<SEC-DOCUMENT>0000897101-12-000522.txt : 20120329
<SEC-HEADER>0000897101-12-000522.hdr.sgml : 20120329
<ACCEPTANCE-DATETIME>20120329111542
ACCESSION NUMBER:		0000897101-12-000522
CONFORMED SUBMISSION TYPE:	DEF 14A
PUBLIC DOCUMENT COUNT:		3
CONFORMED PERIOD OF REPORT:	20120418
FILED AS OF DATE:		20120329
DATE AS OF CHANGE:		20120329
EFFECTIVENESS DATE:		20120329

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			ELECTRO SENSORS INC
		CENTRAL INDEX KEY:			0000351789
		STANDARD INDUSTRIAL CLASSIFICATION:	INDUSTRIAL INSTRUMENTS FOR MEASUREMENT, DISPLAY, AND CONTROL [3823]
		IRS NUMBER:				410943459
		STATE OF INCORPORATION:			MN
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		DEF 14A
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-09587
		FILM NUMBER:		12722743

	BUSINESS ADDRESS:	
		STREET 1:		6111 BLUE CIRCLE DR
		CITY:			MINNETONKA
		STATE:			MN
		ZIP:			55343-9108
		BUSINESS PHONE:		9529300100

	MAIL ADDRESS:	
		STREET 1:		6111 BLUE CIRCLE DR
		CITY:			MINNETONKA
		STATE:			MN
		ZIP:			55343
</SEC-HEADER>
<DOCUMENT>
<TYPE>DEF 14A
<SEQUENCE>1
<FILENAME>electro121311_def14a.htm
<DESCRIPTION>DEFINITIVE PROXY STATEMENT
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<H1 style="PAGE-BREAK-AFTER: avoid; TEXT-ALIGN: center; MARGIN: 0in 0in 0pt"><B><FONT style="FONT-SIZE: 14pt" face="'Times New Roman,serif'">SCHEDULE 14A - <BR>
INFORMATION REQUIRED IN PROXY STATEMENT</FONT></B></H1>
<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 12pt" lang=EN-US face="'Times New Roman,serif'"></FONT>&nbsp;</P>
<H1 style="PAGE-BREAK-AFTER: avoid; TEXT-ALIGN: center; MARGIN: 0in 0in 0pt"><B><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">Schedule 14A Information</FONT></B></H1>
<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 12pt" lang=EN-US face="'Times New Roman,serif'"></FONT>&nbsp;</P>
<P style="TEXT-ALIGN: center; MARGIN: 0in 0in 0pt" align=center><FONT style="FONT-SIZE: 10pt" lang=EN-US face="'Times New Roman,serif'">Proxy Statement Pursuant to Section 14(a) of the <BR>
Securities Exchange Act of 1934 <BR>
(Amendment No.____ ) </FONT></P>
<P style="MARGIN: 6pt 0in 0pt 13.7pt"><FONT style="FONT-SIZE: 10pt" lang=EN-US face="'Times New Roman,serif'">Filed by the registrant&nbsp;&nbsp;&nbsp;</FONT><FONT style="FONT-SIZE: 10pt" lang=EN-US face="'MS Mincho'">&#9746;</FONT></P>
<P style="MARGIN: 6pt 0in 0pt 13.7pt"><FONT style="FONT-SIZE: 10pt" lang=EN-US face="'Times New Roman,serif'">Filed by a party other than the registrant&nbsp;&nbsp;&nbsp;</FONT><FONT style="FONT-SIZE: 10pt" lang=EN-US face="'MS Mincho'">&#9744;</FONT></P>
<P style="MARGIN: 6pt 0in 0pt 13.7pt"><FONT style="FONT-SIZE: 10pt" lang=EN-US face="'Times New Roman,serif'">Check the appropriate box:</FONT></P>
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<P style="MARGIN: 6pt 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">&nbsp; </FONT></P>
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<P style="MARGIN: 6pt 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'MS Mincho'">&#9744;</FONT></P>
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<P style="MARGIN: 6pt 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">Preliminary Proxy Statement </FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">&nbsp; </FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'MS Mincho'">&#9744;</FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) </FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">&nbsp; </FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'MS Mincho'">&#9746;</FONT></P>
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     <TD style="PADDING-BOTTOM: 0in; PADDING-LEFT: 0in; PADDING-RIGHT: 0in; PADDING-TOP: 0in" vAlign=bottom width="92%">
<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">Definitive Proxy Statement </FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">&nbsp; </FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'MS Mincho'">&#9744;</FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">Definitive Additional Materials </FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">&nbsp; </FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'MS Mincho'">&#9744;</FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">Soliciting Material Under Section 240.14a-12 </FONT></P>
</TD></TR></TABLE></DIV>
<P style="TEXT-ALIGN: center; MARGIN: 0in 0in 0pt" align=center><B><FONT style="FONT-SIZE: 10pt" lang=EN-US face="'Times New Roman,serif'"></FONT></B>&nbsp;</P>
<P style="TEXT-ALIGN: center; MARGIN: 0in 0in 0pt" align=center><B><FONT style="FONT-SIZE: 10pt" lang=EN-US face="'Times New Roman,serif'">ELECTRO-SENSORS, INC.</FONT></B><FONT style="FONT-SIZE: 10pt" lang=EN-US face="'Times New Roman,serif'"> <BR>
(Name of Registrant as Specified in Its Charter)</FONT></P>
<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" lang=EN-US face="'Times New Roman,serif'"></FONT>&nbsp;</P>
<P style="TEXT-ALIGN: center; MARGIN: 0in 0in 0pt" align=center><FONT style="FONT-SIZE: 10pt" lang=EN-US face="'Times New Roman,serif'">N/A <BR>
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)</FONT></P>
<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" lang=EN-US face="'Times New Roman,serif'"></FONT>&nbsp;</P>
<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" lang=EN-US face="'Times New Roman,serif'">Payment of Filing Fee (Check the appropriate box):</FONT></P>
<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" lang=EN-US face="'Times New Roman,serif'"></FONT>&nbsp;</P>
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<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'MS Mincho'">&#9746;</FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">No fee required </FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">&nbsp; </FONT></P>
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     <TD style="PADDING-BOTTOM: 0in; PADDING-LEFT: 0in; PADDING-RIGHT: 0in; PADDING-TOP: 0in" vAlign=top width="4%">
<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'MS Mincho'">&#9744;</FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. </FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">&nbsp; </FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">&nbsp; </FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">(1) </FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">Title of each class of securities to which transaction applies: </FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">&nbsp; </FONT></P>
</TD>
     <TD style="PADDING-BOTTOM: 0in; PADDING-LEFT: 0in; PADDING-RIGHT: 0in; PADDING-TOP: 0in" vAlign=top width="4%">
<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">&nbsp; </FONT></P>
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     <TD style="PADDING-BOTTOM: 0in; PADDING-LEFT: 0in; PADDING-RIGHT: 0in; PADDING-TOP: 0in" vAlign=top width="4%">
<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">(2) </FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">Aggregate number of securities to which transactions applies: </FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">&nbsp; </FONT></P>
</TD>
     <TD style="PADDING-BOTTOM: 0in; PADDING-LEFT: 0in; PADDING-RIGHT: 0in; PADDING-TOP: 0in" vAlign=top width="4%">
<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">&nbsp; </FONT></P>
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     <TD style="PADDING-BOTTOM: 0in; PADDING-LEFT: 0in; PADDING-RIGHT: 0in; PADDING-TOP: 0in" vAlign=top width="4%">
<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">(3) </FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): </FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">&nbsp; </FONT></P>
</TD>
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<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">&nbsp; </FONT></P>
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     <TD style="PADDING-BOTTOM: 0in; PADDING-LEFT: 0in; PADDING-RIGHT: 0in; PADDING-TOP: 0in" vAlign=top width="4%">
<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">(4) </FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">Proposed maximum aggregate value of transaction: </FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">&nbsp; </FONT></P>
</TD>
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<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">&nbsp; </FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">(5) </FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">Total fee paid: </FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">&nbsp; </FONT></P>
</TD>
     <TD style="PADDING-BOTTOM: 0in; PADDING-LEFT: 0in; PADDING-RIGHT: 0in; PADDING-TOP: 0in" vAlign=top width="4%">
<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'MS Mincho'">&#9744;</FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">Fee paid previously with preliminary materials. </FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">&nbsp; </FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'MS Mincho'">&#9744;</FONT></P>
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<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. </FONT></P>
</TD></TR>
<TR>
     <TD style="PADDING-BOTTOM: 0in; PADDING-LEFT: 0in; PADDING-RIGHT: 0in; PADDING-TOP: 0in" vAlign=top width="4%">
<P style="MARGIN: 8pt 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">&nbsp; </FONT></P>
</TD>
     <TD style="PADDING-BOTTOM: 0in; PADDING-LEFT: 0in; PADDING-RIGHT: 0in; PADDING-TOP: 0in" vAlign=top width="4%">
<P style="MARGIN: 8pt 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">&nbsp; </FONT></P>
</TD>
     <TD style="PADDING-BOTTOM: 0in; PADDING-LEFT: 0in; PADDING-RIGHT: 0in; PADDING-TOP: 0in" vAlign=top width="4%">
<P style="MARGIN: 8pt 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">(1) </FONT></P>
</TD>
     <TD style="PADDING-BOTTOM: 0in; PADDING-LEFT: 0in; PADDING-RIGHT: 0in; PADDING-TOP: 0in" vAlign=top width="88%">
<P style="MARGIN: 8pt 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">Amount Previously Paid: </FONT></P>
</TD></TR>
<TR>
     <TD style="PADDING-BOTTOM: 0in; PADDING-LEFT: 0in; PADDING-RIGHT: 0in; PADDING-TOP: 0in" vAlign=top width="4%">
<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">&nbsp; </FONT></P>
</TD>
     <TD style="PADDING-BOTTOM: 0in; PADDING-LEFT: 0in; PADDING-RIGHT: 0in; PADDING-TOP: 0in" vAlign=top width="4%">
<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">&nbsp; </FONT></P>
</TD>
     <TD style="PADDING-BOTTOM: 0in; PADDING-LEFT: 0in; PADDING-RIGHT: 0in; PADDING-TOP: 0in" vAlign=top width="4%">
<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">(2) </FONT></P>
</TD>
     <TD style="PADDING-BOTTOM: 0in; PADDING-LEFT: 0in; PADDING-RIGHT: 0in; PADDING-TOP: 0in" vAlign=top width="88%">
<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">Form, Schedule or Registration Statement No.: </FONT></P>
</TD></TR>
<TR>
     <TD style="PADDING-BOTTOM: 0in; PADDING-LEFT: 0in; PADDING-RIGHT: 0in; PADDING-TOP: 0in" vAlign=top width="4%">
<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">&nbsp; </FONT></P>
</TD>
     <TD style="PADDING-BOTTOM: 0in; PADDING-LEFT: 0in; PADDING-RIGHT: 0in; PADDING-TOP: 0in" vAlign=top width="4%">
<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">&nbsp; </FONT></P>
</TD>
     <TD style="PADDING-BOTTOM: 0in; PADDING-LEFT: 0in; PADDING-RIGHT: 0in; PADDING-TOP: 0in" vAlign=top width="4%">
<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">(3) </FONT></P>
</TD>
     <TD style="PADDING-BOTTOM: 0in; PADDING-LEFT: 0in; PADDING-RIGHT: 0in; PADDING-TOP: 0in" vAlign=top width="88%">
<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">Filing Party: </FONT></P>
</TD></TR>
<TR>
     <TD style="PADDING-BOTTOM: 0in; PADDING-LEFT: 0in; PADDING-RIGHT: 0in; PADDING-TOP: 0in" vAlign=top width="4%">
<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">&nbsp; </FONT></P>
</TD>
     <TD style="PADDING-BOTTOM: 0in; PADDING-LEFT: 0in; PADDING-RIGHT: 0in; PADDING-TOP: 0in" vAlign=top width="4%">
<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">&nbsp; </FONT></P>
</TD>
     <TD style="PADDING-BOTTOM: 0in; PADDING-LEFT: 0in; PADDING-RIGHT: 0in; PADDING-TOP: 0in" vAlign=top width="4%">
<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">(4) </FONT></P>
</TD>
     <TD style="PADDING-BOTTOM: 0in; PADDING-LEFT: 0in; PADDING-RIGHT: 0in; PADDING-TOP: 0in" vAlign=top width="88%">
<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">Date Filed: </FONT></P>
</TD></TR></TABLE></DIV>
<P style="MARGIN: 0in 0in 0pt"><FONT style="FONT-SIZE: 10pt" lang=EN-US face="'Times New Roman,serif'"></FONT>&nbsp;</P>




