e8vkza

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KM9sjuyoUDKZboDHmAr6besjqhDRR5TE0ypzmmtOrhDFeoXjtRU1xvlFHTcGPjdR DJI1Bfrm1HvW51rkRdLJuw== 0000950134-04-002278.txt : 20040219 0000950134-04-002278.hdr.sgml : 20040219 20040219125124 ACCESSION NUMBER: 0000950134-04-002278 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040213 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20040219 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEI INC CENTRAL INDEX KEY: 0000351298 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 410944876 STATE OF INCORPORATION: MN FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-10078 FILM NUMBER: 04615390 BUSINESS ADDRESS: STREET 1: 1495 STEIGER LAKE LN STREET 2: P O BOX 5000 CITY: VICTORIA STATE: MN ZIP: 55386 BUSINESS PHONE: 9524432500 MAIL ADDRESS: STREET 1: P O BOX 5000 STREET 2: 1495 STEIGER LAKE LANE CITY: VICTORIA STATE: MN ZIP: 55386 8-K/A 1 c83076e8vkza.htm AMENDMENT TO FORM 8-K e8vkza

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

(Amendment No. 1)

Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 13, 2004

HEI, Inc.

(Exact name of Registrant as Specified in Charter)


Minnesota	0-10078	41-0944876

(State or Other Jurisdiction	(Commission	(IRS Employer
of Incorporation)	File Number)	Identification No.)

PO Box 5000, 1495 Steiger Lake Lane, Victoria, Minnesota 55386

(Address of Principal Executive Offices, including Zip Code)

(952) 443-2500

(Registrant’s telephone number, including area code)

N/A

(Former name or former address, if changed since last report)

TABLE OF CONTENTS


	Item 7. FINANCIAL STATEMENTS AND EXHIBITS
SIGNATURES
Stock Purchase Agreement
Registration Rights Agreement
Form of Warrant to Stock Purchase Agreement

This filing is an amendment to the previously filed Form 8-K of HEI, Inc., a Minnesota Corporation (“HEI”), dated February 18, 2004, regarding HEI’s private placement of 1,180,000 shares of common stock.

Item 7. FINANCIAL STATEMENTS AND EXHIBITS.

(a) Financial Statements.

Not Applicable.

(b) Pro Forma Financial Information.

Not Applicable.

(c) Exhibits:


2.1		Stock Purchase Agreement dated February 13, 2004, by and among HEI, Inc. and the Investors listed on Exhibit A thereto.(1)(2)

2.2		Registration Rights Agreement dated February 13, 2004, by and among HEI, Inc. and the Purchasers listed on Schedule 1 thereto.(2)(3)

2.3		Form of Warrant issued to the Investors listed on Exhibit A to the Stock Purchase Agreement dated February 13, 2004 (see Exhibit 2.1).(2)

99.1		Press Release dated February 17, 2004, announcing private placement.(4)

(1) Pursuant to Item 601(b)(2) of Regulation S-K, the exhibits, other than Exhibit A (List of Investors), Exhibit B (Form of Warrant attached to this Current Report as Exhibit 2.3) and Exhibit C (the Registration Rights Agreement attached to this Current Report on Form 8-K as Exhibit 2.2), and the schedules, to the Stock Purchase Agreement have been omitted. HEI, Inc. agrees to supplementally furnish such schedules and exhibits upon request from the Securities and Exchange Commission.

(2) Filed herewith.

(3) Pursuant to Item 601(b)(2) of Regulation S-K, the acceptance schedules to the Registration Rights Agreement have been omitted. HEI, Inc. agrees to supplementally furnish such schedules upon request from the Securities and Exchange Commission.

(4) Incorporated hereby by reference to the Current Report on Form 8-K of HEI, Inc. filed with the Securities and Exchange Commission on February 18, 2004.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


	HEI, INC.

Dated: February 19, 2004	By	/s/ Douglas J. Nesbit

		Douglas J. Nesbit
		Its: Chief Financial Officer, Treasurer, Secretary

EX-2.1 3 c83076exv2w1.htm STOCK PURCHASE AGREEMENT exv2w1

Exhibit 2.1

STOCK PURCHASE AGREEMENT

This Stock Purchase Agreement (this “Agreement”), dated as of February 13, 2004, is entered into by and among the Investors listed on Exhibit A hereto (each an “Investor” or jointly the “Investors”) and HEI, Inc., a Minnesota corporation (the “Company”). The Investors and the Company are sometimes referred to in this Agreement individually as a “Party” and collectively as the “Parties.”

WHEREAS, the Company will at the Closing (as defined in Section 1.3) sell up to 1,180,000 shares of its common stock, par value $0.05 per share (the “Common Stock”), together with five-year common stock purchase warrants in the form attached hereto as Exhibit B (the “Warrants”), to the Investors, and the Investors will purchase the Common Stock and the Warrants from the Company, on the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements contained in this Agreement, the Parties agree as follows:

1. Subscription for Shares.

1.1 Authorization. The Company will authorize the sale and issuance of up to 1,180,000 shares of its Common Stock (the “Shares”), having the rights, privileges and preferences as set forth in the Company’s Restated Articles of Incorporation, as amended to date (the “Articles of Incorporation”), and Warrants to purchase up to 354,000 shares of its Common Stock.

1.2 Sale of Common Stock and Warrants. Subject to the terms and conditions hereof, each Investor agrees, severally and not jointly, to purchase at the Closing, and the Company agrees to issue and sell to each Investor, that number of shares of the Company’s Common Stock set forth opposite each Investor’s name on Exhibit A, at a price of $3.00 per share (the “Purchase Price”). In consideration of the purchase of the Shares, the Company agrees to issue and deliver to each Investor, at the Closing, Warrants to purchase that number of shares of Common Stock set forth opposite each Investor’s name on Exhibit A (the “Warrant Shares”), with an exercise price per share equal to 110% of the Market Value. For purposes of this Agreement, “Market Value” means the average of the closing prices of the Common Stock as reported by the NASDAQ National Market over the five (5) trading days immediately preceding the Closing Date. The Shares and the Warrants to be purchased by the Investors are sometime referred to in this Agreement as the “Securities.”

1.3 Closing. The closing (the “Closing”) of the purchase and sale of the Securities shall take place at the offices of Gray Plant Mooty, 500 IDS Center, 80 South Eighth Street, Minneapolis, MN 55402, at 10:00 a.m., on February 13, 2004, or at such other time and place (or through such other means such as by facsimile) as the Company and the Investors mutually agree upon orally or in writing (the “Closing Date”). At the Closing, the Company shall deliver to each Investor a certificate representing the Common Stock that such Investor is purchasing (as set forth on Exhibit A) together with the Warrants representing the right to purchase that number of Warrant Shares set forth opposite such Investor’s

name on Exhibit A, against delivery to the Company by such Investor of a wire transfer in immediately available funds in the amount of the aggregate Purchase Price therefor. The Company agrees to issue a press release announcing the sale of the Shares and Warrants within one (1) business day of the Closing Date.

2. Representations and Warranties of the Company. As a material inducement to the Investors to enter into this Agreement and purchase the Securities, the Company hereby represents and warrants to each Investor as follows:

2.1 Organization and Standing. The Company and its subsidiaries are corporations duly organized, validly existing, and in good standing under the laws of the jurisdiction in which they are incorporated and have all requisite corporate power and authority and all material qualifications, licenses, permits and authorizations necessary to own and operate their properties, to carry on their businesses as now conducted and as proposed to be conducted through the fiscal year ending August 31, 2004, and to carry out the transactions contemplated by this Agreement. Except as disclosed on Schedule 2.1, each of the Company and its subsidiaries is duly qualified to do business as a foreign corporation in all jurisdictions in which the failure to be so qualified would have a Material Adverse Effect (as defined in Section 2.7) on the Company’s or its subsidiaries’ properties or business as now conducted or as proposed to be conducted through the current fiscal year.

2.2 Corporate Power. The Company has all requisite legal and corporate power to execute and deliver this Agreement and the other agreements contemplated hereby, to issue the Securities hereunder, and to carry out and perform its obligations under the terms of this Agreement.

2.3 Capitalization.

(a) The authorized capital stock of the Company, the designations of classes of capital stock and the rights and preferences of capital stock are set forth in the Articles of Incorporation. As of the date hereof, 7,093,491 shares of the Common Stock are issued and outstanding, excluding the Shares and the Warrant Shares, and no shares of preferred stock are issued and outstanding. All issued and outstanding shares of the Company’s capital stock as of the date hereof have been duly authorized and validly issued, are fully paid and nonassessable, and were issued in compliance with applicable federal and state securities laws.

(b) There are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its subsidiaries, and no person or entity has any options or warrants to purchase Common Stock, except (i) pursuant to options issued under the Company’s stock option plans, stock incentive plans or any other equity-based compensation plans, (ii) pursuant to a common stock purchase warrant to purchase up to 47,700 shares of Common Stock issued to

ThinkEquity Partners, LLC, dated August 29, 2001, (iii) pursuant to a common stock purchase warrant to purchase up to approximately 70,800 shares of Common Stock to be issued to ThinkEquity Partners, LLC, in connection with the transactions contemplated by this Agreement, (iv) pursuant to this Agreement, and (v) as disclosed on Schedule 2.3.

(c) No shareholder of the Company has any rights or preferences not afforded all shareholders of the Company, except (i) to the extent the Company may be obligated to include additional securities pursuant to that certain Registration Rights Agreement, dated as of November 5, 2003, among the Company and Whitebox Hedged HighYield Partners, (ii) pursuant to this Agreement, and (iii) as disclosed on Schedule 2.3. No shareholder has any pre-emptive or approval right pertaining to the sale and purchase of the Common Stock pursuant to this Agreement, whether by statute, contractual obligation or otherwise.

2.4 Authorization. All corporate action on the part of the Company, its officers, directors and shareholders necessary (a) for the authorization, execution, delivery and performance by the Company of this Agreement, and each of the other agreements contemplated by this Agreement to which the Company is a Party, (b) for the authorization, issuance, sale and delivery of the Shares and the Warrants, and (c) for the performance of all of the Company’s obligations hereunder and thereunder, has been taken. This Agreement, and each of the other agreements contemplated by this Agreement to which the Company is a Party, when executed and delivered by the Company and each Investor, shall constitute a valid and legally binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to laws of general application relating to bankruptcy, insolvency or creditors’ rights and rules of law governing specific performance, injunctive relief or other equitable remedies.

2.5 Valid Issuance. The Shares, when issued, sold and delivered in accordance with this Agreement, will be duly authorized and validly issued, fully paid and nonassessable, and will be free and clear of any liens or encumbrances, except for restrictions imposed under applicable state and federal securities laws. The Warrant Shares, when issued, sold and delivered in accordance with the Warrants, will be duly authorized and validly issued, fully paid and nonassessable, and will be free and clear of any liens or encumbrances, except for restrictions imposed under applicable state and federal securities laws.

