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)                       November 3, 2006                      

HEI, Inc.

(Exact name of registrant as specified in its 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)		(Zip Code)
(Registrant’s telephone number, including area code)                       (952) 443-2500
Not Applicable
(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 obligation of the registrant under any of the following provisions (see General Instructions A.2. below):

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 Definitive Agreement.
	Item 2.03 Creation of a Direct Financial Obligation
	Item 8.01 Other Events.
	Item 9.01 Financial Statements and Exhibits.
SIGNATURES
EXHIBIT INDEX
Promissory Note

Section 1 — Registrant’s Business and Operations

Item 1.01 Entry into a Material Definitive Agreement.

     On November 3, 2006, Thomas F. Leahy, the Chairman of the Board of Directors of HEI, Inc. (the “Company”) loaned the Company $5,000,000 (the “Secured Loan”). See item 2.03 for further information, which is incorporated herein by reference. The Secured Loan is evidenced by a promissory note and a security agreement.

Section 2 — Financial Information

Item 2.03 Creation of a Direct Financial Obligation

     On November 3, 2006, Thomas F. Leahy, the Chairman of the Board of Directors of the Company, loaned the Company $5,000,000 dollars (the “Secured Loan”). The Company’s obligations under the Secured Loan are evidenced by a promissory note (the “Note”) and a security agreement. The terms and conditions of the Note are briefly described here and are qualified in their entirety by reference to the Note, attached hereto as Exhibit 10.1 and incorporated herein by reference. The Note has an original principal amount of $5,000,000, requires the Company to pay monthly installments of interest, and is due and payable on November 2, 2007. The unpaid principal of the Note can be repaid at any time without prepayment penalty or premium. Unpaid principal due under the Note bears interest at the rate of fifteen percent (15%) per annum, commencing on November 3, with such interest rate increasing by one percent (1%) each calendar month, beginning January 1, 2007, up to a mximum of twenty percent (20%) per annum.

     Pursuant to the terms of the security agreement by and between the Company and Mr. Leahy dated November 3, 2006 (the “Security Agreement”), and subject to prior liens, the Company granted Mr. Leahy a security interest in any and all inventory, accounts, prepaid insurance, supplies, patents, patent rights, copyrights, trademarks, trade names, goodwill, royalty rights, franchise rights, chattel paper, license rights, documents, instruments, general intangibles, payment intangibles, letter of credit rights, investment property, deposit accounts and any and all other goods, now owned or subsequently acquired by the Company, wherever located, to secure the Company’s payment obligations under the Note.

     The Company used $2,200,000 of the proceeds of the Secured Loan to satisfy the Company’s obligations under its accounts receiveable agreement with Beacon Bank of Shorewood, Minnesota dated May 29, 2003, as amended. The Company will use the remainder of the proceeds for general working capital needs.

Section 8 — Other Events

Item 8.01 Other Events.

     Nina Anderson, the Company’s Vice President of Human Resources, will no longer be employed by the Company after November 10, 2006.

Section 9 — Financial Statements and Exhibits

Item 9.01 Financial Statements and Exhibits.

     Exhibits.

     The following exhibits are being filed with this Current Report on Form 8-K and are hereby incorporated herein by reference.

Exhibit No.	Description of Exhibit
10.1	Promissory Note, dated November 3, 2006, made by HEI, Inc. in favor of Thomas F. Leahy in the original principal amount of $5,000,000.

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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: November 7, 2006.	By /s/ Mark B. Thomas
	Mark B. Thomas
	Its: Chief Executive Officer and Chief Financial Officer

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EXHIBIT INDEX

Exhibit No.	Description
10.1	Promissory Note, dated November 3, 2006, made by HEI, Inc. in favor of Thomas F. Leahy in the original principal amount of $5,000,000.

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EX-10.1

PROMISSORY NOTE

$5,000,000.00	Minneapolis, Minnesota
	November 3rd, 2006

1. FOR VALUE RECEIVED, HEI, Inc., a Minnesota corporation (the “Borrower”), hereby promises to pay to the order of Thomas F. Leahy (the “Lender”), at such address as the Lender may designate from time to time, the principal sum of Five Million and 00/100 DOLLARS ($5,000,000.00), in lawful money of the United States and immediately available funds, together with interest on the unpaid balance accruing as of the date hereof at a rate initially equal to fifteen percent (15%) per annum, increasing by one percent (1.0%) per annum as of the first day of January, 2007 and the first day of each calendar month thereafter (e.g. increasing to 16% per annum on January 1, 2007, to 17% per annum on February 1, 2007, and so on); provided however, that in no event shall the applicable rate hereunder exceed 20% per annum at any time (except to the extent due to application of the Default Rate).