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<P STYLE="font: 9pt Arial; margin: 0; text-align: center; color: Red">&nbsp;</P>

<P STYLE="font: 9pt Arial; margin: 0; text-align: center; color: Red"><IMG SRC="x1x0.jpg" ALT=""></P>

<P STYLE="font: 9.5pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 9.5pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">ELECTRO-SENSORS, INC. 6111 Blue Circle
Drive Minnetonka, Minnesota 55343</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">(952) 930-0100</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>NOTICE OF ANNUAL MEETING OF SHAREHOLDERS</B></P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">To Be Held April 18, 2012</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">To the Shareholders of Electro-Sensors, Inc.:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in; text-align: justify">Notice is hereby given that the Annual Meeting
of Shareholders of Electro-Sensors, Inc. will be held at the Sheraton Minneapolis West Hotel, 12201 Ridgedale Drive, Minnetonka,
Minnesota, on Wednesday, April 18, 2012, at 2:00 pm, Central Time, for the following purposes:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-indent: -0.5in; text-align: justify">1.<FONT STYLE="font: 7pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT>To set the number of directors at five (5);</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-indent: -0.5in; text-align: justify">2.<FONT STYLE="font: 7pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>To elect five (5) directors to serve until the next Annual Meeting of Shareholders;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-indent: -0.5in; text-align: justify">3.<FONT STYLE="font: 7pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>To ratify the selection of Boulay, Heutmaker, Zibell &amp; Co. P.L.L.P. as independent auditors for the Company for the
fiscal year ending December 31, 2012; and</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.75in; text-indent: -0.5in; text-align: justify">4.<FONT STYLE="font: 7pt Times New Roman, Times, Serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</FONT>To take action upon any other business as may properly come before the meeting or any adjournment or postponement thereof.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in">Accompanying this Notice of Annual Meeting
is a Proxy Statement, Form of Proxy and the Company&rsquo;s Annual Report on Form 10-K for the fiscal year ended December 31, 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.25in; text-align: justify">The Board of Directors has fixed the close
of business on February 29, 2012 as the record date for the determination of shareholders entitled to notice of and to vote at
the Annual Meeting of Shareholders. All shareholders of record are cordially invited to attend the Annual Meeting in person. However,
to assure the presence of a quorum, the Board of Directors requests that you promptly complete, sign, date and return the enclosed
proxy card, which is solicited by the Board of Directors, whether or not you plan to attend the Annual Meeting. The proxy is revocable
and will not be used if you attend the Annual Meeting and vote in person or otherwise provide notice of your revocation. If you
have any questions regarding the completion of the enclosed proxy card or would like directions to the Annual Meeting, please call
the Company at (952) 930-0100.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 50%; tab-stops: center 3.0in right 6.0in">&nbsp;</TD>
    <TD STYLE="width: 39%; tab-stops: center 3.0in right 6.0in">BY ORDER OF THE BOARD OF DIRECTORS,</TD>
    <TD STYLE="width: 11%; tab-stops: center 3.0in right 6.0in">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="tab-stops: center 3.0in right 6.0in">&nbsp;</TD>
    <TD STYLE="tab-stops: center 3.0in right 6.0in">&nbsp;</TD>
    <TD STYLE="tab-stops: center 3.0in right 6.0in">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="tab-stops: center 3.0in right 6.0in">&nbsp;</TD>
    <TD STYLE="tab-stops: center 3.0in right 6.0in"><B><IMG SRC="x1x1.gif" ALT=""></B></TD>
    <TD STYLE="tab-stops: center 3.0in right 6.0in">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="tab-stops: center 3.0in right 6.0in">&nbsp;</TD>
    <TD STYLE="tab-stops: center 3.0in right 6.0in">Bradley D. Slye</TD>
    <TD STYLE="tab-stops: center 3.0in right 6.0in">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="tab-stops: center 3.0in right 6.0in">&nbsp;</TD>
    <TD STYLE="tab-stops: center 3.0in right 6.0in">President</TD>
    <TD STYLE="tab-stops: center 3.0in right 6.0in">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">Minnetonka, Minnesota</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">Dated:&nbsp;&nbsp;&nbsp;March 29, 2012</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

