<SEC-DOCUMENT>0000897101-13-000416.txt : 20130322
<SEC-HEADER>0000897101-13-000416.hdr.sgml : 20130322
<ACCEPTANCE-DATETIME>20130322154110
ACCESSION NUMBER:		0000897101-13-000416
CONFORMED SUBMISSION TYPE:	DEF 14A
PUBLIC DOCUMENT COUNT:		3
CONFORMED PERIOD OF REPORT:	20130424
FILED AS OF DATE:		20130322
DATE AS OF CHANGE:		20130322
EFFECTIVENESS DATE:		20130322

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:		13711176

	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>electro131321_def14a.htm
<DESCRIPTION>DEFINITIVE PROXY STATEMENT
<TEXT>
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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>
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<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="'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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     <TD style="PADDING-BOTTOM: 0in; PADDING-LEFT: 0in; PADDING-RIGHT: 0in; PADDING-TOP: 0in" vAlign=bottom 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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<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="'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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<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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<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>
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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'">&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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<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>
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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'">(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>
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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>
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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'">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>
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<P style="MARGIN: 8pt 0in 0pt"><FONT style="FONT-SIZE: 10pt" face="'Times New Roman,serif'">(1) </FONT></P>
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     <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>
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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'">&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>
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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'">&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>



<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>


<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=100%>
<TR STYLE="FONT-SIZE:1PX">
<TD WIDTH="100%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2><img src="a131321001_v1.jpg" alt="(ELECTRO SENSORS LOGO)"></FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2><B>ELECTRO-SENSORS, INC. 6111 Blue Circle
Drive Minnetonka, Minnesota 55343</B></FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2><B> (952) 930-0100</B></FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR STYLE="FONT-SIZE:1PX">
<TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM: SOLID BLACK 2PX'>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP STYLE='BORDER:NONE'>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2><B>NOTICE OF ANNUAL MEETING OF SHAREHOLDERS</B></FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2><B>To Be Held April 24, 2013</B></FONT></P>
</TD>
</TR>
</TABLE>

<P><FONT SIZE=2>To the
Shareholders of Electro-Sensors, Inc.:</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 24, 2013, at 2:00 pm, Central Time,
for the following purposes:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=100%>
<TR STYLE="FONT-SIZE:1PX">
<TD WIDTH="5%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
<TD WIDTH="5%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
<TD WIDTH="90%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>1.</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>To set the number of directors at five (5);</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>2.</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>To elect five (5) directors to serve until the next Annual Meeting of
Shareholders;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>3.</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>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, 2013;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>4.</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>To hold an advisory vote on executive compensation (a &#147;Say-on-Pay&#148;
vote);</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>5.</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>To hold an advisory vote on the frequency of future Say-on-Pay votes;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>6.</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>To approve the Company&#146;s 2013 Equity Incentive Plan; and</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>7.</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>To take action upon any other business as may properly come before
the meeting or any adjournment or postponement thereof.</FONT></P>
</TD>
</TR>
</TABLE>
<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accompanying this Notice of Annual Meeting
is a Proxy Statement, Form of Proxy and the Company&#146;s Annual Report on Form 10-K
for the fiscal year ended December 31, 2012.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Board
of Directors has fixed the close of business on February 25, 2013 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.</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=100%>
<TR STYLE="FONT-SIZE:1PX">
<TD WIDTH="45%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
<TD WIDTH="55%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>BY ORDER OF
THE BOARD OF DIRECTORS,</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN="LEFT"><FONT SIZE=2><img src="a131321002_v1.jpg" alt="-s- Bradley D. Slye"></FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>Bradley D.
Slye</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>President</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=2>Minnetonka,
Minnesota</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=2>Dated:&nbsp;&nbsp;&nbsp;March
22, 2013</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
</TABLE>