2.6 SEC Documents; Financial Statements.

(a) Since September 1, 2002, the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “1934 Act”) (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein being hereinafter referred to as the “SEC Documents”). The Company (i) has delivered or made available to each Investor or its representative true and complete copies of the SEC Documents to the extent that each Investor or its representative has requested any such SEC Documents from the Company, and (ii) agrees to deliver or make available to each Investor or

its representative true and complete copies of any additional SEC Documents, upon request. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

(b) As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with United States generally accepted accounting principles, consistently applied during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments).

(c) To the Company’s knowledge, no other information provided by or on behalf of the Company to any Investor that is not included in the SEC Documents, including, without limitation, information referred to in Section 3.6 of this Agreement, contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they are or were made, not misleading.

2.7 No Conflicts. The Company is not in violation of any term of the Articles of Incorporation or its Amended and Restated Bylaws, as amended (the “Bylaws”), or any contract, agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or order to which the Company is subject, or any statute, rule or regulation applicable to the Company, except foregoing for any such violations that, individually or in the aggregate, are not likely to have a material adverse effect on the Company’s condition (financial or otherwise), operations, properties or business, taken as a whole (“Material Adverse Effect”). The execution and delivery by the Company of this Agreement and each of the other agreements contemplated hereby to which the Company is a Party, the offering, sale and issuance of the Securities and the consummation of the contemplated transactions will not conflict with or result in a breach of the terms, conditions or provisions of, constitute a default under, result in the creation of any lien, security interest, charge or encumbrance upon the Company’s capital stock or assets pursuant to, give any third party the right to modify, terminate or accelerate any obligation under, result in a violation of, or require any authorization, consent, approval, exemption or other action by or notice to any court or administrative or governmental body pursuant to, (a) the Articles of Incorporation or Bylaws of the Company, (b) any law, statute, rule or regulation to which the Company is subject, or (c) any agreement, instrument, order, judgment or decree to which the Company is subject, except with respect to any of the foregoing (a) through (c) which would not have a Material Adverse Effect.

2.8 Litigation. Except as described on Schedule 2.8 or as disclosed in the SEC Documents, there are no actions, suits, proceedings orders, investigations or claims pending or, to the Company’s knowledge, threatened against or affecting the Company (or, to the Company’s knowledge, pending or threatened against or affecting any of the officers, directors or employees of the Company with respect to the Company’s business or proposed business activities) at law or in equity, or before or by any governmental department, commission, board, bureau, agency or instrumentality (including, without limitation, any actions, suit, proceedings or investigations with respect to the transactions contemplated by this Agreement). The Company is not a party to any arbitration proceedings under collective bargaining agreements or otherwise or, to the Company’s knowledge, any governmental investigations or inquiries (including inquiries as to the qualification to hold or receive any license or permit).

2.9 Tax Returns. The Company has filed all tax returns that it is required to file under applicable foreign, federal, state and local laws and regulations. All such returns are complete and correct in all material respects as of the date thereof. The Company has paid all taxes that have become due and payable. The Company has not been advised that any of its returns, federal, state or other, have been or are being audited as of the date hereof. The Company has not waived any statute of limitations with respect to taxes or agreed to any extension of time with respect to a tax assessment or deficiency, and there are no agreements, waivers or other arrangements providing for an extension of time with respect to the assessment of any tax or deficiency. There are no actions, suits, proceedings or claims now pending against the Company in respect of any tax or assessment. There is no pending or, to the Company’s knowledge, threatened investigation of the Company by any federal, state, foreign or local authority relating to any taxes or assessments, or any claims for additional taxes or assessments asserted by any such authority.

2.10 Governmental Consents. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any governmental authority on the part of the Company is required in connection with the valid execution and delivery of this Agreement, the offer, sale or issuance of the Securities, or the consummation of the contemplated transactions, except (a) under applicable state securities laws, which filings and qualifications, if required, will be accomplished within the required statutory period, (b) for the filing pursuant to Regulation D promulgated under the Securities Act of 1933, as amended (the “1933 Act”), which filing will be made within 15 days of the execution hereof, and (c) for the filing of the NASDAQ National Market Additional Listing Application, which filing will be made within 15 days of the execution hereof.

2.11 Employment Matters. The Company and its subsidiaries are in compliance with all federal, state, local and foreign laws and regulations respecting employment and employment practices, terms and conditions of employment, and wages and hours, except where failure to be in compliance would not have a Material Adverse Effect. To the Company’s knowledge, there are no pending investigations involving the Company or any of its subsidiaries by the U.S. Department of Labor or any other governmental agency responsible for the enforcement of such federal, state, local or foreign laws and regulations. To the Company’s knowledge, there is no unfair labor practice charge or complaint against the Company or any of its subsidiaries pending before the National Labor Relations Board or any strike, picketing, boycott, dispute, slowdown

or stoppage pending or threatened against or involving the Company or any of its subsidiaries. No representation question exists respecting the employees of the Company or any of its subsidiaries, and no collective bargaining agreement or modification thereof is currently being negotiated by the Company or any of its subsidiaries. No grievance or arbitration proceeding is pending under any expired or existing collective bargaining agreements of the Company or any of its subsidiaries. No material labor dispute with the employees of the Company or any of its subsidiaries exists or, to the Company’s knowledge, is imminent.

2.12 Intellectual Property Rights. The Company and its subsidiaries own or possess the requisite rights or licenses to use all material trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and rights (collectively “Intellectual Property Rights”) necessary to conduct their respective businesses as now conducted and as proposed to be conducted through the fiscal year ending August 31, 2004. None of the Intellectual Property Rights or other intellectual property rights have expired or terminated, or are expected to expire or terminate on or before August 31, 2004. The Company and its subsidiaries do not have any knowledge of any event, fact or circumstance relating to (a) any infringement by the Company or its subsidiaries of any trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets or other similar rights of others, or (b) any person or entity now infringing any Intellectual Property Rights or other similar rights, except with respect to any of the foregoing (a) or (b) for such infringements that would not have a Material Adverse Effect. Except as set forth on Schedule 2.12, there is no claim, action or proceeding being made or brought against, or, to the Company’s knowledge, being threatened against, the Company or its subsidiaries regarding any trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets or other similar rights of others. The Company and its subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their Intellectual Property Rights.

2.13 Environmental Laws.

(a) To the Company’s knowledge, the Company and its subsidiaries (i) are in compliance with any and all Environmental Laws (as defined below), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses, and (iii) are in compliance with all terms and conditions of any such permit, license or approval, except with respect to any of the foregoing (i) through (iii) where the failure would not have a Material Adverse Effect. To the Company’s knowledge, with respect to the Company (A) there are no past or present releases of any Hazardous Materials (as defined below) into the environment, (B) there are no actions, activities, circumstances, conditions, events, incidents, or contractual obligations that may cause the Company to have any liability under any Environmental Law, and (C) the Company has not received any notice with respect to the foregoing, nor is any action pending or, to the Company’s knowledge, threatened in connection with the foregoing, except with respect to any of the foregoing (A) through (C) where the condition or obligation would not have a Material Adverse Effect. The term

“Environmental Laws” means all federal, state, local or foreign laws relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), including, without limitation, laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes (collectively, “Hazardous Materials”) into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations issued, entered, promulgated or approved thereunder.

(b) Other than those that are or were stored, used or disposed of in compliance with applicable law, to the Company’s knowledge, no Hazardous Materials are contained on or about any real property currently owned, leased or used by the Company, and no Hazardous Materials were released on or about any real property previously owned, leased or used by the Company during the period the property was owned, leased or used by the Company.

(c) To the Company’s knowledge, there are no underground storage tanks on or under any real property owned, leased or used by the Company or any of its subsidiaries that are not in compliance with applicable Environmental Laws.

2.14 Regulatory Permits; Compliance. The Company possesses all material franchises, grants, authorizations, licenses permits, easements, consents, certificates, approvals and orders necessary to own, lease and operate its properties and to conduct its business as currently being conducted (collectively, the “Company Permits”). There is no action pending or, to the Company’s knowledge, threatened regarding the suspension or cancellation of any of the Company Permits. The Company is not in conflict with, or in default or violation of, any of the Company Permits, nor has the Company received any notification of any conflict with, or default or violation of, the Company Permits, except where such violation would not have a Material Adverse Effect.

2.15 Investment Company Status. The Company is not and upon consummation of the sale of the Securities will not be an “investment company,” a company controlled by an “investment company” or an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment company” as such terms are defined in the Investment Company Act of 1940, as amended.

2.16 Accuracy of Public Information. No event or circumstance has occurred or information exists with respect to the Company or its business, properties, operations or financial condition, which, under applicable law, rule or regulation, requires public disclosure or announcement by the Company but which has not been so publicly disclosed or announced.

2.17 Internal Accounting Controls. The Company maintains a system of internal accounting controls sufficient to provide reasonable assurances that: (a) transactions are recorded as necessary to permit preparation of financial statements in conformity with United

States generally accepted accounting principles and to maintain accountability for assets; (b) transactions are executed in accordance with management’s general or specific authorization; (c) access to assets is available only if permitted in accordance with management’s general or specific authorization; and (d) the recorded accountability for amounts is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

2.18 Eligibility for Form S-3 Registration. The Company is currently eligible to register secondary offerings of securities, including the resale of the Shares and the Warrant Shares, on a registration statement on Form S-3 under the 1933 Act.

2.19 Use of Proceeds. The proceeds received from the sale of the Securities shall be used for general business purposes of the Company. Except as set forth in Schedule 2.19, no compensation is payable in connection with the sale of the Shares and the Warrants.

3. Representations and Warranties of Investor. Each Investor hereby represents and warrants, severally and not jointly, to the Company as follows:

3.1 Organization and Standing; Power.

(a) With respect to each Investor that is an entity, such Investor is an entity duly organized, validly existing, and in good standing under the laws of the jurisdiction in which it is formed and has all requisite power and authority and all material qualifications, licenses, permits and authorizations necessary to own and operate its properties, to carry on its business as now conducted and as proposed to be conducted through the current fiscal year and to carry out the transactions contemplated by this Agreement. Such Investor has all requisite power to execute and deliver this Agreement and the other agreements contemplated hereby to which it is a party, and to carry out and perform its obligations under the terms of this Agreement.

(b) With respect to each Investor who is a natural person, such Investor has full right, power, authority and capacity to execute and deliver this Agreement and the other agreements contemplated hereby to which such Investor is a party, and to carry out and perform such Investor’s obligations under the terms of this Agreement.

3.2 Authorization. This Agreement, and each of the other agreements contemplated hereby to which the Investor is a party, when executed and delivered by the Investor and the Company, will constitute a valid and legally binding obligation of Investor, enforceable against the Investor in accordance with its terms, subject to laws of general application relating to bankruptcy, insolvency or creditors’ rights and rules of law governing specific performance, injunctive relief or other equitable remedies.