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<P STYLE="font: 9.5pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 9pt Arial; margin: 0; text-align: center; color: Red"><B><IMG SRC="x1x0.jpg" ALT=""></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">ELECTRO-SENSORS, INC. &nbsp;&nbsp;&nbsp;6111 Blue Circle
Drive&nbsp;&nbsp; &nbsp;Minnetonka, Minnesota 55343&nbsp;&nbsp;&nbsp; (952) 930-0100</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">PROXY STATEMENT</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>FOR</B></P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">ANNUAL MEETING OF SHAREHOLDERS</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">To Be Held April 18, 2012</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">GENERAL INFORMATION</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">This Proxy Statement is
furnished by the Board of Directors (the &ldquo;Board of Directors&rdquo;) of Electro-Sensors, Inc., a Minnesota corporation (the
&ldquo;Company&rdquo;), to the shareholders of the Company in connection with a solicitation of proxies to be voted at the Annual
Meeting of Shareholders (the &ldquo;Annual Meeting&rdquo;) to be held at 2:00 p.m., Central Time, on Wednesday, April 18, 2012,
at the Sheraton Minneapolis West Hotel, 12201 Ridgedale Drive, Minnetonka, Minnesota, and at any and all adjournments or postponements
thereof. This Proxy Statement and the accompanying materials are first being mailed to shareholders on or about March 30, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">If your shares are registered
in the name of a bank or brokerage firm, you may be eligible to vote your shares electronically via the Internet or telephone.
A large number of banks and brokerage firms are participating in the Broadridge Investor Communication Services online program.
This program provides eligible shareholders who receive a paper copy of the Annual Report and Proxy Statement the opportunity to
vote via the Internet or telephone. If your bank or brokerage firm is participating in Broadridge&rsquo;s program, your voting
form will provide instructions. If your voting form does not refer to Internet or telephone information, please complete and return
the paper proxy card in the postage paid envelope provided.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">Any proxy delivered pursuant
to this solicitation is revocable at the option of the person giving the proxy at any time before it is exercised. A proxy may
be revoked, prior to its exercise, by executing and delivering a later-dated proxy via the Internet, via telephone or by mail,
by delivering written notice of the revocation of the proxy to the Company&rsquo;s President prior to the Annual Meeting, or by
attending and voting at the Annual Meeting. Attendance at the Annual Meeting, in and of itself, will not constitute a revocation
of a proxy. The shares represented by a proxy will be voted in accordance with the shareholder&rsquo;s directions if the proxy
is duly submitted and not validly revoked prior to the Annual Meeting. If no directions are specified on a duly submitted proxy,
the shares will be voted, in accordance with the recommendations of the Board of Directors, FOR approval of the number of directors
to be set at five, FOR the election of the directors nominated by the Board of Directors, FOR the ratification of the Company&rsquo;s
selection of auditors for the fiscal year ending December 31, 2012, and in accordance with the discretion of the persons appointed
as proxies on any other matters properly brought before the Annual Meeting and any all adjournments or postponements thereof.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The expense of preparing,
printing, and mailing this Proxy Statement and the proxies solicited hereby will be borne by the Company. The Company will request
brokerage firms, banks, nominees, custodians, and fiduciaries to forward proxy materials to the beneficial owners of shares of
Common Stock of the Company (&ldquo;Common Stock&rdquo;) as of the record date, and will provide reimbursement for the cost of
forwarding the proxy materials in accordance with customary practice. In addition to the use of the Internet and mail, proxies
may be solicited by officers, directors, and regular employees of the Company, without additional remuneration, in person or by
telephone or facsimile transmission.</P>

<P STYLE="font: 9.5pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 9.5pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 9.5pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>Important Notice Regarding the Availability
of Proxy Materials for the Annual Meeting:</B></P>

<P STYLE="font: 9.5pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>The Proxy Statement, Form of Proxy, and
Annual Report on Form 10-K are available at</B></P>

<P STYLE="font: 9.5pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>http://www.idelivercommunications.com/proxy/else</B></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>OUTSTANDING SHARES &amp; VOTING RIGHTS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The Company fixed the close
of business on February 29, 2012 as the record date for determining shareholders entitled to notice of and to vote at the Annual
Meeting. At February 29, 2012, the Company had outstanding 3,390,785 shares of Common Stock, the only outstanding class of capital
stock of the Company. Each share of Common Stock outstanding on the record date entitles the holder thereof to one (1) vote on
each matter to be voted upon by shareholders at the Annual Meeting. Holders of Common Stock are not entitled to cumulative voting
rights.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">A majority of the shares
of Common Stock entitled to vote at the Annual Meeting, present in person or by proxy, constitutes a quorum for the transaction
of business. Abstentions are counted as shares present for purposes of determining the presence or absence of a quorum, and as
negative votes for purposes of any proposal other than the election of directors. Abstentions will not be counted for purposes
of determining the number of votes cast in the election of directors. Proxies relating to &ldquo;street name&rdquo; shares that
are voted by brokers on some matters, but not on other matters as to which authority to vote is withheld from the broker (&ldquo;broker
non-votes&rdquo;) absent voting instructions from the beneficial owner, will be treated as shares present for purposes of determining
the presence or absence of a quorum but shall not be deemed to be represented at the meeting for purposes of determining the approval
of any matter submitted to the shareholders for which such voting authority is withheld. The Inspector of Election appointed by
the Board of Directors will determine the shares represented at the meeting and the validity of proxies and ballots, and will count
all votes and ballots.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>CORPORATE GOVERNANCE</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="letter-spacing: 0pt">The
business affairs of the Company are conducted under the direction of the Board of Directors in accordance with the Minnesota Business
Corporation Act and our Articles of Incorporation and Bylaws. The Board of Directors currently has five members: Bradley D. Slye,
Jeffrey D. Peterson, Robert W. Heller, Joseph A. Marino, and Geoffrey W. Miller. Members of the Board of Directors are informed
of our business through discussions with management, by reviewing materials provided to them and by participating in meetings of
the Board of Directors and its committees, among other activities. The corporate governance practices that we follow are summarized
below.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><FONT STYLE="letter-spacing: 0pt"><B>&nbsp;</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><FONT STYLE="letter-spacing: 0pt"><B>Board
Leadership Structure and Risk Management</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0;">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: .5in; text-align: justify"><FONT STYLE="letter-spacing: 0pt">The Board
of Directors believes that Bradley D. Slye, the Company&rsquo;s President and Chief Executive Officer, is best situated to serve
as Chairman of the Board because he is the director most familiar with the Company&rsquo;s business and industry, and most capable
of effectively identifying strategic priorities and leading the discussion and execution of strategy. Independent directors and
management have different perspectives and roles in strategy development. The Company&rsquo;s independent directors bring experience,
oversight and expertise from outside the company and industry, while Mr. Slye brings company-specific experience and expertise.
The Board believes that Mr. Slye&rsquo;s combined role of Chairman and Chief Executive Officer promotes strategy development and
execution, and facilitates information flow between management and the Board, which are essential to effective governance. </FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><FONT STYLE="letter-spacing: 0pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in; text-align: justify"><FONT STYLE="letter-spacing: 0pt">One of
the key responsibilities of the Board of Directors is to hold management accountable for the execution of strategy once it is developed.
The Board believes that its independent directors work together effectively to serve this oversight function, with no individual
director serving as a &ldquo;lead&rdquo; independent director.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><FONT STYLE="letter-spacing: 0pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="letter-spacing: 0pt">The
Board of Directors believes that oversight of the Company&rsquo;s risk management efforts is another key responsibility that is
shared by the entire Board. The Board regularly reviews risk management information regarding the Company&rsquo;s liquidity and
operations. Board members receive financial statements monthly which are then discussed at the quarterly meetings of the Board.
In addition, Mr. Slye frequently has informal discussions with board members regarding risk management.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Independence</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The Board of Directors
has determined that Messrs. Heller, Marino, and Miller are independent directors a<FONT STYLE="letter-spacing: 0pt">s defined
by the listing standards of the Nasdaq Stock Market,</FONT> since none of them are believed to have any relationships that, in
the opinion of the Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities
of a director. In addition, the Board of Directors has determined that Michael C. Zipoy, a director nominee, will be an independent
director if elected at the Annual Meeting. If Messrs. Marino, Miller, and Zipoy are all elected at the Annual Meeting, they will
constitute a majority of the Board of Directors. Mr. Slye is precluded from being considered independent by Nasdaq rules since
he currently serves as an executive officer of the Company. Mr. Peterson is precluded from being considered independent by Nasdaq
rules since a family member was employed as an executive officer of the Company during the prior three years.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The Board of Directors
has determined that each member of the Company&rsquo;s Audit Committee, Compensation Committee and Nominating Committee are independent
in accordance with the listing standards of the Nasdaq Stock Market.</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 12pt; text-align: justify"><B>Code of Ethics and Business Conduct</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in; text-align: justify">The Company has adopted the Electro-Sensors
Code of Ethics and Business Conduct (the &ldquo;Code of Conduct&rdquo;), a code of conduct that applies to all of our directors,
officers and employees. A copy of the Code of Conduct was provided with the Proxy Statement for the 2004 Annual Meeting of Shareholders
and is also available upon written request to the Chief Executive Officer. If we make any substantive amendments to the Code of
Conduct or grant any waiver, including any implicit waiver from a provision of the Code of Conduct to our directors or executive
officers, we will disclose the nature of such amendments or waiver in a report on Form 8-K.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><FONT STYLE="letter-spacing: 0pt"><B>&nbsp;</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>Director Attendance at Annual Meeting</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">Directors&rsquo; attendance
at Annual Meetings can provide our shareholders with an opportunity to communicate with directors about issues affecting the Company,
thus, all directors are expected to attend the Annual Meetings of Shareholders. All incumbent directors attended the 2011 Annual
Meeting of Shareholders.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><FONT STYLE="letter-spacing: 0pt"><B>&nbsp;</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><FONT STYLE="letter-spacing: 0pt"><B>Communications with the
Board</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><FONT STYLE="letter-spacing: 0pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="letter-spacing: 0pt">Shareholders
may communicate directly with the Board of Directors. All communications should be directed to the Chairman of our Audit Committee
at the address below and should prominently indicate on the outside of the envelope that it is intended for the Board of Directors
or for non-management directors. If no director is specified, the communication will be forwarded to the entire Board. Shareholder
communications to the Board should be sent to:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 6pt 0pt 0 0; text-align: center">Board of
Directors</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><FONT STYLE="letter-spacing: 0pt">Attention:
Chairman, Audit Committee</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><FONT STYLE="letter-spacing: 0pt">Electro-Sensors,
Inc.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">6111 Blue Circle Drive</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">Minnetonka, Minnesota 55343-9108</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Committees and Meetings of the Board of
Directors</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The present standing committees
of the Board of Directors are described below.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Board Meetings</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The Board of Directors
met four times during the last fiscal year. No incumbent member of the Board of Directors attended fewer than 100% of the total
number of meetings held by the Board of Directors and the committees on which he served.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Directors&rsquo; Compensation</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">Directors who are not employees
of the Company receive $1,250 per quarter for their services on the Board.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Audit Committee</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">Messrs. Heller, Marino,
and Miller currently serve as members of the Audit Committee. This committee met once during the last fiscal year. If elected at
the Annual Meeting, it is expected that Mr. Zipoy will replace Mr. Heller as a member of the Audit Committee. The Audit Committee
is responsible for selecting the Company&rsquo;s independent auditors, and for assisting the Board of Directors in its oversight
of corporate accounting and internal controls, reporting practices of the Company and the quality and integrity of the financial
reports of the Company. The Audit Committee Charter specifies the composition and responsibilities of the committee. For more information
concerning the Audit Committee, see the Report of the Audit Committee on page 12 and the Audit Committee Charter attached as Appendix
A to our definitive Proxy Statement for the 2010 Annual Meeting, filed with the SEC on March 9, 2010.<B> </B>The Board has named
Geoff Miller as the &ldquo;audit committee financial expert&rdquo; as defined by Item 407(d)(5)(ii) of Regulation S-K under the
Securities Act of 1933. The Company acknowledges that the designation of Mr. Miller as the audit committee financial expert does
not impose on Mr. Miller any duties, obligations or liability that are greater than the duties, obligations and liability imposed
on Mr. Miller as a member of the Audit Committee and the Board of Directors in the absence of such designation or identification.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>&nbsp;</B></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Compensation Committee</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in; text-align: justify">Messrs. Heller, Marino, and Miller currently
serve as members of the Compensation/Stock Option Committee (the &ldquo;Compensation Committee&rdquo;). If elected at the Annual
Meeting, it is expected that Mr. Zipoy will replace Mr. Heller as a member of the Compensation Committee. The Compensation Committee
does not act pursuant to a charter and did not meet during the last fiscal year. The Compensation Committee is responsible for
making recommendations to the Board of Directors concerning compensation of the Company&rsquo;s employees, officers, and directors,
and is authorized to determine the compensation of the Company&rsquo;s executive officers. The Compensation Committee is authorized
to administer the various incentive plans of the Company and has all powers of the attendant thereto, including the power to grant
employee stock options. Executives of the Company can make recommendations on setting their compensation but cannot set it directly.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Nominating Committee </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in; text-align: justify">Messrs. Heller, Marino, and Miller currently
serve as members of the Nominating Committee. If elected at the Annual Meeting, it is expected that Mr. Zipoy will replace Mr.
Heller as a member of the Nominating Committee. The Nominating Committee met once during
fiscal year 2011. The Nominating Committee is responsible for evaluating and nominating or recommending candidates for the
Company&rsquo;s Board of Directors. A copy of the Nominating Committee Charter, which has been adopted by the Company&rsquo;s Board
of Directors, is attached as Appendix B to our definitive Proxy Statement for the 2010 Annual Meeting, filed with the SEC on March
9, 2010.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>Nominating Policy</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><FONT STYLE="letter-spacing: -0.15pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in; text-align: justify">The Nominating Committee<B> </B>will consider
candidates for nomination as a director recommended by shareholders, directors, third party search firms and other sources. The
Nominating Committee believes that candidates for directors should have certain minimum qualifications, including being able to
read and understand basic financial statements, being over 18 years of age, having familiarity with the Company&rsquo;s business
and industry, having high moral character and mature judgment, being able to work collegially with others, and not currently serving
on more than three Boards of public companies. The Nominating Committee may modify these minimum qualifications from time to time.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in; text-align: justify">In evaluating director nominees who meet the
Company&rsquo;s minimum qualifications, the Nominating Committee considers the following factors and qualifications, among others:</P>