<BR>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=100%>
<TR STYLE="FONT-SIZE:1PX">
<TD WIDTH="100%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2><img src="a131321001_v1.jpg" alt="(ELECTRO SENSORS LOGO)"></FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2><B>ELECTRO-SENSORS, INC. &nbsp;&nbsp;6111 Blue
Circle Drive &nbsp;&nbsp;Minnetonka, Minnesota 55343 &nbsp;&nbsp;(952)
930-0100</B></FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR STYLE="FONT-SIZE:1PX">
<TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM: SOLID BLACK 2PX'>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP STYLE='BORDER:NONE'>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2><B>PROXY STATEMENT</B></FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2><B>FOR</B></FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2><B>ANNUAL MEETING OF SHAREHOLDERS</B></FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2><B>To Be Held April 24, 2013</B></FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR STYLE="FONT-SIZE:1PX">
<TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM: SOLID BLACK 2PX'>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
</TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2><B>GENERAL INFORMATION</B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This Proxy
Statement is furnished by the Board of Directors (the &#147;Board of Directors&#148;) of
Electro-Sensors, Inc., a Minnesota corporation (the &#147;Company&#148;), to the
shareholders of the Company in connection with a solicitation of proxies to be
voted at the Annual Meeting of Shareholders (the &#147;Annual Meeting&#148;) to be held
at 2:00 p.m., Central Time, on Wednesday, April 24, 2013, 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
22, 2013. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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&#146;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.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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&#146;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&#146;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&#146;s selection of auditors for the fiscal year ending
December 31, 2013, FOR the non-binding resolution regarding executive
compensation, for the option of &#147;3 YEARS&#148; as the preferred frequency of future
Say-on-Pay votes, FOR the approval of the Company&#146;s 2013 Equity Incentive Plan,
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.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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
(&#147;Common Stock&#148;) 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. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>Important Notice Regarding the Availability
of Proxy Materials for the Annual Meeting:<BR>
The Proxy Statement, Form of Proxy, and Annual Report on Form 10-K are
available at<BR>
http://www.idelivercommunications.com/proxy/else</B></FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>1</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=CENTER><FONT SIZE=2><B>OUTSTANDING SHARES &amp; VOTING RIGHTS</B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company
fixed the close of business on February 25, 2013 as the record date for
determining shareholders entitled to notice of and to vote at the Annual
Meeting. At February 25, 2013, the Company had outstanding 3,393,736 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. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the
election of directors, each shareholder will be entitled to vote for five
nominees and the five nominees with the greatest number of votes will be
elected. With respect to the proposal to set the number of directors at five
(5), ratification of our independent auditors for the fiscal year ending
December 31, 2013, the advisory Say-on-Pay vote, approval of the 2013 Equity
Incentive Plan, and, other than the advisory vote on the frequency of future
Say-on-Pay votes, any other matter that properly comes before the meeting, the
affirmative vote of the holders of a majority of the shares of Common Stock
represented in person or by proxy and entitled to vote on the proposal will be
required for approval. With respect to the advisory vote on the frequency of
future Say-on-Pay votes, the shareholders will be deemed to have selected the
frequency option that receives the most votes. A properly executed proxy marked
&#147;ABSTAIN&#148; with respect to any proposal will not be voted, although it will be
counted for purposes of determining whether there is a quorum. Accordingly, an
abstention will have the effect of a negative vote with respect to all
proposals other than the advisory vote on the frequency of future Say-on-Pay
votes, on which an abstention will have no effect.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A majority
of the shares of Common Stock entitled to vote at the Annual Meeting, present
in person or by proxy, constitutes a quorum, which is required for the transaction
of business at the Annual Meeting. Proxies relating to &#147;street name&#148; 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 (&#147;broker non-votes&#148;) 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. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>CORPORATE GOVERNANCE</B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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, Joseph A. Marino, Geoffrey W.
Miller, and Michael C. Zipoy. 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><FONT SIZE=2><B>Board Leadership
Structure and Risk Management</B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Board of Directors believes that Bradley D. Slye, the Company&#146;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&#146;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&#146;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&#146;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 ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 &#147;lead&#148; independent
director.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Board of Directors believes that oversight of the Company&#146;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&#146;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 ALIGN=CENTER><FONT SIZE=2>2</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2><B>Independence</B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Board
of Directors has determined that Messrs. Marino, Miller, and Zipoy are
independent directors as defined by the
listing standards of the Nasdaq Stock Market, 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. 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.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Board
of Directors has determined that each member of the Company&#146;s Audit Committee,
Compensation Committee and Nominating Committee are independent in accordance
with the listing standards of the Nasdaq Stock Market. </FONT></P>

<P><FONT SIZE=2><B>Code of Ethics and Business Conduct</B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company
has adopted the Electro-Sensors Code of Ethics and Business Conduct (the &#147;Code
of Conduct&#148;), 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. </FONT></P>

<P><FONT SIZE=2><B>Director Attendance at Annual Meeting</B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Directors&#146;
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 2012 Annual Meeting of Shareholders. </FONT></P>

<P><FONT SIZE=2><B>Communications with
the Board</B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 ALIGN=CENTER><FONT SIZE=2>Board of Directors<BR>
Attention: Chairman, Audit Committee<BR>
Electro-Sensors, Inc.<BR>6111 Blue Circle Drive<BR>
Minnetonka, Minnesota 55343-9108</FONT></P>

<P><FONT SIZE=2><B>Committees and Meetings of the Board of
Directors</B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The present
standing committees of the Board of Directors are described below. </FONT></P>

<P><FONT SIZE=2><B>Board Meetings</B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Board
of Directors met four times during the last fiscal year. No incumbent member of
the Board of Directors attended fewer than 75% of the total number of meetings
held by the Board of Directors and the committees on which he served. </FONT></P>

<P><FONT SIZE=2><B>Directors&#146; Compensation</B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Directors
who are not employees of the Company receive $1,250 per quarter for their
services on the Board.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>3</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P><FONT SIZE=2><B>Audit Committee</B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Messrs.
Marino, Miller, and Zipoy currently serve as members of the Audit Committee.
This committee met three times during the last fiscal year. The Audit Committee
is responsible for selecting the Company&#146;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 15 and the Audit Committee Charter attached as Appendix A to
this Proxy Statement. The Board has named Geoff Miller as the &#147;audit committee
financial expert&#148; 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. </FONT></P>

