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                                                                    EXHIBIT 10.1

                             SUBSCRIPTION AGREEMENT

Dear Subscriber:

         You (the "Subscriber") hereby agree to purchase, and Hypertension
Diagnostics, Inc., a Minnesota corporation (the "Company") hereby agrees to
issue and to sell to the Subscriber, an 8% Convertible Note convertible in
accordance with the terms thereof into shares of the Company's $.01 par value
common stock (the "Company Shares") and common stock purchase warrants
("Warrants") for the aggregate consideration as set forth on the signature page
hereof ("Purchase Price"). The form of Convertible Note is annexed hereto as
EXHIBIT A. (The Company Shares included in the Securities (as hereinafter
defined) are sometimes referred to herein as the "Shares", "Common Shares" or
"Common Stock"). (The Notes, the Company Shares, Warrants, and the Common Stock
issuable upon exercise of the Warrants are collectively referred to herein as,
the "Securities"). Upon acceptance of this Agreement by the Subscriber, the
Company shall issue and deliver the Note and Warrants against payment, by
federal funds wire transfer of the Purchase Price.

        The following terms and conditions shall apply to this subscription.

        1. Subscriber's Representations and Warranties. The Subscriber hereby
represents and warrants to and agrees with the Company that:

                (a) Information on Company. The Subscriber has been furnished
        with the Company's Form 10-KSB for the year ended June 30, 2001 as filed
        with the Securities and Exchange Commission (the "Commission") together
        with all subsequently filed Forms 10-QSB, and other publicly available
        filings made with the Commission (hereinafter referred to as the
        "Reports"). In addition, the Subscriber has received from the Company
        such other information concerning its operations, financial condition
        and other matters as the Subscriber has requested in writing (such
        information in writing is collectively, the "Other Written
        Information"), and considered all factors the Subscriber deems material
        in deciding on the advisability of investing in the Securities.

                (b) Information on Subscriber. The Subscriber is an "accredited
        investor", as such term is defined in Regulation D promulgated by the
        Commission under the Securities Act of 1933, as amended (the "1933
        Act"), is experienced in investments and business matters, has made
        investments of a speculative nature and has purchased securities of
        United States publicly-owned companies in private placements in the past
        and, with its representatives, has such knowledge and experience in
        financial, tax and other business matters as to enable the Subscriber to
        utilize the information made available by the Company to evaluate the
        merits and risks of and to make an informed investment decision with
        respect to the proposed purchase, which represents a speculative
        investment. The Subscriber was not organized for the specific purpose of
        acquiring the Securities. The Subscriber has the authority and is duly
        and legally qualified to purchase and own the Securities. The Subscriber
        is able to bear the risk of such investment for an indefinite period and
        to afford a complete loss thereof. The information set forth on the
        signature page hereto regarding the Subscriber is accurate.

                (c) Purchase of Note. On the Closing Date, the Subscriber will
        purchase the Note and Warrants for its own account and not with a view
        to any distribution thereof.

                (d) Compliance with Securities Act. The Subscriber understands
        and agrees that the Securities have not been registered under the 1933
        Act, by reason of their issuance in a transaction that does not require
        registration under the 1933 Act (based in part on the accuracy of the
        representations and warranties of Subscriber contained herein), and that
        such Securities must be held unless a subsequent disposition is
        registered under the 1933 Act or is exempt from such registration.

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                (e) Company Shares Legend. The Company Shares, and the shares of
        Common Stock issuable upon the exercise of the Warrants, shall bear the
        following legend:

                "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
                REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
                SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
                HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
                STATEMENT UNDER SUCH SECURITIES ACT OR AN OPINION OF COUNSEL
                REASONABLY SATISFACTORY TO HYPERTENSION DIAGNOSTICS, INC. THAT
                SUCH REGISTRATION IS NOT REQUIRED."

                (f) Warrants Legend. The Warrants shall bear the following
        legend:

                "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."

                (g) Note Legend. The Note shall bear the following legend:

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

                (h) Communication of Offer. The offer to sell the Securities was
        directly communicated to the Subscriber. At no time was the Subscriber
        presented with or solicited by any leaflet, newspaper or magazine
        article, radio or television advertisement, or any other form of general
        advertising or solicited or invited to attend a promotional meeting
        otherwise than in connection and concurrently with such communicated
        offer.

                (i) Resale Compliance. The Subscriber will comply with all
        applicable federal, state and other regulatory agency rules, laws and
        regulations in connection with the sale and resale of the Company
        Shares.

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                (j) Correctness of Representations. The Subscriber represents
        that the foregoing representations and warranties are true and correct
        as of the date hereof and, unless the Subscriber otherwise notifies the
        Company prior to the Closing Date (as hereinafter defined), shall be
        true and correct as of the Closing Date. The foregoing representations
        and warranties shall survive the Closing Date.

        2. Company Representations and Warranties. The Company represents and
warrants to and agrees with the Subscriber that:

                (a) Due Incorporation. The Company and each of its subsidiaries,
        if applicable, is a corporation duly organized, validly existing and in
        good standing under the laws of the respective jurisdictions of their
        incorporation and have the requisite corporate power to own their
        properties and to carry on their business as now being conducted. The
        Company and each of its subsidiaries, if applicable, is duly qualified
        as a foreign corporation to do business and is in good standing in each
        jurisdiction where the nature of the business conducted or property
        owned by it makes such qualification necessary, other than those
        jurisdictions in which the failure to so qualify would not have a
        material adverse effect on the business, operations or financial
        condition of the Company.

                (b) Outstanding Stock. All issued and outstanding shares of
        capital stock of the Company and each of its subsidiaries has been duly
        authorized and validly issued and are fully paid and non-assessable.

                (c) Authority; Enforceability. This Agreement has been duly
        authorized, executed and delivered by the Company and is a valid and
        binding agreement enforceable in accordance with its terms, subject to
        bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium
        and similar laws of general applicability relating to or affecting
        creditors' rights generally and to general principles of equity; and the
        Company has full corporate power and authority necessary to enter into
        this Agreement and to perform its obligations hereunder and all other
        agreements entered into by the Company relating hereto.

                (d) Additional Issuances. Except as set forth on Schedule 2(d),
        there are no outstanding agreements or preemptive or similar rights
        affecting the Company's common stock or equity and no outstanding
        rights, warrants or options to acquire, or instruments convertible into
        or exchangeable for, or agreements or understandings with respect to the
        sale or issuance of any shares of common stock or equity of the Company
        or other equity interest in any of the subsidiaries of the Company
        except as described in the Reports or Other Written Information.

                (e) Consents. Other than the approval of shareholders described
        in Section 7(n) and the declaration of effectiveness by the Commission
        of any registration statement required to be filed pursuant to this
        Agreement and the approval of any state securities commission under
        applicable "blue sky" regulation, no consent, approval, authorization or
        order of any court, governmental agency or body or arbitrator having
        jurisdiction over the Company, or any of its affiliates, the NASD,
        NASDAQ or the Company's Shareholders is required for execution of this
        Agreement, and all other agreements entered into by the Company relating
        thereto, including, without limitation issuance and sale of the
        Securities, and the performance of the Company's obligations hereunder.

                (f) No Violation or Conflict. Assuming the representations and
        warranties of the Subscriber in Paragraph 1 are true and correct and the
        Subscriber complies with its obligations under this Agreement, neither
        the issuance and sale of the Securities nor the performance of its
        obligations under this Agreement and all other agreements entered into
        by the Company relating thereto by the Company will:

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                        (i) violate, conflict with, result in a breach of, or
                constitute a default (or an event which with the giving of
                notice or the lapse of time or both would be reasonably likely
                to constitute a default) under (A) the certificate of
                incorporation, charter or bylaws of the Company, (B) to the
                Company's knowledge, any decree, judgment, order, law, treaty,
                rule, regulation or determination applicable to the Company of
                any court, governmental agency or body, or arbitrator having
                jurisdiction over the Company or any of its affiliates or over
                the properties or assets of the Company or any of its
                affiliates, (C) the terms of any bond, debenture, note or any
                other evidence of indebtedness, or any agreement, stock option
                or other similar plan, indenture, lease, mortgage, deed of trust
                or other instrument to which the Company or any of its
                affiliates is a party, by which the Company or any of its
                affiliates is bound, or to which any of the properties of the
                Company or any of its affiliates is subject, or (D) the terms of
                any "lock-up" or similar provision of any underwriting or
                similar agreement to which the Company, or any of its affiliates
                is a party except the violation, conflict, breach, or default of
                which would not have a material adverse effect on the Company;
                or

                        (ii) result in the creation or imposition of any lien,
                charge or encumbrance upon the Securities or any of the assets
                of the Company, or any of its affiliates.

                (g) The Securities. The Securities upon issuance:

                        (i) are, or will be, free and clear of any security
                interests, liens, claims or other encumbrances, subject to
                restrictions upon transfer under the 1933 Act and State laws;

                        (ii) have been, or will be, duly and validly authorized
                and on the date of issuance and on the Closing Date, as
                hereinafter defined, and the date the Note is converted, and the
                Warrants are duly exercised, the Securities will be duly and
                validly issued, fully paid and nonassessable (and if registered
                pursuant to the 1933 Act, and resold pursuant to an effective
                registration statement will be free trading and unrestricted,
                except that the Securities may bear a legend relating to the
                Prospectus delivery requirement and Subscriber must furnish
                evidence to the Company, its counsel or transfer agent that
                Subscriber has complied with the Prospectus delivery requirement
                which may be satisfied with a written statement from the
                Subscriber or broker);

                        (iii) will not have been issued or sold in violation of
                any preemptive or other similar rights of the holders of any
                securities of the Company; and

                        (iv) will not subject the holders thereof to personal
                liability by reason of being such holders.

                (h) Litigation. There is no pending or, to the best knowledge of
        the Company, threatened action, suit, proceeding or investigation before
        any court, governmental agency or body, or arbitrator having
        jurisdiction over the Company, or any of its affiliates that would
        affect the execution by the Company or the performance by the Company of
        its obligations under this Agreement, and all other agreements entered
        into by the Company relating hereto. Except as disclosed in the Reports
        or Other Written Information, there is no pending or, to the best
        knowledge of the Company, threatened action, suit, proceeding or
        investigation before any court, governmental agency or body, or
        arbitrator having jurisdiction over the Company, or any of its
        affiliates which litigation if adversely determined could have a
        material adverse effect on the Company.

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                (i) Reporting Company. The Company is a publicly-held company
        subject to reporting obligations pursuant to Sections 15(d) and 13 of
        the Securities Exchange Act of 1934, as amended (the "1934 Act") and has
        a class of common shares registered pursuant to Section 12(g) of the
        1934 Act. The Company's common stock is trading on the Nasdaq SmallCap
        Market ("SmallCap"). Pursuant to the provisions of the 1934 Act, the
        Company has filed all reports and other materials required to be filed
        thereunder with the Securities and Exchange Commission during the
        preceding twelve months except as set forth in the Reports.

                (j) No Market Manipulation. The Company has not taken, and will
        not take, directly or indirectly, any action designed to, or that might
        reasonably be expected to, cause or result in stabilization or
        manipulation of the price of the common stock of the Company to
        facilitate the sale or resale of the Securities or affect the price at
        which the Securities may be issued.

                (k) Information Concerning Company. The Reports contain all
        material information relating to the Company and its operations and
        financial condition as of their respective dates which information is
        required to be disclosed therein. Since the date of the financial
        statements included in the Reports, and except as modified in the Other
        Written Information or in the Schedule hereto, there has been no
        material adverse change in the Company's business, financial condition
        or affairs not disclosed in the Reports. The Reports do not contain any
        untrue statement of a material fact or omit to state a material fact in
        light of the circumstances when made required to be stated therein or
        necessary to make the statements therein not misleading.