3.3 No Conflicts. The execution and delivery by the Investor of this Agreement and each of the other agreements contemplated hereby to which the Investor is a party, the purchase of the Securities and the consummation of the contemplated transactions will not conflict with or result in a breach of the terms, conditions or provisions of, constitute a default under, result in the creation of any lien, security interest, charge

or encumbrance upon Investor’s capital stock, if any, or assets pursuant to, give any third party the right to modify, terminate or accelerate any obligation under, result in a violation of, or require any authorization, consent, approval, exemption or other action by or notice to any court or administrative or governmental body pursuant to, (a) the Investor’s organizational documents, if an entity, (b) any law, statute, rule or regulation to which the Investor is subject, or (c) any agreement, instrument, order, judgment or decree to which Investor is subject, except with respect to any of the foregoing (a) through (c) that would not, individually or in the aggregate, have a material adverse effect on Investor’s business, properties or prospects, taken as a whole.

3.4 Experience. The Investor has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its own interests. The Investor acknowledges that investment in the Shares, the Warrants and the Warrant Shares is a speculative risk. The Investor is able to fend for itself in the transactions contemplated by this Agreement, can bear the economic risk of its investment in the Shares, the Warrants and the Warrant Shares (including possible complete loss of such investment) for an indefinite period of time, and has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the investment in the Shares, the Warrants and the Warrant Shares. The Investor understands that nothing in this Agreement or any other materials presented to the Investor in connection with the purchase and sale of the Shares, the Warrants and the Warrant Shares constitutes legal, tax or investment advice. The Investor has consulted such legal, tax and investment advisors as the Investor, in its sole discretion, has deemed necessary or appropriate.

3.5 Investment Purpose. The Investor is acquiring the Shares and the Warrants, and upon exercise of the Warrants, will acquire the Warrant Shares, for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, any distribution thereof. The Investor understands that the Shares, the Warrants and the Warrant Shares have not been registered under the 1933 Act, by reason of a specific exemption from the registration provisions of the 1933 Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Investor’s representations as expressed herein. The Investor understands that the Shares, the Warrants and the Warrant Shares are characterized as “restricted securities” under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving any public offering and that under such laws and applicable regulations the Shares, the Warrants and the Warrant Shares may be resold without registration under the 1933 Act only in certain limited circumstances. The Investor shall not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of) any of the Shares, the Warrants or the Warrant Shares except in compliance with the 1933 Act, applicable state securities laws and the respective rules and regulations thereunder.

3.6 Access to Data. The Investor and its representatives have been afforded access to corporate books, financial statements, records, contracts, documents and other information concerning the Company (to the extent such exists), and to its offices and facilities, have been afforded an opportunity to ask such questions of the Company’s officers, employees, agents, accountants and representatives concerning the Company’s existing and proposed business, operations, financial condition, assets, liabilities and other relevant matters as they have deemed

necessary or desirable, and have been given all such information as has been requested, in order to evaluate the merits and risks of the prospective investments contemplated herein. The Investor further represents and acknowledges that it has been solely responsible for its own “due diligence” investigation of the Company and its management and business, for its own analysis of the merits and risks of this investment, and for its own analysis of the fairness and desirability of the terms of the investment. The foregoing, however, does not limit or modify the representations and warranties of the Company contained in Section 2 hereof.

3.7 Residency. For purposes of the application of state securities laws, the Investor represents and warrants to the Company that it is a bona fide resident of, or a duly formed entity domiciled in, the state or country set forth in its address opposite its name on Exhibit A hereto.

3.8 Accredited Investor. The Investor is an accredited investor within the meaning of Rule 501(a) of Regulation D of the Securities and Exchange Commission and has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company so that the Investor is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its own interests.

3.9 Not an Affiliate or Group. Except as specified on Exhibit A, the Investor represents that it is not under the control of, controlled by or under common control with any other Investor, and the Investor represents that it, along with any other Investor or Investors, is not a Person or a Group as defined in Section 13(d)(3) of the 1934 Act and the rules and regulations promulgated thereunder.

3.10 Restrictive Legends. The Investor agrees that, so long as the Shares, the Warrants or the Warrant Shares remain restricted securities, the Company shall place a restrictive legend on the certificate(s) representing the Shares, the Warrants or the Warrant Shares in substantially the following form:

“The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be transferred without registration under such Act or an opinion of counsel reasonably acceptable to the Company that such registration is not required.”

At any time after (a) the effective date of a registration statement covering the Shares or the Warrant Shares or (b) the date the Shares or the Warrant Shares may be sold without limitation under Rule 144(k) promulgated under the 1933 Act, the Company will use its best efforts to instruct its Transfer Agent and Registrar for Common Stock to remove the restrictive legend from certificate(s) representing the Shares or the Warrant Shares within five (5) business days of receipt of the Investor’s written request to remove such legend from such Shares or Warrant Shares.

3.11 Transactions in Common Stock. The Investor has not, during the thirty (30) trading days immediately preceding the Closing Date, sold or established a short position in any shares of the Common Stock or other capital stock of the Company.

3.12 No General Solicitation. The Investor did not learn of the investment in the Securities as a result of any public advertising or general solicitation.

4. Registration Rights. The Shares and the Warrant Shares will have the registration rights set forth in the Registration Rights Agreement, substantially in the form as set forth in Exhibit C attached hereto.

5. Closing Conditions.

5.1 Conditions to the Company’s Obligation to Sell. The Company’s obligation to sell and deliver the Shares and the Warrants to the Investors shall, unless waived by the Company, be subject to the satisfaction, with respect to each Investor, prior to or on the Closing Date, of each of the following conditions:

(a) Each Investor shall have executed this Agreement and the Registration Rights Agreement and delivered the same to the Company.

(b) Each Investor shall have delivered to the Company the aggregate Purchase Price for the Shares being purchased by such Investor at the Closing by wire transfer of immediately available funds pursuant to the wire instructions provided by the Company.

(c) The representations and warranties contained in Section 3 hereof shall be true and correct in all material respects at and as of the Closing as though then made, except to the extent of changes caused by the transactions expressly contemplated herein, and each Investor shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied and complied with by such Investor at or prior to the Closing.

5.2 Conditions to each Investor’s Obligation to Purchase. Each Investor’s obligation hereunder to purchase the Shares and the Warrants at the Closing shall, unless waived by such Investor, be subject to the satisfaction, prior to or on the Closing Date, of each of the following conditions:

(a) The Company shall have executed this Agreement and the Registration Rights Agreement and delivered the same to such Investor.

(b) The representations and warranties contained in Section 2 hereof shall be true and correct in all material respects at and as of the Closing as though then made, except to the extent of changes caused by the transactions expressly contemplated herein, and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied and complied with by the Company at or prior to the Closing.

(c) Each Investor shall have received from Gray, Plant, Mooty, Mooty & Bennett, P.A., counsel for the Company, an opinion substantially as set forth in Exhibit D attached hereto, which shall be addressed to Investors and dated as of the Closing Date.

(d) The Company shall have delivered to the Investors all of the following documents, which shall be satisfactory in form and substance to the Investors:

(i) An Officer’s Certificate, executed by the Company’s Chief Executive Officer and Chief Financial Officer and dated the Closing Date, stating that the conditions specified in Section 5.2(b) have been fully satisfied;

(ii) Certified copies of the resolutions duly adopted by the Company’s Board of Directors authorizing the execution, delivery and performance of this Agreement and each of the other agreements contemplated hereby, the issuance and sale of the Shares, the Warrants and the Warrant Shares, and all other transactions contemplated by this Agreement;

(iii) Copies of all third party and governmental consents, approvals and filings required in connection with the consummation of the transactions hereunder (including, without limitation, all blue sky law filings and waivers of all preemptive rights and rights of first refusal, if any); and

(iv) Certificates representing the Shares and the Warrants as described in Section 1 hereof, in the amount set forth on Exhibit A.

6. Right of First Refusal.

6.1 Right of First Refusal. Subject to the terms and conditions contained in this Section 6, the Company hereby grants to each Investor the right of first refusal, for 180 days after the Closing Date, to purchase such Investor’s Pro Rata Portion (as defined below) of any New Securities (as defined below) which the Company may, from time to time, propose to sell and issue. An Investor’s “Pro Rata Portion” for purposes of this Section 6.1 is equal to the fraction obtained by dividing (a) the number of Shares held by such Investor by (b) the aggregate number of shares of Common Stock then outstanding, assuming in each case the conversion, exercise or exchange of all securities by their terms convertible into or exercisable for Common Stock and the exercise of all options to purchase or rights to subscribe for Common Stock or such convertible or exchangeable securities, whether or not the terms of such securities or rights then permit such conversion, exercise or exchange.

6.2 Definition of New Securities. Except as set forth below, “New Securities” shall mean any shares of capital stock of the Company, and rights, options or warrants to purchase said shares of capital stock, and securities of any type whatsoever that are, or may become, convertible into said shares of capital stock. Notwithstanding the foregoing, “New Securities” does not include (a) securities offered in an underwritten public offering pursuant to a registration statement under the 1933 Act, (b) all shares of Common Stock, warrants or options to purchase Common Stock or other securities issued upon the approval of the Board of Directors to employees, officers, directors and consultants of the Company who have (i) provided bona fide services to the Company not in connection with the offer or sale of securities in a capital raising transaction and (ii) who do not, directly or indirectly, promote or maintain a market for the Company’s securities, pursuant to any plan or

arrangement approved by the Board of Directors or the shareholders of the Company, (c) all securities issued to lending or leasing institutions upon the approval of the Board of Directors in connection with loans from or leasing transactions with such institutions, (d) stock issued pursuant to any private placement completed on substantially similar terms or within 45 days of the Closing Date, or (e) stock issued in connection with any merger or acquisition by the Company.

6.3 Notice of Right. In the event the Company proposes to undertake an issuance of New Securities, it shall give each Investor written notice of its intention, describing the type of New Securities and the price and terms upon which the Company proposes to issue the same. Each Investor shall have 15 days from the date of receipt of any such notice to agree to purchase shares of such New Securities (up to the amount referred to in Section 6.1), for the price and upon the terms specified in the notice, by giving written notice to the Company and stating therein the quantity of New Securities to be purchased.

6.4 Exercise of Right. If any Investor exercises its right of first refusal hereunder, the closing of the purchase of the New Securities by such Investor with respect to which such right has been exercised shall take place on the date set by the Company for the sale of New Securities; provided that such closing shall not occur prior to the date 20 days following the date of the written notice provided to the Investors, and provided, further, that the date of such closing shall be extended in order to comply with applicable laws and regulations.