<P><FONT SIZE=2><B>Compensation Committee</B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Messrs.
Marino, Miller, and Zipoy currently serve as members of the Compensation/Stock
Option Committee (the &#147;Compensation Committee&#148;). The Compensation Committee
does not act pursuant to a charter and met once during the last fiscal year.
The Compensation Committee is responsible for making recommendations to the
Board of Directors concerning compensation of the Company&#146;s employees,
officers, and directors, and is authorized to determine the compensation of the
Company&#146;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.</FONT></P>

<P><FONT SIZE=2><B>Nominating Committee </B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Messrs.
Marino, Miller, and Zipoy currently serve as members of the Nominating
Committee. The Nominating Committee met
once during fiscal year 2012. The Nominating Committee is responsible
for evaluating and nominating or recommending candidates for the Company&#146;s
Board of Directors. A copy of the Nominating Committee Charter, which has been
adopted by the Company&#146;s Board of Directors, is attached as Appendix B to this
Proxy Statement.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>4</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P><FONT SIZE=2><B>Nominating
Policy</B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Nominating Committee 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&#146;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.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
evaluating director nominees who meet the Company&#146;s minimum qualifications, the
Nominating Committee considers the following factors and qualifications, among
others:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=100%>
<TR STYLE="FONT-SIZE:1PX">
<TD WIDTH="2%" VALIGN=TOP>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="3%" VALIGN=TOP>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="95%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>the appropriate size and the diversity of the Company&#146;s Board of
Directors;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>the needs of the Board with respect to the particular talents and
experience of its directors;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>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;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>familiarity with domestic and international business matters;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>age and legal and regulatory requirements;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>experience with accounting rules and practices;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>appreciation of the relationship of the Company&#146;s business to the
changing needs of society; and </FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>the desire to balance the considerable benefit of continuity with the
periodic injection of the fresh perspective provided by new members. </FONT></P>
</TD>
</TR>
</TABLE>
<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
shareholder who wishes to recommend one or more directors must provide a
written recommendation to the Company at the address below by November 22,
2013. 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&#146;s name, age,
business address, residence address, current principal occupation, five year
employment history with employer names and a description of the employer&#146;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.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>Electro-Sensors, Inc.<BR>
Attn: Chairman, Nominating Committee<BR>
6111 Blue Circle Drive<BR>
Minnetonka, MN 55343-9108</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>5</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=CENTER><FONT SIZE=2><B>ELECTION OF DIRECTORS<BR>
Proposals #1 and #2</B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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
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 and the Bylaws of
the Company, approval of the proposal to set the number of directors at five
requires the affirmative vote of the holders of 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.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Nominating Committee recommended and the Board of Directors selected the
persons named below for election to the Board of Directors. All nominees are
currently directors 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 directors shall
be elected by a plurality of the votes cast by holders of shares present in
person or by proxy and entitled to vote on the election of directors at a
meeting at which a quorum is present.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table sets forth the principal occupations (for at least the last
five years) and directorships of the nominees:</FONT></P>


