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                                    HEI, Inc.

                                STOCK OPTION PLAN
                            FOR NONEMPLOYEE DIRECTORS

             As Amended Effective May 11, 1994 and October 31, 1996

     1.   PURPOSE.  This Stock Option Plan (the "Plan") for HEI, Inc., a
Minnesota corporation (the "Company"), is intended to advance the interests of
the Company by providing members of the Board of Directors, who are responsible
for the direction of the Company, with additional incentive to promote the
success of the business, to increase their proprietary interest in the success
of the Company, and to attract, reward and retain them as directors of the
Company.  These goals will be effectuated through the granting of nonqualified
options to purchase Common Stock of the Company.

     2.   DEFINITIONS.  In addition to definitions that may be contained
elsewhere herein, for purposes of this Plan, the following terms shall be
defined as set forth below:

          (a)  "Option Agreement" means any written agreement, contract, or
     other instrument or document evidencing any Option granted hereunder and
     signed by both the Company and the Participant.

          (b)  "Board" means the Board of Directors of the Company.

          (c)  "Code" means the Internal Revenue Code of 1986, as amended from
     time to time, and any successor thereto.

          (d)  "Committee" means the Committee referred to in Section 3 of the
     Plan.

          (e)  "Disability" means disability as determined under procedures
     established by the Board for purposes of this Plan or as defined in Section
     22(e)(3) of the Code.

          (f)  [DELETED]

          (g)  "Exchange Act" means the Securities Exchange Act of 1934, as
     amended from time to time.

          (h)  "Fair Market Value" means as of any given date, unless otherwise
     determined by the Committee in good faith, the average for the preceding
     five business days of the closing bid prices of the Stock as reported on
     the National Association of Securities Dealers, Inc.  Automated Quotations
     System ("NASDAQ") or, if the Stock is then traded on the NASDAQ/National
     Market System ("NASDAQ/NMS") or on a national or regional securities
     exchange, the average for the preceding five business days of the closing
     pr ices of the Stock on NASDAQ/NMS or such exchange.

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          (i)  "Participant" means any person entitled to participate in this
     Plan as set forth in Section 4 hereof.

          (j)  "Stock" means the Common Stock, $.05 par value per share, of the
     Company.

          (k)  "Stock Option" or "Option" means any option to purchase shares of
     Stock granted pursuant to Section 5 below.

     3.   ADMINISTRATION.  The Plan shall be administered by the Board, which,
in its discretion, may delegate authority to a committee consisting of two or
more directors appointed by the Board.  The members of any such committee shall
qualify as required under Rule 16b-3 of the Exchange Act, as it may be amended
from time to time.  Grants of Options under the Plan shall be made automatically
as provided in Section 5. However, the Board shall have full authority to
interpret the Plan, to promulgate such rules and regulations with respect to the
Plan as it deems desirable and to make all other determinations necessary or
appropriate for the administration of the Plan, and such determinations shall be
final and binding upon all persons having an interest in the Plan.

     4.   ELIGIBILITY.  Options will be granted only to persons who at the time
of the grant are directors of the Company and who are not otherwise employees of
the Company or any affiliate of the Company ("Nonemployee Director" or
"Nonemployee Directors").

     5.   OPTIONS.

          (a)  ANNUAL GRANT.  Each year, on the first business day following the
     annual meeting of the Company's shareholders (but in no event later than
     April 1 or the first business day thereafter), each person serving on such
     date as a Nonemployee Director of the Company shall be granted an Option to
     purchase Ten Thousand (10,000) shares of Stock, except as otherwise may be
     provided herein, each Option (a) shall be subject to all terms of the Plan,
     (b) shall be granted for a term of five years, and (c) shall vest and
     become fully exercisable on the earlier of the date of next annual meeting
     of the shareholders or the date one year from the date of grant; provided,
     in each instance, that the Participant has continuously served as a
     Nonemployee Director of the Company during such period or until the
     election of directors next following the date of grant, whichever shall
     first occur (and, if not, said Option shall be forfeited in its entirety).

          (b)  EXERCISE PRICE.  The exercise price per share of  Stock
     purchasable under an Option shall be not less than 100% of the Fair Market
     Value of the Stock on the date of grant.