6.5 Lapse and Reinstatement of Right. In the event a Investor fails to exercise the right of first refusal provided in Section 6.1 within said 15 day period, the Company shall have 60 days thereafter to sell the New Securities not elected to be purchased by such Investor at the price and upon the terms no more favorable to the purchasers of such securities than specified in the Company’s notice. In the event the Company has not sold the New Securities or entered into an agreement to sell the New Securities within said 60 day period, the Company shall not thereafter issue or sell any New Securities without first offering such securities to the Investors in the manner provided above.

7. Miscellaneous.

7.1 Governing Law. This Agreement shall be governed by and construed under the laws of the State of Minnesota, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Minnesota or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Minnesota.

7.2 Expenses. The Company and each of the Investors shall bear its own expenses in connection with the transactions contemplated by this Agreement; provided, however, that the Company shall pay the reasonable legal fees of counsel(s) to the Investors up to a maximum of $10,000 in the aggregate for all Investors.

7.3 Survival. The representations, warranties, covenants, and agreements made herein by the Company and each Investor shall survive any investigation made by the Company or any Investor and shall survive the Closing. All statements as to factual matters contained in any

certificate or other instrument delivered by or on behalf of the Company or each Investor pursuant hereto shall be deemed to be representations and warranties by the Company or such Investor, as appropriate, hereunder as of the date of such certificate or instrument.

7.4 Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, and administrators of the Parties hereto.

7.5 Entire Agreement. This Agreement, including the Exhibits hereto, and the other agreements contemplated by this Agreement constitute the full and entire understanding and agreement among the Parties with regard to the subjects hereof, and no Party shall be liable or bound to any other Party in any manner by and representations, warranties, covenants, or agreements except as specifically set forth herein or therein. Nothing in this Agreement, express or implied, is intended to confer upon any Party, other than the Parties hereto and their respective successors and assigns, any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided herein.

7.6 Assignment and Transfer. The Investors may transfer such Shares and the Warrants, in whole or in part, to another person or entity and may, in connection with such transfer, assign its rights in whole or in part under this Agreement in accordance with the provisions of this Section 7.6. If a transfer is permitted, the Company agrees to execute and deliver such instruments, documents and certificates as the Investors, holders or any such transferees may reasonably request in order to document the transfer in whole or in part of rights hereunder, which instruments, documents and certificates shall be satisfactory in form and substance to counsel for the Investors, or holders or such transferees. Any such transfer shall be subject to compliance with applicable federal and state securities laws.

7.7 Amendment and Waiver. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and each Investor.

7.8 Notices. All notices or other communications to a Party required or permitted hereunder shall be in writing and shall be delivered personally or by telecopy (receipt confirmed) to such Party (or, in the case of an entity, to an executive officer of such Party) or shall be sent by a reputable express delivery service or by certified mail, postage prepaid with return receipt requested, addressed as follows:

If to an Investor:

To the address set forth on Exhibit A or such other address as may be designated in writing hereafter, in the same manner, by such Investor.

If to the Company:

HEI, Inc.

1495 Steiger Lake Lane

Victoria, MN 55386

Attention: Mack V. Traynor, III

Fax: 952-443-2668

with copy to:

Mark D. Williamson, Esq.

Gray, Plant, Mooty, Mooty & Bennett, P.A.

500 IDS Center

80 South Eighth Street

Minneapolis, MN 55402

Fax: 612-632-4379

Any Party may change the above-specified recipient and/or mailing address by notice to all other Parties given in the manner herein prescribed. All notices shall be deemed given on the day when actually delivered as provided above (if delivered personally or by telecopy) or on the day shown on the return receipt (if delivered by mail or delivery service).

7.9 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument. A facsimile signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile signature.

[THE REMAINDER OF THIS PAGE IS BLANK. SIGNATURE PAGES FOLLOW.]

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


		HEI, INC.

		By:		/S/ Mack V. Traynor, III

				Mack V. Traynor, III
				Chief Executive Officer

Signature Page to Stock Purchase Agreement

INVESTOR EXECUTION PAGE


		INVESTOR SIGNATURE

		/s/Richard C. Perkins

		Investor (Signature)

		Robert G. Allison
		Perkins Capital Management Inc.
		Attorney-in-Fact
		By: Richard C. Perkins, Vice President

		Print Name


		Print Name (If more than one investor)

		c/o Perkins Capital Management, Inc.
		730 East Lake Street
		Wayzata, MN 55391

		Address

		Dollar Amount of Investment: $45,000.00

		Number of Shares Subscribed: 15,000

		State of Residence/Domicile: Texas

		TIN/SSN: ###-##-####

Investor Representation with respect to Section 3.7

The Investor hereby represents that it is not under the control of, controlled by or under common control with any other Investor, and the Investor represents that it, along with any other Investor or Investors, is not a Person or a Group under Section 13(d)(3) of the Securities Exchange Act of 1934, except as follows:

INVESTOR EXECUTION PAGE


		INVESTOR SIGNATURE

		/s/Richard C. Perkins

		Investor (Signature)

		Piper Jaffray as Custodian
		FBO Bradley A. Erickson IRA
		Perkins Capital Management Inc.
		Attorney-in-Fact
		By: Richard C. Perkins, Vice President

		Print Name


		Print Name (If more than one investor)

		c/o Perkins Capital Management, Inc.
		730 East Lake Street
		Wayzata, MN 55391

		Address

		Dollar Amount of Investment: $30,000.00

		Number of Shares Subscribed: 10,000

		State of Residence/Domicile: Minnesota

		TIN/SSN: 41-1422918

Investor Representation with respect to Section 3.7

INVESTOR EXECUTION PAGE


		INVESTOR SIGNATURE

		/s/Richard C. Perkins

		Investor (Signature)

		Dennis D. Gonyea
		Perkins Capital Management Inc.
		Attorney-in-Fact
		By: Richard C. Perkins, Vice President

		Print Name


		Print Name (If more than one investor)

		c/o Perkins Capital Management, Inc.
		730 East Lake Street
		Wayzata, MN 55391

		Address

		Dollar Amount of Investment: $60,000.00

		Number of Shares Subscribed: 20,000

		State of Residence/Domicile: Minnesota

		TIN/SSN: ###-##-####

Investor Representation with respect to Section 3.7

INVESTOR EXECUTION PAGE


		INVESTOR SIGNATURE

		/s/Richard C. Perkins

		Investor (Signature)

		David M. Westrum, TTEE FBO
		David M. Westrum Revocable Living Trust u/a dtd 6/1/97
		Perkins Capital Management Inc.
		Attorney-in-Fact
		By: Richard C. Perkins, Vice President

		Print Name


		Print Name (If more than one investor)

		c/o Perkins Capital Management, Inc.
		730 East Lake Street
		Wayzata, MN 55391

		Address

		Dollar Amount of Investment: $45,000.00

		Number of Shares Subscribed: 15,000

		State of Residence/Domicile: Minnesota

		TIN/SSN: ###-##-####

Investor Representation with respect to Section 3.7

INVESTOR EXECUTION PAGE


		INVESTOR SIGNATURE

		/s/Richard C. Perkins

		Investor (Signature)

		Cedric A/Margaret E. Veum TTEES FBO
		Cedric A/Margaret E Veum Living Trust
		u/a dtd 6/20/96
		Perkins Capital Management Inc.
		Attorney-in-Fact
		By: Richard C. Perkins, Vice President

		Print Name


		Print Name (If more than one investor)

		c/o Perkins Capital Management, Inc.
		730 East Lake Street
		Wayzata, MN 55391

		Address

		Dollar Amount of Investment: $30,000.00

		Number of Shares Subscribed: 10,000

		State of Residence/Domicile: Wisconsin

		TIN/SSN: ###-##-####

Investor Representation with respect to Section 3.7

INVESTOR EXECUTION PAGE


		INVESTOR SIGNATURE

		/s/Richard C. Perkins

		Investor (Signature)

		Piper Jaffray as Custodian
		FBO Dan L. Lastavich IRA
		Perkins Capital Management Inc.
		Attorney-in-Fact
		By: Richard C. Perkins, Vice President

		Print Name


		Print Name (If more than one investor)

		c/o Perkins Capital Management, Inc.
		730 East Lake Street
		Wayzata, MN 55391

		Address

		Dollar Amount of Investment: $60,000.00

		Number of Shares Subscribed: 20,000

		State of Residence/Domicile: Minnesota

		TIN/SSN: 41-1422918

Investor Representation with respect to Section 3.7

INVESTOR EXECUTION PAGE


		INVESTOR SIGNATURE

		/s/Daniel S. Perkins

		Investor (Signature)

		Piper Jaffray as Custodian
		FBO Daniel S. Perkins IRA

		Print Name


		Print Name (If more than one investor)

		55 Landmark Drive
		Long Lake, MN 55356

		Address

		Dollar Amount of Investment: $45,000.00

		Number of Shares Subscribed: 15,000

		State of Residence/Domicile: Minnesota

		TIN/SSN: 41-1422918

Investor Representation with respect to Section 3.7

INVESTOR EXECUTION PAGE


		INVESTOR SIGNATURE

		/s/Daniel S. Perkins

		Investor (Signature)

		Piper Jaffray as Custodian
		FBO David H. Potter IRA

		Print Name


		Print Name (If more than one investor)

		P.O. Box 9
		Maple Plain, MN 55359

		Address

		Dollar Amount of Investment: $45,000.00

		Number of Shares Subscribed: 15,000

		State of Residence/Domicile: Minnesota

		TIN/SSN: 41-1422918

Investor Representation with respect to Section 3.7

INVESTOR EXECUTION PAGE


		INVESTOR SIGNATURE

		/s/Daniel S. Perkins

		Investor (Signature)

		Piper Jaffray as Custodian
		FBO James G. Peters IRA

		Print Name


		Print Name (If more than one investor)

		5605 Woodstock Avenue
		Golden Valley, MN 55422

		Address

		Dollar Amount of Investment: $30,000.00

		Number of Shares Subscribed: 10,000

		State of Residence/Domicile: Minnesota

		TIN/SSN: 41-1422918

Investor Representation with respect to Section 3.7

INVESTOR EXECUTION PAGE


		INVESTOR SIGNATURE

		/s/Diversified Drilling Corporation
		By: Edwin W. Finch, III, President

		Investor (Signature)

		Diversified Drilling Corporation
		By: Edwin W. Finch, III, President

		Print Name


		Print Name (If more than one investor)

		8801 Maislin Drive
		Tampa, FL 33637

		Address

		Dollar Amount of Investment: $150,000.00

		Number of Shares Subscribed: 50,000

		State of Residence/Domicile: Florida

		TIN/SSN: 59-1688848

Investor Representation with respect to Section 3.7

INVESTOR EXECUTION PAGE


		INVESTOR SIGNATURE

		/s/ Evan Schemenauer

		Investor (Signature)

		Evan Schemenauer, Director
		Greenwich Growth Fund Ltd.