<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=100%>
<TR STYLE="FONT-SIZE:1PX">
<TD WIDTH="16%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
<TD WIDTH="2%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
<TD WIDTH="60%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
<TD WIDTH="2%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
<TD WIDTH="6%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
<TD WIDTH="2%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
<TD WIDTH="12%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM: SOLID BLACK 2PX'>
<P><FONT SIZE=1><B>Name</B></FONT></P>
</TD>
<TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 2PX'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM: SOLID BLACK 2PX'>
<P><FONT SIZE=1><B>Principal
Occupation and Directorships</B></FONT></P>
</TD>
<TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 2PX'>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 2PX'>
<P ALIGN=CENTER><FONT SIZE=1><B>Age</B></FONT></P>
</TD>
<TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 2PX'>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP STYLE='BORDER:NONE;BORDER-BOTTOM: SOLID BLACK 2PX'>
<P ALIGN=CENTER><FONT SIZE=1><B>Director Since</B></FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP STYLE='BORDER:NONE'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP STYLE='BORDER:NONE'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP STYLE='BORDER:NONE'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP STYLE='BORDER:NONE'>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP STYLE='BORDER:NONE'>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP STYLE='BORDER:NONE'>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP STYLE='BORDER:NONE'>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=2>Bradley D.
Slye</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=2>Chairman of
the Board and President of the Company since 1997; Chief Financial Officer
since 2000</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=2>53</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=2>1997</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=2>Joseph A.
Marino</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>President
and CEO of Cardia, Inc. (a medical equipment manufacturer) since 1998</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>61</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>1994</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=2>Geoffrey W.
Miller</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=2>CFO of
Wilcox Paper (a distributor of fine paper to the Printing Industry) since
2002; General Manager of AmSan &#150; Brissman Kennedy in 2001 (a distributor of
janitorial supplies); CFO/VP Operations of AmSan &#150; Brissman Kennedy
(1999-2001)</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=2>58</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=2>1999</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=2>Jeffrey D.
Peterson</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>Private
investor since 1998; Previously employed by John G. Kinnard and Company, a
regional brokerage firm. </FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN="CENTER"><FONT SIZE=2>56</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>2011</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR BGCOLOR="#D6F3E8">
<TD VALIGN=TOP>
<P><FONT SIZE=2>Michael C.
Zipoy</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>Investment
executive with Feltl and Company (brokerage and investment banking firm)
since 2005 </FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN="CENTER"><FONT SIZE=2>65</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN="CENTER"><FONT SIZE=2>2012</FONT></P>
</TD>
</TR>
</TABLE>
<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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&#146;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&#146;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. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>6</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=CENTER><FONT SIZE=2><B>SECURITY OWNERSHIP OF CERTAIN<BR>
BENEFICIAL OWNERS AND MANAGEMENT</B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table sets forth information, as of March 18, 2013, 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&#146;s current directors
and executive officers as a group.</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=100%>
<TR STYLE="FONT-SIZE:1PX">
<TD WIDTH="59%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
<TD WIDTH="3%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
<TD WIDTH="20%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
<TD WIDTH="3%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
<TD WIDTH="15%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
</TR>
<TR>
<TD VALIGN=BOTTOM>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD COLSPAN=3 VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 1PX'>
<P ALIGN=CENTER><FONT SIZE=1><B>Common Stock</B></FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM: SOLID BLACK 1PX'>
<P ALIGN=CENTER><FONT SIZE=1><B>Name and Address <BR>
of Beneficial Owner</B></FONT></P>
</TD>
<TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM: SOLID BLACK 1PX'>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM: SOLID BLACK 1PX'>
<P ALIGN=CENTER><FONT SIZE=1><B>Number of Shares <BR>
Beneficially Owned<SUP>(1)(2)</SUP></B></FONT></P>
</TD>
<TD VALIGN=BOTTOM STYLE='BORDER-LEFT:NONE;BORDER-BOTTOM:SOLID BLACK 1PX;BORDER-RIGHT:NONE'>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM STYLE='BORDER-LEFT:NONE;BORDER-BOTTOM:SOLID BLACK 1PX;BORDER-RIGHT:NONE'>
<P ALIGN=CENTER><FONT SIZE=1><B>Percent <BR>
of Class</B></FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BORDER:NONE;BACKGROUND:#D6F3E8'>
<P><FONT SIZE=2>Nancy
Peterson</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BORDER:NONE;BACKGROUND:#D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BORDER:NONE;BACKGROUND:#D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=2>1,266,551 (3)</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BORDER:NONE;BACKGROUND:#D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BORDER:NONE;BACKGROUND:#D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=2>37.3%</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P STYLE='MARGIN-RIGHT:0IN;MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=2>805 Main Street</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P STYLE='MARGIN-RIGHT:0IN;MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=2>Hopkins, MN 55343</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=2>Bradley D.
Slye</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>65,897 (4)</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>1.9%</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P STYLE='MARGIN-RIGHT:0IN;MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=2>6111 Blue Circle Drive</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P STYLE='MARGIN-RIGHT:0IN;MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=2>Minnetonka, MN 55343</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=2>Joseph A.
Marino</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=2>2,500 (5)</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=2>*</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P STYLE='MARGIN-RIGHT:0IN;MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=2>13770 Frontier Court</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P STYLE='MARGIN-RIGHT:0IN;MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=2>Burnsville, MN 55337</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=2>Geoffrey W.
Miller</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>2,500 (5)</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>*</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P STYLE='MARGIN-RIGHT:0IN;MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=2>12735 42<SUP>nd</SUP> Place North</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P STYLE='MARGIN-RIGHT:0IN;MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=2>Plymouth, MN 55442</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=2>Jeffrey D.
Peterson</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=2>2,500 (5)</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=2>*</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P STYLE='MARGIN-RIGHT:0IN;MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=2>15708 Woodknoll Lane</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P STYLE='MARGIN-RIGHT:0IN;MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=2>Minnetonka, MN 55345</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=2>Michael C.
Zipoy</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>2,500 (5)</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>*</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P STYLE='MARGIN-RIGHT:0IN;MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=2>7509 West 84<SUP>th</SUP> St.</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P STYLE='MARGIN-RIGHT:0IN;MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=2>Bloomington, MN 55438</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=2>Farnam
Street Partners, L.P. </FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=2>314,826 (6)</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=2>9.3%</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P STYLE='MARGIN-RIGHT:0IN;MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=2>3033 Excelsior Boulevard, Suite 300</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P STYLE='MARGIN-RIGHT:0IN;MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=2>Minneapolis, MN 55426</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=2>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=2>Nicholas
Swenson</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>481,449 (7)</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>14.2%</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P STYLE='MARGIN-RIGHT:0IN;MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=2>3033 Excelsior Boulevard, Suite 300</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P STYLE='MARGIN-RIGHT:0IN;MARGIN-LEFT:17.3PT;TEXT-INDENT:-8.65PT'><FONT SIZE=2>Minneapolis, MN 55426</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>

<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>

<TR>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=2>Officers and
Directors as a Group (5 persons)</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=2>65,897</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=CENTER><FONT SIZE=2>1.9%</FONT></P>
</TD>
</TR>
</TABLE>