                (l) Dilution. The number of Shares issuable upon conversion of
        the Notes may increase substantially in certain circumstances,
        including, but not necessarily limited to, the circumstance wherein the
        trading price of the Common Stock declines prior to conversion of the
        Note. The Company's executive officers and directors have studied and
        fully understand the nature of the Securities being sold hereby and
        recognize that they have a potential dilutive effect. The board of
        directors of the Company has concluded, in its good faith business
        judgment, that such issuance is in the best interests of the Company.
        The Company specifically acknowledges that its obligation to issue the
        Shares upon conversion of the Note and exercise of the Warrants is
        binding upon the Company and enforceable, except as otherwise described
        in this Subscription Agreement or the Note, regardless of the dilution
        such issuance may have on the ownership interests of other shareholders
        of the Company.

                (m)Stop Transfer. The Securities are restricted securities as of
        the date of this Agreement. The Company will not issue any stop transfer
        order or other order impeding the sale and delivery of the Securities,
        except as may be required by federal securities laws.

                (n) Defaults. Neither the Company nor any of its subsidiaries is
        in violation of its Certificate of Incorporation or ByLaws. Neither the
        Company nor any of its subsidiaries is (i) in default under or in
        violation of any other material agreement or instrument to which it is a
        party or by which it or any of its properties are bound or affected,
        which default or violation would have a material adverse effect on the
        Company, (ii) in default with respect to any order of any court,
        arbitrator or governmental body or subject to or party to any order of
        any court or governmental authority arising out of any action, suit or
        proceeding under any statute or other law respecting antitrust,
        monopoly, restraint of trade, unfair competition or similar matters, or
        (iii) to its knowledge in violation of any statute, rule or regulation
        of any governmental authority which violation would have a material
        adverse effect on the Company.

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                (o) No Integrated Offering. Neither the Company, nor any of its
        affiliates, nor any person acting on its or their behalf, has directly
        or indirectly made any offers or sales of any security or solicited any
        offers to buy any security under circumstances that would cause the
        offering of the Securities pursuant to this Agreement to be integrated
        with prior offerings by the Company for purposes of the 1933 Act or any
        applicable stockholder approval provisions, including, without
        limitation, under the rules and regulations of SmallCap nor will the
        Company or any of its affiliates or subsidiaries take any action or
        steps that would cause the offering of the Securities to be integrated
        with other offerings. The Company has not conducted and will not conduct
        any offering other than the transactions contemplated hereby that will
        be integrated with the issuance of the Securities.

                (p) No General Solicitation. Neither the Company, nor any of its
        affiliates, nor to its knowledge, any person acting on its or their
        behalf, has engaged in any form of general solicitation or general
        advertising (within the meaning of Regulation D under the Act) in
        connection with the offer or sale of the Securities.

                (q) Listing. The Company's common stock is quoted on, and listed
        for trading on the SmallCap. Except as disclosed in the Other Written
        Information, the Company has not received any oral or written notice
        that its Common Stock will be delisted from the SmallCap or that the
        Common Stock does not meet all requirements for the continuation of such
        listing.

                (r) No Undisclosed Liabilities. The Company has no liabilities
        or obligations which are material, individually or in the aggregate,
        which are not disclosed in the Reports and Other Written Information,
        other than those incurred in the ordinary course of the Company's
        businesses since June 30, 2001 and which, individually or in the
        aggregate, would not reasonably be expected to have a material adverse
        effect on the Company's financial condition.

                (s) No Undisclosed Events or Circumstances. Since June 30, 2001,
        no event or circumstance has occurred or exists with respect to the
        Company or its businesses, properties, operations or financial
        condition, that, under applicable law, rule or regulation, requires
        public disclosure or announcement prior to the date hereof by the
        Company but which has not been so publicly announced or disclosed in the
        Reports.

                (t) Capitalization. The authorized and outstanding capital stock
        of the Company as of the date of this Agreement and the Closing Date are
        set forth on Schedule 2(t) hereto. Except as set forth in the Reports
        and Other Written Information and Schedule 2(t), there are no options,
        warrants, or rights to subscribe to, securities, rights or obligations
        convertible into or exchangeable for or giving any right to subscribe
        for any shares of capital stock of the Company. All of the outstanding
        shares of Common Stock of the Company have been duly and validly
        authorized and issued and are fully paid and nonassessable.

                (u) Correctness of Representations. The Company represents that
        the foregoing representations and warranties are true and correct as of
        the date hereof in all material respects, will be true and correct as of
        the Closing Date in all material respects, and, unless the Company
        otherwise notifies the Subscriber prior to the Closing Date, shall be
        true and correct in all material respects as of the Closing Date. The
        foregoing representations and warranties shall survive the Closing Date.

        3. Regulation D Offering. This Offering is being made pursuant to the
exemption from the registration provisions of the Securities Act of 1933, as
amended, afforded by Rule 506 of Regulation D promulgated thereunder. On the
Closing Date, the Company will provide an opinion reasonably acceptable to
Subscriber from the Company's legal counsel opining on the availability of the
Regulation D exemption as it relates to the offer and issuance of the
Securities. A form of the legal opinion is annexed hereto as EXHIBIT B. The
Company will provide, at the Company's expense, such other legal opinions in the
future as are reasonably necessary for the conversion of the Note and exercise
of the Warrants.

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        4. Reissuance of Securities. The Company agrees to reissue certificates
representing the Securities without the legends set forth in Sections 1(e) and
1(f) above at such time as (a) the holder thereof is permitted to and disposes
of such Securities pursuant to Rule 144(d) and/or Rule 144(k) under the 1933 Act
in the opinion of counsel reasonably satisfactory to the Company, or (b) upon
resale subject to an effective registration statement after the Securities are
registered under the 1933 Act (provided that any certificate representing
Securities so registered may bear a legend relating to the prospectus delivery
requirements). The Company agrees to cooperate with the Subscriber in connection
with all resales pursuant to Rule 144(d) and Rule 144(k) and provide legal
opinions necessary to allow such resales provided the Company and its counsel
receive all reasonably requested written representations from the Subscriber and
selling broker, if any. Provided the Subscriber provides required certifications
and representation letters, if any, if the Company fails to remove any legend as
required by this Section 4 (a "Legend Removal Failure"), then beginning on the
tenth (10th) day following the date that the Subscriber has requested the
removal of the legend and delivered all items reasonably required by the Company
to be delivered by the Subscriber, the Company continues to fail to remove such
legend, the Company shall pay to each Subscriber or assignee holding shares
subject to a Legend Removal Failure an amount equal to one percent (1%) of the
Purchase Price of the shares subject to a Legend Removal Failure per day that
such failure continues. If during any twelve (12) month period, the Company
fails to remove any legend as required by this Section 4 for an aggregate of
thirty (30) days, each Subscriber or assignee holding Securities subject to a
Legend Removal Failure may, at its option, require the Company to purchase all
or any portion of the Securities subject to a Legend Removal Failure held by
such Subscriber or assignee at a price per share equal to 120% of the applicable
Purchase Price.

        5. Warrants.

                (a) The Company will also issue and deliver on the Closing Date
        to the Subscriber a Warrant to purchase one share for each Eight Dollars
        of Purchase Price. A form of Warrant is annexed hereto as EXHIBIT C. The
        per share "Purchase Price" of Common Stock as defined in the Warrant
        shall be 115% of the closing bid price of the Common Stock on the
        SmallCap on the date of this Agreement. The Warrants shall be
        exercisable for five years after the Issue Date (as defined in the
        Warrant).

                (b) All the representations, covenants, warranties,
        undertakings, remedies, liquidated damages, indemnification, rights in
        Section 9 hereof, and other rights including but not limited to
        registration rights made or granted to or for the benefit of the
        Subscriber are hereby also made and granted to the Subscribers in
        respect of the Warrants and Company Shares issuable upon exercise of the
        Warrants.

        6. Fees.

                (a) The Company shall pay to counsel of the Subscribers its fees
        of $20,000 maximum ($10,000 of which has already been paid) for services
        rendered to Subscribers in connection with this Agreement and the other
        Subscription Agreements for aggregate subscription amounts of up to
        $2,000,000 of principal amount of Notes (the "Initial Offering") and
        acting as escrow agent for the Initial Offering. The Company will pay to
        the Finder identified on SCHEDULE D hereto a cash fee equal to nine
        percent (9%) of the principal amount of the Notes as designated on
        SCHEDULE D ("Finder's Fee"). The Finder's Fee in connection with the
        Initial Offering must be paid on the Closing Date. The Finder identified
        on SCHEDULE D will also receive within ten days of the exercise date of
        the Warrants a fee equal to 4% of the cash proceeds received by the
        Company from the exercise of the Warrants. The legal fees will be
        payable out of funds held pursuant to a Funds Escrow Agreement to be
        entered into by the Company, Subscriber and Escrow Agent.

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                (b) The Company will issue and deliver, at the Closing, to the
        Finder identified on SCHEDULE D, a Warrant to purchase a number of
        shares of the Company's Common Stock equal to five percent (5%) of the
        principal amount of the Note issued to the Subscriber. A form of this
        Warrant is annexed hereto as EXHIBIT F.

                (c) The Company on the one hand, and the Subscriber on the other
        hand, agree to indemnify the other against and hold the other harmless
        from any and all liabilities to any other persons claiming brokerage
        commissions or finder's fees except as identified on SCHEDULE D hereto
        on account of services purported to have been rendered on behalf of the
        indemnifying party in connection with this Agreement or the transactions
        contemplated hereby and arising out of such party's actions. Except as
        set forth on SCHEDULE D hereto, the Company represents that there are no
        other parties entitled to receive fees, commissions, or similar payments
        in connection with the offering described in the Subscription Agreement.

        7. Covenants of the Company. The Company covenants and agrees with the
Subscriber as follows:

                (a) Stop Orders. The Company will advise the Subscriber,
        promptly after it receives notice of issuance by the Securities and
        Exchange Commission, any state securities commission or any other
        regulatory authority of any stop order or of any order preventing or
        suspending any offering of any securities of the Company, or of the
        suspension of the qualification of the Common Stock of the Company for
        offering or sale in any jurisdiction, or the initiation of any
        proceeding for any such purpose.

                (b) Listing. The Company shall promptly secure the listing of
        the Company Shares and Common Stock issuable upon exercise of the
        Warrants upon each national securities exchange, or automated quotation
        system, if any, upon which shares of Common Stock are then listed
        (subject to official notice of issuance) and shall maintain such listing
        so long as any Notes are outstanding. The Company will maintain the
        listing of its Common Stock on the SmallCap, NASDAQ National Market
        System, New York Exchange , OTC Bulletin Board or American Stock
        Exchange (whichever of the foregoing is at the time the principal
        trading exchange or market for the Common Stock (the "Principal
        Market"), and will comply in all respects with the Company's reporting,
        filing and other obligations under the bylaws or rules of the National
        Association of Securities Dealers ("NASD") and such other exchanges or
        markets, as applicable. The Company will provide the Subscriber copies
        of all notices it receives notifying the Company of the threatened or
        actual delisting of the Common Stock from any Principal Market provided
        the provisions of such information to the Subscriber would not violate
        the provisions of Regulation FD under the 1933 Act.

                (c) Market Regulations. The Company shall notify the SEC, NASD,
        the Principal Market and applicable state authorities, in accordance
        with their requirements, if any, of the transactions contemplated by
        this Agreement, and shall take all other necessary action and
        proceedings as may be required and permitted by applicable law, rule and
        regulation, for the legal and valid issuance of the Securities to the
        Subscriber and promptly provide copies thereof to Subscriber.

