<PAGE>
                                                                  EXHIBIT 10.36

                                    HEI, INC.
                              EMPLOYMENT AGREEMENT

         This Employment Agreement is made and entered into effective as of
October 1, 2003 (the "Effective Date"), by and among HEI, Inc., a Minnesota
corporation (the "Corporation"), and Stephen Petersen ("Employee").

                                    RECITALS

A. Employee is currently employed by the Company as its Vice President of
Operations and Employee is a party to an HEI, Inc. Non-Disclosure and
Non-Compete Agreement between him and the Company dated February 26, 1998 (the
"1998 Employment Agreement").

B. Corporation desires to continue to employ Employee in accordance with the
terms of this Agreement.

C. Employee recognizes that the Corporation operates in a highly competitive
environment and the importance to the Corporation of ensuring Employee's loyalty
and protecting the Corporation's customers, employees, business information and
inventions, and goodwill. Accordingly, Employee has entered into and agrees to
be bound by this Agreement in consideration of Employee's employment with the
Corporation and being given access to the Corporation's confidential
information.

D. The Corporation and Employee desire to enter into this Agreement.

                                    AGREEMENT

   In consideration of the above recitals and the mutual promises set
forth in this Agreement the parties agree as follows:

         1. Termination of 1998 Employment Agreement. The parties agree that the
1998 Employment Agreement is terminated as of the Effective Date of this
Agreement and that this Agreement replaces and supersedes the 1998 Employment
Agreement.

         2. Nature and Capacity of Employment. The Corporation hereby agrees to
employ Employee as its Vice President of Operations, subject to the direction of
the President/Chief Executive Officer and the Board of Directors of the
Corporation and pursuant to the terms and conditions set forth in this
Agreement. Employee hereby accepts employment under the terms and conditions set
forth in this Agreement.

         Employee agrees to perform or be available to perform, on a full-time
basis, the functions of this position, pursuant to the terms of this Agreement.
In addition, Employee will not, during the course of employment by the
Corporation, without prior written approval of the Board of Directors of the
Corporation, become an employee, director, officer, agent, partner of or



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consultant to, or a stockholder of (except a stockholder of a public company in
which Employee owns less than five percent (5%) of the issued and outstanding
capital stock of such company) any company or other business entity which is, as
determined by the Board of Directors in its discretion, a significant
competitor, supplier, or customer of the Corporation.

         2. Term of Employment. Employee's employment hereunder shall commence
as of the Effective Date and shall continue for period of one year thereafter
until October 1, 2004 (the "Term") unless Employee's employment is earlier
terminated pursuant to the terms of Paragraph 5 of this Agreement.

         Unless Employee's employment has earlier terminated pursuant to the
terms of Paragraph 5 of this Agreement, this Agreement shall automatically renew
following the Term for successive terms of one year each (each called a "Renewal
Term") unless the Corporation provides Employee thirty (30) days advance written
notice prior to the expiration of the Term or Renewal Term that this Agreement
shall not be renewed. During any Renewal Term, this Agreement may be terminated
pursuant to the terms of Paragraph 5 of this Agreement.

         3. Compensation.

                  3.1 Base Salary. As of the Effective Date, the Corporation
agrees to pay Employee an annualized base salary of $140,000.00, which amount
shall be earned by Employee on a pro rata basis as Employee performs services
and which shall be paid according to the Corporation's normal payroll practices.
The Corporation may, in its discretion, adjust Employee's base salary from time
to time based on Employee's performance and the Corporation's business and
financial situation.

                  3.2 Incentive or Bonus Compensation. The Corporation may, in
its sole discretion, pay bonuses or other incentive compensation to Employee in
addition to the annual base salary set forth above.

         4. Employee Benefits. During Employee's employment with Corporation,
Employee shall be entitled to participate in the retirement plans, health plans,
and all other employee benefits made available by the Corporation, and as they
may be changed from time to time. Employee acknowledges and agrees that the
Corporation is under no obligation to Employee to establish and maintain any
employee benefit plan in which Employee may participate, and that the terms and
provisions of any employee benefit plan of the Corporation are matters within
the exclusive province of the Corporation's Board of Directors, subject to
applicable law. Upon the termination of Employee's employment, Employee shall be
entitled to continue those benefits as may be required by state or federal law.

