8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of report (Date of earliest event reported):		December 3, 2004
HEI, Inc.
(Exact Name of Registrant as Specified in Charter)
Minnesota	0-10078	41-0944876
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)
PO Box 5000, 1495 Steiger Lake Lane, Victoria, Minnesota 55386
(Address of Principal Executive Offices, Including Zip Code)
Registrant’s telephone number, including area code:		(952) 443-2500
N/A
(Former Name or Former Address, if Changed Since Last Report)

     Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions (see General Instruction A.2.):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

	Item 1.01 Entry Into a Material Definitiave Agreement.
	Item 9.01 Financial Statements and Exhibits.
SIGNATURES
Exhibit Index
Waiver and Amendment with Commerce Bank
Waiver and Amendment with Commerce Financial Group Inc

Item 1.01 Entry Into a Material Definitiave Agreement.

     On December 3, 2004, HEI, Inc., a Minnesota corporation (the “Company”), entered into a Waiver and Amendment (the “Commerce Bank Amendment”), which was retroactively effective to November 30, 2004, to waive and amend certain provisions of its Term Loan Agreement, dated October 14, 2003, with Commerce Bank, a Minnesota banking corporation (the “Commerce Bank Loan Agreement”), and the related promissory note, also dated October 14, 2003 (the “Commerce Bank Promissory Note”). The Commerce Bank Amendment, among other things: (i) waived covenant violations relating to accounting records and the delivery of annual financial statements set forth in the Commerce Bank Loan Agreement; (ii) amended the Commerce Bank Loan Agreement to increase the period of time following the close of each of the Company’s fiscal years in which the Company must deliver to Commerce Bank a copy of its annual financial statements from 90 days to 120 days; (iii) amended the Commerce Bank Loan Agreement to extend the date after which the Company must comply with the stated debt service ratio from the Company’s fiscal quarter ended February 28, 2005, to the Company’s fiscal quarter ended February 28, 2006; and (iv) amended the Commerce Bank Promissory Note to increase the interest rate to be paid under such note beginning on March 1, 2005, to and including October 31, 2006, from 6.5% to 7.5%. A copy of the Commerce Bank Amendment is filed herewith as Exhibit 10.1 and is incorporated herein by reference.

     Also on December 3, 2004, the Company entered into a Waiver and Amendment (the “Commercial Financial Group Amendment”), which was retroactively effective to November 30, 2004, to its Term Loan Agreement, dated October 28, 2003, with Commerce Financial Group, Inc., a Minnesota corporation (the “Commerce Financial Group Loan Agreement”), and the related promissory note, also dated October 28, 2003 (the “Commerce Financial Group Promissory Note”). The Commerce Financial Group Amendment, among other things: (i) waived covenant violations relating to accounting records and the delivery of annual financial statements set forth in the Commerce Financial Group Loan Agreement; (ii) amended the Commerce Financial Group Loan Agreement to increase the period of time following the close of each of the Company’s fiscal years in which Company must deliver to Commerce Financial Group a copy of its annual financial statements from 90 days to 120 days; (iii) amended the Commerce Financial Group Loan Agreement to extend the date after which the Company must comply with the stated debt service ratio from the Company’s fiscal quarter ended February 28, 2005, to the Company’s fiscal quarter ended February 28, 2006; and (iv) amended the Commerce Financial Group Promissory Note to increase the interest rate to be paid under such note beginning on March 1, 2005, to and including September 28, 2007, from 8.975% to 9.975%. A copy of the Commerce Financial Group Amendment is filed herewith as Exhibit 10.2 and is incorporated herein by reference.

Item 9.01 Financial Statements and Exhibits.

(c) Exhibits.

     The following exhibit is filed a part of this Current Report on Form 8-K.

Item No.	Description
10.1	Waiver and Amendment, dated November 30, 2004, and executed as of December 3, 2004, by and between HEI, Inc., a Minnesota corporation, and Commerce Bank, a Minnesota banking corporation.
10.2	Waiver and Amendment, dated November 30, 2004, and executed as of December 3, 2004, by and between HEI, Inc., a Minnesota corporation, and Commerce Financial Group, Inc., a Minnesota corporation.