                (d) Reporting Requirements. From the Closing Date and until at
        least three (3) years after the effectiveness of the registration
        statement on Form SB-2 or such other registration statement described in
        Section 10.1(iv) hereof, the Company will (i) cause its Common Stock to
        continue to be registered under Sections 12(b) or 12(g) of the Exchange
        Act, (ii) comply in all respects with its reporting and filing
        obligations under the Exchange Act, (iii) comply with all reporting
        requirements that is applicable to an issuer with a class of Shares
        registered pursuant to Section 12(g) of the Exchange Act, and (iv)
        comply with all requirements related to any registration statement filed
        pursuant to this Agreement. The Company will use its best efforts not to
        take any action or file any document (whether or not permitted by the
        Act or the Exchange Act or the rules thereunder) to terminate or suspend
        such registration or to terminate or suspend its reporting and filing
        obligations under said Acts until the later of three (3) years after the
        actual effective date of the registration statement on Form SB-2 or such

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        other registration statement described in Section 10.1(iv) hereof. Until
        the earlier of the resale of the Company Shares by the Subscriber or at
        least three (3) years after the Warrants have been exercised, the
        Company will use its best efforts to continue the listing of the Common
        Stock on the SmallCap and will comply in all respects with the Company's
        reporting, filing and other obligations under the bylaws or rules of
        SmallCap.

                (e) Use of Proceeds. The Company undertakes to use the proceeds
        of the Subscriber's funds for the purposes set forth on SCHEDULE E
        hereto. A deviation from the use of proceeds set forth on SCHEDULE E of
        more than 10% per item or more than 20% in the aggregate shall be deemed
        a material breach of the Company's obligations hereunder. Except as set
        forth on SCHEDULE E, the Purchase Price may not and will not be used for
        accrued and unpaid officer and director salaries, payment of financing
        related debt, redemption of outstanding redeemable notes or equity
        instruments of the Company nor non-trade obligations outstanding on the
        Closing Date.

                (f) Reservation of Common Stock. The Company undertakes to
        reserve, pro rata on behalf of each holder of a Note or Warrant, from
        its authorized but unissued Common Stock, at all times that Notes remain
        outstanding, a number of Common Shares equal to not less than 200% of
        the amount of Common Shares necessary to allow each such holder to be
        able to convert all such outstanding Notes, at the then applicable
        Conversion Price, and one share of Common Stock for each Common Share
        issuable upon exercise of the Warrants.

                (g) Taxes. The Company will promptly pay and discharge, or cause
        to be paid and discharged, when due and payable, all lawful taxes,
        assessments and governmental charges or levies imposed upon the income,
        profits, property or business of the Company; provided, however, that
        any such tax, assessment, charge or levy need not be paid if the
        validity thereof shall currently be contested in good faith by
        appropriate proceedings and if the Company shall have set aside on its
        books adequate reserves with respect thereto, and provided, further,
        that the Company will pay all such taxes, assessments, charges or levies
        forthwith upon the commencement of proceedings to foreclose any lien
        which may have attached as security therefore.

                (h) Insurance. The Company will keep its assets which are of an
        insurable character insured by financially sound and reputable insurers
        against loss or damage by fire, explosion and other risks customarily
        insured against by companies in the Company's line of business, in
        amounts sufficient to prevent the Company from becoming a co-insurer and
        not in any event less than 100% of the insurable value of the property
        insured; and the Company will maintain, with financially sound and
        reputable insurers, insurance against other hazards and risks and
        liability to persons and property to the extent and in the manner
        customary for companies in similar businesses similarly situated and to
        the extent available on commercially reasonable terms.

                (i) Books and Records. The Company will keep true records and
        books of account in which full, true and correct entries will be made of
        all dealings or transactions in relation to its business and affairs in
        accordance with generally accepted accounting principles applied on a
        consistent basis.

                (j) Governmental Authorities. The Company shall duly observe and
        conform in all material respects to all valid requirements of
        governmental authorities relating to the conduct of its business or to
        its properties or assets.

                (k) Intellectual Property. The Company shall maintain in full
        force and effect its corporate existence, rights and franchises and all
        licenses and other rights to use intellectual property owned or
        possessed by it and reasonably deemed to be necessary to the conduct of
        its business.

                                       9

<PAGE>

                (l) Properties. The Company will keep its properties in good
        repair, working order and condition, reasonable wear and tear excepted,
        and from time to time make all needful and proper repairs, renewals,
        replacements, additions and improvements thereto; and the Company will
        at all times comply with each provision of all leases to which it is a
        party or under which it occupies property if the breach of such
        provision could reasonably be expected to have a material adverse
        effect.

                (m)Confidentiality. The Company agrees that it will not
        disclose, and will not include in any public announcement, the name of
        any Subscriber, unless expressly agreed to by such Subscriber or unless
        and until such disclosure is required by law or applicable regulation,
        and then only to the extent of such requirement.

                (n) NASDAQ Approval. The Company and Subscriber agree that until
        the Company either obtains shareholder approval of the issuance of the
        Securities, or an exemption from Nasdaq's corporate governance rules as
        they may apply to the Securities, and an opinion of counsel reasonably
        acceptable to Subscriber that Nasdaq's corporate governance rules do not
        conflict with nor may result in a delisting of the Company's common
        stock from the SmallCap ("the Approval") upon the conversion of the
        Notes and exercise of the Warrants, each Subscriber may not receive more
        than the number of common shares designated on the Signature Page hereto
        ("Section 7 Shares"). The Company represents that this number of Company
        Shares together with the aggregate of such amounts designated for all
        investors in the Initial Offering is not greater than 19.9% of the
        shares of Company's common stock outstanding on the Closing Date. The
        Company covenants to use its best efforts to obtain the Approval, if
        required, pursuant to the Nasdaq's corporate governance rules to allow
        conversion of all the Notes and interest thereon and exercise of all the
        Warrants. The Company further covenants to file the preliminary proxy
        statement relating to the Approval with the Commission on or before the
        sooner of (i) the next filing made by the Company pursuant to Section
        14(a) of the 1934 Act or (ii) thirty days after the Approval becomes
        necessary for the Company to be able to issue, without limitation or
        violation of the Nasdaq's corporate governance rules, all the shares
        issuable upon conversion of the Notes and exercise of the Warrants
        ("Proxy Filing Date"). The Company further covenants to obtain the
        Approval no later than one hundred and twenty (120) days after the Proxy
        Filing Date ("Approval Date"). The Company's failure to (i) file the
        proxy on or before the Proxy Filing Date; or (ii) the Company's failure
        to obtain the Approval on or before the Approval Date (each being an
        "Approval Default") shall be deemed an Event of Default under the Note,
        but only to the extent the Notes and interest thereon that may not be
        converted in compliance with Nasdaq's corporate governance rules, due to
        the Company's failure to obtain the Approval. Anything to the contrary
        in this Section 7(n) notwithstanding, there shall be no limitation on
        the amount of Notes that may be converted by the Subscriber and the
        amount of Company Shares that may be issued upon conversion of the Notes
        provided the Subscriber elects a Conversion Price (as defined in the
        Note) equal to the closing bid price of the Common Stock on the Closing
        Date. At any meeting at which the Company's shareholders will vote on
        the Approval, Company Shares issued upon conversion of the Notes may be
        counted for the purpose of obtaining a quorum but may not be voted on
        the Approval resolution. From and after the date that the number of
        shares issuable upon conversion of the outstanding Note principal
        together with the Shares already issued upon conversion of the Notes
        exceeds 19.9% of the Common Stock outstanding on the Closing Date, the
        Warrants may not be exercised unless and until the Approval is obtained.

        8. Covenants of the Company and Subscriber Regarding Indemnification.

                (a) The Company agrees to indemnify, hold harmless, reimburse
        and defend Subscriber, Subscriber's officers, directors, agents,
        affiliates, control persons, and principal shareholders, against any
        claim, cost, expense, liability, obligation, loss or damage (including
        reasonable legal fees) of any nature, incurred by or imposed upon
        Subscriber or any such person which results, arises out of or is based
        upon (i) any material misrepresentation by Company or breach of any
        warranty by Company in this Agreement or in any Exhibits or Schedules
        attached hereto, or other agreement delivered pursuant hereto; or (ii)
        after any applicable notice and/or cure periods, any breach or default
        in performance by the Company of any covenant or undertaking to be
        performed by the Company hereunder, or any other agreement entered into
        by the Company and Subscribers relating hereto.

                                       10

<PAGE>

                (b) Subscriber agrees to indemnify, hold harmless, reimburse and
        defend the Company and each of the Company's officers, directors,
        agents, affiliates, control persons against any claim, cost, expense,
        liability, obligation, loss or damage (including reasonable legal fees)
        of any nature, incurred by or imposed upon the Company or any such
        person which results, arises out of or is based upon (i) any material
        misrepresentation by Subscriber in this Agreement or in any Exhibits or
        Schedules attached hereto, or other agreement delivered pursuant hereto;
        or (ii) after any applicable notice and/or cure periods, any breach or
        default in performance by Subscriber of any covenant or undertaking to
        be performed by Subscriber hereunder, or any other agreement entered
        into by the Company and Subscribers relating hereto.

                (c) The procedures set forth in Section 10.6 shall apply to the
        indemnifications set forth in Sections 8(a) and 8(b) above.

        9.1. Conversion of Note.

                (a) Upon the conversion of the Note or part thereof, the Company
        shall, at its own cost and expense, take all necessary action (including
        the issuance of an opinion of counsel) to assure that the Company's
        transfer agent shall issue stock certificates in the name of Subscriber
        (or its nominee) or such other persons as designated by Subscriber and
        in such denominations to be specified at conversion representing the
        number of shares of common stock issuable upon such conversion. The
        Company warrants that no instructions other than these instructions have
        been or will be given to the transfer agent of the Company's Common
        Stock and that the Shares will be unlegended, free-trading, and freely
        transferable, and will not contain a legend restricting the resale or
        transferability of the Company Shares provided that the Shares are being
        sold pursuant to an effective registration statement covering the Shares
        to be sold or are otherwise exempt from registration when sold and
        Subscriber complies with prospectus delivery requirements and a legend
        relating to such prospectus delivery requirement may be affixed to
        certificates representing the Shares.

                (b) Subscriber will give notice of its decision to exercise its
        right to convert the Note or part thereof by telecopying an executed and
        completed Notice of Conversion (a form of which is annexed to EXHIBIT A
        hereto) to the Company via confirmed telecopier transmission. The
        Subscriber will not be required to surrender the Note until the Note has
        been fully converted or satisfied. Each date on which a Notice of
        Conversion is telecopied to the Company in accordance with the
        provisions hereof shall be deemed a Conversion Date. The Company will or
        cause the transfer agent to transmit the Company's Common Stock
        certificates representing the Shares issuable upon conversion of the
        Note to the Subscriber via express courier for receipt by such
        Subscriber within five (5) business days after receipt by the Company of
        the Notice of Conversion (the "Delivery Date"). In the event the Shares
        are DTC eligible or otherwise electronically transferable, then delivery
        of the Shares must be made by electronic transfer provided request for
        such electronic transfer has been made by the Subscriber. A Note
        representing the balance of the Note not so converted will be provided
        to the Subscriber, provided an original Note is delivered to the
        Company.