		Print Name

		N/A

		Print Name (If more than one investor)

		P.O. Box HM 2257
		Hamilton HMJX Bermuda

		Address

		Dollar Amount of Investment: $99,999.00

		Number of Shares Subscribed: 33,333

		State of Residence/Domicile: British Virgin Islands

		TIN/SSN: N/A

Investor Representation with respect to Section 3.7

INVESTOR EXECUTION PAGE


		INVESTOR SIGNATURE

		/s/M. Finkelstein, Stonestreet LP

		Investor (Signature)

		By: Michael Finkelstein
		Stonestreet President

		Print Name

		N/A

		Print Name (If more than one investor)

		Hartley Z. Wingeman, CA
		c/o Suite 201-260 Town Centre Boulevan
		Markham, Ontario, Canada L3R 8H8

		Address

		Dollar Amount of Investment: $450,000.00

		Number of Shares Subscribed: 150,000

		State of Residence/Domicile: Toronto, Ontario, Canada

		TIN/SSN: N/A

Investor Representation with respect to Section 3.7

INVESTOR EXECUTION PAGE


		INVESTOR SIGNATURE

		/s/Evan Schemenauer

		Investor (Signature)

		By: Evan Schemenauer, Director
		Whalehaven Fund Limited

		Print Name

		N/A

		Print Name (If more than one investor)

		P.O. Box HM 2257
		Hamilton HMTX Bermuda

		Address

		Dollar Amount of Investment: $150,000.00

		Number of Shares Subscribed: 50,000

		State of Residence/Domicile: Bermuda

		TIN/SSN: N/A

Investor Representation with respect to Section 3.7

INVESTOR EXECUTION PAGE


		INVESTOR SIGNATURE

		/s/ Richard

		Investor (Signature)

		By: Richard
		Crestview Capital Master, LLC

		Print Name


		Print Name (If more than one investor)

		95 Revere Drive, Suite F
		Northbrook, IL 60062

		Address

		Dollar Amount of Investment: $750,000.00

		Number of Shares Subscribed: 250,000

		State of Residence/Domicile:Delaware

		TIN/SSN: 20-0204766

Investor Representation with respect to Section 3.7

INVESTOR EXECUTION PAGE


		INVESTOR SIGNATURE

		/s/ Cranshire Capital, LP
		by: Mitchell P. Kopin

		Investor (Signature)

		Mitchell P. Kopin
		President, Downsview Capital,
		The General Partner

		Print Name


		Print Name (If more than one investor)

		666 Dundee Road, Suite 1901
		Northbrook, IL 60062

		Address

		Dollar Amount of Investment: $500,001.00

		Number of Shares Subscribed: 166,667

		State of Residence/Domicile: Illinois

		TIN/SSN: 36-4055954

Investor Representation with respect to Section 3.7

INVESTOR EXECUTION PAGE


		INVESTOR SIGNATURE

		/s/ Deborah Solomon

		Investor (Signature)

		By: Deborah Solomon
		Managing Member
		Bluegrass Growth Fund Partners, LLC

		Print Name


		Print Name (If more than one investor)

		115 East 57^th Street, Suite 1111
		New York, NY 10022

		Address

		Dollar Amount of Investment: $300,000.00

		Number of Shares Subscribed: 100,000

		State of Residence/Domicile:Delaware

		TIN/SSN: 11-3701751

Investor Representation with respect to Section 3.7

INVESTOR EXECUTION PAGE


		INVESTOR SIGNATURE

		/s/ Konrad Ackermann

		Investor (Signature)

		Alpha Capital AG

		Print Name

		Konrad Ackermann

		Print Name (If more than one investor)


		Address

		Dollar Amount of Investment: $150,000.00

		Number of Shares Subscribed: 50,000

		State of Residence/Domicile: Liechtenstein

		TIN/SSN:

Investor Representation with respect to Section 3.7

INVESTOR EXECUTION PAGE


		INVESTOR SIGNATURE

		/s/Andrew Redleaf

		Investor (Signature)

		Pandora Select Partners LP
		Pandora Select Advisors LLC
		By: Andrew Redleaf
		Managing Member of the General Partner

		Print Name


		Print Name (If more than one investor)

		3033 Excelsior Boulevard, Suite 300
		Minneapolis, MN 55416

		Address

		Dollar Amount of Investment: $600,000.00

		Number of Shares Subscribed: 200,000

		State of Residence/Domicile:


		TIN/SSN: British Virgin Islands entity

Investor Representation with respect to Section 3.7

Exhibit A
List of Investors


		Tax ID	Number of
Shareholder Name	Shareholder Address	Number	Common Shares

Robert G. Allison	Robert G. Allison c/o Perkins Capital Management, Inc. 730 East Lake Street Wayzata, MN 55391	###-##-####		15,000

Piper Jaffray as Custodian FBO Bradley A. Erickson IRA	Bradley A. Erickson c/o Perkins Capital Management, Inc. 730 East Lake Street Wayzata, MN 55391	41-1422918		10,000

Dennis D. Gonyea	Dennis D. Gonyea c/o Perkins Capital Management, Inc. 730 East Lake Street Wayzata, MN 55391	###-##-####		20,000

David M. Westrum, TTEE FBO David M. Westrum Revocable Living Trust u/a dtd 6/1/97	David M. Westrum c/o Perkins Capital Management, Inc. 730 East Lake Street Wayzata, MN 55391	###-##-####		15,000

Cedric A / Margaret E Veum TTEES FBO Cedric A / Margaret E Veum Living Trust u/a dtd 6/20/96	Cedric and Margaret Veum c/o Perkins Capital Management, Inc. 730 East Lake Street Wayzata, MN 55391	###-##-####		10,000

Piper Jaffray as Custodian FBO Dan L. Lastavich IRA	Dan L. Lastavich c/o Perkins Capital Management, Inc. 730 East Lake Street Wayzata, MN 55391	41-1422918		20,000

Piper Jaffray as Custodian FBO Daniel S. Perkins IRA	Daniel S. Perkins c/o Perkins Capital Management, Inc. 730 East Lake Street Wayzata, MN 55391	41-1422918		15,000

Piper Jaffray as Custodian FBO David H. Potter IRA	David H. Potter IRA c/o Perkins Capital Management, Inc. 730 East Lake Street Wayzata, MN 55391	41-1422918		15,000

Piper Jaffray as Custodian FBO James G. Peters IRA	James G. Peters IRA c/o Perkins Capital Management, Inc. 730 East Lake Street Wayzata, MN 55391	41-1422918		10,000

Diversified Drilling Corporation	Diversified Drilling Corporation c/o FHL Capital Corporation 600 Twentieth Street North Suite 350 Birmingham, AL 35203	59-1688848		50,000


			Number of
Shareholder Name	Shareholder Address	Tax ID Number	Common Shares

Greenwich Growth Fund Limited	Greenwich Growth Fund Limited c/o Canaccord Capital Corporation 320 Bay St., Suite 1300 Toronto, Ontario MSH 4A6, Canada	N/A		33,333

Stonestreet LP	Stonestreet LP c/o Hartley Z. Wingeman Town Centre Blvd. Markham, Ontario L3R 8H8, Canada	N/A		150,000

Whalehaven Fund Limited	Whalehaven Fund Limited P.O. Box HM 2257 Par La Ville Place, 3^rd Floor 14 Par-La-Ville Road, Hamilton HM JX, Bermuda	N/A		50,000

Crestview Capital Master Fund LLC	Crestview Capital Master Fund LLC 95 Revere, Suite F Northbrook, IL 60062	20-0204766		250,000

Cranshire Capital, L.P.	Cranshire Capital, L.P. 666 Dundee Road, Suite 1901 Northbrook, IL 60062	36-4055954		166,667

Bluegrass Growth Fund LP	Bluegrass Growth Fund LP 115 E. 57^th Street, Suite 1111 New York, NY 10022	11-3701751		100,000

Alpha Capital AG	Alpha Capital AG c/o L.H. Financial Services Corp. 160 Central Park South Suite 2701 New York, NY 10019	N/A		50,000

Pandora Select Partners LP	Pandora Select Partners LP c/o Whitebox Advisors 3033 Excelsior Boulevard Suite 300 Minneapolis, Minnesota 55416	N/A		200,000

EX-2.2 4 c83076exv2w2.htm REGISTRATION RIGHTS AGREEMENT exv2w2

Exhibit 2.2

REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement (this “Agreement”) is made and entered into as of February 13, 2004, among HEI, Inc., a Minnesota corporation (the “Company”), and the individuals and entities listed on Schedule 1 hereto (each, a “Purchaser” and, collectively, the “Purchasers”). The Company and the Purchasers are sometimes referred to in this Agreement individually as a “Party” and collectively as the “Parties”).

WHEREAS, the Parties hereto have executed the Stock Purchase Agreement (the “Purchase Agreement”) of even date herewith pursuant to which the Purchasers are purchasing Shares and Warrants (capitalized terms used but not otherwise defined herein shall have the meanings given them in the Purchase Agreement); and

WHEREAS, in connection with the Purchase Agreement the Parties desire to provide certain registration rights and benefits with respect to the Shares and the Warrant Shares.

NOW, THEREFORE, in consideration of the respective covenants and agreements contained herein, and for other valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties hereto agree as follows.

ARTICLE I
DEFINITIONS

1.1 Specific Definitions. As used in this Agreement, the following terms shall have the meanings set forth or as referenced below:

“Agent” means ThinkEquity Partners, LLC, a Delaware limited liability company.

“Agent’s Warrant” means the warrant issued to the Agent in connection with the closing of the transactions contemplated by the Stock Purchase Agreement.

“Common Stock” means the Company’s common stock, par value $.05 per share.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

“Form S-3” means such form under the Securities Act in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the SEC that permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC.

“Holder” means a Purchaser, any person owning of record Registrable Securities that have not been sold to the public or any assignee of record of such Registrable Securities in accordance with Article 2.

“Register,” “Registered,” and “Registration” mean a registration effected by preparing and filing a Registration Statement in compliance with the Securities Act, and the declaration or ordering by the SEC of effectiveness of such Registration Statement.

“Registrable Securities” means the Shares issued pursuant to the Purchase Agreement, the Warrant Shares, and the shares of Common Stock issuable to the Agent pursuant to the Agent’s Warrant. Notwithstanding the foregoing, Registrable Securities shall not include any securities sold by a person to the public either pursuant to a Registration Statement or Rule 144 under the Securities Act or sold in a private transaction in which the transferor’s rights under Article 2 of this Agreement are not assigned.