2. The outstanding principal balance hereof shall be payable in full on November 2^nd, 2007 (the “Maturity Date”). Accrued interest on such principal balance shall be due and payable on the first day of each calendar month, commencing with December 1, 2006, and shall be payable in full on the Maturity Date.

3. The outstanding principal balance of this Note may be prepaid at any time at the option of the Borrower without premium or penalty. Any payment(s) on this Note using the proceeds of any insurance award or from a refinancing or from the sale of any collateral securing this Note (whether such sale is made with or without the consent of the Lender), and any payment(s) made after any event of default has occurred under this Note, and any other payment(s) on this Note from any other source in excess of the principal payments scheduled pursuant to Paragraph 2 above, shall be deemed a prepayment for purposes of this Paragraph 3 and Paragraph 5 below.

4. If any installment of principal or interest on this Note, including without limitation the payment required on the Maturity Date, is not paid within fifteen (15) days of the due date thereof, the Borrower shall pay to the Lender a late charge equal to five percent (5.0%) of the amount of such installment.

5. All payments and prepayments shall, at the option of the Lender, be applied first to any costs of collection, second to any late charges, third to accrued interest on this Note, and lastly to principal (and, in the case of any prepayments, to installments of principal in the inverse order of their maturity).

6. Notwithstanding anything to the contrary contained herein, if the rate of interest, late payment fee, prepayment penalties or any other charges or fees due hereunder are determined by a court of competent jurisdiction to be usurious, then said interest rate, fees and/or charges shall be reduced to the maximum amount permissible under applicable Minnesota law.

7. Upon the occurrence of an Event of Default or at any time thereafter, at the option of the Lender, the outstanding principal balance hereof shall bear interest at a rate equal to two percent (2.0%) per annum in excess of the rate of interest otherwise applicable pursuant to Section 1 hereof (the “Default Rate”), in order to compensate the Lender for administrative expenses and increased risk to the Lender associated with the occurrence of an Event of Default.

8. Upon the occurrence of an Event of Default or at any time thereafter, the outstanding principal balance hereof and accrued interest and all other amounts due hereon shall, at the option of the Lender, become immediately due and payable, without notice or demand.

9. Upon the occurrence of an Event of Default or anytime thereafter, the Lender shall have the right to set off any and all amounts due hereunder by the Borrower to the Lender against any indebtedness or obligation of the Lender to the Borrower.

10. Upon the occurrence at any time of an Event of Default or at any time thereafter, the Borrower promises to pay all costs of collection of this Note, including but not limited to attorneys’ fees, paid or incurred by the Lender on account of such collection, whether or not suit is filed with respect thereto and whether such cost or expense is paid or incurred, or to be paid or incurred, prior to or after the entry of judgment.

11. This Note is secured by the “Security Agreement” (as defined below) and is entitled to all of the benefits provided for in said agreement.

12. As used herein, the term “Event of Default” shall mean (i) the Borrower’s failure to pay, as and when due hereunder, any principal, interest or other amount payable pursuant to this Note, and/or (ii) any breach of, default or event of default under that certain Security Agreement dated of even date herewith, executed by the Borrower in favor the Lender, as amended from time to time (the “Security Agreement”).

13. Demand, presentment, protest and notice of nonpayment and dishonor of this Note are hereby waived.

14. This Note shall be governed by and construed in accordance with the laws of the State of Minnesota.

15. Borrower hereby irrevocably submits to the jurisdiction of any Minnesota state court or federal court over any action or proceeding arising out of or relating to this Note, the Security Agreement, and any instrument, agreement or document related thereto, and Borrower hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such Minnesota state or federal court. Borrower hereby irrevocably waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding. Borrower irrevocably consents to the service of copies of the summons and complaint and any other process which may be served in any such action or proceeding by the mailing by United States certified mail, return receipt requested, of copies of such process to Borrower’s last known address. Borrower agrees that judgment final by appeal, or expiration of time to appeal without an appeal being taken, in any such action or proceeding shall be conclusive and may be enforced in any other jurisdictions by suit on the judgment or in

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any other manner provided by law. Nothing in this Paragraph shall affect the right of Lender to serve legal process in any other manner permitted by law or affect the right of Lender to bring any action or proceeding against Borrower or its property in the courts of any other jurisdiction to the extent permitted by law.

HEI, Inc.
 

By /s/ Mark B. Thomas  

Mark B. Thomas 

Its: Chief Executive Officer and Chief Financial
      Officer 

[SIGNATURE PAGE TO PROMISSORY NOTE]

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