<UL TYPE="DISC" style="margin-top:6pt">
<LI STYLE="margin: 0 6pt; text-align: justify">the appropriate size and the diversity of the Company&rsquo;s Board of Directors;</LI>

<LI STYLE="margin: 0 6pt; text-align: justify">the needs of the Board with respect to the particular talents and experience of its directors;</LI>

<LI STYLE="margin: 0 6pt; text-align: justify">the knowledge, skills and experience of nominees, including experience in technology, business, finance,
administration or public service, in light of prevailing business conditions and the knowledge, skills and experience already possessed
by other members of the Board;</LI>

<LI STYLE="margin: 0 6pt; text-align: justify">familiarity with domestic and international business matters;</LI>

<LI STYLE="margin: 0 6pt; text-align: justify">age and legal and regulatory requirements;</LI>

<LI STYLE="margin: 0 6pt; text-align: justify">experience with accounting rules and practices;</LI>

<LI STYLE="margin: 0 6pt; text-align: justify">appreciation of the relationship of the Company&rsquo;s business to the changing needs of society; and</LI>

<LI STYLE="margin: 0 6pt; text-align: justify">the desire to balance the considerable benefit of continuity with the periodic injection of the fresh perspective
provided by new members.</LI>

</UL>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in; text-align: justify">The Nominating Committee will consider the attributes
of the candidates and the needs of the Board, and will review all candidates in the same manner. The Nominating Committee does
not have a diversity policy; however, as summarized above, the Nominating Committee seeks to nominate candidates with a diverse
range of knowledge, experience, skills, expertise, and other qualities that will contribute to the overall effectiveness of the
Board of Directors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in; text-align: justify">A shareholder who wishes to recommend one or
more directors must provide a written recommendation to the Company at the address below by November 30, 2012. Notice of a recommendation
must include the name and address of the shareholder and the class and number of shares such shareholder owns. With respect to
the nominee, the shareholder should include the nominee&rsquo;s name, age, business address, residence address, current principal
occupation, five year employment history with employer names and a description of the employer&rsquo;s business, the number of
shares beneficially owned by the nominee, whether such nominee can read and understand basic financial statements, and other Board
memberships, if any.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center; text-indent: 0.5in">Electro-Sensors, Inc.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center; text-indent: 0.5in">Attn: Chairman, Nominating
Committee</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center; text-indent: 0.5in">6111 Blue Circle Drive</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center; text-indent: 0.5in">Minnetonka, MN 55343-9108</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in; text-align: justify">The recommendation must be accompanied by a
written consent of the nominee to stand for election at the Annual Meeting if nominated by the Nominating Committee and to serve
if elected by the shareholders. The Company may require any nominee to furnish additional information that may be needed to determine
the eligibility of the nominee and whether the nominee has the attributes the Board believes are important in its composition.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>ELECTION OF DIRECTORS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>Proposals #1 and #2</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The Bylaws of the Company
provide that the shareholders at each Annual Meeting shall determine the number of directors, which shall not be less than one.
The<B> </B>Nominating Committee and the Board of Directors recommends that the number of directors be set at five and that five
directors be elected at the Annual Meeting to serve until the next Annual Meeting or until their successors are duly elected and
qualified. Under applicable Minnesota law, approval of the proposal to set the number of directors at five requires the affirmative
vote of the holders of the greater of (1) a majority of the voting power of the shares represented in person or by proxy at the
Annual Meeting with authority to vote on such matter or (2) a majority of the voting power of the minimum number of shares that
would constitute a quorum for the transaction of business at the Annual Meeting.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The Nominating Committee
recommended and the Board of Directors selected<B> </B>the persons named below for election to the Board of Directors. All nominees,
with the exception of Mr. Zipoy, are currently directors of the Company. Mr. Zipoy was approved as a director nominee by the Nominating
Committee upon the recommendation of Mr. Peterson, a current director of the Company. If, prior to the Annual Meeting, it should
become known that any of the following individuals will be unable to serve as a director after the Annual Meeting by reason of
death, incapacity or other unexpected occurrence, the proxies will be voted for such substitute nominee as is selected by the Board
of Directors. The Board of Directors has no reason to believe that any of the following nominees will be unable to serve. The Bylaws
of the Company provide that <FONT STYLE="letter-spacing: -0.15pt">directors shall be elected by a plurality of the votes cast by
holders of shares present and entitled to vote on the election of directors at a meeting at which a quorum is present.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The following table sets
forth the principal occupations (for at least the last five years) and directorships of the nominees:</P>