         5. Termination of Employment Prior to the End of the Term or Renewal
Term. Employee's employment may be terminated prior to the expiration of the
Term or a Renewal Term as follows:

                  5.1. For Cause Termination, Without Severance. Notwithstanding
anything contained herein to the contrary, the Corporation may discharge
Employee and terminate this


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Agreement immediately upon written notice to Employee. For the purposes of this
Agreement, "Cause" shall mean the occurrence of any of the following:

                  (i) mismanagement or neglect of Employee's duties which the
                  Corporation's Board of Directors determines is (or will be if
                  continued) materially and adversely affecting the business or
                  affairs of the Corporation; or

                  (ii) conduct by Employee which the Corporation's Board of
                  Directors determines is (or will be if continued) demonstrably
                  and materially injurious to the Corporation, monetarily or
                  otherwise; or

                  (iii) fraud, misappropriation or embezzlement by the Employee;
                  or

                  (iv) conviction of a felony crime or a crime of moral
                  turpitude; or

                  (v) conduct in the course of employment that the Corporation's
                  Board of Directors determines is unethical; or

                  (vi) the material breach of this Agreement by Employee.

         If the Corporation terminates Employee's employment for Cause pursuant
to this Paragraph 5.1, Employee shall not be entitled to severance pay under
Paragraph 5.6 or to any bonus or incentive compensation of any kind.

                  5.2. Without Cause, With Severance. The Corporation may
terminate Employee's employment immediately at any time and for any reason
without Cause upon providing notice to Employee. However, in such event the
Corporation shall pay Employee any earned and unpaid bonus or incentive
compensation, if any, on a pro rata basis for the period through the Employee's
termination date. In addition, provided that Employee meets all of the
conditions set forth in this paragraph for receiving severance pay, the
Corporation shall pay Employee severance pay in monthly installments equal to
1/12 of Employee's annualized base salary at the time of termination, less
applicable withholdings, up to the earlier of (i) three (3) months from the date
of Employee's date of termination or (ii) the date on which Employee begins
earning income from self-employment, employment, consulting, independent
contracting, or other work activities. Employee shall only be entitled receive
the severance pay described herein if Employee meets all of the following
conditions:

                  (a) Employee must sign a Separation Agreement at the time of
                  termination in a form prepared by the Corporation that
                  includes adequate provisions for the following: (i) Employee's
                  general release of any and all legal claims; (ii) Employee's
                  return of all of the Corporation's property in Employee's
                  possession; (iii) nondisparagement of the Corporation and its
                  representatives; (iv) confidentiality of terms; and (v)
                  acknowledgement of Employee's continuing contractual
                  obligations to the Corporation, including Employee's
                  continuing noncompetition, confidentiality, return of
                  property, and invention obligations under Paragraphs 6, 7, 8,
                  and 9 of this Agreement; and




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                  (b) Commencing as of Employee's termination date, Employee
                  must diligently search for and try to obtain income producing
                  opportunities through self-employment, employment, consulting,
                  independent contracting or other work opportunities and must,
                  upon request from the Corporation, provide Corporation written
                  proof of such efforts; and

                  (c) Employee must promptly notify the Company in writing of
                  the date(s) on which Employee will and does begin earning
                  income from self-employment, employment, consulting,
                  independent contracting or other work activities.

                  5.3. Resignation by Employee Due to Change of Control, With
Severance. For purposes of this Agreement, "Change of Control" means a change in
ownership or control of the Corporation effected through any of the following
transactions: (a) a merger, consolidation or reorganization approved by the
Corporation's stockholders, unless securities representing more than fifty
percent (50%) of the total combined voting power of the voting securities of the
successor corporation are immediately thereafter beneficially owned, directly or
indirectly and in substantially the same proportion, by the persons who
beneficially owned the Corporation's outstanding voting securities immediately
prior to such transaction; (b) any stockholder-approved transfer or other
disposition of all or substantially all of the Corporation's assets; (c) the
acquisition, directly or indirectly by any person or related group of persons
(other than the Corporation or a person that directly or indirectly controls, is
controlled by, or is under common control with, the Corporation), of beneficial
ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than fifty percent (50%) of the total combined voting power of
the Corporation's outstanding securities pursuant to a tender or exchange offer
made directly to the Corporation's stockholders which the Board recommends such
stockholders accept; or (d) a change in the composition of the Board over a
period of thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for Board
membership, to be comprised of individuals who either (A) have been Board
members continuously since the beginning of such period or (B) have been elected
or nominated for election as Board members during such period by at least a
majority of the Board members described in clause (A) who were still in office
at the time the Board approved such election or nomination.