<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=100%>
<TR STYLE="FONT-SIZE:1PX">
<TD WIDTH="5%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
<TD WIDTH="5%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
<TD WIDTH="90%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD COLSPAN=2 VALIGN=TOP>
<P><FONT SIZE=2>*Indicates
ownership of less than one percent (1.0%).</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD COLSPAN=2 VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>(1)</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>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.</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>(2)</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>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 &#147;Exchange Act&#148;), 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 18, 2013. Such information is not necessarily to be
construed as an admission of beneficial ownership for other purposes.</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>(3)</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>Includes 11,400 shares held in an IRA Plan. </FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>(4)</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>Includes 5,190 shares held by Mr. Slye&#146;s spouse and 30,945 shares
held by the ESOP for the account of Mr. Slye.</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>(5)</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>Represents shares issuable upon the exercise of stock options. </FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>(6)</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>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.</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>(7)</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>Includes 25,867 shares owned by Glenhurst Co. (of which Mr. Swenson
is the sole owner) and 51,600 shares owned by Groveland Hedged Credit Fund,
LLC (of which Mr. Swenson is the sole owner), based on a Form 4 filed by Mr.
Swenson with the Securities and Exchange Commission on February 25, 2013. </FONT></P>
</TD>
</TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>7</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=CENTER><FONT SIZE=2><B>TRANSACTIONS WITH RELATED PERSONS,<BR>
PROMOTERS AND CERTAIN CONTROL PERSONS</B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>EXECUTIVE COMPENSATION</B></FONT></P>

<P><FONT SIZE=2><B>Compensation Summary</B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table summarizes information concerning the compensation awarded or
paid to, or earned by, the Company&#146;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 2012; (ii)
executive officers who were serving as of December 31, 2012, received total
compensation in excess of $100,000 for fiscal 2012 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 2012, Mr. Slye was
our only Named Executive Officer.</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=100%>
<TR STYLE="FONT-SIZE:1PX">
<TD WIDTH="24%" VALIGN=BOTTOM>
<P>&nbsp;</P>
</TD>
<TD WIDTH="1%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="4%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="2%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="6%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="2%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="5%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="2%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="5%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="2%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="5%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="2%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="11%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="2%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="8%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="2%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="8%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="2%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="6%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="1%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
</TR>
<TR>
<TD COLSPAN=20 VALIGN=BOTTOM>
<P ALIGN=CENTER><FONT SIZE=2><B>Summary Compensation Table</B></FONT></P>
</TD>
</TR>

<TR>
<TD COLSPAN=20 VALIGN=BOTTOM>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>

<TR>
<TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM: SOLID BLACK 1PX'>
<P ALIGN=CENTER><FONT SIZE=1><B>Name and<BR>
principal <BR>
position</B></FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM: SOLID BLACK 1PX'>
<P ALIGN=CENTER><FONT SIZE=1><B>Year</B></FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM: SOLID BLACK 1PX'>
<P ALIGN=CENTER><FONT SIZE=1><B>Salary</B><FONT SIZE=1><B><BR>
</B></FONT><FONT SIZE=1><B> ($)</B></FONT></FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM: SOLID BLACK 1PX'>
<P ALIGN=CENTER><FONT SIZE=1><B>Bonus</B><FONT SIZE=1><B><BR>
</B></FONT><FONT SIZE=1><B> ($)</B></FONT></FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM: SOLID BLACK 1PX'>
<P ALIGN=CENTER><FONT SIZE=1><B>Stock</B><FONT SIZE=1><B><BR>
</B></FONT><FONT SIZE=1><B>awards</B></FONT><FONT SIZE=1><B><BR>
</B></FONT><FONT SIZE=1><B> ($)</B></FONT></FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM: SOLID BLACK 1PX'>
<P ALIGN=CENTER><FONT SIZE=1><B>Option</B><FONT SIZE=1><B><BR>
</B></FONT><FONT SIZE=1><B>awards</B></FONT><FONT SIZE=1><B><BR>
</B></FONT><FONT SIZE=1><B> ($)</B></FONT></FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM: SOLID BLACK 1PX'>
<P ALIGN=CENTER><FONT SIZE=1><B>Nonequity<BR>
incentive plan<BR>
compensation</B><FONT SIZE=1><B><BR>
</B></FONT><FONT SIZE=1><B> ($)</B></FONT></FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM: SOLID BLACK 1PX'>
<P ALIGN=CENTER><FONT SIZE=1><B>Nonqualified<BR>
deferred<BR>
compensation<BR>
earnings</B><FONT SIZE=1><B><BR>
</B></FONT><FONT SIZE=1><B> ($)</B></FONT></FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM: SOLID BLACK 1PX'>
<P ALIGN=CENTER><FONT SIZE=1><B>All other <BR>
compensation</B><FONT SIZE=1><B><BR>
</B></FONT><FONT SIZE=1><B> ($)(a)</B></FONT></FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM: SOLID BLACK 1PX'>
<P ALIGN=CENTER><FONT SIZE=1><B>Total</B><FONT SIZE=1><B><BR>
</B></FONT><FONT SIZE=1><B> ($)</B></FONT></FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BORDER:NONE;BACKGROUND:#D6F3E8'>
<P><FONT SIZE=2>Bradley D. Slye Chairman,</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=RIGHT><FONT SIZE=2>2012</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=RIGHT><FONT SIZE=2>181,496</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=RIGHT><FONT SIZE=2>0</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=RIGHT><FONT SIZE=2>0</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=RIGHT><FONT SIZE=2>0</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND:#D6F3E8'>
<P ALIGN=RIGHT><FONT SIZE=2>0</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND:#D6F3E8'>
<P ALIGN=RIGHT><FONT SIZE=2>0</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND:#D6F3E8'>
<P ALIGN=RIGHT><FONT SIZE=2>25,003</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=RIGHT><FONT SIZE=2>206,499</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=2>President, CEO, CFO</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=RIGHT><FONT SIZE=2>2011</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=RIGHT><FONT SIZE=2>176,000</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=RIGHT><FONT SIZE=2>0</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=RIGHT><FONT SIZE=2>0</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=RIGHT><FONT SIZE=2>0</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=RIGHT><FONT SIZE=2>0</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=RIGHT><FONT SIZE=2>0</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=RIGHT><FONT SIZE=2>23,684</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=RIGHT><FONT SIZE=2>199,684</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
</TABLE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=100%>
<TR STYLE="FONT-SIZE:1PX">
<TD WIDTH="5%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
<TD WIDTH="95%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=2>(a)</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN="JUSTIFY"><FONT SIZE=2>Amounts
reflect allocations to individual&#146;s account of Company contributions to the
ESOP, 401(k) Plan, and/or standard employee benefit plans. The Company
matches employee contributions to the 401(k) Plan of up to 4% of an
employee&#146;s salary.</FONT></P>
</TD>
</TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2><B>DIRECTOR COMPENSATION</B></FONT></P>