                (c) The Company understands that a delay in the delivery of the
        Shares in the form required pursuant to Section 9.1(b) hereof, or the
        Mandatory Redemption Amount described in Section 9.2 hereof, beyond the
        Delivery Date or Mandatory Redemption Payment Date (as hereinafter
        defined) could result in economic loss to the Subscriber. As
        compensation to the Subscriber for such loss, the Company agrees to pay
        late payments to the Subscriber for late issuance of Shares in the form
        required pursuant to Section 9.1(b) hereof upon Conversion of the Note
        or late payment of the Mandatory Redemption Amount, in the amount of
        $100 per business day after the Delivery Date or Mandatory Redemption

                                       11

<PAGE>

        Payment Date, as the case may be, for each $10,000 of Note principal
        amount being converted or redeemed. The Company shall pay any payments
        incurred under this Section in immediately available funds upon demand.
        Furthermore, in addition to any other remedies which may be available to
        the Subscriber, in the event that the Company fails for any reason to
        effect delivery of the Shares by the Delivery Date or make payment by
        the Mandatory Redemption Payment Date, the Subscriber will be entitled
        to revoke all or part of the relevant Notice of Conversion or rescind
        all or part of the notice of Mandatory Redemption by delivery of a
        notice to such effect to the Company whereupon the Company and the
        Subscriber shall each be restored to their respective positions
        immediately prior to the delivery of such notice, except that late
        payment charges described above shall be payable through the date notice
        of revocation or rescission is given to the Company.

                (d) Nothing contained herein or in any document referred to
        herein or delivered in connection herewith shall be deemed to establish
        or require the payment of a rate of interest or other charges in excess
        of the maximum permitted by applicable law. In the event that the rate
        of interest or dividends required to be paid or other charges hereunder
        exceed the maximum permitted by such law, any payments in excess of such
        maximum shall be credited against amounts owed by the Company to the
        Subscriber and thus refunded to the Company.

        9.2. Mandatory Redemption at Subscriber's Election. In the event the
Company is prohibited from issuing Shares, or fails to timely deliver Shares on
a Delivery Date, or upon the occurrence of any other Event of Default (as
defined in the Note) or for any reason other than pursuant to the limitations
set forth in Section 9.3 hereof, then at the Subscriber's election, the Company
must pay to the Subscriber ten (10) business days after request by the
Subscriber or on the Delivery Date (if requested by the Subscriber) at the
Subscriber's election, a sum of money determined by (i) multiplying up to the
outstanding principal amount of the Note designated by the Subscriber by 130%,
or (ii) multiplying the number of Shares otherwise deliverable upon conversion
of an amount of Note principal and/or interest designated by the Subscriber
(with the date of giving of such designation being a Deemed Conversion Date) at
the then Conversion Price that would be in effect on the Deemed Conversion Date
by the highest closing price of the Common Stock on the principal market for the
period commencing on the Deemed Conversion Date until the day prior to the
receipt of the Mandatory Redemption Payment, whichever is greater, together with
accrued but unpaid interest thereon ("Mandatory Redemption Payment").
Notwithstanding the foregoing, provided the proxy statement described in Section
7(n) is filed by the Proxy Filing Date and further provided all of the Company's
officers and directors vote all Common Shares owned by them in favor of the
Approval, the Mandatory Redemption Payment shall be 100% of the principal amount
of the Note designated by the Subscriber together with accrued but unpaid
interest if the event giving rise to the Mandatory Redemption Payment is a
consequence exclusively of the Company's failure to obtain the Approval of its
shareholders as contemplated by Section 7(n) hereof. The Mandatory Redemption
Payment must be received by the Subscriber on the same date as the Company
Shares otherwise deliverable or within ten (10) business days after request,
whichever is sooner ("Mandatory Redemption Payment Date"). Upon receipt of the
Mandatory Redemption Payment, the corresponding Note principal and interest will
be deemed paid and no longer outstanding.

        9.3. Maximum Conversion. The Subscriber shall not be entitled to convert
on a Conversion Date that amount of the Note 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 Subscriber and its affiliates
on a Conversion Date, and (ii) the number of shares of Common Stock issuable
upon the conversion of the Note with respect to which the determination of this
provision is being made on a Conversion Date, which would result in beneficial
ownership by the Subscriber and its affiliates of more than 4.99% of the
outstanding shares of Common Stock of the Company on such Conversion Date. For
the purposes of the provision to 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 Subscriber shall not be limited to aggregate conversions of
only 4.99% and aggregate conversion by the Subscriber may exceed 4.99%. The

                                       12

<PAGE>

Subscriber may void the conversion limitation described in this Section 9.3 upon
75 days prior written notice to the Company. The Subscriber 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%.

        9.4. Injunction - Posting of Bond. In the event a Subscriber shall elect
to convert a Note or part thereof, the Company may not refuse conversion based
on any claim that such Subscriber or any one associated or affiliated with such
Subscriber has been engaged in any violation of law, or for any other reason,
unless, an injunction from a court, on notice, restraining and or enjoining
conversion of all or part of said Note shall have been sought and obtained and
the Company posts a surety bond for the benefit of such Subscriber in the amount
of 130% of the amount of the Note, which is subject to the injunction, which
bond shall remain in effect until the completion of arbitration/litigation of
the dispute and the proceeds of which shall be payable to such Subscriber to the
extent Subscriber obtains judgment.

        9.5. Buy-In. In addition to any other rights available to the
Subscriber, if the Company fails to deliver to the Subscriber such shares
issuable upon conversion of a Note by the Delivery Date and if ten (10) days
after the Delivery Date the Subscriber purchases (in an open market transaction
or otherwise) shares of Common Stock to deliver in satisfaction of a sale by
such Subscriber of the Common Stock which the Subscriber anticipated receiving
upon such conversion (a "Buy-In"), then the Company shall pay in cash to the
Subscriber (in addition to any remedies available to or elected by the
Subscriber) the amount by which (A) the Subscriber's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (B) the aggregate principal and/or interest amount of the Note
for which such conversion was not timely honored, together with interest thereon
at a rate of 15% per annum, accruing until such amount and any accrued interest
thereon is paid in full (which amount shall be paid as liquidated damages and
not as a penalty). For example, if the Subscriber purchases shares of Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
an attempted conversion of $10,000 of note principal and/or interest, the
Company shall be required to pay the Subscriber $1,000, plus interest. The
Subscriber shall provide the Company written notice indicating the amounts
payable to the Subscriber in respect of the Buy-In. The delivery date by which
Common Stock must be delivered pursuant to this Section 9.5 shall be tolled for
the amount of days that the Subscriber does not deliver information reasonably
requested by the Company's transfer agent.

        9.6 Adjustments. The Conversion Price and amount of Shares issuable upon
conversion of the Notes shall be adjusted to offset the effect of stock splits,
stock dividends and pro rata distributions of property or equity interests to
the Company's shareholders.

        9.7. Optional and Mandatory Redemption and Company's Election.

                (a) In the event the Subscriber elects to convert the Note at
        the conversion price set forth in Section 2.1(b)(ii) of the Note, the
        Company will have the option of redeeming a portion of the outstanding
        Notes ("Optional Redemption") by paying to the Subscriber a sum of money
        equal to a percentage of the principal amount of the Note ("Premium")
        together with accrued but unpaid interest thereon and any and all other
        sums due, accrued or payable to the Subscriber arising under this
        Subscription Agreement relating to the Note, the Note or any other
        document delivered herewith ("Redemption Amount") outstanding on the day
        notice of redemption ("Notice of Redemption) is given to a Subscriber
        ("Redemption Date"). A Notice of Redemption may be given only in
        connection with portion of Note for which notice of conversion has been
        given by the Subscriber employing the conversion price set forth in
        Section 2.1(b)(ii) of the Note. The Subscriber may elect within five (5)

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<PAGE>

        business days after receipt of a Notice of Redemption to give the
        Company Notice of Conversion in connection with some or all of the Note
        principal and interest which was the subject of the Notice of Redemption
        provided the Conversion Price elected by the Subscriber is the Maximum
        Base Price set forth in Section 2.1(b)(i) of the Note. A Notice of
        Redemption must be accompanied by a certificate signed by the president
        or chief financial officer of the Company stating that the Company has
        on deposit and segregated ready funds equal to the Redemption Amount.
        The Redemption Amount must be paid in good funds to the Subscriber no
        later than the seventh (7th) business day after the Redemption Date
        ("Optional Redemption Payment Date"). In the event the Company fails to
        pay the Redemption Amount by the Optional Redemption Payment Date, then
        the Redemption Notice will be null and void and the Company will
        thereafter have no further right to effect an Optional Redemption, and
        at the Subscription's election, the Redemption Amount will be deemed a
        Mandatory Redemption Payment and the Optional Redemption Payment Date
        will be deemed a Mandatory Redemption Payment Date. Such failure will
        also be deemed an Event of Default under the Notes. Any Notice of
        Redemption must be given to all holders of Notes issued in connection
        with the Initial Offering, in proportion to their holdings of Note
        principal on a Redemption Date. A Notice of Redemption may be given by
        the Company pursuant to this Section 9.7(a), provided (i) no Event of
        Default, as described in the Notes shall have occurred and (ii) the
        Company Shares issuable upon conversion of the entire outstanding Note
        principal are included for unrestricted resale in a registration
        statement effective as of the Redemption Date. Purchase Price proceeds
        may not be used to effect an Optional Redemption. The Premium shall be:
        120% until 180 days after the Closing Date; 128% between 181 and 270
        days after the Closing Date and 135% from and after 271 days after the
        Closing Date.

                (b) The Company may not effect an Optional Redemption with
        respect to any Note principal or interest amount which would or could
        result in the issuance of Company Shares in excess of the maximum
        conversion amount set forth in Section 9.3 above.

        9.8. Redemption. The Company may not redeem or call the Note without the
consent of the holder of the Securities except as otherwise described herein.

        10.1. Registration Rights. The Company hereby grants the following
registration rights to holders of the Securities.

                (i) On one occasion, for a period commencing 121 days after the
        Closing Date, but not later than three years after the Closing Date
        ("Request Date"), the Company, upon a written request therefor from any
        record holder or holders of more than 50% of the aggregate of the
        Company's Shares issued and issuable upon Conversion of the Notes (the
        Common Stock issued or issuable upon conversion of the Notes or issuable
        by virtue of ownership of the Notes, and one share of Common Stock for
        each Share issuable upon exercise of the Warrants, collectively the
        "Registrable Securities"), shall prepare and file with the SEC a
        registration statement under the Act covering the Registrable Securities
        which are the subject of such request, unless such Registrable
        Securities are the subject of an effective registration statement or
        included for registration in a pending registration statement. In
        addition, upon the receipt of such request, the Company shall promptly
        give written notice to all other record holders of the Registrable
        Securities that such registration statement is to be filed and shall
        include in such registration statement Registrable Securities for which
        it has received written requests within 10 days after the Company gives
        such written notice. Such other requesting record holders shall be
        deemed to have exercised their demand registration right under this
        Section 10.1(i). As a condition precedent to the inclusion of
        Registrable Securities, the holder thereof shall provide the Company
        with such information as the Company reasonably requests. The obligation
        of the Company under this Section 10.1(i) shall be limited to one
        registration statement.