         Employee shall have the right to terminate Employee's employment for
any reason within six (6) months following a Change of Control in the Company
upon providing thirty (30) days advance written notice to the Corporation. The
Corporation may then elect either (a) to have Employee continue performing work
for the Corporation throughout the 30 day notice period; or (b) to accept
Employee's resignation effective immediately.

         In the event of Employee's termination of employment with the
Corporation following a Change of Control under this Paragraph 5.3, Corporation
shall pay Employee any earned and unpaid bonus or incentive compensation, if
any, on a pro rata basis for the period through the Employee's termination date.
In addition, provided that Employee meets all of the conditions set forth in
this paragraph for receiving severance pay, the Corporation shall pay Employee
severance pay in monthly installments equal to 1/12 of Employee's annualized
base salary at the time of termination, less applicable withholdings, up to the
earlier of (i) twelve (12) months from


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the date of Employee's date of termination or (ii) the date on which Employee
begins earning income from self-employment, employment, consulting, independent
contracting, or other work activities. Employee shall only be entitled receive
the severance pay described herein if Employee meets all of the following
conditions:

                  (a) Employee must sign a Separation Agreement at the time of
                  termination in a form prepared by the Corporation that
                  includes adequate provisions for the following: (i) Employee's
                  general release of any and all legal claims; (ii) Employee's
                  return of all of the Corporation's property in Employee's
                  possession; (iii) nondisparagement of the Corporation and its
                  representatives; (iv) confidentiality of terms; and (v)
                  acknowledgement of Employee's continuing contractual
                  obligations to the Corporation, including Employee's
                  continuing noncompetition, confidentiality, return of
                  property, and invention obligations under Paragraphs 6, 7, 8,
                  and 9 of this Agreement; and

                  (b) Commencing as of Employee's termination date, Employee
                  must diligently search for and try to obtain income producing
                  opportunities through self-employment, employment, consulting,
                  independent contracting or other work opportunities and must,
                  upon request from the Corporation, provide Corporation written
                  proof of such efforts; and

                  (c) Employee must promptly notify the Company in writing of
                  the date(s) on which Employee will and does begin earning
                  income from self-employment, employment, consulting,
                  independent contracting or other work activities.

                  5.4 Other Resignation by Employee, Without Severance. The
Employee may resign Employee's position upon providing 90 days advance, written
notice to the Corporation. The Corporation may then elect either (a) to have
Employee continue performing work for the Corporation throughout the 90 day
notice period; or (b) to accept Employee's resignation effective immediately. In
the event of Employee's termination of employment with the Corporation under
this Paragraph 5.4, Employee shall not be paid any severance pay as provided in
Paragraph 5.6, but shall be paid any earned and unpaid bonus or incentive
compensation, if any, on a pro rata basis for the period through Employee's
termination date.

                  5.5 Because of Death, Disability or Incapacity of Employee,
Without Severance. In the event of Employee's death, or if the Employee is
unable to perform Employee's duties and responsibilities for more than 90 days
in any consecutive 12-month period, by reason of physical or mental disability
or incapacity, the Corporation may terminate Employee's employment upon thirty
(30) days advance written notice to Employee. This Paragraph does not relieve
the Corporation of any duty to reasonably accommodate a qualifying disability
under the Americans with Disabilities Act, any legal duty under the Family
Medical Leave Act, or any of its other duties pursuant to applicable law. If
Employee's employment is terminated pursuant to this Paragraph, Employee shall
not be entitled to severance pay under Paragraph 5.6, but shall be paid any
earned and unpaid bonus or incentive compensation, if any, on a pro rata basis
for the period through Employee's termination date.