<P><FONT SIZE=2><B>Compensation Summary</B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following table summarizes information concerning the compensation awarded or
paid to, or earned by, the Company&#146;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. During 2012, Mr. Miller was paid an
additional $6,000 to compensate him for the extra hours he spends on the Audit
Committee. In addition, each director received 2,500 stock options during 2012.
</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH=100%>
<TR STYLE="FONT-SIZE:1PX">
<TD WIDTH="19%" VALIGN=BOTTOM>
<P>&nbsp;</P>
</TD>
<TD WIDTH="3%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="1%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="7%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="3%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="1%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="7%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="3%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="1%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="7%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="3%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="1%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="8%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="3%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="1%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="7%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="3%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="1%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="7%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="3%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="1%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="7%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="1%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
</TR>
<TR>
<TD COLSPAN=23 VALIGN=BOTTOM>
<P ALIGN=CENTER><FONT SIZE=2><B>Director Compensation Table</B></FONT></P>
</TD>
</TR>

<TR>
<TD COLSPAN=23 VALIGN=BOTTOM>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>

<TR>
<TD VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM: SOLID BLACK 1PX'>
<P ALIGN=CENTER><FONT SIZE=1><B>Director Name</B></FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD COLSPAN=2 VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 1PX'>
<P ALIGN=CENTER><FONT SIZE=1><B>Fees<BR>
earned <BR>
or paid <BR>
in cash <BR>
($)</B></FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD COLSPAN=2 VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 1PX'>
<P ALIGN=CENTER><FONT SIZE=1><B>Stock<BR>
awards<BR>
($)</B></FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD COLSPAN=2 VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 1PX'>
<P ALIGN=CENTER><FONT SIZE=1><B>Option</B><FONT SIZE=1><B><BR>
</B></FONT><FONT SIZE=1><B>awards</B></FONT><FONT SIZE=1><B><BR>
</B></FONT><FONT SIZE=1><B> ($)</B></FONT></FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD COLSPAN=2 VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 1PX'>
<P ALIGN=CENTER><FONT SIZE=1><B>Nonequity<BR>
incentive plan<BR>
compensation</B><FONT SIZE=1><B><BR>
</B></FONT><FONT SIZE=1><B> ($)</B></FONT></FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD COLSPAN=2 VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 1PX'>
<P ALIGN=CENTER><FONT SIZE=1><B>Nonqualified<BR>
deferred <BR>
compensation<BR>
earnings</B><FONT SIZE=1><B><BR>
</B></FONT><FONT SIZE=1><B> ($)</B></FONT></FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD COLSPAN=2 VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 1PX'>
<P ALIGN=CENTER><FONT SIZE=1><B>All other<BR>
compensation</B><FONT SIZE=1><B><BR>
</B></FONT><FONT SIZE=1><B> ($)</B></FONT></FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD COLSPAN=2 VALIGN=BOTTOM STYLE='BORDER:NONE;BORDER-BOTTOM:SOLID BLACK 1PX'>
<P ALIGN=CENTER><FONT SIZE=1><B>Total</B><FONT SIZE=1><B><BR>
</B></FONT><FONT SIZE=1><B> ($)</B></FONT></FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BORDER:NONE;BACKGROUND:#D6F3E8'>
<P><FONT SIZE=2>Joseph A. Marino</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=RIGHT><FONT SIZE=2>5,000</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=RIGHT><FONT SIZE=2>0</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=RIGHT><FONT SIZE=2>10,375</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=RIGHT><FONT SIZE=2>0</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=RIGHT><FONT SIZE=2>0</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=RIGHT><FONT SIZE=2>0</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=RIGHT><FONT SIZE=2>15,375</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=2>Geoffrey W. Miller</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=RIGHT><FONT SIZE=2>11,000</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=RIGHT><FONT SIZE=2>0</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=RIGHT><FONT SIZE=2>10,375</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=RIGHT><FONT SIZE=2>0</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=RIGHT><FONT SIZE=2>0</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=RIGHT><FONT SIZE=2>0</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=RIGHT><FONT SIZE=2>21,375</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND:#D6F3E8'>
<P><FONT SIZE=2>Jeffrey D. Peterson</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=RIGHT><FONT SIZE=2>5,000</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=RIGHT><FONT SIZE=2>0</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=RIGHT><FONT SIZE=2>10,375</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=RIGHT><FONT SIZE=2>0</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=RIGHT><FONT SIZE=2>0</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=RIGHT><FONT SIZE=2>0</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P ALIGN=RIGHT><FONT SIZE=2>15,375</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8" STYLE='BACKGROUND: #D6F3E8'>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=2>Michael C. Zipoy</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=RIGHT><FONT SIZE=2>5,000</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=RIGHT><FONT SIZE=2>0</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=RIGHT><FONT SIZE=2>10,375</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=RIGHT><FONT SIZE=2>0</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=RIGHT><FONT SIZE=2>0</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=RIGHT><FONT SIZE=2>0</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=RIGHT><FONT SIZE=2>15,375</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
</TABLE>