<P STYLE="font: 9.5pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 22%; border-bottom: black 1.5pt solid; font-size: 8pt; font-weight: bold; text-align: justify"><FONT STYLE="font-size: 8pt"><B>Name</B></FONT></TD>
    <TD STYLE="width: 48%; border-bottom: black 1.5pt solid; font-size: 8pt; font-weight: bold; text-align: justify"><FONT STYLE="font-size: 8pt"><B>Principal
    Occupation and Directorships</B></FONT></TD>
    <TD STYLE="width: 12%; border-bottom: black 1.5pt solid; text-align: center"><FONT STYLE="font-size: 8pt"><B>Age</B></FONT></TD>
    <TD STYLE="width: 18%; border-bottom: black 1.5pt solid; text-align: center"><FONT STYLE="font-size: 8pt"><B>Director Since</B></FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-size: 8pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="font-size: 8pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="font-size: 8pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="font-size: 8pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top; background-color: #D6F3E8">
    <TD STYLE="text-align: justify">Bradley D. Slye</TD>
    <TD STYLE="text-align: justify">Chairman of the Board and President of the Company since 1997; Chief Financial Officer since 2000</TD>
    <TD STYLE="text-align: center">52</TD>
    <TD STYLE="text-align: center">1997</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-size: 8pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="font-size: 8pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="font-size: 8pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="font-size: 8pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">Joseph A. Marino</TD>
    <TD STYLE="text-align: justify">President and CEO of Cardia, Inc. (a medical equipment manufacturer) since 1998</TD>
    <TD STYLE="text-align: center">60</TD>
    <TD STYLE="text-align: center">1994</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-size: 8pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="font-size: 8pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="font-size: 8pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="font-size: 8pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top; background-color: #D6F3E8">
    <TD STYLE="text-align: justify">Geoffrey W. Miller</TD>
    <TD STYLE="text-align: justify">CFO of Wilcox Paper (a distributor of fine paper to the Printing Industry) since 2002; General Manager of AmSan &ndash; Brissman Kennedy in 2001 (a distributor of janitorial supplies); CFO/VP Operations of AmSan &ndash; Brissman Kennedy (1999-2001)</TD>
    <TD STYLE="text-align: center">57</TD>
    <TD STYLE="text-align: center">1999</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-size: 8pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="font-size: 8pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="font-size: 8pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="font-size: 8pt; text-align: justify">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: justify">Jeffrey D. Peterson</TD>
    <TD>Private investor since 1998; Previously employed by John G. Kinnard and Company, a regional brokerage firm, as a Principal and Head of the Equity and Institutional Trading Departments.</TD>
    <TD STYLE="text-align: center">55</TD>
    <TD STYLE="text-align: center">2011</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-size: 8pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="font-size: 8pt; text-align: justify">&nbsp;</TD>
    <TD STYLE="font-size: 8pt; text-align: center">&nbsp;</TD>
    <TD STYLE="font-size: 8pt; text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top; background-color: #D6F3E8">
    <TD STYLE="text-align: justify">Michael C. Zipoy</TD>
    <TD>Investment executive with Feltl and Company (brokerage and investment banking firm) since 2005</TD>
    <TD STYLE="text-align: center">64</TD>
    <TD STYLE="text-align: center">N/A</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in; text-align: justify">When considering whether the nominees have the
experience, qualifications, attributes and skills, taken as a whole, to enable the Board of Directors to satisfy its oversight
responsibilities effectively in light of the Company&rsquo;s business and structure, the Nominating Committee and the Board of
Directors focused primarily on the biographical information set forth in the table above. In particular with regard to Mr. Slye,
the Board of Directors considered his years of experience with the Company, his high level of customer interaction, and his strong
engineering and product development background. These factors all increase the Company&rsquo;s ability to develop new products
that meet customer needs, which is critical to the success of the Company. With regards to Mr. Zipoy, the Board of Directors considered
his investment experience in small and micro cap companies and his participation in public and private equity financing. With regards
to Mr. Marino, the Board of Directors considered his leadership in building companies and his experience in the medical device
industry. With regards to Mr. Miller, the Board of Directors considered his significant management experience, expertise, and background
with regard to accounting and financial matters. With regards to Mr. Peterson, the Board of Directors considered his years of experience
in the investment industry and personal connections with many businesses in Minnesota.</P>