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                  5.6 No Other Payments. Other than any severance payment or
incentive compensation due to Employee under the terms of this Agreement, if
any, Employee shall only be entitled to the following in the event of Employee's
termination of employment for any reason: (i) compensation earned through the
date of termination; (ii) benefits under any employee benefit plan or program to
the extent provided therein; and (iii) continued coverage under Corporation's
health and group term life insurance programs to the extent required under state
or federal continuation coverage laws.

         6. Noncompetition/Non-Solicitation.

                  6.1. Acknowledgement by Employee. Employee acknowledges that
(a) Employee's services to be performed for Corporation are of a special and
unique nature; (b) Corporation operates in a highly competitive environment and
would be substantially harmed if Employee were to compete with Corporation or
divulge its confidential information; (c) Employee has received valuable and
sufficient consideration for entering into this Agreement, including but not
limited to employment with the Corporation, the receipt of Confidential
Information and (d) the provisions of this Section 6, including all of its
subparts, are reasonable and necessary to protect Corporation's business.

                  6.2. "Corporate Product" Defined. For purposes of this
Agreement, "Corporate Product" means any product or service (including any
component thereof and any research to develop information useful in connection
with a product or service) that has been or is being designed, developed,
manufactured, marketed or sold by the Corporation or with respect to which
Employee has acquired Confidential Information.

         Employee understands and acknowledges that, at the present time,
Corporate Products include microelectronics, subsystems, systems, connectivity
and software solutions (including, but not limited to, MMIC chip carriers and
packages, high linearity power amplifiers, front end RF modules, micro-circuit
design, production and value-added assembly services, ultra-miniature multi-chip
packaging including chip on flex, ceramic and PWB substrates, and high end flex
and rigid flex fabrication). Employee understands and acknowledges that the
foregoing description of Corporate Products may change, and the provisions of
this Section 6 and all of its subparts shall apply to the Corporate Products of
the Corporation in effect upon the termination of Employee's employment with
the Corporation.

                  6.3 "Competitive Product" Defined. For purposes hereof,
"Competitive Product" means any product or service (including any components
thereof and any research to develop information useful in connection with the
product or service) that is being designed, developed, manufactured, marketed or
sold by any person or entity other than the Corporation that is of the same
general type, performs similar functions, or is used for the same purpose as a
Corporate Product on which Employee worked or assisted the Corporation during
Employee's employment with the Corporation or about which Employee has acquired
Confidential Information.




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                  6.4 Noncompete Obligations. Employee agrees that, during
Employee's employment with the Corporation and for a period of eighteen (18)
months following Employee's termination of employment with the Company,
regardless of the reason for termination, Employee will not, directly or
indirectly, render services to any person or entity that designs, develops,
manufactures, markets or sells a Competitive Product in any geographic area
where the Company designs, develops, manufactures, markets or sells a Corporate
Product.

         Employee understands and acknowledges that, at the present time, the
geographic market of the Company includes the entire United States. Employee
understands and acknowledges that the foregoing description of the Company's
geographic market may change, and the provisions of this section 6 and all of
its subparts shall apply to the geographic market of the Company in effect upon
the termination of Employee's employment with the Company.

                  6.5 No Solicitation of Customers. During Employee's employment
with Corporation and for a period of eighteen (18) months after Employee's
termination of employment with Corporation, regardless of the reason for such
termination, Employee agrees that Employee shall not, directly or indirectly,
solicit business from, work for, or otherwise interfere with or attempt to
interfere with Corporation's relationship with any customer or prospective
customer of Corporation.

                  6.6 No Solicitation of Employees or Business Contacts. During
Employee's employment with Corporation and for a period of eighteen (18) months
after Employee's termination of employment with Corporation, regardless of the
reason for such termination, Employee agrees that Employee shall not, directly
or indirectly, take any action to encourage, solicit or recruit any current or
former employee, consultant, independent contractor, subcontractor, supplier,
vendor, or other business relation of Corporation to terminate their
relationship with Corporation.