          (c)  METHOD OF EXERCISE.  Stock Options may be exercised in whole or
     in part at any time during the term of the Option.  Payment of the exercise
     price shall be made by (i) cash or certified bank check, (ii) delivery of
     shares of Stock already owned by the Participant, or (iii) any combination
     of the foregoing.  For purposes of this paragraph, shares of Stock that are
     delivered in payment of the exercise price shall be valued at their

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     Fair Market Value as of the date of the exercise of the Option.  The
     Company's obligation to deliver shares upon the exercise of Options shall
     be subject to applicable federal, state, and local tax withholding
     requirements.  Unless otherwise determined by the Board, withholding
     obligations may be settled with Stock, including Stock received as part of
     the exercise giving rise to the withholding requirement.

          (d)  RESTRICTIONS ON TRANSFER OF OPTION.  Unless otherwise provided in
     the related Option Agreement and approved in advance by the Board, each
     Option granted under this Plan shall be transferable only by will or the
     laws of descent and distribution or pursuant to a qualified domestic
     relations order as defined by the Code or Title I of the Employee
     Retirement Income Security Act ("ERISA"), or the rules thereunder.  Except
     as permitted by the preceding sentence, no Option granted under the Plan or
     any of the rights and privileges thereby conferred shall be transferred,
     assigned, pledged, or hypothecated in any way (whether by operation of law
     or otherwise), and no such Option, right, or privilege shall be subject to
     execution, attachment, or similar process. Unless otherwise provided in the
     related Option Agreement and approved in advance by the Board, an Option
     may be exercised during the Participant's lifetime only by the Participant
     or his or her guardian or legal representative.

     6.   SHARES OF STOCK SUBJECT TO THE PLAN.  There shall be reserved and
available for issuance upon the exercise of Options granted from time to time
under the Plan an aggregate of 400,000 shares of Stock.  Such shares may
consist, in whole or in part, of authorized but unissued shares of Stock or
issued shares that have been reacquired by the Company.  If any shares subject
to an Option are not issued because the Option is not exercised, such shares
shall again be available for distribution in connection with future Options.

     In the event of any merger, reorganization, consolidation,
recapitalization, Stock dividend, Stock split, or other change in corporate
structure affecting the Stock, such substitution or adjustment shall be made in
the aggregate number of shares reserved for issuance under the Plan and in the
number and option price of shares subject to outstanding Options granted under
the Plan as may be determined to be appropriate by the Board, in its sole
discretion, provided that the number of shares subject to any Option shall
always be a whole number.

7.   DEATH OR DISABILITY OF PARTICIPANT.

          (a)  TERMINATION BY DEATH.  If a Participant's service to the Company
     terminates by reason of death, any Stock Option held by such Participant
     will immediately become fully exercisable and may thereafter be exercised
     by the legal representative of the Participant's estate or by any person
     who acquired the Option by will or the laws of descent and distribution for
     a period of one year from the date of such death or until the expiration of
     the stated term of such Stock Option, whichever period is the shorter.

          (b)  TERMINATION BY REASON OF DISABILITY.  If a Participant's service
     to the Company terminates by reason of Disability, any Stock Option held by
     such Participant

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     shall immediately become fully exercisable and may thereafter be exercised
     by the Participant until the expiration of the stated term of such Stock
     Option; provided, however, that, if the Participant dies prior to the
     expiration of the Option, any unexercised Stock Option held by such
     Participant shall thereafter be exercisable to the extent to which it was
     exercisable at the time of death for a period of one year from the date of
     such death or until the expiration of the stated term of such Stock Option,
     whichever period is the shorter.

     8.   RESTRICTIONS ON TRANSFER OF STOCK.  Unless a registration statement
under the Securities Act of 1933 is in effect with respect to Stock to be
purchased upon exercise of Options to be granted under the Plan, the Company may
require that the Participant represent to and agree with the Company in writing
that he or she is acquiring such shares of Stock for the purpose of investment
and with no present intention to transfer, sell, or otherwise dispose of such
shares of Stock.  Further, in the absence of such registration, no shares of
Stock acquired pursuant to exercise of an option may be transferred unless, in
the opinion of counsel to the Company, such transfer is in compliance with
applicable securities laws, and each certificate representing any shares of
Stock issued to a Participant hereunder shall have endorsed thereon an
appropriate legend referring to the restrictions against transfer.