<P ALIGN=CENTER><FONT SIZE=2>8</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=CENTER><FONT SIZE=2><B>SECTION 16(a) BENEFICIAL OWNERSHIP<BR>
REPORTING COMPLIANCE</B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to
Section 16(a) of the Exchange Act, the Company&#146;s directors, its executive officers,
and any persons who beneficially own more than 10% of the Company&#146;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 2012. 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 2012, except for the reporting of: (i) the April 18, 2012 election of
Michael C. Zipoy to the Board of Directors, for which a Form 3 was filed on
July 25, 2012, (ii) a July 18, 2012 grant by the Company to Mr. Zipoy of an
option to purchase 2,500 shares of the Company&#146;s Common Stock at an exercise
price of $4.15 per share, and (iii) an August 23, 2011 open-market purchase by
Nicholas Swenson of 1,000 shares of the Company&#146;s Common Stock at a purchase
price of $3.94 per share and a February 22, 2012 open-market purchase by Mr.
Swenson of 6 shares of the Company&#146;s Common Stock at a purchase price of $3.90
per share, which purchases were reported on a Form 4 filed on March 9, 2012.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>9</FONT></P>



<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>


<P ALIGN=CENTER><FONT SIZE=2><B>RATIFICATION OF INDEPENDENT AUDITORS<BR></B><B>Proposal #3</B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company&#146;s Board of Directors retained Boulay, Heutmaker, Zibell &amp; Co.
P.L.L.P. as its principal independent auditors for the fiscal year ended
December&nbsp;31, 2012 and has selected Boulay, Heutmaker, Zibell &amp; Co.
P.L.L.P. to serve as the Company&#146;s auditors for the fiscal year ending
December&nbsp;31, 2013. 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 the holders
of a majority of the shares of Common Stock represented at the Annual Meeting
in person or by proxy and entitled to vote. If the selection is not ratified,
the Board of Directors will reconsider its decision.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
representative of Boulay, Heutmaker, Zibell &amp; Co. P.L.L.P. 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 ALIGN=CENTER><FONT SIZE=2><B>DISCLOSURE
OF FEES PAID TO INDEPENDENT AUDITORS</B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following fees were paid to Boulay, Heutmaker, Zibell &amp; Co.
P.L.L.P. for fiscal years 2012 and 2011:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="59%" ALIGN=CENTER>
<TR STYLE="FONT-SIZE:1PX">
<TD WIDTH="60%" VALIGN=BOTTOM>
<P>&nbsp;</P>
</TD>
<TD WIDTH="5%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="1%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="11%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="5%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="1%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="11%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
<TD WIDTH="2%" VALIGN=BOTTOM>
<P ALIGN=CENTER>&nbsp;</P>
</TD>
</TR>
<TR>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
<P ALIGN=CENTER><FONT SIZE=1><B>FY 2012</B></FONT></P>


</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD COLSPAN=2 VALIGN=BOTTOM STYLE="BORDER-BOTTOM:SOLID BLACK 1PX">
<P ALIGN=CENTER><FONT SIZE=1><B>FY 2011</B></FONT></P>