“Registration Expenses” means all expenses incurred by the Company in complying with Article 2 hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel and accountants for the Company, reasonable fees and disbursements of a single special counsel for the Holders of Registrable Securities, fees and disbursements of counsel for the underwriter or underwriters of such securities (if the Company and/or the Holders are required to bear such fees and disbursements), all internal Company expenses, all legal fees and disbursements and other expenses of complying with state securities or blue sky laws of any jurisdictions in which the securities to be offered are to be registered or qualified, and the premiums and other costs of policies of insurance against liability (if any) arising out of such public offering and underwriting discounts and commissions and transfer taxes relating to the shares included in the offering by the Holders.

“Registration Statement” means any Registration Statement filed by the Company with the SEC for a public offering and sale of Common Stock (other than a Registration Statement on Form S-8 or Form S-4, or their successors, or any other form for a similar purpose).

“Rule 144” means Rule 144 promulgated under the Securities Act, as such rule may be amended from time to time, or any similar successor rule.

“SEC” means the Securities and Exchange Commission.

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

“Selling Expenses” means all underwriting discounts and commissions, transfer taxes, filing fees, any and all fees, commission, discounts or similar payments made to any brokers or dealers, and any fees and disbursements of counsel, accountant or any other advisor to the Purchasers (other than counsel referred to in the definition of Registration Expenses above) applicable to a sale of Registrable Securities.

ARTICLE 2
REGISTRATION RIGHTS

2.1 Required Registrations.

(a) The Company shall, within 30 days of the Closing file, use its best efforts to file with the SEC a Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415 covering all of the Registrable Securities. The Company shall use its best efforts to cause such Registration Statement to be declared effective under the Securities Act within 90 days of the Closing.

(b) The Registration Statement shall be on Form S-3 or another appropriate form permitting registration of such Registrable Securities for resales by holders in the manner or manners designated by them (including, without limitation, one or more underwritten offerings). The Company shall not permit any securities other than the Registrable Securities to be included in any Registration Statement without the consent of the Purchasers, except to the extent the Company may be obligated to include additional securities pursuant to (i) that certain Registration Rights Agreement, dated as of November 5, 2003, between the Company and Whitebox Hedged High Yield Partners, or (ii) any registration rights granted or to be granted in connection with the sale of shares of the Common Stock owned by Anthony Fant in order to satisfy the Company’s judgment against Mr. Fant. The Company shall use its best efforts to keep the Registration Statement continuously effective under the Securities Act until the date which is two years from the date of filing (the “Effectiveness Period”) or such shorter period ending when (i) all Registrable Securities covered by the Registration Statement have been sold in the manner set forth and as contemplated in the Registration Statement or (ii) may be sold without limitation under Rule 144(k).

(c) In the event that the Registration Statement is not declared effective under the Securities Act within 90 days of the date of the Closing, and such holdup is not due to (i) backlog or other delay at or by the SEC, (ii) delay at or by the Company’s independent accountants, or (iii) delay caused by any other matter outside of the control of the Company, the Company shall, on the 120th day following the Closing and each 30th day thereafter, pay to each of the Purchasers, in common stock purchase warrants (the “Penalty Warrants”) issued on the same terms as the Warrants, their ratable portion of 1% of the aggregate Purchase Price paid for the Common Stock, until the Registration Statement is declared effective or such earlier time as all Registrable Securities may be sold without limitation under Rule 144(k). The exercise price of the Penalty Warrants shall be the Warrants’ exercise price, provided that if the Warrants’ exercise price is not at a premium to the closing price of the Common Stock as reported by the NASDAQ National Market on the date immediately prior to issuance of the Penalty Warrants, the exercise price of the Penalty Warrants shall be equal to 110% of the average closing prices of the Common Stock as reported by the NASDAQ National Market over the 5 business days preceding the date of issuance.

2.2 Expenses of Registration. All Registration Expenses incurred in connection with any registration under Section 2.1 shall be borne by the Company. All Selling Expenses

incurred in connection with any such registration shall be borne by the Holder of the securities so registered incurring such expense, unless all Holders have consented to such Selling Expense, in which case, such Selling Expenses shall be borne by the Holders pro rata on the basis of the number of shares so registered.

2.3 Obligations of the Company. Whenever required to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:

(a) Use its best efforts to prepare and file with the SEC a Registration Statement, on such form as is then available to the Company in connection with such registration, with respect to such Registrable Securities and use its best efforts to cause such Registration Statement to become effective and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such Registration Statement effective throughout the Effectiveness Period.

(b) Use its best efforts to prepare and file with the SEC such amendments and supplements to such Registration Statement and the prospectus used in connection with such Registration Statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement.

(c) Furnish to the Holders such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them.

(d) Use its best efforts to register or qualify the Registrable Securities covered by such Registration Statement under such other securities or blue sky laws of such jurisdictions as shall be reasonably requested by the Holders within 30 days following the original filing of such Registration Statement, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions.

(e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter(s) of such offering, provided that each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement.

(f) Notify each Holder of Registrable Securities covered by such Registration Statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the occurrence of any event as a result of which the prospectus included 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 contained therein not misleading in the light of the circumstances then existing.

(g) Furnish, at the request of a majority of the Holders participating in the registration, on the date that such Registrable Securities are delivered to the underwriters for sale, if such Registrable Securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the Registration Statement with respect to such securities becomes effective, an opinion, dated as of such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given with respect to such registration and reasonably satisfactory to a majority in interest of the Holders requesting registration, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities.

2.4 Termination of Registration Rights. All registration rights granted under this Article 2 shall terminate and be of no further force and effect after the Effectiveness Period or such shorter period ending when all Registrable Securities covered by the Registration Statement (a) have been sold in the manner set forth and as contemplated in the Registration Statement or (b) may be sold without limitation under Rule 144(k).

2.5 Delay of Registration. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Article 2.

2.6 Indemnification. If any Registrable Securities are included in a Registration Statement under Section 2.1:

(a) The Company will indemnify and hold harmless each Holder, the partners, officers, and directors of each Holder, and each person, if any, who controls such Holder within the meaning of the Securities Act or the Exchange Act, and each underwriter, if any, and each person, if any, who controls any underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act, or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions, or violations (collectively a “Company Violation”) by the Company: (i) any untrue statement or alleged untrue statement of a material fact contained in such Registration Statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) 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, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act, or any state securities law in connection with the offering covered by such Registration Statement; and the Company will reimburse each such Holder, partner, 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 if it is judicially determined that there was such a Company Violation; provided, however, that the indemnity agreement contained in this Section 2.6(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or

action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Company Violation that occurs in reliance upon and in conformity with information furnished expressly for use in connection with such registration by such Holder, partner, officer, director, or controlling person of such Holder.

(b) Each selling Holder (an “Indemnifying Holder”), severally and not jointly, will indemnify and hold harmless the Company, each of its officers and directors, each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act, and each underwriter, if any, and each person, if any, who controls any underwriter within the meaning of the Securities Act or the Exchange Act, and any other Holder selling securities under such Registration Statement or any of such other Holder’s partners, directors, or officers or any person who controls such Holder, against any losses, claims, damages, or liabilities (joint or several) to which the Company or any such director, officer, underwriter, controlling person, or other such Holder, or partner, director, officer, or controlling person of such other Holder may become subject under the Securities Act, the Exchange Act, or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any of the following statements, omissions, or violations (collectively a “Holder Violation”) by the Indemnifying Holder: (i) any untrue statement or alleged untrue statement of a material fact contained in such Registration Statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statement therein not misleading, or (iii) any violation or alleged violation by the Holder of the Securities Act, the Exchange Act, any state securities laws or any rule or regulation promulgated under the Securities Act, the Exchange Act, or any state securities law in connection with the offering covered by such Registration Statement, in each case to the extent (and only to the extent) that such Holder Violation occurs in reliance upon and in conformity with information furnished by the Indemnifying Holder; and each Indemnifying Holder will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, underwriter, controlling person, or other Holder, or partner, officer, director, or controlling person of such other Holder in connection with investigating or defending any such loss, claim, damage, liability, or action if it is judicially determined that there was such a Holder Violation; provided, however, that the indemnity agreement contained in this Section 2.6(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Indemnifying Holder, which consent shall not be unreasonably withheld; provided, further, that in no event shall any indemnity under this Section 2.6(b) exceed the proceeds from the offering received from such Indemnifying Holder unless the Holder Violation is the result of fraud on the part of such Indemnifying Holder.

(c) Promptly after receipt by an indemnified party under this Section 2.6 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 2.6, deliver to the indemnifying party a written

notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party (or, if there is more than one indemnified party, the indemnifying party shall pay the fees and expenses of one counsel for any and all indemnified parties, to be mutually agreed upon by such indemnified parties), if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if materially prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 2.6, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 2.6.

(d) If the indemnification provided for in this Section 2.6 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any losses, claims, damages, or liabilities referred to herein, the indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall to the extent permitted by applicable law contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage, or liability in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the Company Violation(s) or the Holder Violation(s), as the case may be, that resulted in such loss, claim, damage, or liability, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by a court of law by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission.

(e) The foregoing indemnity agreements of the Company and Holders are subject to the condition that, insofar as they relate to any Company Violation(s) or Holder Violation(s), as the case may be, made in a preliminary prospectus but eliminated or remedied in the amended prospectus on file with the SEC at the time the Registration Statement in question becomes effective or the final prospectus is filed with the SEC pursuant to SEC Rule 424(b), such indemnity agreement shall not inure to the benefit of any person if a copy of such final prospectus was furnished to the indemnified party and was not furnished to the person asserting the loss, liability, claim, or damage at or prior to the time such action is required by the Securities Act.

(f) The obligations of the Company and Holders under this Section 2.6 shall terminate and be of no further force and effect after the Effectiveness Period or such shorter period ending when all Registrable Securities covered by the shelf registration (i) have been sold in the manner set forth and as contemplated in the Registration Statement or (ii) may be sold without limitation under Rule 144(k).

ARTICLE 3
OTHER PROVISIONS

3.1 Complete Agreement. This Agreement and the documents referenced herein constitutes the entire agreement between the Parties hereto with respect to the subject matter hereof

3.2 Waiver, Discharge, Amendment, Etc. The failure of any Party hereto to enforce at any time any of the provisions of this Agreement shall not, absent an express written waiver signed by the Party making such waiver specifying the provision being waived, be construed to be a waiver of any such provision, nor in any way to affect the validity of this Agreement or any part hereof or the right of the Party thereafter to enforce each and every such provision. No waiver of any breach of this Agreement shall be held to be a waiver of any other or subsequent breach.

3.3 Notices. All notices or other communications to a Party required or permitted hereunder shall be in writing and shall be delivered personally or by telecopy (receipt confirmed) to such Party (or, in the case of an entity, to an executive officer of such party) or shall be sent by a reputable express delivery service or by certified mail, postage prepaid with return receipt requested, addressed as follows:

If to a Purchaser:

To the address set forth on Schedule 1 or such other address as may be designated in writing hereafter, in the same manner, by such Purchaser.