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.
Date:  December 9, 2004	By /s/ Douglas J. Nesbit
	Douglas J. Nesbit
	Chief Financial Officer, Treasurer, Secretary (Duly Authorized Officer)

Exhibit Index

Item No.	Description
10.1	Waiver and Amendment, dated November 30, 2004, and executed as of December 3, 2004, by and between HEI, Inc., a Minnesota corporation, and Commerce Bank, a Minnesota banking corporation.
10.2	Waiver and Amendment, dated November 30, 2004, and executed as of December 3, 2004, by and between HEI, Inc., a Minnesota corporation, and Commerce Financial Group, Inc., a Minnesota corporation.

EX-10.1

Exhibit 10.1

WAIVER AND AMENDMENT

Dated as of November 30, 2004

Commerce Bank
7650 Edinborough Way
Suite 150
Edina, MN 55435

Dear Sir or Madam:

     Reference is made to that certain Term Loan Agreement (the “Loan Agreement”), dated October 14, 2003, by and between HEI Inc., a Minnesota corporation (the “Borrower”) and Commerce Bank, a Minnesota banking corporation (the “Lender”) and that certain Promissory Note (the “Promissory Note”), dated October 14, 2003, made by the Borrower in favor of the Lender.

     The Borrower has advised the Lender that due to adjustments to its books of record and account made in connection with the audit of its annual financial statements for its fiscal year ended August 31, 2004, it may be deemed to have been in default under Section 6.4 of the Loan Agreement. The Borrower has further advised the Lender that the audit of its annual financial statements for its fiscal year ended August 31, 2004, has not yet been completed and, as a result, the Borrower is at present in default under Section 6.5(a) of the Loan Agreement. The Borrower has further advised the Lender that beginning as of its fiscal quarter ending February 28, 2005, the Borrower is likely to be in default under Section 6.10 of the Loan Agreement. The Borrower has accordingly requested certain waivers and amendments relating to Sections 6.4, 6.5(a) and 6.10 of the Loan Agreement, and the Lender has requested certain amendments to the Promissory Note.

     In consideration of the promises herein set forth, and subject to Sections 9.1 and 9.2 of the Loan Agreement, the Borrower and the Purchaser hereby agree as follows:

     1. The Lender hereby waives all past defaults under Section 6.4 of the Loan Agreement.

     2. The Lender hereby waives the default existing as of the date hereof under Section 6.5(a) of the Loan Agreement.

     3. Section 6.5(a) of the Loan Agreement is hereby amended and restated in its entirety to read as follows:

(a) As soon as available and in any event within one hundred twenty (120) days after the close of each of its fiscal years, a copy of the annual financial statements of Borrower, including balance sheet, related statements of earnings, stockholders’ equity and statements of cash flow for such year, prepared in accordance with GAAP, and audited by an independent certified public accountant of recognized standing selected by Borrower and acceptable to Lender;

     4. Section 6.10 of the Loan Agreement is hereby amended and restated in its entirety to read as follows:

     6.10 Debt Service Coverage Ratio. Beginning as of Borrower’s fiscal quarter ended February 28, 2006, and at all times thereafter during the term of the loan, maintain a Debt Service Coverage Ratio equal to or greater than 1.20:1, which ratio shall be calculated based on Borrower’s 10-Q and 10-K Reporting and measured as of the last day of each fiscal quarter of Borrower for the immediately preceding twelve-month period.

     5. Section 1(a) of the Promissory Note is hereby amended and restated in its entirety to read as follows:

     (a) Commencing on October 14, 2003, to and including February 28, 2005, interest shall accrue on the outstanding principal balance hereof at a rate of interest equal to 6.50% per annum, and commencing on March 1, 2005, to and including October 31, 2006, interest shall accrue on the outstanding principal balance hereof at a rate of interest equal to 7.50% per annum; and

     The Loan Agreement and Promissory Note shall remain in full force and effect, without modification except as set forth herein or in any other amendments entered into in accordance with the requirements of the Loan Agreement and/or Promissory Note, as applicable.

     This Waiver and Amendment may be executed simultaneously in two or more counterparts, each of which shall be an original, but all of which constitute but one agreement.

     If you are in agreement with the foregoing, please sign the form of acceptance on the enclosed counterpart of this Waiver and Amendment and return the same to the Borrower, whereupon this Waiver and Amendment shall become a binding agreement between the Lender and the Borrower.

Very truly yours,


HEI, INC.
 