<P STYLE="font: 9.5pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>SECURITY OWNERSHIP OF CERTAIN</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>BENEFICIAL OWNERS AND MANAGEMENT</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: left">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The following table sets
forth information, as of March 20, 2012, regarding the beneficial ownership of the outstanding shares of Common Stock by persons
known by the Company to beneficially own more than 5% of the outstanding shares of Common Stock, by directors and director nominees,
by the executive officers named in the Summary Compensation Table, and by the Company&rsquo;s current directors and executive officers
as a group.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-size: 8pt; font-weight: bold">&nbsp;</TD>
    <TD NOWRAP STYLE="font-size: 8pt; font-weight: bold">&nbsp;</TD>
    <TD NOWRAP COLSPAN="5" STYLE="border-bottom: windowtext 1pt solid; text-align: center; vertical-align: top"><FONT STYLE="font-size: 8pt"><B>Common
    Stock</B></FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="width: 52%; font-size: 8pt; font-weight: bold; text-align: center">Name and Address</TD>
    <TD NOWRAP STYLE="width: 2%; font-size: 8pt; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="width: 22%; font-size: 8pt; font-weight: bold; text-align: center">Number of Shares</TD>
    <TD NOWRAP STYLE="width: 2%; font-size: 8pt; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="width: 4%; font-size: 8pt; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="width: 2%; font-size: 8pt; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="width: 16%; font-size: 8pt; font-weight: bold; text-align: center">Percent</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="border-bottom: windowtext 1pt solid; font-size: 8pt; font-weight: bold; text-align: center">of Beneficial Owner</TD>
    <TD NOWRAP STYLE="border-bottom: windowtext 1pt solid; font-size: 8pt; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="border-bottom: windowtext 1pt solid; font-size: 8pt; font-weight: bold; text-align: center"><B>Beneficially Owned<SUP>(1)(2)</SUP></B></TD>
    <TD NOWRAP STYLE="border-bottom: windowtext 1pt solid; font-size: 8pt; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="border-bottom: windowtext 1pt solid; font-size: 8pt; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="border-bottom: windowtext 1pt solid; font-size: 8pt; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="border-bottom: windowtext 1pt solid; font-size: 8pt; font-weight: bold; text-align: center">of Class</TD></TR>
<TR STYLE="background-color: #D6F3E8">
    <TD NOWRAP STYLE="vertical-align: bottom">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">Nancy Peterson</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.15in">6005 Erin Terrace</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.15in">Edina, MN 55439</P></TD>
    <TD NOWRAP STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">1,266,551 (3)</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">37.4%</TD></TR>
<TR>
    <TD NOWRAP STYLE="vertical-align: bottom">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 7.25pt; text-indent: -7.25pt">Bradley D. Slye</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.15in">6111 Blue Circle Drive</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.15in">Minnetonka, MN 55343</P></TD>
    <TD NOWRAP STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">61,218 (4)</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">1.8%</TD></TR>
<TR STYLE="background-color: #D6F3E8">
    <TD NOWRAP STYLE="vertical-align: bottom">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">Robert W. Heller</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.15in">10992 Mount Curve Road</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.15in">Eden Prairie, MN 55347</P></TD>
    <TD NOWRAP STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">7,200 (5)</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">*</TD></TR>
<TR>
    <TD NOWRAP STYLE="vertical-align: bottom">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">Joseph A. Marino</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.15in">13770 Frontier Court</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.15in">Burnsville, MN 55337</P></TD>
    <TD NOWRAP STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">0</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">0</TD></TR>
<TR STYLE="background-color: #D6F3E8">
    <TD NOWRAP STYLE="vertical-align: bottom">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">Geoffrey W. Miller</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.15in">12735 42<SUP>nd</SUP> Place North</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.15in">Plymouth, MN 55442</P></TD>
    <TD NOWRAP STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">0</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">0</TD></TR>
<TR>
    <TD NOWRAP STYLE="vertical-align: bottom">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">Jeffrey D. Peterson</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.15in">15708 Woodknoll Lane</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.15in">Minnetonka, MN 55345</P></TD>
    <TD NOWRAP STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">0</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">0</TD></TR>
<TR STYLE="background-color: #D6F3E8">
    <TD NOWRAP STYLE="vertical-align: bottom">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">Michael C. Zipoy</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.15in">7509 West 84<SUP>th</SUP> St.</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.15in">Bloomington, MN 55438</P></TD>
    <TD NOWRAP STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">0</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">0</TD></TR>
<TR>
    <TD NOWRAP STYLE="vertical-align: bottom">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">Farnam Street Partners, L.P</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.15in">3033 Excelsior Boulevard, Suite 300</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.15in">Minneapolis, MN 55426</P></TD>
    <TD NOWRAP STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">314,826 (6)</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">9.3%</TD></TR>
<TR STYLE="vertical-align: top; background-color: #D6F3E8">
    <TD NOWRAP>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">Nicholas Swenson</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.15in">3033 Excelsior Boulevard, Suite 300</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.15in">Minneapolis, MN 55426</P></TD>
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: center">429,849 (7)</TD>
    <TD NOWRAP STYLE="text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: center">12.6%</TD></TR>
<TR>
    <TD NOWRAP STYLE="vertical-align: bottom; padding-top: 6pt">Officers and Directors as a Group (5 persons)</TD>
    <TD NOWRAP STYLE="vertical-align: bottom; padding-top: 6pt">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; padding-top: 6pt; text-align: center">61,218</TD>
    <TD NOWRAP STYLE="vertical-align: top; padding-top: 6pt; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; padding-top: 6pt; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; padding-top: 6pt; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; padding-top: 6pt; text-align: center">2.0%</TD></TR>
<TR>
    <TD NOWRAP STYLE="vertical-align: bottom; padding-left: 0.25in; text-align: justify">*Indicates ownership of less than one percent (1.0%).</TD>
    <TD NOWRAP STYLE="vertical-align: bottom">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">&nbsp;</TD>
    <TD NOWRAP STYLE="vertical-align: top; text-align: center">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0pt"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 30pt; text-align: right">(1)</TD><TD STYLE="width: 15pt"></TD><TD STYLE="text-align: justify">Except as otherwise indicated, each person named or included in the group has the
sole power to vote and sole power to direct the disposition of all shares listed as beneficially owned by him.</TD>
</TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0pt"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 30pt; text-align: right">(2)</TD><TD STYLE="width: 15pt"></TD><TD STYLE="text-align: justify">Beneficial ownership information is based on information furnished by the specified
persons and is determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934 (the &ldquo;Exchange Act&rdquo;),
as required for purposes of this Proxy Statement. Accordingly, it includes shares of Common Stock that are issuable upon the exercise
of stock options exercisable within 60 days of March 20, 2012. Such information is not necessarily to be construed as an admission
of beneficial ownership for other purposes.</TD>
</TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0pt"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 30pt; text-align: right">(3)</TD><TD STYLE="width: 15pt"></TD><TD STYLE="text-align: justify">Includes 11,400 shares held in an IRA Plan.</TD>
</TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0pt"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 30pt; text-align: right">(4)</TD><TD STYLE="width: 15pt"></TD><TD STYLE="text-align: justify">Includes 5,190 shares held by Mr. Slye&rsquo;s spouse and 26,822 shares held by the
ESOP for the account of Mr. Slye.</TD>
</TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0pt"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 30pt; text-align: right">(5)</TD><TD STYLE="width: 15pt"></TD><TD STYLE="text-align: justify">Includes 5,000 shares that are issuable upon the exercise of stock options.</TD>
</TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0pt"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 30pt; text-align: right">(6)</TD><TD STYLE="width: 15pt"></TD><TD STYLE="text-align: justify">In its most recent Schedule 13D filing with the Securities and Exchange Commission
on March 4, 2009, Farnam represents that they have sole voting and dispositive power over all such shares.</TD>
</TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0; margin-bottom: 0pt"><TR STYLE="vertical-align: top; text-align: justify">
<TD STYLE="width: 30pt; text-align: right">(7)</TD><TD STYLE="width: 15pt"></TD><TD STYLE="text-align: justify">Includes 25,867 shares owned by Glenhurst Co., of which Mr. Swenson is the sole owner,
based on a Form 4 filed by Mr. Swenson with the Securities and Exchange Commission on March 9, 2012.</TD>
</TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>TRANSACTIONS WITH RELATED PERSONS, </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>PROMOTERS AND CERTAIN CONTROL PERSONS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">The Company was not a party to any transactions
with related persons, promoters or control persons during the last fiscal year, nor are any such transactions currently being contemplated
by the Company.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>EXECUTIVE COMPENSATION</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Compensation Summary</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The following table summarizes
information concerning the compensation awarded or paid to, or earned by, the Company&rsquo;s Named Executive Officers during the
last two fiscal years. Under SEC regulations, Named Executive Officers include (i) all persons serving as Chief Executive Officer
during fiscal 2011; (ii) executive officers who were serving as of December 31, 2011, received total compensation in excess of
$100,000 for fiscal 2011 and, excluding the Chief Executive Officer, were among our two most highly compensated individuals (the
Most Highly Compensated Officers); and (iii) up to two additional individuals who would have been included as the Most Highly Compensated
Officers but for the fact they were not serving at the end of the year. During fiscal 2011, Mr. Slye was our only Named Executive
Officer.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>Summary Compensation Table</B></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="border-bottom: black 1pt solid; font-size: 8pt; font-weight: bold; text-align: center">Name and<BR> principal<BR> position</TD>
    <TD STYLE="padding-bottom: 1pt; font-size: 8pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; font-size: 8pt; font-weight: bold; text-align: center">Year</TD>
    <TD STYLE="padding-bottom: 1pt; font-size: 8pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; font-size: 8pt; font-weight: bold; text-align: center">Salary <BR> ($)</TD>
    <TD STYLE="padding-bottom: 1pt; font-size: 8pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; font-size: 8pt; font-weight: bold; text-align: center">Bonus <BR> ($)</TD>
    <TD STYLE="padding-bottom: 1pt; font-size: 8pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; font-size: 8pt; font-weight: bold; text-align: center">Stock <BR> awards <BR> ($)</TD>
    <TD STYLE="padding-bottom: 1pt; font-size: 8pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; font-size: 8pt; font-weight: bold; text-align: center">Option <BR> awards <BR> ($)</TD>
    <TD STYLE="padding-bottom: 1pt; font-size: 8pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; font-size: 8pt; font-weight: bold; text-align: center">Nonequity incentive&nbsp;plan compensation<BR>($)</TD>
    <TD STYLE="padding-bottom: 1pt; font-size: 8pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; font-size: 8pt; font-weight: bold; text-align: center">Nonqualified deferred compensation earnings <BR> ($)</TD>
    <TD STYLE="padding-bottom: 1pt; font-size: 8pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; font-size: 8pt; font-weight: bold; text-align: center">All&nbsp;other<BR> compensation <BR> ($)(a)</TD>
    <TD STYLE="padding-bottom: 1pt; font-size: 8pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; font-size: 8pt; font-weight: bold; text-align: center">Total <BR> ($)</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="width: 19%">Bradley D. Slye</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 7%; background-color: #D6F3E8; text-align: center">2011</TD>
    <TD STYLE="width: 2%; background-color: #D6F3E8">&nbsp;</TD>
    <TD STYLE="width: 7%; background-color: #D6F3E8; text-align: right">176,000</TD>
    <TD STYLE="width: 2%; background-color: #D6F3E8">&nbsp;</TD>
    <TD STYLE="width: 7%; background-color: #D6F3E8; text-align: right">0</TD>
    <TD STYLE="width: 2%; background-color: #D6F3E8">&nbsp;</TD>
    <TD STYLE="width: 7%; background-color: #D6F3E8; text-align: right">0</TD>
    <TD STYLE="width: 2%; background-color: #D6F3E8">&nbsp;</TD>
    <TD STYLE="width: 7%; background-color: #D6F3E8; text-align: right">0</TD>
    <TD STYLE="width: 2%; background-color: #D6F3E8">&nbsp;</TD>
    <TD STYLE="width: 7%; background-color: #D6F3E8; text-align: right">0</TD>
    <TD STYLE="width: 2%; background-color: #D6F3E8">&nbsp;</TD>
    <TD STYLE="width: 7%; background-color: #D6F3E8; text-align: right">0</TD>
    <TD STYLE="width: 2%; background-color: #D6F3E8">&nbsp;</TD>
    <TD STYLE="width: 7%; background-color: #D6F3E8; text-align: right">23,684</TD>
    <TD STYLE="width: 2%; background-color: #D6F3E8">&nbsp;</TD>
    <TD STYLE="width: 7%; background-color: #D6F3E8; text-align: right">199,684</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD NOWRAP>Chairman, President, CEO, CFO</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">2010</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">176,000</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">0</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">0</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">0</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">0</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">0</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">24,392</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">200,392</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">(a) &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amounts reflect allocations
to individual&rsquo;s account of Company contributions to the ESOP, 401(k) Plan, and/or standard employee benefit plans.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">The Company maintains a 401k plan and matches up to 4% of an employee&rsquo;s
salary.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>DIRECTOR COMPENSATION</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>Compensation Summary</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The following table summarizes
information concerning the compensation awarded or paid to, or earned by, the Company&rsquo;s non-employee directors during the
last fiscal year. Directors who are not employees of the Company receive $1,250 per quarter for their services on the Board.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>Director Compensation Table</B></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="border-bottom: black 1pt solid; font-size: 8pt; font-weight: bold; text-align: center">Director Name</TD>
    <TD STYLE="padding-bottom: 1pt; font-size: 8pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; font-size: 8pt; font-weight: bold; text-align: center">Fees earned or paid in cash ($)</TD>
    <TD STYLE="padding-bottom: 1pt; font-size: 8pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; font-size: 8pt; font-weight: bold; text-align: center">Stock <BR> awards <BR> ($)</TD>
    <TD STYLE="padding-bottom: 1pt; font-size: 8pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; font-size: 8pt; font-weight: bold; text-align: center">Option <BR> awards <BR> ($)</TD>
    <TD STYLE="padding-bottom: 1pt; font-size: 8pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; font-size: 8pt; font-weight: bold; text-align: center">Nonequity incentive plan compensation <BR> ($)</TD>
    <TD STYLE="padding-bottom: 1pt; font-size: 8pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; font-size: 8pt; font-weight: bold; text-align: center">Nonqualified deferred compensation earnings <BR> ($)</TD>
    <TD STYLE="padding-bottom: 1pt; font-size: 8pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; font-size: 8pt; font-weight: bold; text-align: center">All other compensation <BR> ($)</TD>
    <TD STYLE="padding-bottom: 1pt; font-size: 8pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; font-size: 8pt; font-weight: bold; text-align: center">Total <BR> ($)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #D6F3E8">
    <TD STYLE="width: 30%">Robert W. Heller</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 8%; text-align: right">5,000</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 8%; text-align: right">0</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 8%; text-align: right">0</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 8%; text-align: right">0</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 8%; text-align: right">0</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 8%; text-align: right">0</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 8%; text-align: right">5,000</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD>Joseph A. Marino</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">5,000</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">0</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">0</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">0</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">0</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">0</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">5,000</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #D6F3E8">
    <TD>Geoffrey W. Miller</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">5,000</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">0</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">0</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">0</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">0</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">0</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">5,000</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">SECTION 16(a) BENEFICIAL OWNERSHIP</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>REPORTING COMPLIANCE</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">Pursuant to Section 16(a)
of the Exchange Act, the Company&rsquo;s directors, its executive officers, and any persons who beneficially own more than 10%
of the Company&rsquo;s Common Stock are required to report their initial ownership of Common Stock and subsequent changes in that
ownership to the Securities and Exchange Commission. Specific due dates for those reports have been established, and the Company
is required to disclose in this Proxy Statement any failure to file by those due dates during fiscal 2011. Based upon a review
of such reports furnished to the Company, or written representations that no reports were required, the Company believes that all
of those filing requirements were satisfied with respect to fiscal 2011, except for the reporting of (i) the January 26, 2011 appointment
of Jeffrey D. Peterson to the Board of Directors, for which a Form 3 was filed on March 2, 2011, and (ii) a May 13, 2011 open-market
purchase by Robert W. Heller of 1,000 shares of the Company&rsquo;s Common Stock at a purchase price of $4.75 per share, for which
a Form 4 was filed on May 18, 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">&nbsp;</P>