If to the Company to:

HEI, Inc.
1495 Steiger Lake Lane
Victoria, MN 55386
Attention: Mack V. Traynor, III
Fax: 952-443-2668

with copy to:

Mark D. Williamson, Esq.
Gray, Plant, Mooty, Mooty & Bennett, P.A.
500 IDS Center
80 South Eighth Street
Minneapolis, MN 55402
Fax: 612-632-4379

3.4 Governing Law. This Agreement shall be governed by and interpreted in accordance with the laws of the State of Minnesota, including all matters of construction, validity, performance, and enforcement, without giving effect to principles of conflict of laws.

3.5 Titles and Headings; Construction. The titles and headings to the Articles and Sections herein are inserted for the convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. This Agreement shall be construed without regard to any presumption or other rule requiring construction hereof against the party causing this Agreement to be drafted.

3.6 Benefit. Nothing in this Agreement, expressed or implied, is intended to confer on any person other than the Parties hereto or their respective successors or assigns, any rights, remedies, obligations, or liabilities under or by reason of this Agreement.

3.7 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed as original and all of which together shall constitute one instrument, and may be delivered in person or by facsimile transmission.

[REMAINDER OF PAGE BLANK. SIGNATURE PAGE FOLLOWS]

Exhibit 2.2

IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed as of the date first written above.

HEI, INC.

/S/ Mack V. Traynor, III

Mack V. Traynor, III
Chief Executive Officer

Signature Page to Registration Rights Agreement

SCHEDULE 1

Schedule of Purchasers


Purchaser Name	Purchaser Address	Facsimile No.
Robert G. Allison	Robert G. Allison c/o Perkins Capital Management, Inc. 730 East Lake Street Wayzata, MN 55391	952-473-4702

Piper Jaffray as Custodian FBO Bradley A. Erickson IRA	Bradley A. Erickson c/o Perkins Capital Management, Inc. 730 East Lake Street Wayzata, MN 55391	952-473-4702

Dennis D. Gonyea	Dennis D. Gonyea c/o Perkins Capital Management, Inc. 730 East Lake Street Wayzata, MN 55391	952-473-4702

David M. Westrum, TTEE FBO David M. Westrum Revocable Living Trust u/a dtd 6/1/97	David M. Westrum c/o Perkins Capital Management, Inc. 730 East Lake Street Wayzata, MN 55391	952-473-4702

Cedric A / Margaret E Veum TTEES FBO Cedric A / Margaret E Veum Living Trust u/a dtd 6/20/96	Cedric and Margaret Veum c/o Perkins Capital Management, Inc. 730 East Lake Street Wayzata, MN 55391	952-473-4702

Piper Jaffray as Custodian FBO Dan L. Lastavich IRA	Dan L. Lastavich c/o Perkins Capital Management, Inc. 730 East Lake Street Wayzata, MN 55391	952-473-4702

Piper Jaffray as Custodian FBO Daniel S. Perkins IRA	Daniel S. Perkins c/o Perkins Capital Management, Inc. 730 East Lake Street Wayzata, MN 55391	952-473-4702

Piper Jaffray as Custodian FBO David H. Potter IRA	David H. Potter IRA c/o Perkins Capital Management, Inc. 730 East Lake Street Wayzata, MN 55391	952-473-4702

Piper Jaffray as Custodian FBO James G. Peters IRA	James G. Peters IRA c/o Perkins Capital Management, Inc. 730 East Lake Street Wayzata, MN 55391	952-473-4702

Diversified Drilling Corporation	Diversified Drilling Corporation c/o FHL Capital Corporation 600 Twentieth Street North Suite 350 Birmingham, AL 35203	205-323-0001

Greenwich Growth Fund Limited	Greenwich Growth Fund Limited c/o Canaccord Capital Corporation 320 Bay St., Suite 1300 Toronto, Ontario MSH 4A6, Canada	416-956-8989


Purchaser Name	Purchaser Address	Facsimile No.
Stonestreet LP	Stonestreet LP c/o Hartley Z. Wingeman Town Centre Blvd. Markham, Ontario L3R 8H8, Canada	416-956-8989

Whalehaven Fund Limited	Whalehaven Fund Limited P.O. Box HM 2257 Par La Ville Place, 3rd Floor 14 Par-La-Ville Road, Hamilton HM JX, Bermuda	441-292-1373

Crestview Capital Master Fund LLC	Crestview Capital Master Fund LLC 95 Revere, Suite F Northbrook, IL 60062	847-559-5807

Cranshire Capital, L.P.	Cranshire Capital, L.P. 666 Dundee Road, Suite 1901 Northbrook, IL 60062	847-562-9031

Bluegrass Growth Fund LP	Bluegrass Growth Fund LP 115 E. 57th Street, Suite 1111 New York, NY 10022	212-202-9624

Alpha Capital AG	Alpha Capital AG c/o L.H. Financial Services Corp. 160 Central Park South Suite 2701 New York, NY 10019	212-586-8244

Pandora Select Partners LP	Pandora Select Partners LP c/o Whitebox Advisors 3033 Excelsior Boulevard Suite 300 Minneapolis, Minnesota 55416	612-253-6100

EX-2.3 5 c83076exv2w3.htm FORM OF WARRANT TO STOCK PURCHASE AGREEMENT exv2w3

Exhibit 2.3

FORM OF WARRANTS

This Warrant and any securities acquired upon exercise of this Warrant have not been registered under the Securities Act of 1933, as amended, or any state securities laws. The securities may not be offered for sale, sold, transferred or assigned in the absence of an effective registration statement for the securities under such Act or applicable state securities laws or pursuant to an applicable exemption to the registration requirements of such Act and such laws.

HEI, INC.

COMMON STOCK PURCHASE WARRANT


Common Shares		No.
		February 13, 2004

HEI, Inc., a Minnesota corporation (the “Company”), hereby agrees that, for value received, , or its assigns (the “Holder”), is entitled, subject to the terms set forth below, to purchase from the Company, in whole or in part, at any time after February 13, 2004 and until February 13, 2009 at 5:00 p.m., Minneapolis, Minnesota time (the “Expiration Date”), shares of Common Stock, par value $.05 per share, of the Company (the “Common Stock”), at an exercise price of $3.72 per share of Common Stock (subject to adjustment as provided herein, the “Exercise Price”).

1. Exercise of Warrant. This Common Stock Purchase Warrant (this “Warrant”) may be exercised by the Holder, in whole or in part (but in minimum quantities of 10,000 shares), at any time on and after the date hereof and prior to the Expiration Date (the “Warrant Exercise”), by surrendering this Warrant with the form of exercise attached hereto duly executed by the Holder, to the Company at its principal office, accompanied by payment, unless the Holder is exercising under Section 5 herein, in cash or by cashier’s check payable to the order of the Company, of the Exercise Price payable in respect of the Common Stock being purchased. If less than all of the Common Stock purchasable hereunder is purchased, the Company will, upon the Warrant Exercise, execute and deliver to the Holder a new warrant (dated as of the date hereof) evidencing the number of shares of Common Stock not so purchased. As soon as practicable after the Warrant Exercise and payment of the Exercise Price, the Company will use its best efforts to issue in the name of and delivered to the Holder, or as the Holder may direct, a certificate or certificates representing the shares of Common Stock purchased pursuant to the Warrant Exercise. The Company may require that such certificate or certificates contain on the face thereof a legend substantially as follows:

“The transfer of the shares represented by this certificate is restricted pursuant to the terms of a Common Stock Purchase Warrant dated February 13, 2004, issued by HEI, Inc., a copy of which is available for inspection at the principal office of HEI, Inc. Transfer may not

be made except in accordance with the terms of the Common Stock Purchase Warrant. In addition, no sale, offer to sell or transfer of the shares represented by this certificate shall be made unless a registration statement under the Securities Act of 1933, as amended (the “1933 Act”), with respect to such shares is then in effect or an exemption from the registration requirements of the 1933 Act is then in fact applicable to such shares.”

2. Negotiability and Transfer. This Warrant is issued upon the following terms, to which the Holder consents and agrees:

2.1 Absolute Owner. Until this Warrant is duly transferred on the books of the Company, the Company may treat the registered Holder as absolute owner hereof for all purposes without being affected by any notice to the contrary.

2.2 Successive Holder. Each successive holder of this Warrant, or of any portion of the rights represented thereby, shall be bound by the terms and conditions set forth herein.

3. Antidilution Adjustments.

3.1 Exercise Price Adjustment. If the Company shall at any time hereafter effect a subdivision or combination of its outstanding shares of Common Stock, or declare a dividend payable in Common Stock, the Exercise Price in effect immediately prior to the subdivision, combination or record date for such dividend payable in Common Stock shall be proportionately increased, in the case of combination, or proportionately decreased, in the case of subdivision or declaration of a dividend payable in Common Stock, and each share of Common Stock purchasable upon the Warrant Exercise, immediately preceding such event, shall be changed to the number determined by dividing the then current Exercise Price by the exercise price as adjusted after such subdivision, combination or dividend payable in Common Stock.

3.2 Fractional Shares. No fractional shares of Common Stock are to be issued upon the Warrant Exercise, but the Company shall pay a cash adjustment in respect of any fraction of a share which would otherwise be issuable in an amount equal to the same fraction of the market price per share of Common Stock on the date of exercise as determined in good faith by the Company.

3.3 Reorganization, Sale of Assets and Merger. In case of any capital reorganization or any reclassification of the Common Stock, or in the case of any consolidation with or merger of the Company into or with another corporation, or the sale of all or substantially all of its assets to another corporation, which is effected in such a manner that the holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, as a part of such reorganization, reclassification, consolidation, merger or sale, as the case may be, lawful provision shall be made so that the Holder shall have the right thereafter to receive, upon the Warrant Exercise, the kind and amount of shares of stock or other securities or property which the Holder would have been entitled to receive if, immediately prior to such reorganization, reclassification, consolidation, merger or sale, the Holder had held the number of shares of Common Stock which were

then purchasable upon the Warrant Exercise had this Warrant been exercised. In any such case, appropriate adjustment (as determined in good faith by the Board of Directors of the Company) shall be made in the application of the provisions set forth herein with respect to the rights and interest thereafter of the Holder, to the end that the provisions set forth herein (including provisions with respect to adjustments of the Exercise Price) shall thereafter be applicable, as nearly as reasonably may be, in relation to any shares of stock or other property thereafter deliverable upon the Warrant Exercise.

3.4 Method and Notice of Adjustment. When any adjustment is required to be made in the Exercise Price, initial or adjusted, the Company shall forthwith determine the new Exercise Price, and

(a) Prepare and retain on file, a statement describing in reasonable detail the method used in arriving at the new Exercise Price; and

(b) Cause a copy of such statement to be mailed to the Holder within ten (10) days after the date of the circumstances giving rise to the adjustment occurs.