                                       14

<PAGE>

                (ii) If the Company at any time proposes to register any of its
        securities under the Act for sale to the public, whether for its own
        account or for the account of other security holders or both, except
        with respect to registration statements on Forms S-4, S-8 or another
        form not available for registering the Registrable Securities for sale
        to the public, provided the Registrable Securities are not otherwise
        registered for resale by the Subscriber or Holder pursuant to an
        effective registration statement, each such time it will give at least
        25 days' prior written notice to the record holder of the Registrable
        Securities of its intention so to do. Upon the written request of the
        holder, received by the Company within 15 days after the giving of any
        such notice by the Company, to register any of the Registrable
        Securities, the Company will cause such Registrable Securities as to
        which registration shall have been so requested to be included with the
        securities to be covered by the registration statement proposed to be
        filed by the Company, all to the extent required to permit the sale or
        other disposition of the Registrable Securities so registered by the
        holder of such Registrable Securities (the "Seller"). In the event that
        any registration pursuant to this Section 10.1(ii) shall be, in whole or
        in part, an underwritten public offering of common stock of the Company,
        the number of shares of Registrable Securities to be included in such an
        underwriting may be reduced by the managing underwriter if and to the
        extent that the Company and the underwriter shall reasonably be of the
        opinion that such inclusion would adversely affect the marketing of the
        securities to be sold by the Company therein; provided, however, that
        the Company shall notify the Seller in writing of any such reduction.
        Notwithstanding the foregoing provisions, or Section 10.4 hereof, the
        Company may withdraw or delay or suffer a delay of any registration
        statement referred to in this Section 10.1(ii) without thereby incurring
        any liability to the Seller.

                (iii) If, at the time any written request for registration is
        received by the Company pursuant to Section 10.1(i), the Company has
        determined to proceed with the actual preparation and filing of a
        registration statement under the 1933 Act in connection with the
        proposed offer and sale for cash of any of its securities for the
        Company's own account, such written request shall be deemed to have been
        given pursuant to Section 10.1(ii) rather than Section 10.1(i), and the
        rights of the holders of Registrable Securities covered by such written
        request shall be governed by Section 10.1(ii).

                (iv) The Company shall file with the Commission not later than
        thirty (30) days after the Closing Date (the "Filing Date"), and use its
        reasonable commercial efforts to cause to be declared effective a Form
        SB-2 registration statement (or such other form that it is eligible to
        use) in order to register the Registrable Securities for resale and
        distribution under the Act. The registration statement described in this
        paragraph must be declared effective by the Commission no later than one
        hundred and twenty days (120) of the Closing Date ("Effective Date").
        The Company will register not less than a number of shares of Common
        Stock in the aforedescribed registration statement that is equal to 200%
        of the Company Shares issuable at the Conversion Price that would be in
        effect on the Closing Date or the date of filing of such registration
        statement (employing the Conversion Price which would result in the
        greater number of Shares), assuming the conversion of 100% of the Notes
        and one share of Common Stock for each of the shares issuable upon
        exercise of the Warrants. The Registrable Securities shall be reserved
        and set aside exclusively for the benefit of the Subscriber, and not
        issued, employed or reserved for anyone other than the Subscriber. Such
        registration statement will immediately be amended or additional
        registration statements will be immediately filed by the Company as
        necessary to register additional Company Shares to allow the public
        resale of all Common Stock included in and issuable by virtue of the
        Registrable Securities. No securities of the Company other than the
        Registrable Securities will be included in the registration statement
        described in this Section 10.1(iv) except as described on Schedule 10.1.

        10.2. Registration Procedures. If and whenever the Company is required
by the provisions hereof to effect the registration of any shares of Registrable
Securities under the Act, the Company will, as expeditiously as possible:

                (a) prepare and file with the Commission a registration
        statement with respect to such securities and use its best efforts to
        cause such registration statement to become and remain effective for the
        period of the distribution contemplated thereby (determined as herein
        provided), and promptly provide to the holders of Registrable Securities
        ("Sellers") copies of all filings and Commission letters of comment;

                                       15

<PAGE>

                (b) prepare and file with the Commission such amendments and
        supplements to such registration statement and the prospectus used in
        connection therewith as may be necessary to keep such registration
        statement effective until the latest of: (i) twelve months after the
        latest Maturity Date of a Note; (ii) until one year after all the
        Company Shares are eligible for resale pursuant to Rule 144(k) of the
        1933 Act; or (iii) until such registration statement has been effective
        for a period of not less than 270 days, and comply with the provisions
        of the Act with respect to the disposition of all of the Registrable
        Securities covered by such registration statement in accordance with the
        Seller's intended method of disposition set forth in such registration
        statement for such period;

                (c) furnish to the Seller, such number of copies of the
        registration statement and the prospectus included therein (including
        each preliminary prospectus) as such persons reasonably may request in
        order to facilitate the public sale or their disposition of the
        securities covered by such registration statement;

                (d) use its best efforts to register or qualify the Seller's
        Registrable Securities covered by such registration statement under the
        securities or "blue sky" laws of such jurisdictions as the Seller,
        provided, however, that the Company shall not for any such purpose be
        required to qualify generally to transact business as a foreign
        corporation in any jurisdiction where it is not so qualified or to
        consent to general service of process in any such jurisdiction;

                (e) list the Registrable Securities covered by such registration
        statement with any securities exchange on which the Common Stock of the
        Company is then listed;

                (f) immediately notify the Seller when a prospectus relating
        thereto is required to be delivered under the Act, of the happening of
        any event of which the Company has knowledge as a result of which the
        prospectus contained in such registration statement, as then in effect,
        includes an untrue statement of a material fact or omits to state a
        material fact required to be stated therein or necessary to make the
        statements therein not misleading in light of the circumstances then
        existing;

                (g) make available for inspection by the Seller, and any
        attorney, accountant or other agent retained by the Seller or
        underwriter, all publicly available, non-confidential financial and
        other records, pertinent corporate documents and properties of the
        Company, and cause the Company's officers, directors and employees to
        supply all publicly available, non-confidential information reasonably
        requested by the seller, attorney, accountant or agent in connection
        with such registration statement.

        10.3. Provision of Documents. At the request of the Seller, provided a
demand for registration has been made pursuant to Section 10.1(i) or a request
for registration has been made pursuant to Section 10.1(ii), the Registrable
Securities will be included in a registration statement filed pursuant to this
Section 10. In connection with each registration hereunder, the Seller will
furnish to the Company in writing such information and representation letters
with respect to itself and the proposed distribution by it as reasonably shall
be necessary in order to assure compliance with federal and applicable state
securities laws. In connection with each registration pursuant to Section
10.1(i) or 10.1(ii) covering an underwritten public offering, the Company and
the Seller agree to enter into a written agreement with the managing underwriter
in such form and containing such provisions as are customary in the securities
business for such an arrangement between such underwriter and companies of the
Company's size and investment stature.

        10.4. Non-Registration Events. The Company and the Subscriber agree that
the Seller will suffer damages if any registration statement required under
Section 10.1(i) or 10.1(ii) above is not filed within 30 days after written
request by the Holder and not declared effective by the Commission within 120
days after such request [or the Filing Date and Effective Date, respectively, in

                                       16

<PAGE>

reference to the Registration Statement on Form S-3 or such other form described
in Section 10.1(iv)], and maintained in the manner and within the time periods
contemplated by Section 10 hereof, and it would not be feasible to ascertain the
extent of such damages with precision. Accordingly, if (i) the Registration
Statement described in Sections 10.1(i) or 10.1(ii) is not filed within 30 days
of such written request, or is not declared effective by the Commission on or
prior to the date that is 120 days after such request, or (ii) the registration
statement on Form S-3 or such other form described in Section 10.1(iv) is not
filed on or before the Filing Date or not declared effective on or before the
sooner of the Effective Date, or within five business days of receipt by the
Company of a written or oral communication from the Commission that the
registration statement described in Section 10.1(iv) will not be reviewed, or
(iii) any registration statement described in Sections 10.1(i), 10.1(ii) or
10.1(iv) is filed and declared effective but shall thereafter cease to be
effective (without being succeeded immediately by an additional registration
statement filed and declared effective) for a period of time which shall exceed
30 days in the aggregate per year but not more than 20 consecutive calendar days
(defined as a period of 365 days commencing on the date the Registration
Statement is declared effective) (each such event referred to in clauses (i),
(ii) and (iii) of this Section 10.4 is referred to herein as a "Non-Registration
Event"), then, for so long as such Non-Registration Event shall continue, the
Company shall pay, at the Subscriber's option, in cash or stock at the
applicable Conversion Price, as Liquidated Damages to each holder of any
Registrable Securities an amount equal to two (2%) percent per month or part
thereof for each month or part thereof thereafter during the pendency of such
Non-Registration Event, of the principal of the Notes and Additional Notes
issued in the Initial Offering and Additional Offering, whether or not
converted, then owned of record by such holder or issuable as of or subsequent
to the occurrence of such Non-Registration Event. Payments to be made pursuant
to this Section 10.4 shall be due and payable within ten (10) business days
after demand in immediately available funds. In the event a Mandatory Redemption
Payment is demanded from the Company by the Holder pursuant to Section 9.2 of
this Subscription Agreement, then the Liquidated Damages described in this
Section 10.4 shall no longer accrue on the portion of the Purchase Price
underlying the Mandatory Redemption Payment, from and after the date the Holder
receives the Mandatory Redemption Payment. It shall also be deemed a
Non-Registration Event if at any time a Note is outstanding, there is less than
125% of the amount of Common Shares necessary to allow full conversion of such
Note at the then applicable Conversion Price, registered for unrestricted resale
in an effective registration statement.

        10.5. Expenses. All expenses incurred by the Company in complying with
Section 10, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees and expenses (including reasonable fees of
counsel to the Company) incurred in connection with complying with state
securities or "blue sky" laws, fees of the National Association of Securities
Dealers, Inc., transfer taxes, fees of transfer agents and registrars, and costs
of insurance are called "Registration Expenses". All underwriting discounts and
selling commissions applicable to the sale of Registrable Securities, including
any fees and disbursements of any special counsel to the Seller, are called
"Selling Expenses". The Seller shall pay the fees of its own additional counsel,
if any. The Company will pay all Registration Expenses in connection with the
registration statement under Section 10. All Selling Expenses in connection with
each registration statement under Section 10 shall be borne by the Seller and
may be apportioned among the Sellers in proportion to the number of shares sold
by the Seller relative to the number of shares sold under such registration
statement or as all Sellers thereunder may agree.

        10.6. Indemnification and Contribution.

                (a) In the event of a registration of any Registrable Securities
        under the Act pursuant to Section 10, the Company will indemnify and
        hold harmless the Seller, each officer of the Seller, each director of
        the Seller, each underwriter of such Registrable Securities thereunder
        and each other person, if any, who controls such Seller or underwriter
        within the meaning of the 1933 Act, against any losses, claims, damages
        or liabilities, joint or several, to which the Seller, or such
        underwriter or controlling person may become subject under the Act or
        otherwise, insofar as such losses, claims, damages or liabilities (or

                                       17

<PAGE>

        actions in respect thereof) arise out of or are based upon any untrue
        statement or alleged untrue statement of any material fact contained in
        any registration statement under which such Registrable Securities was
        registered under the Act pursuant to Section 10, any preliminary
        prospectus or final prospectus contained therein, or any amendment or
        supplement thereof, or arise out of or are based upon the omission or
        alleged omission to state therein a material fact required to be stated
        therein or necessary to make the statements therein not misleading in
        light of the circumstances when made, and will subject to the provisions
        of Section 10.1(c) reimburse the Seller, each such underwriter and each
        such controlling person for any legal or other expenses reasonably
        incurred by them in connection with investigating or defending any such
        loss, claim, damage, liability or action; provided, however, that the
        Company shall not be liable to the Seller to the extent that any such
        damages arise out of or are based upon an untrue statement or omission
        made in any preliminary prospectus if (i) the Seller failed to send or
        deliver a copy of the final prospectus delivered by the Company to the
        Seller with or prior to the delivery of written confirmation of the sale
        by the Seller to the person asserting the claim from which such damages
        arise, (ii) the final prospectus would have corrected such untrue
        statement or alleged untrue statement or such omission or alleged
        omission, or (iii) to the extent that any such loss, claim, damage or
        liability arises out of or is based upon an untrue statement or alleged
        untrue statement or omission or alleged omission so made in conformity
        with information furnished by any such Seller, or any such controlling
        person in writing specifically for use in such registration statement or
        prospectus.