/s/ Mack V. Traynor, III  

By: Mack V. Traynor, III 

Its: CEO and President 

     Acknowledged as of the date first written above.

COMMERCE BANK
 

/s/ James E. Senske  

By: James E. Senske 

Its: President 

EX-10.2

Exhibit 10.2

WAIVER AND AMENDMENT

Dated as of November 30, 2004

Commerce Financial Group, Inc.
7650 Edinborough Way
Suite 160
Edina, MN 55435

Dear Sir or Madam:

     Reference is made to that certain Term Loan Agreement (the “Loan Agreement”), dated October 28, 2003, by and between HEI Inc., a Minnesota corporation (the “Borrower”) and Commerce Financial Group, Inc., a Minnesota corporation (the “Lender”), and that certain Promissory Note (the “Promissory Note”), dated October 28, 2003, made by the Borrower in favor of the Lender.

     The Borrower has advised the Lender that due to adjustments to its books of record and account made in connection with the audit of its annual financial statements for its fiscal year ended August 31, 2004, it may be deemed to have been in default under Section 6.4 of the Loan Agreement. The Borrower has further advised the Lender that the audit of its annual financial statements for its fiscal year ended August 31, 2004, has not yet been completed and, as a result, the Borrower is at present in default under Section 6.5(a) of the Loan Agreement. The Borrower has further advised the Lender that beginning as of its fiscal quarter ending February 28, 2005, the Borrower is likely to be in default under Section 6.10 of the Loan Agreement. The Borrower has accordingly requested certain waivers and amendments relating to Sections 6.4, 6.5(a) and 6.10 of the Loan Agreement, and the Lender has requested certain amendments to the Promissory Note.

     In consideration of the promises herein set forth, and subject to Sections 9.1 and 9.2 of the Loan Agreement, the Borrower and the Purchaser hereby agree as follows:

     1. The Lender hereby waives all past defaults under Section 6.4 of the Loan Agreement.

     2. The Lender hereby waives the default existing as of the date hereof under Section 6.5(a) of the Loan Agreement.

     3. Section 6.5(a) of the Loan Agreement is hereby amended and restated in its entirety to read as follows:

(a) As soon as available and in any event within one hundred twenty (120) days after the close of each of its fiscal years, a copy of the annual financial statements of Borrower, including balance sheet, related statements of earnings, stockholders’ equity and statements of cash flow for such year, prepared in accordance with GAAP, and audited by an independent certified public accountant of recognized standing selected by Borrower and acceptable to Lender;

     4. Section 6.10 of the Loan Agreement is hereby amended and restated in its entirety to read as follows:

     6.10 Debt Service Coverage Ratio. Beginning as of Borrower’s fiscal quarter ended February 28, 2006, and at all times thereafter during the term of the loan, maintain a Debt Service Coverage Ratio equal to or greater than 1.20:1, which ratio shall be calculated based on Borrower’s 10-Q and 10-K Reporting and measured as of the last day of each fiscal quarter of Borrower for the immediately preceding twelve-month period.

     5. The first sentence of the section titled “Interest:” on page 1 of the Promissory Note is hereby amended and restated in its entirety to read as follows:

     “I agree to pay interest on the outstanding principal balance of this loan from 10-28-2003 to and including 2-28-2005 at the nominal rate per annum of 8.975%, and from 3-01-2005 to and including 9-28-2007 at the nominal rate per annum of 9.975%.”

     The Loan Agreement and Promissory Note shall remain in full force and effect, without modification except as set forth herein or in any other amendments entered into in accordance with the requirements of the Loan Agreement and/or the Promissory Note, as applicable.

     This Waiver and Amendment may be executed simultaneously in two or more counterparts, each of which shall be an original, but all of which constitute but one agreement.

If you are in agreement with the foregoing, please sign the form of acceptance on the enclosed counterpart of this Waiver and Amendment and return the same to the Borrower, whereupon this Waiver and Amendment shall become a binding agreement between the Lender and the Borrower.

Very truly yours,


HEI, INC.
 

/s/ Mack V. Traynor, III  

By: Mack V. Traynor, III 

Its: CEO and President 

     Acknowledged as of the date first written above.

COMMERCE FINANCIAL GROUP, INC.
 

/s/ James E. Senske  

By: James E. Senske 

Its: President