     9.   AMENDMENT OF THE PLAN.  The Board of Directors may suspend or
terminate the Plan or any portion thereof at any time, and the Board of
Directors may amend the Plan from time to time as may be deemed to be in the
best interests of the Company; provided, however, that no such amendment,
alteration or discontinuation shall be made (a) that would impair the rights of
a Nonemployee Director with respect to Options theretofore awarded, without such
person's consent, or (b) without the approval of the stockholders (i) if such
approval is necessary to comply with any legal, tax, or regulatory requirement,
including any approval requirement that is a prerequisite for exemptive relief
from Section 16(b) of the Exchange Act; or (ii) to increase the maximum number
of shares of Stock subject to this Plan, increase the maximum number of shares
issuable to any Nonemployee Director under this Plan, or change the definition
of persons eligible to receive Options under this Plan.

     10.  APPLICABILITY OF PLAN TO OUTSTANDING STOCK OPTIONS.  This Plan shall
not affect the terms and conditions of any stock options currently outstanding
to any director of the Company, nor shall it affect any of the rights of any
director to whom such a stock option was granted.

     11.  EFFECTIVE DATE OF PLAN.  This Plan shall become effective upon the
date of its adoption by the Board of Directors of the Company, subject to
approval of the shareholders of the Company at the 1992 annual meeting.

     12.  CHANGE IN CONTROL PROVISIONS.

          (a)  IMPACT OF EVENT. In the event of a "Change in Control" as
     defined in Section 12(b), the following provisions shall apply:

               (i)  All Options granted hereunder shall become fully exercisable
          and vested.

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               (ii) At the option of the holder thereof, the value of any
          outstanding Option shall be cashed out on the basis of the "Change in
          Control Price" as defined in Section 12(c) as of the date such Change
          in Control is determined to have occurred or such other date as the
          Committee may determine prior to the Change in Control.

          (b)  DEFINITION OF "CHANGE IN CONTROL."  For purposes of Section
     12(a), a "Change in Control" means the happening of any of the following:

               (i)  When any "person" as defined in Section 3(a)(9) of the
          Exchange Act and as used in Sections 13(d) and 14(d) thereof,
          including a "group" as defined in Section 13(d) of the Exchange Act,
          but excluding the Company or any subsidiary or parent or any employee
          benefit plan sponsored or maintained by the Company or any subsidiary
          or parent (including any trustee of such plan acting as trustee),
          directly or indirectly, becomes the "beneficial owner" (as defined in
          Rule 13d-3 under the Exchange Act, as amended from time to time), of
          securities of the Company representing 20 percent or more of the
          combined voting power of the Company's then outstanding securities;

               (ii) When, during any period of 24 consecutive months during the
          existence of the Plan, the individuals who, at the beginning of such
          period, constitute the Board (the "Incumbent Directors") cease for any
          reason other than death to constitute at least a majority thereof;
          provided, however, that a director who was not a director at the
          beginning of such 24-month period shall be deemed to have satisfied
          such 24-month requirement (and be an Incumbent Director) if such
          director was elected by, or on the recommendation of, or with the
          approval of, at least 60% of the directors who then qualified as
          Incumbent Directors either actually (because they were directors at
          the beginning of such 24-month period) or by prior operation of this
          Section 12(b)(ii); or

               (iii) The approval by the shareholders of an acquisition of the
          Company by an entity other than the Company or a subsidiary or parent
          through purchase of assets, or by merger, or otherwise.

          (c)  CHANGE IN CONTROL PRICE.  For purposes of this Section 12,
     "Change in Control Price" means the highest price per share paid in any
     transaction reported on any market on which the Company's Stock is traded
     or paid or offered in any bona fide transaction related to the Change in
     Control of the Company at any time during the 60-day period immediately
     preceding the occurrence of the Change in Control.

     13.  NONEXCLUSIVITY OF THE PLAN.  The adoption of this Plan shall not be
construed as limiting the power of the Board of Directors to adopt such other
incentive arrangements as it may deem desirable, including, without limitation,
the granting of stock options otherwise than under this Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.

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     14.  MISCELLANEOUS.

          (a)  GOVERNING LAW.  This Plan shall be governed by and construed in
     accordance with the laws of the State of Minnesota, and all terms shall be
     interpreted and construed so that there shall not be committed any
     violation of applicable state or federal securities laws.

          (b)  NO ADDITIONAL RIGHTS OF SERVICE.  Participation in or eligibility
     for participation in the Plan does not grant any person any right of
     service as a director, and the Company retains the right to terminate
     service of any director pursuant to the Company's Articles, Bylaws, and
     applicable law.

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     APPROVED and adopted by the Board of Directors of HEI, lnc. on November 15,
1991 and amended effective May 11, 1994, and October 31, 1996.

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