                (b) In the event of a registration of any of the Registrable
        Securities under the Act pursuant to Section 10, the Seller will
        indemnify and hold harmless the Company, and each person, if any, who
        controls the Company within the meaning of the Act, each officer of the
        Company who signs the registration statement, each director of the
        Company, each underwriter and each person who controls any underwriter
        within the meaning of the Act, against all losses, claims, damages or
        liabilities, joint or several, to which the Company or such officer,
        director, underwriter or controlling person may become subject under the
        Act or otherwise, insofar as such losses, claims, damages or liabilities
        (or actions in respect thereof) arise out of or are based upon any
        untrue statement or alleged untrue statement of any material fact
        contained in the registration statement under which such Registrable
        Securities were registered under the Act pursuant to Section 10, any
        preliminary prospectus or final prospectus contained therein, or any
        amendment or supplement thereof, or arise out of or are based upon the
        omission or alleged omission to state therein a material fact required
        to be stated therein or necessary to make the statements therein not
        misleading, and will reimburse the Company and each such officer,
        director, underwriter and controlling person for any legal or other
        expenses reasonably incurred by them in connection with investigating or
        defending any such loss, claim, damage, liability or action, provided,
        however, that the Seller will be liable hereunder in any such case if
        and only to the extent that any such loss, claim, damage or liability
        arises out of or is based upon an untrue statement or alleged untrue
        statement or omission or alleged omission made in reliance upon and in
        conformity with information pertaining to such Seller, as such,
        furnished in writing to the Company by such Seller specifically for use
        in such registration statement or prospectus, and provided, further,
        however, that the liability of the Seller hereunder shall be limited to
        the gross proceeds received by the Seller from the sale of Registrable
        Securities covered by such registration statement.

                (c) Promptly after receipt by an indemnified party hereunder of
        notice of the commencement of any action, such indemnified party shall,
        if a claim in respect thereof is to be made against the indemnifying
        party hereunder, notify the indemnifying party in writing thereof, but
        the omission so to notify the indemnifying party shall not relieve it
        from any liability which it may have to such indemnified party other
        than under this Section 10.6(c) and shall only relieve it from any
        liability which it may have to such indemnified party under this Section
        10.6(c), except and only if and to the extent the indemnifying party is
        prejudiced by such omission. In case any such action shall be brought
        against any indemnified party and it shall notify the indemnifying party
        of the commencement thereof, the indemnifying party shall be entitled to
        participate in and, to the extent it shall wish, to assume and undertake
        the defense thereof with counsel satisfactory to such indemnified party,
        and, after notice from the indemnifying party to such indemnified party
        of its election so to assume and undertake the defense thereof, the
        indemnifying party shall not be liable to such indemnified party under

                                       18

<PAGE>

        this Section 10.6(c) for any legal expenses subsequently incurred by
        such indemnified party in connection with the defense thereof other than
        reasonable costs of investigation and of liaison with counsel so
        selected, provided, however, that, if the defendants in any such action
        include both the indemnified party and the indemnifying party and the
        indemnified party shall have reasonably concluded that there may be
        reasonable defenses available to it which are different from or
        additional to those available to the indemnifying party or if the
        interests of the indemnified party reasonably may be deemed to conflict
        with the interests of the indemnifying party, the indemnified parties
        shall have the right to select one separate counsel and to assume such
        legal defenses and otherwise to participate in the defense of such
        action, with the reasonable expenses and fees of such separate counsel
        and other expenses related to such participation to be reimbursed by the
        indemnifying party as incurred.

                (d) In order to provide for just and equitable contribution in
        the event of joint liability under the Act in any case in which either
        (i) the Seller, or any controlling person of the Seller, makes a claim
        for indemnification pursuant to this Section 10.6 but it is judicially
        determined (by the entry of a final judgment or decree by a court of
        competent jurisdiction and the expiration of time to appeal or the
        denial of the last right of appeal) that such indemnification may not be
        enforced in such case notwithstanding the fact that this Section 10.6
        provides for indemnification in such case, or (ii) contribution under
        the Act may be required on the part of the Seller or controlling person
        of the Seller in circumstances for which indemnification is provided
        under this Section 10.6; then, and in each such case, the Company and
        the Seller will contribute to the aggregate losses, claims, damages or
        liabilities to which they may be subject (after contribution from
        others) in such proportion so that the Seller is responsible only for
        the portion represented by the percentage that the public offering price
        of its securities offered by the registration statement bears to the
        public offering price of all securities offered by such registration
        statement, provided, however, that, in any such case, (y) the Seller
        will not be required to contribute any amount in excess of the public
        offering price of all such securities offered by it pursuant to such
        registration statement; and (z) no person or entity guilty of fraudulent
        misrepresentation (within the meaning of Section 10(f) of the Act) will
        be entitled to contribution from any person or entity who was not guilty
        of such fraudulent misrepresentation.

        11. Offering Restrictions. Except with respect to issuances of common
stock or other securities or debt obligations convertible into common stock as
disclosed in the Reports or Other Written Information or as described on
Schedule 11 (the "Excepted Issuances"), the Company will not issue any equity,
convertible debt or other securities convertible into common stock until the
registration statement described in Section 10.1(iv) hereof has been effective
for 120 days.

        12. Miscellaneous.

                (a) Notices. All notices or other communications given or made
        hereunder shall be in writing and shall be personally delivered or
        deemed delivered the first business day after being telecopied (provided
        that a copy is delivered by first class mail) to the party to receive
        the same at its address set forth below or to such other address as
        either party shall hereafter give to the other by notice duly made under
        this Section: (i) if to the Company, to Hypertension Diagnostics, Inc.,
        2915 Waters Road, Suite 108, Eagan, MN 55121-1562, telecopier number:
        (651) 687-0485, with a copy by telecopier only to: Lindquist & Vennum,
        P.L.L.P., 4200 IDS Center, 80 South Eighth Street, Minneapolis, MN
        55402-2205, Attn: Girard P. Miller, Esq., telecopier number: (612)
        371-3207, and (ii) if to the Subscriber, to the name, address and
        telecopy number set forth on the signature page hereto, with a copy by
        telecopier only to Grushko & Mittman, P.C., 551 Fifth Avenue, Suite
        1601, New York, New York 10176, telecopier number: (212) 697-3575. Any
        notice that may be given pursuant to this Agreement, or any document
        delivered in connection with the foregoing may be given by the
        Subscriber on the first business day after the observance dates in the
        United States of America by Orthodox Jewry of Rosh Hashanah, Yom Kippur,

                                       19

<PAGE>

        the first two days of the Feast of Tabernacles, Shemini Atzeret, Simchat
        Torah, the first two and final two days of Passover and Pentecost, with
        such notice to be deemed given and effective, at the election of the
        Subscriber on a holiday date that precedes such notice, however the
        Company's time to respond to such notice shall commence from the actual
        date such notice is given. Any notice received by the Subscriber on any
        of the aforedescribed holidays may be deemed by the Subscriber to be
        received and effective as if such notice had been received on the first
        business day after the holiday.

                (b) Closing. The consummation of the transactions contemplated
        herein shall take place at the offices of Grushko & Mittman, P.C., 551
        Fifth Avenue, Suite 1601, New York, New York 10176, upon the
        satisfaction of all conditions to Closing set forth in this Agreement.
        The closing date shall respectively be the dates that subscriber funds
        representing the net amount due the Company from the Purchase Price of
        the Initial Offering (the "Closing Date").

                (c) Entire Agreement; Assignment. This Agreement represents the
        entire agreement between the parties hereto with respect to the subject
        matter hereof and may be amended only by a writing executed by both
        parties. No right or obligation of either party shall be assigned by
        that party without prior notice to and the written consent of the other
        party.

                (d) Execution. This Agreement may be executed by facsimile
        transmission, and in counterparts, each of which will be deemed an
        original.

                (e) Law Governing this Agreement. This Agreement shall be
        governed by and construed in accordance with the laws of the State of
        New York without regard to principles of conflicts of laws. Any action
        brought by either party against the other concerning the transactions
        contemplated by this Agreement shall be brought only in the state courts
        of New York or in the federal courts located in the state of New York.
        Both parties and the individuals executing this Agreement and other
        agreements on behalf of the Company agree to submit to the jurisdiction
        of such courts and waive trial by jury. The prevailing party shall be
        entitled to recover from the other party its reasonable attorney's fees
        and costs. In the event that any provision of this Agreement or any
        other agreement delivered in connection herewith is invalid or
        unenforceable under any applicable statute or rule of law, then such
        provision shall be deemed inoperative to the extent that it may conflict
        therewith and shall be deemed modified to conform with such statute or
        rule of law. Any such provision which may prove invalid or unenforceable
        under any law shall not affect the validity or enforceability of any
        other provision of any agreement.

                (f) Specific Enforcement, Consent to Jurisdiction. The Company
        and Subscriber acknowledge and agree that irreparable damage would occur
        in the event that any of the provisions of this Agreement were not
        performed in accordance with their specific terms or were otherwise
        breached. It is accordingly agreed that the parties shall be entitled to
        an injunction or injunctions to prevent or cure breaches of the
        provisions of this Agreement and to enforce specifically the terms and
        provisions hereof or thereof, this being in addition to any other remedy
        to which any of them may be entitled by law or equity. Subject to
        Section 12(e) hereof, each of the Company and Subscriber hereby waives,
        and agrees not to assert in any such suit, action or proceeding, any
        claim that it is not personally subject to the jurisdiction of such
        court, that the suit, action or proceeding is brought in an inconvenient
        forum or that the venue of the suit, action or proceeding is improper.
        Nothing in this Section shall affect or limit any right to serve process
        in any other manner permitted by law.

                (g) Confidentiality. The Company agrees that it will not
        disclose publicly or privately the identity of the Subscriber unless
        expressly agreed to in writing by the Subscriber or only to the extent
        required by law.

                                       20

<PAGE>

                (h) Automatic Termination. This Agreement shall automatically
        terminate without any further action of either party hereto if the
        Closing shall not have occurred by the tenth (10th) business day
        following the date this Agreement is accepted by the Subscriber.

                      [THIS SPACE INTENTIONALLY LEFT BLANK]

                                       21

<PAGE>

         Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.

