required.

         9.6. Incapacity. If the Committee determines that any person entitled
         to benefits under the Plan is unable to care for his or her affairs
         because of illness or accident, any payment due (unless a duly
         qualified guardian or other legal representative has been appointed)
         may be paid for the benefit of such person to such person's spouse,
         parent, brother, sister,or other party deemed by the Committee to have
         incurred expenses for such person.

         9.7. Inability to Locate. If the Committee is unable to locate a person
         to whom a payment is due under the Plan for a period of twelve (12)
         months, commencing with the first day of the month as of which the
         payment becomes payable, the total amount payable to such person shall
         be forfeited.

         9.8. Legal Holidays. If any day on (or on or before) which action under
         the Plan must be taken falls on a Saturday, Sunday,or legal holiday,
         such action may be taken on (or on

                                      -12-
<PAGE>

         or before) the next succeeding day that is not a Saturday, Sunday,or
         legal holiday; provided, that this subsection 9.8 shall not permit any
         action that must be taken in one calendar year to be taken in any
         subsequent calendar year.

SECTION 10. NO EMPLOYMENT RIGHTS.

No provision of the Plan or any action taken hereunder by the Company, the Board
of Directors, or the Committee shall give any person any right to be retained in
the employ of the Company, and the right and power of the Company to dismiss or
discharge any Participant is specifically reserved.

SECTION 11. AMENDMENT, SUSPENSION, AND TERMINATION.

The Board of Directors shall have the right to amend, suspend, or terminate the
Plan at any time. The Committee shall also have the right to amend the Plan,
except for subsection 9.1 hereof and this Section 11.

SECTION 12. APPLICABLE LAW.

The Plan shall be governed by, and construed in accordance with, the laws of the
State of Indiana, except to the extent that such laws are preempted by Federal
law.

                                      -13-
<PAGE>

SECTION 13. EFFECTIVE DATE.

This amendment and restatement of the Plan is effective as of August 1, 1994.
Nothing herein shall invalidate or adversely affect any previous election,
designation, deferral, or accrual in accordance with the terms of the Plan that
were then in effect.

                                      -14-

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