                  6.7 Disclosure of Obligations. Employee agrees that, during
Employee's employment with Corporation and for a period of eighteen (18) months
after Employee's termination of employment with Corporation, regardless of the
reason for such termination, Employee shall, prior to accepting employment or
any other business relationship with any other person or entity, inform that
person or entity of Employee's obligations under this Section 6, including all
of its subparts.

         7. Protection of Confidential Information.

                  7.1 Definition of Confidential Information. As used in this
Agreement, the term "Confidential Information" shall mean any information which
Employee learns or develops during Employee's employment with Corporation that
derives independent economic value from being not generally known or readily
ascertainable by other persons who could obtain economic value from its
disclosure or use, and includes, but is not limited to, trade secrets,
Inventions as defined in Paragraph 9 below, financial information, personnel
information, and information relating to such matters as existing or
contemplated products, services, profit margins, fee schedules, pricing, design,
processes, formulae, business plans, sales techniques, marketing techniques,
training manuals and materials, policies or practices related to Corporation's


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business, personnel or other matters, computer databases, computer programs,
software and other technology, customer lists and requirements, vendor lists, or
supply information. Confidential Information includes such information of
Corporation, its customers, vendors, and other third parties or entities with
whom Corporation does business. Any information disclosed to Employee or to
which Employee has access during the time of Employee's employment that Employee
reasonably considers to be Confidential Information, or which the Company treats
as Confidential Information, will be presumed Confidential Information.

                  7.2 Restrictions on Use or Disclosure of Confidential
Information. Employee shall keep the Confidential Information in absolute
confidence both during Employee's employment with Corporation and after the
termination of Employee's employment, regardless of the reason for such
termination. Employee agrees that Employee will not, at any time, disclose to
others, use for the benefit of any entity or person other than Corporation, or
otherwise take or copy any such Confidential Information, whether or not
developed by Employee, except as required in Employee's duties to Corporation.

         8. Return of Confidential Information and Corporation's Property. When
Employee's employment terminates with Corporation, regardless of the reason for
such termination, Employee will promptly turn over to Corporation in good
condition all Corporation property in Employee's possession or control,
including but not limited to all originals, copies of, or electronically stored
documents or other materials containing Confidential Information, regardless of
who prepared them. In the case of electronically stored information retained by
Employee outside of Corporation's electronic systems, Employee will promptly
make a hard copy of such information in paper, audio recording, disc format, or
other format as appropriate, turn that hard copy over to Corporation, and then
destroy Employee's electronically stored information. Further, Employee agrees
to execute written confirmation that all Confidential Information in the
Employee's possession, or to which the Employee has access, has been turned over
to Corporation or destroyed.

         9. Inventions.

                  9.1 Definition of Inventions. As used in this Agreement,
"Inventions" means any inventions, improvements, trade names or trademarks,
trade secrets, discoveries, designs, formulae, ideas or original works of
authorship (whether or not reduced to writing, other media or practice and
whether or not patentable or copyrightable), or work product originated,
conceived, developed, discovered or made in whole or in part solely by Employee
or jointly with others that relate (a) to Corporation's business; (b) to
Corporation's actual or demonstrably anticipated research or development; (c)
that are made through the use of any of Corporation's equipment, facilities,
supplies, trade secrets; (d) that result from any work Employee performs for
Corporation; or (e) that are developed on Corporation time.

                  9.2 Ownership of Inventions. With respect to Inventions
originated, conceived, developed, discovered or made in whole or in part solely
or jointly by Employee at any time during Employee's employment with
Corporation, Employee understands and agrees that Corporation will own all
right, title, and interest, including patent rights, copyrights, trade secret
rights and all other intellectual property rights of any sort, throughout the
world related to


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all Inventions without further payment beyond Employee's agreed-upon salary or
wage. To the maximum extent permitted by law, all Inventions are deemed "works
made for hire" under the United States Copyright Act and Corporation is deemed
the sole author of any Inventions. To the extent any Inventions are determined
not to constitute "works made for hire," Employee hereby assigns and transfers
to Corporation all right, title and interest in the Inventions.