4. Transferability; Registration Rights.

4.1 Transferability. Prior to making any disposition of this Warrant or of any Common Stock purchased upon the Warrant Exercise, the Holder will give written notice (the “Transfer Notice”) to the Company describing briefly the manner of any such proposed disposition. The Holder will not make any such disposition until: (a) the Company has notified the Holder that, in the opinion of its counsel, registration under the 1933 Act, is not required with respect to such disposition, or (b) a registration statement covering the proposed distribution has been filed by the Company and has become effective. The Holder then will make such disposition only pursuant to the conditions of such opinion or registration. The Company agrees that, upon receipt of the Transfer Notice, it will use its best efforts, in consultation with the Holder’s counsel, to ascertain as promptly as possible whether or not registration is required, and will advise the Holder promptly with respect thereto, and the Holder will cooperate in providing the Company with information necessary to make such determination.

4.2 Registration Rights. The Holder shall have the registration rights and obligations set forth in the Registration Rights Agreement dated February 13, 2004, among the Company and the Investors (as defined therein).

5. Cashless Exercise Option.

5.1 Conversion. Provided the Common Stock shall then be traded on an exchange or quoted by Nasdaq or otherwise traded or quoted as described in Section 5.4 hereof and so long as the Fair Market Value (as defined in Section 5.4 hereof) is greater than the Exercise Price, the Holder shall have the right to require the Company to convert this Warrant (the “Conversion Right”), at any time and prior to its expiration, into shares of Common Stock as provided for in this Section 5. Upon exercise of the Conversion Right, the Company shall deliver to the Holder (without cash payment by the Holder of any Exercise Price) that number of shares of Common Stock equal to the number of shares of Common Stock resulting from multiplying the number of shares of Common Stock issuable to the Holder upon the Warrant Exercise (and

desired to be converted) by the quotient obtained by dividing (x) the value of this Warrant at the time the Conversion Right is exercised (determined by subtracting the Exercise Price in effect immediately prior to the exercise of the Conversion Right from the Fair Market Value immediately prior to the exercise of the Conversion Right) by (y) the Fair Market Value immediately prior to the exercise of the Conversion Right.

5.2 Conversion Notice. The Conversion Right may be exercised by the Holder, at any time, prior to the Expiration Date, on any business day, by delivering a written notice (the “Conversion Notice”) to the Company specifying: (a) the total number of shares of Common Stock the Holder is exercising pursuant to such conversion, and (b) a place, and a date not less than ten (10) nor more than twenty (20) business days from the date of the Conversion Notice for the closing of such purchase, or such other date and time as the Company and Holder may mutually agree upon.

5.3 Closing of Conversion. At any closing under Section 5.2 hereof, (a) the Holder will surrender this Warrant, (b) the Company will deliver to the Holder a certificate or certificates for the number of shares of Common Stock issuable upon such conversion, together with cash, in lieu of any fraction of a share of Common Stock, and (c) the Company will deliver to the Holder a new warrant representing the number of shares of Common Stock, if any, with respect to which this Warrant shall not have been exercised.

5.4 Fair Market Value Defined. The “Fair Market Value” of one share of Common Stock as of a given date (the “Determination Date”) shall mean:

(a) If the Common Stock is traded on an exchange or is quoted on the Nasdaq National Market System or the Small Cap Market, then the average closing or last sale prices reported for the three (3) trading days immediately preceding the Determination Date.

(b) If the Common Stock is not traded on an exchange or on the Nasdaq National Market System or the Small Cap Market but is traded in the over-the-counter market, then the average of the closing bid and asked prices reported for the three (3) trading days immediately preceding the Determination Date.

(c) If the Common Stock is not publicly traded and there has been a bona fide sale of such Common Stock for cash in an arm’s length transaction within forty-five (45) days prior to the Determination Date by the Company privately to one or more investors unaffiliated with the Company (a “Qualifying Sale”), then such most recent sales price.

(d) If the Common Stock is not publicly traded and there has been no Qualifying Sale, then the highest price per share which the Company could obtain from a willing buyer in an arm’s length transaction (not including a current employee or director), as determined in good faith by the Board of Directors of the Company.

6. Notices.

6.1 Shareholder Notices. The Company shall mail to the Holder, at the Holder’s last known post office address appearing on the books of

the Company, not less than fifteen (l5) days prior to the date on which (a) a record will be taken for the purpose of determining the holders of Common Stock entitled to dividends (other than cash dividends) or subscription rights, or (b) a record will be taken (or in lieu thereof, the transfer books will be closed) for the purpose of determining the holders of Common Stock entitled to notice of and to vote at a meeting of stockholders at which any capital reorganization, reclassification of shares of Common Stock, consolidation, merger, dissolution, liquidation, winding up or sale of substantially all of the Company’s assets shall be considered and acted upon.

6.2 Notice Hereunder. All notices or other communications to a party required or permitted hereunder shall be in writing and shall be delivered personally or by telecopy (receipt confirmed) to such party (or, in the case of an entity, to an executive officer of such party) or shall be sent by a reputable express delivery service or by certified mail, postage prepaid with return receipt requested, addressed as follows:

If to Holder:

To such address as may be designated in writing to the Company by Holder.

If to the Company:

HEI, Inc.

1495 Steiger Lake Lane

Victoria, MN 55386

Attention: Mack V. Traynor, III

Fax: 952-443-2668

with copy to:

Mark D. Williamson, Esq.

Gray, Plant, Mooty, Mooty & Bennett, P.A.

500 IDS Center

80 South Eighth Street

Minneapolis, MN 55402

Fax: 612-632-4379

Any party may change the above-specified recipient and/or mailing address by notice to all other parties given in the manner herein prescribed. All notices shall be deemed given on the day when actually delivered as provided above (if delivered personally or by telecopy) or on the day shown on the return receipt (if delivered by mail or delivery service).

7. Reservation of Common Stock. A number of shares of Common Stock sufficient to provide for the exercise of this Warrant upon the basis herein set forth shall at all times be reserved for the exercise thereof.

8. Replacement. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement, or bond reasonably satisfactory in form and amount to

the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company, at its expense, will execute and deliver, in lieu of this Warrant, a new Warrant of like tenor.

9. Miscellaneous.

9.1 Common Stock. Whenever reference is made herein to the issue or sale of shares of Common Stock, the term “Common Stock” shall include any stock of any class of the Company other than preferred stock with a fixed limit on dividends and a fixed amount payable in the event of voluntary or involuntary liquidation, dissolution or winding up of the Company.

9.2 Survival. The representations, warranties and agreements herein contained shall survive the exercise of this Warrant. References to the “holder of” include the immediate holder of shares purchased upon exercise of this Warrant, and the word “holder” shall include the plural thereof. This Warrant shall be interpreted under the laws of the State of Minnesota without regard to its choice of law principles.

9.3 Validly Issued, Fully Paid. All shares of Common Stock or other securities issued upon the exercise of this Warrant shall be validly issued, fully paid and non-assessable, and the Company will pay all taxes in respect of the issuer thereof.

9.4 No Shareholder. Notwithstanding anything contained herein to the contrary, the Holder of this Warrant shall not be deemed a stockholder (including, no right to vote on any matters coming before the shareholders) of the Company for any purpose whatsoever unless and until this Warrant is duly exercised.

[REMAINDER OF THIS PAGE BLANK. SIGNATURE PAGE FOLLOWS.]

IN WITNESS WHEREOF, this Warrant has been duly executed this 13th day of February, 2004.


		HEI, INC.


		Mack V. Traynor, III
		Chief Executive Officer

[Signature Page to HEI, Inc. Common Stock Purchase Warrant]

Exhibit 2.3

WARRANT EXERCISE FORM

To be signed only upon exercise of the Warrant.

The undersigned, the Holder of the attached Warrant, hereby irrevocably elects to exercise the purchase right represented by the Warrant for, and to purchase thereunder, shares of Common Stock of HEI, Inc. to which such Warrant relates and herewith makes payment of $ therefor in cash or by certified check, and requests that such shares be issued and be delivered to, , the address for which is set forth below the signature of the undersigned.

Dated:



(Taxpayer’s I.D. Number)		(Signature)



		(Address)

A-1

ASSIGNMENT FORM

To be signed only upon authorized transfer of Warrant.

FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers unto the right to purchase shares of Common Stock of HEI, Inc. to which the attached Warrant relates and appoints , attorney, to transfer said right on the books of HEI, Inc. with full power of substitution in the premises.

Dated:



		(Signature)



		(Address)

B-1

CASHLESS EXERCISE FORM

(To be executed upon exercise of Warrant pursuant to Section 5 of Warrant)

The undersigned hereby irrevocably elects a cashless exercise of the right of purchase represented by the attached Common Stock Purchase Warrant for, and to purchase thereunder, shares of Common Stock, as provided for in Section 5 therein.

If said number of shares is not all the shares purchasable under the attached Common Stock Purchase Warrant, a new Warrant is to be issued in the name of the undersigned for the whole remaining balance of the shares purchasable thereunder rounded up to the next higher number of shares.

Please issue a certificate or certificates for such Common Stock in the name of, and pay any cash for any fractional shares to:


NAME

		(Please Print Name)

ADDRESS




SOCIAL SECURITY NO.


SIGNATURE

NOTE: The above signature should correspond exactly with the name on the first page of this Common Stock Purchase Warrant or with the name of the assignee appearing in the assignment form on the preceding page.

2 -----END PRIVACY-ENHANCED MESSAGE-----

Table of Contents

Table of Contents

	(a)		Financial Statements.

			Not Applicable.

	(b)		Pro Forma Financial Information.

			Not Applicable.

	(c)		Exhibits:

	(a)		Prepare and retain on file, a statement describing in reasonable detail the method used in arriving at the new Exercise Price; and

	(b)		Cause a copy of such statement to be mailed to the Holder within ten (10) days after the date of the circumstances giving rise to the adjustment occurs.

	(a)		If the Common Stock is traded on an exchange or is quoted on the Nasdaq National Market System or the Small Cap Market, then the average closing or last sale prices reported for the three (3) trading days immediately preceding the Determination Date.

	(b)		If the Common Stock is not traded on an exchange or on the Nasdaq National Market System or the Small Cap Market but is traded in the over-the-counter market, then the average of the closing bid and asked prices reported for the three (3) trading days immediately preceding the Determination Date.

	(c)		If the Common Stock is not publicly traded and there has been a bona fide sale of such Common Stock for cash in an arm’s length transaction within forty-five (45) days prior to the Determination Date by the Company privately to one or more investors unaffiliated with the Company (a “Qualifying Sale”), then such most recent sales price.

	(d)		If the Common Stock is not publicly traded and there has been no Qualifying Sale, then the highest price per share which the Company could obtain from a willing buyer in an arm’s length transaction (not including a current employee or director), as determined in good faith by the Board of Directors of the Company.