                                         HYPERTENSION DIAGNOSTICS, INC.
                                         A Minnesota Corporation

                                         By:_________________________________
                                               Greg H. Guettler, President

                                         Dated: March _____, 2002
<TABLE>
<CAPTION>
--------------------------------------------------------- ----------------------- ---------------------- ----------------------
SUBSCRIBERS                                               INITIAL OFFERING        INITIAL OFFERING       SECTION 7 SHARES
--------------------------------------------------------- ----------------------- ---------------------- ----------------------
<S>                                                       <C>                     <C>                    <C>
                                                          Purchase Price of       Warrants to Purchase   412,386
_________________________________                         Note: $700,000.00       87,500 Common Shares
                                                                -----------       ------
(Signature)
ALPHA CAPITAL AKTIENGESELLSCHAFT
Pradafant 7
9490 Furstentums
Vaduz, Lichtenstein
Fax: 011-42-32323196
--------------------------------------------------------- ----------------------- ---------------------- ----------------------
                                                          Purchase Price of       Warrants to Purchase   324,018
_________________________________                         Note: $550,000.00       68,750 Common Shares
                                                                -----------       ------
(Signature)
STONESTREET LIMITED PARTNERSHIP
C/o Canaccord Capital Corporation
320 Bay Street, Suite 1300
Toronto, ON M5H 4A6, Canada
Fax: 416-956-8989
--------------------------------------------------------- ----------------------- ---------------------- ----------------------
                                                          Purchase Price of       Warrants to Purchase   147,281
_________________________________                         Note: $250,000.00       31,250 Common Shares
                                                                -----------       ------
(Signature)
PALISADES EQUITY FUND
1215 Hightower Road, Suite 220
Atlanta, GA 30350
Fax: 770-992-6800
--------------------------------------------------------- ----------------------- ---------------------- ----------------------
                                                          Purchase Price of       Warrants to Purchase   88,368
__________________________________                        Note: $150,000.00       18,750 Common Shares
                                                                -----------       ------
(Signature)
ELLIS ENTERPRISES LTD.
42A Waterloo Road
London England NW2 7UF
Fax: 011-441-014809004
--------------------------------------------------------- ----------------------- ---------------------- ----------------------
                                                          Purchase Price of       Warrants to Purchase   206,193
___________________________________                       Note: $350,000.00       43,750 Common Shares
                                                                -----------       ------
(Signature)
BRISTOL INVESTMENT FUND, LTD.
Caledonian House, Jennett Street
Georgetown, Grand Cayman, Cayman Islands
Fax: 441-295-2305
--------------------------------------------------------- ----------------------- ---------------------- ----------------------
</TABLE>

<PAGE>

                            FORM OF FINDER'S WARRANT

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.

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

                          COMMON STOCK PURCHASE WARRANT

No. 2002-A                                 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., Minneapolis, Minnesota time, through three (3) 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 [110% of the closing bid price of the Company's
Common Stock as of the Issue Date as reported by The Nasdaq SmallCap Market].
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 (i) the Company's Common Stock,
$.01 par value per share, (ii) 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 (iii) any other securities into which or
for which any of the securities described in (i) or (ii) may be converted or
exchanged pursuant to a plan of recapitalization, reorganization, merger, sale
of assets or otherwise.

        (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 3 or otherwise.

<PAGE>

        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, accompanied by payment, as provided in Section 1.4, 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. Purchase Price; Payment. 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 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.

                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 2.2, 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.

                1.7 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.

<PAGE>

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

                2.1. 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 3.

                2.2. 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 2 to a bank or trust company having its principal office in
        Minneapolis, Minnesota, as trustee for the Holder or Holders of the
        Warrants.

                2.3. Continuation of Terms. Upon any reorganization,
        consolidation, merger or transfer (and any dissolution following any
        transfer) referred to in this Section 2, 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. In the event this Warrant does not continue in full force and effect
        after the consummation of the transaction described in this Section 2,
        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 2.2.

        3. 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 3. 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 3) 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 3)
be in effect, and (b) the denominator is the Purchase Price in effect on the
date of such exercise.

        4. 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.

<PAGE>

         5. 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.

         6. 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 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 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.

         7. 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.

         8. Registration Rights.

                8.1 Registration. If, at any time after the date hereof and
        prior to the expiration of this Warrant, the Company shall propose to
        file any registration statement under the Securities Act of 1933, as
        amended, (the "ACT") covering a public offering of the Company's Common
        Stock (other than a registration on Form S-4, Form S-8 or any
        registration form that does not permit secondary sales or a registration
        of the Warrant Shares), it will notify the holder hereof in writing at
        least twenty (20) days prior to each such filing and will include in the
        registration statement (to the extent permitted by applicable
        regulation) the Common Stock purchased by the holder or purchasable by
        the holder upon the exercise of the Warrant to the extent requested by
        the holder hereof. Notwithstanding the foregoing, the number of shares
        of the holders of the Warrants proposed to be registered thereby shall
        be reduced pro rata with any other selling shareholder (other than the
        Company) upon the request of the managing underwriter of such offering.
        If the registration statement or offering statement filed pursuant to
        such twenty (20) day notice has not become effective within six months
        following the date such notice is given to the holder hereof, the
        Company must again notify such holder in the manner provided above.

                8.2 Expenses. All expenses of any such registrations referred to
        in this Section 8, except the fees of counsel or other professional
        advisors to such holders and underwriting commissions or discounts shall
        be borne by the Company.

                8.3 Notice. The Company will mail to each record holder, at the
        last known post office address, written notice of any exercise of the
        rights granted under this Section 8, by certified or registered mail,
        return receipt requested, and each holder shall have ten (10) days from
        the date of deposit of such notice in the U.S. Mail to notify the
        Company in writing whether such holder wishes to join in such exercise.

<PAGE>

                8.4 Prospectus;Effectiveness. The Company will furnish the
        holder hereof with a reasonable number of copies of any prospectus
        included in such filings and will amend or supplement the same as
        required during the period of required use thereof. The Company will
        maintain the effectiveness of any registration statement or the offering
        statement filed by the Company, whether or not at the request of the
        holder hereof, for at least six (6) months following the effective date
        thereof.

                8.5 Indemnification. In the case of the filing of any
        registration statement, and to the extent permissible under the Act and
        controlling precedent thereunder, the Company and the holder hereof
        shall provide cross indemnification agreements to each other in
        customary scope covering the accuracy and completeness of the
        information furnished by each.

                8.6 Co-operation. The Holder of the Warrant agrees to cooperate
        with the Company in the preparation and filing of any such registration
        statement or offering statement, and in the furnishing of information
        concerning the holder for inclusion therein, or in any efforts by the
        Company to establish that the proposed sale is exempt under the Act as
        to any proposed distribution.

        9. 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%.

        10. 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.

        11. 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.

        12. 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 Minnesota. Any dispute relating to this Warrant shall be
adjudicated in Hennepin County in the State of Minnesota. 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:

---------------------------------<PAGE>

                                                                    EXHIBIT 10.2

         THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE
         HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
         THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE
         MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
         ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE 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.

                                CONVERTIBLE NOTE

         FOR VALUE RECEIVED, HYPERTENSION DIAGNOSTICS, INC., a Minnesota
corporation (the "Borrower"), hereby promises to pay to __________________ (the
"Holder") or order, without demand, the sum of ________________ ($_________),
with simple interest accruing at the annual rate of eight percent (8%), on March
____, 2005 (the "Maturity Date").

         The following terms shall apply to this Note:

                                    ARTICLE 1
                           PAYMENT RELATED PROVISIONS

1.1.    Payment Grace Period. The Borrower shall have a ten (10) day grace
        period to pay any monetary amounts due under this Note, after which
        grace period a default interest rate of fifteen percent (15%) per annum
        shall apply to the amounts owed hereunder from the date of the
        expiration of the ten (10) day grace period until such default is cured
        by payment of all amounts then past due, provided that from and after
        the date of cure of the default, the annual rate specified in Section
        1.3 again shall be applied.

1.2.    Conversion Rights. The Conversion Rights set forth in Article 2 shall
        remain in full force and effect commencing from the date hereof and
        until the Note is paid in full.

1.3.    Interest Rate. Subject to the Holder's right to convert, interest
        payable on this Note shall accrue at the annual rate of eight percent
        (8%) and be payable September 30, 2002 and semi-annually thereafter, and
        on the Maturity Date, accelerated or otherwise, when the principal and
        remaining accrued but unpaid interest shall be due and payable, or
        sooner as described below.

                                   ARTICLE 2
                                CONVERSION RIGHTS

         The Holder shall have the right to convert the principal amount and
interest due under this Note into Shares of the Borrower's Common Stock as set
forth below.

                                       1

<PAGE>

2.1     Conversion into the Borrower's Common Stock.

        (a)     The Holder shall have the right from and after the issuance of
                this Note and then at any time until this Note is fully paid, to
                convert any outstanding and unpaid principal portion of this
                Note, and/or at the Holder's election, the interest accrued on
                the Note, (the date of giving of such notice of conversion being
                a "Conversion Date") into fully paid and nonassessable shares of
                common stock of Borrower as such stock exists on the date of
                issuance of this Note, or any shares of capital stock of
                Borrower into which such stock shall hereafter be changed or
                reclassified (the "Common Stock") at the conversion price, as
                defined in Section 2.1(b) hereof (the "Conversion Price"),
                determined as provided herein. Upon delivery to the Company of a
                Notice of Conversion, attached hereto as Exhibit A, as described
                in the subscription agreement entered into between the Company
                and Holder relating to this Note (the "Subscription Agreement"),
                ALL THE TERMS OF WHICH ARE INCORPORATED HEREIN BY THIS
                REFERENCE, of the Holder's written request for conversion,
                Borrower shall issue and deliver to the Holder within five (5)
                business days from the Conversion Date that number of shares of
                Common Stock for the portion of the Note converted in accordance
                with the foregoing. At the election of the Holder, the Company
                will deliver accrued but unpaid interest on the Note through the
                Conversion Date directly to the Holder on or before the Delivery
                Date (as defined in the Subscription Agreement). The number of
                shares of Common Stock to be issued upon each conversion of this
                Note shall be determined by dividing that portion of the
                principal (and interest, at the election of the Holder) of the
                Note to be converted, by the Conversion Price.

        (b)     Subject to adjustment as provided in Section 2.1(c) hereof, the
                Conversion Price per share shall be at the election of the
                Holder: (i) $____ (80% of the average of the closing bid prices
                of the Common Stock of the last five trading days prior to the
                Closing Date) (the "Conversion Base Price"); or (ii) eighty
                percent (80%) of the average of the closing bid prices on the
                last five trading days of any consecutive twenty trading day
                period after the issuance of this Note if the closing bid price
                of the Common Stock is below the Conversion Base Price for each
                of the twenty (20) trading days during such consecutive twenty
                trading day period (the new "Conversion Base Price"), as
                reported by the Principal Market. "Principal Market" with
                respect to the Borrower's Common Stock shall mean the NASD OTC
                Bulletin Board, NASDAQ SmallCap Market, NASDAQ National Market
                System, American Stock Exchange or New York Stock Exchange
                (whichever of the foregoing is at the time the principal trading
                exchange or market for the Common Stock, the "Principal
                Market"), or if not then trading on a Principal Market, such
                other principal market or exchange where the Common Stock is
                listed or traded. If the Principal Market does not report bid
                prices, then the closing price shall be substituted for the bid
                price referred to in this Section 2.1(b)(ii) when determining
                the Conversion Price.

        (c)     The Conversion Base Price described in Section 2.1(b)(i) above
                and number and kind of shares or other securities to be issued
                upon conversion determined pursuant to Section 2.1(a) and
                2.1(b), shall be subject to adjustment from time to time upon
                the happening of certain events while this conversion right
                remains outstanding, as follows:

                (A)     Merger, Sale of Assets, etc. If the Borrower at any time
                        shall consolidate with or merge into or sell or convey
                        all or substantially all its assets to any other
                        corporation, this Note, as to the unpaid principal
                        portion thereof and accrued interest thereon, shall
                        thereafter be deemed to evidence the right to purchase
                        such number and kind of shares or other securities and

                                       2

<PAGE>

                                property as would have been issuable or
                                distributable on account of such consolidation,
                                merger, sale or conveyance, upon or with respect
                                to the securities subject to the conversion or
                                purchase right immediately prior to such
                                consolidation, merger, sale or conveyance. The
                                foregoing provision shall similarly apply to
                                successive transactions of a similar nature by
                                any such successor or purchaser. Without
                                limiting the generality of the foregoing, the
                                anti-dilution provisions of this Section shall
                                apply to such securities of such successor or
                                purchaser after any such consolidation, merger,
                                sale or conveyance.