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<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">RATIFICATION OF INDEPENDENT AUDITORS</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>Proposal #3</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Arial Unicode MS; margin: 0; text-indent: 0.5in; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif">The
Company&rsquo;s Board of Directors retained Boulay, Heutmaker, Zibell &amp; Co. P.L.L.P.</FONT> <FONT STYLE="font-family: Times New Roman, Times, Serif">as
its principal independent auditors for the fiscal year ended December&nbsp;31, 2011 and has selected Boulay, Heutmaker, Zibell
&amp; Co. P.L.L.P.</FONT> <FONT STYLE="font-family: Times New Roman, Times, Serif"> to serve as the Company&rsquo;s auditors for
the fiscal year ending December&nbsp;31, 2012. The Board of Directors desires that the selection of such auditors for the current
fiscal year be submitted to the shareholders for ratification, which ratification requires the affirmative vote of a majority of
the votes cast at the Annual Meeting. If the selection is not ratified, the Board of Directors will reconsider its decision.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font-size: 10pt; margin: 0; text-indent: 0.5in; text-align: justify"><FONT STYLE="font-family: Times New Roman, Times, Serif; color: black">A
representative of </FONT>Boulay, Heutmaker, Zibell &amp; Co. P.L.L.P. <FONT STYLE="color: black">is expected to be present at
the Annual Meeting, will have an opportunity to make a statement if he or she desires to do so and will be available to respond
to appropriate questions.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><FONT STYLE="font-family: Times New Roman, Times, Serif">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>DISCLOSURE OF FEES PAID TO INDEPENDENT AUDITORS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><FONT STYLE="letter-spacing: 0pt">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in"><FONT STYLE="letter-spacing: 0pt">The following
fees were paid to </FONT>Boulay, Heutmaker, Zibell &amp; Co. P.L.L.P. <FONT STYLE="letter-spacing: 0pt">for fiscal years 2011
and 2010:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><FONT STYLE="letter-spacing: 0pt">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 50%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-size: 8pt; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; font-size: 8pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-size: 8pt; font-weight: bold; text-align: center">FY 2011</TD>
    <TD STYLE="padding-bottom: 1pt; font-size: 8pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; font-size: 8pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-size: 8pt; font-weight: bold; text-align: center">FY 2010</TD>
    <TD STYLE="padding-bottom: 1pt; font-size: 8pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #D6F3E8">
    <TD STYLE="width: 56%; font-weight: bold">Audit Fees</TD>
    <TD STYLE="width: 6%">&nbsp;</TD>
    <TD STYLE="width: 1%">$</TD>
    <TD STYLE="width: 14%; text-align: right">66,000</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 6%">&nbsp;</TD>
    <TD STYLE="width: 1%">$</TD>
    <TD STYLE="width: 14%; text-align: right">68,410</TD>
    <TD STYLE="width: 1%">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="font-weight: bold">Audit-Related Fees</TD>
    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD STYLE="text-align: right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD STYLE="text-align: right">200</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #D6F3E8">
    <TD STYLE="font-weight: bold">Tax Fees</TD>
    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD STYLE="text-align: right">5,930</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD STYLE="text-align: right">5,850</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="font-weight: bold">All Other Fees</TD>
    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD STYLE="text-align: right">0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>$</TD>
    <TD STYLE="text-align: right">0</TD>
    <TD>&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in; text-align: justify"><B>Audit Fees </B>were for professional services
rendered for the audit of the Company&rsquo;s consolidated financial statements and review of the interim consolidated financial
statements included in quarterly reports and services in connection with statutory and regulatory filings or engagements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in; text-align: justify"><B>Audit-Related Fees</B> consist of the review
of and discussion with management regarding certain accounting treatment.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in; text-align: justify"><B>Tax Fees</B> were for professional services
rendered for preparation of the Company&rsquo;s annual tax return, quarterly estimates, and state returns. Tax examination consulting
is also included.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in; text-align: justify"><FONT STYLE="color: black"><B>All Other Fees</B></FONT>
<FONT STYLE="color: black">represent fees for any professional services not included in the first three categories listed above.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">Pursuant to its written
charter, the Audit Committee is required to pre-approve all audit services, as well as all non-audit services performed by the
Company&rsquo;s independent auditors in order to assure that the provision of such non-audit services does not impair the auditor&rsquo;s
independence. Unless a particular service has received general pre-approval by the Audit Committee in accordance with the Audit
Committee&rsquo;s pre-approval policy, each service provided must be specifically pre-approved. Any proposed services exceeding
pre-approved costs levels will require specific pre-approval by the Audit Committee.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">As part of the Company&rsquo;s
annual engagement agreement with its independent auditor, the Audit Committee pre-approves the following audit services to be provided
by the independent auditor: statutory and financial audits for the Company and any of its subsidiaries and affiliates, audit services
associated with SEC registration statements, periodic reports and other documents filed with the SEC, production of other documents
issued by the independent auditor in connection with securities offerings (e.g., comfort letters, consents), and assistance in
responding to SEC comment letters. The Audit Committee also provides pre-approval in the annual engagement of most consulting services
provided by the independent auditor related to the accounting or disclosure treatment of transactions or events and the actual
or potential impact of final or proposed rules, standards or interpretations by the SEC, FASB, or other regulatory or standard-setting
bodies.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The Audit Committee has
also provided the Company&rsquo;s independent auditors with a general pre-approval of certain non-audit services, primarily tax
services. The Audit Committee does not believe that performance of these tax services impairs the auditor&rsquo;s independence.
Specifically, the Audit Committee has given the independent auditors pre-approval for U.S. federal, state, and local tax planning
and advice, U.S. federal, state, and local tax compliance, international tax planning and advice, international tax compliance,
and tax planning and advice related to merger and acquisition activities. The Company&rsquo;s independent auditors must inform
the Audit Committee whenever a pre-approved service is provided. The aggregate amount of fees for these pre-approved tax services
may not exceed $8,000 without explicit approval by the Audit Committee.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The term of any pre-approval
is 12 months from the date of pre-approval, unless the Audit Committee specifically provides for a different term. The Audit Committee
retains the right to periodically revise the above list of pre-approved services.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>AUDIT COMMITTEE REPORT</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The Board of Directors
maintains an Audit Committee comprised of three of the Company&rsquo;s directors. The Board of Directors and the Audit Committee
believe that the Audit Committee&rsquo;s current member composition satisfies the listing rule of the Nasdaq Stock Market that
governs audit committee composition, Rule 5605(c)(2), including the requirement that audit committee members all be &ldquo;independent
directors&rdquo; as that term is defined by Rule 5605(a)(2).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The Audit Committee of
the Board of Directors oversees and monitors the participation of the Company&rsquo;s management and independent auditors throughout
the financial reporting process.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">In connection with its
function to oversee and monitor the financial reporting process of the Company, the Audit Committee has done the following:</P>