         Employee further agrees to (a) promptly and fully disclose all such
Inventions to Corporation; (b) keep accurate, complete, and timely records of
all Inventions, which records shall be Corporation's property and shall be
maintained on Corporation's premises; (c) at Corporation's expense, assist
Corporation to perfect, protect, and use its rights to Inventions, including
without limitation, transferring Employee's entire right, title and interest in
Inventions and enabling Corporation to obtain patent, copyright or trademark
protection for Inventions anywhere in the world; and (c) give affidavits and
testimony as to facts within Employee's knowledge in connection with any
Inventions in any administrative proceedings, arbitration, litigation or
controversy relating thereto.

                  9.3 Notice Regarding Exception to Inventions Assignment.
Employee understands that the assignment of Inventions set forth herein does not
apply to any Invention for which no equipment, supplies, facility, or trade
secret information of Corporation was used and which was developed entirely on
Employee's own time, and which does not relate directly to the business of the
Company or to its actual or demonstrably anticipated research or development, or
which does not result from any work performed by Employee for the Company.

         10. Compliance and Remedies. Employee recognizes that if Employee
violates this Agreement, including but not limited to Paragraphs 6, 7, 8, or 9
of this Agreement, irreparable damage will result to Corporation that could not
adequately be remedied by monetary damages. As a result, Employee hereby agrees
that notwithstanding any other dispute resolution provisions of this Agreement,
in the event of any breach by Employee of this Agreement, including but not
limited to Paragraphs 6, 7, 8, or 9 of this Agreement or in the event of
apparent danger of such breach, Corporation shall be entitled, in addition to
any other legal or equitable remedies available to it, to an injunction to
restrain Employee's violation of any portion of this Agreement, as well as
Corporation's attorney's fees and costs incurred in enforcing this Agreement.

         11. Informal Dispute Resolution. Employee and the Corporation agree to
make good faith efforts to resolve internally and without resort to formal
dispute resolution any dispute, which may arise out of or relate to Employee's
recruitment, employment or the termination of Employee's employment with the
Corporation, or any dispute regarding any of the provisions of this Agreement.

         12. Arbitration Clause. In the event that informal efforts to resolve
disputes pursuant to Paragraph 11 are unsuccessful, any dispute between Employee
and the Corporation arising out of or related to Employee's recruitment,
employment or the termination of Employee's employment with the Corporation, and
any dispute between Employee and the Corporation regarding any of the provisions
of this Agreement (other than an action for injunctive relief to enforce
Employee's obligations under paragraphs 6, 7, 8, or 9 of this Agreement), shall
be determined not in a court of law, but instead by arbitration in the United
States, in the State of Minnesota and the County of Hennepin. Such disputes
shall be referred in writing to the


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American Arbitration Association for selection of an arbitrator. Selection of
the arbitrator shall be made in accordance with the Rules of the American
Arbitration Association, and the arbitrator's decision shall be final and
binding in all respects.

         Except as otherwise provided in this section, arbitration proceedings
initiated pursuant to this Agreement shall be conducted in accordance with the
Rules of the American Arbitration Association. Prior to the arbitration hearing,
the parties may use the following discovery methods: interrogatories in a form
consistent with Rule 33 of the Federal Rules of Civil Procedure; requests for
production of documents in a form consistent with Rule 34 of the Federal Rules
of Civil Procedure; admissions; depositions of witnesses in accordance with Rule
30 of the Federal Rules of Civil Procedure. The arbitrator shall have the right
to determine the extent of discovery permitted. The arbitrator shall consider
the matter in controversy and may hold hearings regarding the same. The
arbitrator may grant any remedy or relief that he or she deems just and
equitable, including, but not limited to, any remedy or relief that would have
been available to the parties under any applicable statutes or common law. The
arbitrator also has the authority to issue an award or partial award on the
grounds that there is no claim stated on which relief can be granted or that
there is no genuine issue as to any material fact and one party is entitled to
judgment as a matter of law consistent with Federal Rules of Civil Procedure 12
or 56. The arbitrator shall enter an award in writing detailing his or her
consideration of the relevant facts, the basis and reason for the decision, and
his or her adherence to the applicable law. This written decision shall be
entered within thirty days after the matter is finally submitted to the
arbitrator, and a copy thereof shall be delivered to each party by certified
mail. Judgment upon the award rendered by the arbitrator may be entered in any
court having jurisdiction thereof.