                        (B)     Reclassification, etc. If the Borrower at any
                                time shall, by reclassification or otherwise,
                                change the Common Stock into the same or a
                                different number of securities of any class or
                                classes, this Note, as to the unpaid principal
                                portion thereof and accrued interest thereon,
                                shall thereafter be deemed to evidence the right
                                to purchase such number and kind of securities
                                as would have been issuable as the result of
                                such change with respect to the Common Stock
                                immediately prior to such reclassification or
                                other change.

                        (C)     Stock Splits, Combinations and Dividends. If the
                                shares of Common Stock are subdivided or
                                combined into a greater or smaller number of
                                shares of Common Stock, or if a dividend is paid
                                on the Common Stock in shares of Common Stock,
                                the Conversion Base Price shall be
                                proportionately reduced in case of subdivision
                                of shares or stock dividend or proportionately
                                increased in the case of combination of shares,
                                in each such case by the ratio which the total
                                number of shares of Common Stock outstanding
                                immediately after such event bears to the total
                                number of shares of Common Stock outstanding
                                immediately prior to such event.

                        (D)     Share Issuance. Subject to the provisions of
                                this Section, if the Borrower at any time shall
                                issue any shares of Common Stock prior to the
                                conversion of the entire principal amount of the
                                Note (otherwise than as: (i) provided in
                                Sections 2.1(c)A, 2.1(c)B or 2.1(c)C or this
                                subparagraph D; and (ii) the Excepted Issuances
                                (as defined in the Subscription Agreement) [(i)
                                and (ii) above are hereinafter referred to as
                                the "Existing Option Obligations"]) for a
                                consideration less than the Conversion Base
                                Price that would be in effect at the time of
                                such issue, then, and thereafter successively
                                upon each such issue, the Conversion Base Price
                                shall be reduced as follows: (i) the number of
                                shares of Common Stock outstanding immediately
                                prior to such issue shall be multiplied by the
                                Conversion Base Price in effect at the time of
                                such issue and the product shall be added to the
                                aggregate consideration, if any, received by the
                                Borrower upon such issue of additional shares of
                                Common Stock; and (ii) the sum so obtained shall
                                be divided by the number of shares of Common
                                Stock outstanding immediately after such issue.
                                The resulting quotient shall be the adjusted
                                Conversion Base Price. Except for the Existing
                                Option Obligations, for purposes of this
                                adjustment, the issuance of any security of the
                                Borrower carrying the right to convert such
                                security into shares of Common Stock or of any
                                warrant, right or option to purchase Common
                                Stock shall result in an adjustment to the
                                Conversion Base Price upon the issuance of
                                shares of Common Stock upon exercise of such
                                conversion or purchase rights.

                (d)     From and after the issuance date of this Note and for
                        the remaining period during which the conversion right
                        exists, Borrower will reserve from its authorized and
                        unissued Common Stock a sufficient number of shares to
                        provide for the issuance of Common Stock upon the full

                                       3

<PAGE>

                        conversion of this Note. Borrower represents that upon
                        issuance, such shares will be duly and validly issued,
                        fully paid and non-assessable. Borrower agrees that its
                        issuance of this Note shall constitute full authority to
                        its officers, agents and transfer agents who are charged
                        with the duty of executing and issuing stock
                        certificates to execute and issue the necessary
                        certificates for shares of Common Stock upon the
                        conversion of this Note.

2.2.    Method of Conversion. This Note may be converted by the Holder in whole
        or in part as described in Section 2.1(a) hereof and the Subscription
        Agreement. Upon partial conversion of this Note, if requested by the
        Holder, a new Note containing the same date and provisions of this Note
        shall be issued by the Borrower to the Holder for the remaining
        principal balance of this Note and interest which shall not have been
        converted or paid.

2.3.    Maximum Conversion. The Holder shall not be entitled to convert on a
        Conversion Date that amount of the Note 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 a Conversion Date, and (ii) the number of shares of
        Common Stock issuable upon the conversion of the Note with respect to
        which the determination of this provision is being made on a Conversion
        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 Conversion Date. For the purposes of the
        provision to 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
        conversions of only 4.99% and aggregate conversion by the Holder may
        exceed 4.99%. The Holder shall have the authority and obligation to
        determine whether the restriction contained in this Section 2.3 will
        limit any conversion hereunder and to the extent that the Holder
        determines that the limitation contained in this Section applies, the
        determination of which portion of the Notes are convertible shall be the
        responsibility and obligation of the Holder. The Holder may void the
        conversion limitation described in this Section 2.3 upon 75 days prior
        written notice to the Company. The Holder may allocate which of the
        equity of the Borrower deemed beneficially owned by the Holder shall be
        included in the 4.99% amount described above and which shall be
        allocated to the excess above 4.99%.

                                   ARTICLE 3
                                EVENT OF DEFAULT

         The occurrence of any of the following events of default ("Event of
Default") shall, at the option of the Holder hereof, make all sums of principal
and interest then remaining unpaid hereon and all other amounts payable
hereunder immediately due and payable, all without demand, presentment or
notice, or grace period, all of which hereby are expressly waived, except as set
forth below:

3.1.    Failure to Pay Principal or Interest. The Borrower fails to pay any
        installment of principal or interest hereon when due and such failure
        continues for a period of ten (10) days after the due date. The ten (10)
        day period described in this Section 3.1 is the same ten (10) day period
        described in Section 1.1 hereof.

3.2.    Breach of Covenant. The Borrower breaches any material covenant or other
        term or condition of this Note in any material respect and such breach,
        if subject to cure, continues for a period of seven (7) days after
        written notice to the Borrower from the Holder.

                                       4

<PAGE>

3.3.    Breach of Representations and Warranties. Any material representation or
        warranty of the Borrower made herein, in the Subscription Agreement
        entered into by the Holder and Borrower in connection with this Note, or
        in any agreement, statement or certificate given in writing pursuant
        hereto or in connection therewith shall be false or misleading in any
        material respect.

3.4.    Receiver or Trustee. The Borrower shall make an assignment for the
        benefit of creditors, or apply for or consent to the appointment of a
        receiver or trustee for it or for a substantial part of its property or
        business; or such a receiver or trustee shall otherwise be appointed.

3.5.    Judgments. Any money judgment, writ or similar final process shall be
        entered or filed against Borrower or any of its property or other assets
        for more than $100,000, and shall remain unpaid, unvacated, unbonded or
        unstayed for a period of forty-five (45) days.

3.6.    Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
        proceedings or other proceedings or relief under any bankruptcy law or
        any law for the relief of debtors shall be instituted by or against the
        Borrower and if instituted against Borrower are not dismissed within
        forty-five (45) days of initiation.

3.7.    Default. A default by the Borrower, after applicable notice and cure
        periods, under any one or more obligations in an aggregate monetary
        amount in excess of $100,000.

3.8.    Stop Trade. A Securities and Exchange Commission stop trade order or
        Principal Market trading suspension for longer than five (5) trading
        days.

3.9.    Failure to Deliver Common Stock or Replacement Note. Borrower's failure
        to timely deliver Common Stock to the Holder pursuant to and in the form
        required by this Note and Section 9 of the Subscription Agreement, or if
        required, a replacement Note.

3.10.   Non-Registration Event. The occurrence of a Non-Registration Event as
        described in Section 10.4 of the Subscription Agreement.

3.11.   Approval Default. The occurrence of an Approval Default as described in
        Section 7 of the Subscription Agreement.

3.12.   Delisting. Delisting of the Common Stock from the Nasdaq SmallCap Market
        or such other principal exchange on which the Common stock is listed for
        trading; failure to comply with the requirements for continued listing
        on the Nasdaq SmallCap Market for a period of seven (7) consecutive
        trading days; or notification from the Nasdaq SmallCap Market or any
        Principal Market that the Borrower is not in compliance with the
        conditions for such continued listing on the Nasdaq SmallCap Market or
        other Principal Market.

                                   ARTICLE 4
                                  MISCELLANEOUS

4.1.    Failure or Indulgence Not Waiver. No failure or delay on the part of
        Holder hereof in the exercise of any power, right or privilege hereunder
        shall operate as a waiver thereof, nor shall any single or partial
        exercise of any such power, right or privilege preclude other or further
        exercise thereof or of any other right, power or privilege. All rights
        and remedies existing hereunder are cumulative to, and not exclusive of,
        any rights or remedies otherwise available.

                                       5

<PAGE>

4.2.    Notices. Any notice herein required or permitted to be given shall be in
        writing and may be personally served or sent by facsimile transmission
        (with copy sent by regular, certified or registered mail or by overnight
        courier). For the purposes hereof, the address and facsimile number of
        the Holder is as set forth on the first page hereof. The address and
        facsimile number of the Borrower shall be Hypertension Diagnostics,
        Inc., 2915 Waters Road, Suite 108, Eagan, MN 55121-1562, facsimile
        number: (651) 687-0485. Both the Holder and the Borrower may change the
        address and facsimile number for notice by service of notice to the
        other as herein provided. Notice of Conversion shall be deemed given
        when made to the Borrower pursuant to the Subscription Agreement.

4.3.    Amendment Provision. The term "Note" and all reference thereto, as used
        throughout this instrument, shall mean this instrument as originally
        executed, or if later amended or supplemented, then as so amended or
        supplemented.

4.4.    Assignability. This Note shall be binding upon the Borrower and its
        successors and permitted assigns, and shall inure to the benefit of the
        Holder and its successors and assigns, and may be assigned by the
        Holder.

4.5.    Cost of Collection. If default is made in the payment of this Note,
        Borrower shall pay the Holder hereof reasonable costs of collection,
        including reasonable attorneys' fees.

4.6.    Governing Law. This Note shall be governed by and construed in
        accordance with the laws of the State of New York. Any action brought by
        either party against the other concerning the transactions contemplated
        by this Agreement shall be brought only in the state courts of New York
        or in the federal courts located in New York County in the State of New
        York. Both parties and the individual signing this Agreement on behalf
        of the Borrower agree to submit to the jurisdiction of such courts. The
        prevailing party shall be entitled to recover from the other party its
        reasonable attorneys' fees and costs.

4.7.    Maximum Payments. Nothing contained herein shall be deemed to establish
        or require the payment of a rate of interest or other charges in excess
        of the maximum permitted by applicable law. In the event that the rate
        of interest required to be paid or other charges hereunder exceed the
        maximum permitted by such law, any payments in excess of such maximum
        shall be credited against amounts owed by the Borrower to the Holder and
        thus refunded to the Borrower.

4.8.    Redemption. This Note is subject to certain mandatory redemption rights
        described in the Subscription Agreement.

                                       6

<PAGE>

         IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its
name by its President on this ____ day of March, 2002.

                                         HYPERTENSION DIAGNOSTICS, INC.

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

WITNESS:

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

                                       7

<PAGE>

                                    EXHIBIT A

                              NOTICE OF CONVERSION

(To be executed by the Registered Holder in order to convert the Note)

         The undersigned hereby elects to convert $_________ of the principal
and $_________ of the interest due on the Note issued by HYPERTENSION
DIAGNOSTICS, INC. on March ___, 2002 into Shares of Common Stock of HYPERTENSION
DIAGNOSTICS, INC. according to the conditions set forth in such Note, as of the
date written below.

Date of Conversion:
                   -------------------------------------------------------------

Conversion Price:
                 ---------------------------------------------------------------

Shares To Be Delivered:
                       ---------------------------------------------------------

Signature:
          ----------------------------------------------------------------------

Print Name:
           ---------------------------------------------------------------------

Address:
        ------------------------------------------------------------------------

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

                                       8

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