<UL TYPE="DISC">

<LI STYLE="margin: 0 6pt; text-align: justify">Reviewed and discussed the audited financial statements for the fiscal year ended December 31, 2011 with the Company&rsquo;s
management;</LI>

<LI STYLE="margin: 0 6pt; text-align: justify">Discussed with the Company&rsquo;s independent auditors the matters required to be discussed by Statement on Auditing Standards
No.&nbsp;114, as amended (AICPA, <I>Professional Standards</I>, Vol. 1. AU section&nbsp;380), as adopted by the Public Company
Accounting Oversight Board in Rule&nbsp;3200T; and</LI>

<LI STYLE="margin: 0 6pt; text-align: justify">Received the written disclosure and the letter from the independent accountant required by applicable requirements of the
Public Company Accounting Oversight Board regarding the independent accountant&rsquo;s communications with the Audit Committee
concerning independence, and has discussed with the independent accountant the independent accountant&rsquo;s independence.</LI>
</UL>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">Based on the foregoing,
the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company&rsquo;s
annual report on Form 10-K for the fiscal year ended December 31, 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>Audit Committee</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><I>Robert W. Heller</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><I>Joseph A. Marino</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><I>Geoffrey W. Miller</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><I>&nbsp;</I></P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>OTHER MATTERS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The Board of Directors
knows of no other matters to be brought before the Annual Meeting. However, if any other matters are properly brought before the
Annual Meeting, it is the intention of the persons named in the accompanying proxy to vote in accordance with their judgment on
such matters.</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">&nbsp;</P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">SHAREHOLDER PROPOSALS</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">Shareholder proposals for
the proxy statement for the 2013 Annual Meeting of Shareholders of the Company must be received no later than November 30, 2012
at the Company&rsquo;s principal executive offices, 6111 Blue Circle Drive, Minnetonka, Minnesota 55343, directed to the attention
of the Chairman of the Audit Committee, or the Chairman of the Nominating Committee if the proposal relates to the nomination of
a director, in order to be considered by the Board of Directors for inclusion in next year&rsquo;s Annual Meeting proxy material
under the SEC&rsquo;s proxy rules.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">Also, if a shareholder
proposal intended to be presented at the next Annual Meeting but not included in the Company&rsquo;s proxy statement and proxy
is received by the Company after February 13, 2012, then management named in the Company&rsquo;s proxy form for the next Annual
Meeting will have discretionary authority to vote shares represented by such proxies on the shareholder proposal, if presented
at the meeting, without including information about the proposal in the Company&rsquo;s proxy material.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>FORM 10-K</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">A copy of the Company&rsquo;s
Annual Report to the Securities and Exchange Commission on Form 10-K for the fiscal year ended December 31, 2011 has been provided
with this Proxy Statement. The Company will furnish to any shareholder, upon written request, any exhibit described in the list
accompanying the Form 10-K upon the payment, in advance, of reasonable fees related to the Company&rsquo;s furnishing such exhibits(s).
Any such request should include a representation that the shareholder was the beneficial owner of shares of Electro-Sensors Common
Stock on February 29, 2012, the record date for the 2012 Annual Meeting, and should be directed to Mr. Bradley Slye, Chief Executive
Officer, at the Company&rsquo;s principal address.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>The foregoing Notice of Annual Meeting and
Proxy Statement are sent by order of the Board of Directors.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">Bradley D. Slye</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify">President</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">March 29, 2012</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<!-- Field: Page; Sequence: 13 -->
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    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>ELECTRO-SENSORS, INC.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>PROXY FOR ANNUAL MEETING</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>April 18, 2012</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">The undersigned hereby appoints BRADLEY D. SLYE,
with full power of substitution, as his or her Proxy to represent and vote, as designated below, all shares of the Common Stock
of Electro-Sensors Inc. registered in the name of the undersigned at the Annual Meeting of Shareholders of the Company to be held
at the Sheraton Minneapolis West Hotel, 12201 Ridgedale Drive, Minnetonka, Minnesota, at 2:00 p.m. local time, on April 18, 2012,
and at any adjournment thereof. The undersigned hereby revokes all proxies previously granted with respect to such meeting.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>THIS PROXY WHEN PROPERLY EXECUTED WILL BE
VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN FOR A PARTICULAR PROPOSAL, WILL BE VOTED FOR SUCH PROPOSAL.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>&nbsp;</B></P>

<P STYLE="font: bold 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">DETACH BELOW AND RETURN USING THE ENVELOPE
PROVIDED</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center">FOR</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center">AGAINST</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center">ABSTAIN</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">1.</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 5.4pt; padding-left: 5.4pt">To set the number of directors at five.</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-family: MS Mincho; text-align: center">&#9744;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-family: MS Mincho; text-align: center">&#9744;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-family: MS Mincho; text-align: center">&#9744;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD COLSPAN="3" STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD COLSPAN="9" STYLE="padding-right: 5.4pt; padding-left: 5.4pt">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>&nbsp;</B></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>&nbsp;</B></P></TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">2.</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 5.4pt; padding-left: 5.4pt">To elect five directors to serve until the next annual meeting of shareholders:</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD COLSPAN="3" ROWSPAN="2" STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-family: MS Mincho"><FONT STYLE="font-family: MS Mincho">&#9744;
    </FONT><FONT STYLE="font-family: Times New Roman, Times, Serif">Vote <B>FOR</B> all nominees, except as withheld below:</FONT></TD>
    <TD COLSPAN="3" ROWSPAN="2" STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-family: MS Mincho"><FONT STYLE="font-family: MS Mincho">&#9744;
    </FONT><FONT STYLE="font-family: Times New Roman, Times, Serif">Vote <B>WITHHELD</B> from all nominees.</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">01 &nbsp;Bradley D. Slye</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">02 &nbsp;Jeffrey D. Peterson</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">03 &nbsp;Geoffrey W. Miller</P></TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">04 &nbsp;Joseph A. Marino</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">05 &nbsp;Michael C. Zipoy</P></TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD COLSPAN="6" ROWSPAN="2" STYLE="border-bottom: windowtext 1pt solid; padding-right: 5.4pt; padding-left: 5.4pt">
        <P STYLE="font: 8pt Times New Roman, Times, Serif; margin: 0">INSTRUCTION: To withhold authority to vote for any individual nominee,
        mark &ldquo;Vote <B>FOR</B>&rdquo; and write the nominee&rsquo;s name to be withheld in the space provided below.</P>
        <P STYLE="font: 8pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0"><B>&nbsp;</B></P></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center">FOR</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center">AGAINST</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-weight: bold; text-align: center">ABSTAIN</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">3.</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 5.4pt; padding-left: 5.4pt">To ratify the appointment of Boulay, Heutmaker, Zibell &amp; Co. P.L.L.P as independent auditors for the fiscal year ending December 31, 2012.</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-family: MS Mincho; text-align: center">&#9744;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-family: MS Mincho; text-align: center">&#9744;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; font-family: MS Mincho; text-align: center">&#9744;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">4.</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 5.4pt; padding-left: 5.4pt">To transact such other business as may properly come before the meeting or any adjournment or postponement thereof.</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt; text-align: center">&nbsp;</TD></TR>
<TR>
    <TD STYLE="width: 3%">&nbsp;</TD>
    <TD STYLE="width: 4%">&nbsp;</TD>
    <TD STYLE="width: 25%">&nbsp;</TD>
    <TD STYLE="width: 30%">&nbsp;</TD>
    <TD STYLE="width: 4%">&nbsp;</TD>
    <TD STYLE="width: 6%">&nbsp;</TD>
    <TD STYLE="width: 4%">&nbsp;</TD>
    <TD STYLE="width: 8%">&nbsp;</TD>
    <TD STYLE="width: 4%">&nbsp;</TD>
    <TD STYLE="width: 4%">&nbsp;</TD>
    <TD STYLE="width: 8%">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 60%">&nbsp;</TD>
    <TD STYLE="width: 40%; border-bottom: windowtext 1pt solid">Date:</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="border: Black 1pt solid">&nbsp;&nbsp;<BR>
&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>Signature(s) in Box<BR>
&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-size: 9pt">&nbsp;</TD>
    <TD STYLE="font-size: 9pt">(Please sign exactly as your name appears hereon. If stock is registered in more than one name, each holder should sign. If signing as an attorney, administrator, executor, guardian or trustee, please add your title as such. If executed by a corporation or other entity, the proxy should be signed by a duly authorized officer or other representative.)</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>Important Notice Regarding the Availability
of Proxy Materials for the Annual Meeting:</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>The Proxy Statement, Form of Proxy, and Annual
Report on Form 10-K are available at</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>www.idelivercommunications.com/proxy/else</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: center"></P>

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