         The Corporation shall pay the expense of the arbitrator; each party
will bear its own attorneys' fees and expenses. All proceedings under this
Paragraph are private and confidential.

         Notwithstanding the foregoing, the Company may bring a court action for
injunctive relief to enforce this Agreement. The parties agree that the
Corporation may elect to venue such action in the federal or state courts of the
State of Minnesota, whether or not such venue is then convenient to Employee,
and that such courts shall have personal jurisdiction over Corporation and
Employee and Employee shall not object to the venue or personal jurisdiction of
such courts.

         Employee understands that by signing this Agreement, Employee is
forever giving up Employee's right to litigate in a court of law any controversy
arising out of Employee's employment relationship with the Corporation, and any
controversy regarding any of the provisions of this Agreement, and that he is
agreeing instead to arbitrate any claims he may choose to pursue against the
Corporation. Nothing in this Agreement, however, prohibits either party from
going to a court of law to enforce an award of an arbitrator.

         13. Miscellaneous.

                  13.1. Integration. This Agreement embodies the entire
         agreement and understanding among the parties relative to subject
         matter hereof and supersedes all prior agreements and understandings
         relating to such subject matter, including but not limited to any
         earlier employment agreements of the Employee.




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                  13.2. Applicable Law. This Agreement and the rights of the
         parties shall be governed by and construed and enforced in accordance
         with the laws of the state of Minnesota.

                  13.3. Payments. All amounts paid under this Agreement shall be
         subject to normal withholdings or such other treatment as required by
         law.

                  13.4. Counterparts. This Agreement may be executed in several
         counterparts and as so executed shall constitute one agreement binding
         on the parties hereto.

                  13.5. Binding Effect. Except as herein or otherwise provided
         to the contrary, this Agreement shall be binding upon and inure to the
         benefit of the Corporation and its successors, assigns and personal
         representatives without any requirement of the consent of the employee
         for assignment of its rights or obligations hereunder.

                  13.6. Notices. All notices, requests and other communications
         hereunder shall be given in writing and deemed to have been duly given
         or served if personally delivered, or sent by first class, certified
         mail, return receipt requested, postage prepaid, to the party at the
         address as provided below, or, to such other address as such party may
         hereafter designate by written notice to the other party:

                  (a)      If to the Corporation, to the address of its then
                           principal office.

                  (b)      If to Employee, to the address last shown in the
                           records of the Corporation.

                  13.7. Modification. This Agreement shall not be modified or
         amended except by a written instrument signed by the parties.

                  13.8. Severability. The invalidity or partial invalidity of
         any portion of this Agreement shall not invalidate the remainder
         thereof, and said remainder shall remain in fully force and effect.

                  13.9. Headings. The section headings contained in this
         Agreement are for reference purposes only and shall not in any way
         affect the meaning or interpretation of this Agreement.

                  13.10. Survival. Employee acknowledges and agrees that
         Employee's noncompetition, confidentiality, return of property, and
         invention obligations under Paragraphs 6, 7, 8, and 9 of this Agreement
         shall survive the Term or any Renewal Term, the non-renewal of this
         Agreement, and the termination of Employee's employment with the
         Corporation, regardless of the reason for termination.

                  13.11. Opportunity to Obtain Advice of Counsel. Employee
         acknowledges that Employee has been advised by the Corporation to
         obtain legal advice prior to executing this Agreement, and that
         Employee had sufficient opportunity to do so prior to signing this
         Agreement.




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THIS AGREEMENT was voluntarily and knowingly executed by the parties as of date
and year first set forth above.

                                            HEI, INC.

                                            By:    /s/ MACK TRAYNOR
                                                   -----------------------------
                                                   Mack Traynor, President/CEO

                                            EMPLOYEE:

                                                   /s/ STEPHEN PETERSEN
                                                   -----------------------------
                                                   Stephen Petersen





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