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Deferred Equity Incentive Agreement

DEFERRED EQUITY
INCENTIVE AGREEMENT

THIS AGREEMENT is entered into on June 5, 2006, but is effective as of January 1, 2006 (the Effective Date), between HYPERTENSION DIAGNOSTICS, INC., a Minnesota corporation (Employer); and MARK N. SCHWARTZ, a resident of the State of California (Executive).

A. Purpose of Agreement. Executive is the Chief Executive Officer of Employer. Employer desires to promote its long term growth and success by motivating and retaining Executive in its employment; and to promote a greater identity of interest between Executive and its shareholders, by providing him with certain additional benefits described below. Executive desires to obtain additional security for himself and his family.

B. Deferred Equity Incentive. In consideration of the valuable services performed by Executive in the past, and those to be performed by Executive hereafter, Employer desires to provide Executive with an additional share in the value of Employer, in some ways similar to ownership of its voting common stock. To accomplish this purpose, Employer intends to award to Executive certain equity incentive compensation units (Units) that would: (1) have a current value related to the net value of the voting common stock of Employer; (2) increase or decrease with any future changes in the value of that stock and (3) be payable in cash only upon certain events as described below.

C. Code Section 409A. This Plan is subject to Section 409A of the Code (as defined in Section 2); and may be required to be amended to comply with Code Section 409A when proposed regulations under Code Section 409A are issued.

NOW, THEREFORE, the parties hereby agree as follows:

1. Employment. Employer shall continue to employ Executive; and Executive shall continue his current employment with Employer on an at-will basis, subject to the terms and conditions of any other written agreement between them with respect to his employment. This Agreement is not intended to change any such other agreement or any of Executives compensation or benefits not expressly described in this Agreement.

2. General Definitions. The following terms, and others defined in this Agreement, shall apply for all purposes of this Agreement:

(a) Account means Executives Unit Account, his Distribution Account, or either or both of them, as the context requires.

(b) Board shall mean the Board of Directors of Employer; or any committee of the Board authorized to determine Employees compensation from Employer.

(c) Cause means: (i) Executives conviction of a felony or other crime involving moral turpitude; (ii) Executives act or acts of personal dishonesty or willful misconduct adversely affecting the Employer or any of its customers or employees; or (iii) Executives material neglect of the Employers business, unless such neglect is caused by Executives physical or mental disability; provided, however, that the term Cause shall not include ordinary negligence or failure to act, whether due to an error in judgment or otherwise, if Executive has exercised substantial efforts in good faith to perform the duties reasonably assigned or appropriate to his position with the Employer.

(d) Code means the Internal Revenue Code of 1986, as amended.

(e) Change in Control shall have the meaning set forth in Section 6(d).

(f) Deferred Incentive Benefit means the net sum (not less than zero) of the amounts standing in Executives Account or Accounts. Any Deferred Incentive Benefit due Executive or his beneficiaries shall be payable as deferred compensation for services rendered by Executive before such payment. The Deferred Incentive Benefit shall not be deemed to be Employer Stock or any other equity interest in Employer; and shall not entitle Executive to any of the rights of a shareholder in Employer.

(g) Distribution Account means a deferred compensation account established and maintained solely for accounting purposes by Employer as the record of the net sum (not less than zero) transferred by Employer from Executives Unit Account for distribution to Executive pursuant to Section 7, plus interest credited on the remaining balance of that sum pursuant to Section 7, less payments from the Distribution Account to Executive. Whenever the balance of the Distribution Account is deposited into the Distribution Trust, the Distribution Account shall continue to be maintained.

(h) Distribution Date shall mean the applicable date determined under Section 7 (or elected by Executive under Section 9) and following the Distribution Event, as of which payment of the Deferred Incentive Benefit will commence in the manner specified in Section 7 (or elected by Executive under Section 9) for that Distribution Event.

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