</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=2><B>Audit Fees</B></FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=2>$</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P ALIGN=RIGHT><FONT SIZE=2>66,000</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=2>$</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P ALIGN=RIGHT><FONT SIZE=2>66,000</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=2><B>Audit-Related Fees</B></FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=2>$</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=RIGHT><FONT SIZE=2>0</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=2>$</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=RIGHT><FONT SIZE=2>0</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=2><B>Tax Fees</B></FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=2>$</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P ALIGN=RIGHT><FONT SIZE=2>5,000</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=2>$</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P ALIGN=RIGHT><FONT SIZE=2>5,930</FONT></P>
</TD>
<TD VALIGN=BOTTOM BGCOLOR="#D6F3E8">
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=2><B>All Other Fees</B></FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=2>$</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=RIGHT><FONT SIZE=2>0</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=2>$</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P ALIGN=RIGHT><FONT SIZE=2>0</FONT></P>
</TD>
<TD VALIGN=BOTTOM>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
</TABLE>
<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Audit Fees </B>were
for professional services rendered for the audit of the Company&#146;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. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Audit-Related
Fees</B> consist of the review of and discussion with management
regarding certain accounting treatment.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Tax Fees</B>
were for professional services rendered for preparation of the Company&#146;s annual
tax return, quarterly estimates, and state returns. Tax examination consulting
is also included.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>All Other
Fees</B> represent fees for any professional services not included in
the first three categories listed above.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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&#146;s
independent auditors in order to assure that the provision of such non-audit
services does not impair the auditor&#146;s independence. Unless a particular
service has received general pre-approval by the Audit Committee in accordance
with the Audit Committee&#146;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. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As part of
the Company&#146;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. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Audit
Committee has also provided the Company&#146;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&#146;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&#146;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. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>10</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=CENTER><FONT SIZE=2><B>ADVISORY
VOTE ON EXECUTIVE COMPENSATION<BR>
Proposal #4</B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Dodd-Frank Wall Street Reform and Consumer Protection Act (the &#147;Dodd-Frank
Act&#148;) and Section 14A of the Exchange Act require that we provide our
shareholders the opportunity to vote on a nonbinding, advisory resolution
regarding the compensation of our Named Executive Officers as disclosed in this
Proxy Statement in accordance with the compensation disclosure rules of the SEC
(commonly referred to as &#147;Say-on-Pay&#148;).</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Board
of Directors believes that our executive compensation rewards performance,
supports our business strategies, and discourages excessive risk taking. We
believe that our executive compensation package is adequate, competitive with
the market, and consistent with our objectives and goals.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The vote on
this resolution is not intended to address any specific element of
compensation. Instead, the vote relates to the overall compensation of our
Named Executive Officers, as described in this Proxy Statement in accordance
with the compensation disclosure rules of the SEC. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shareholders
will be asked to vote on the following resolution:</FONT></P>

<P ALIGN=JUSTIFY style=margin-right:5%;margin-left:5%><FONT SIZE=2><B></B>&#147;<B>Resolved</B>,
that the shareholders approve the compensation of the Named Executive Officers
as disclosed in the Summary Compensation Table and the related tabular and
narrative disclosures in this Proxy Statement.&#148; </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The vote on
this proposal is an advisory vote, and is not binding on the Company. Although
the vote is non-binding, the Board of Directors and the Compensation Committee
intend to carefully consider the results of the voting on this proposal when
making future decisions regarding executive compensation. To the extent there
is any significant vote against the compensation of our Named Executive
Officers in this Proposal #4, the Compensation Committee will evaluate what
actions may be necessary to address our shareholders&#146; concerns.</FONT></P>

<P><FONT SIZE=2><B>Vote Required for
Approval</B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
affirmative vote of the holders of a majority of the shares of Common Stock
represented at the Annual Meeting in person or by proxy and entitled to vote is
required for approval of this proposal.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>The Board of
Directors recommends that shareholders vote FOR the non-binding resolution
regarding the compensation of our Named Executive Officers, as disclosed in
this Proxy Statement.</B></FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>ADVISORY
VOTE ON THE FREQUENCY OF HOLDING THE SAY ON PAY VOTE<BR>
Proposal #5</B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition
to the Say-on-Pay vote set forth in Proposal #4, the Dodd-Frank Act and Section
14A of the Exchange Act require that shareholders have the opportunity, at
least once every six years, to vote on how often they believe Say-on-Pay votes
should be held in the future. Shareholders may indicate whether they prefer
that a Say-on-Pay vote be held every year, every two years or every three
years, or they may abstain from this vote.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;After
careful consideration of the various arguments supporting each frequency level,
the Board of Directors has determined that an advisory vote on executive
compensation every three years is the best approach for the Company. Our
executive compensation program is intended to incentivize and reward
performance over a multi-year period, and a three-year cycle is consistent with
these time horizons. A three-year cycle is an appropriate frequency to provide
the Board of Directors and the Compensation Committee sufficient time to
consider shareholder input and implement any appropriate changes to our
executive compensation strategies. Shareholders who have concerns about
executive compensation during the interval between Say-on-Pay votes are welcome
to bring their concerns to the attention of the Board.</FONT></P>

<P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
vote on this proposal is an advisory vote, and is not binding on the Company.
The outcome of this vote will not require the Board to take any action
regarding the frequency of future Say-on-Pay votes. However, the Board will
take into consideration the outcome of the vote when considering the frequency
of future Say-on-Pay votes.</FONT></P>

<P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
proxy card provides shareholders with four choices (every 1 YEAR, 2 YEARS, 3
YEARS, or ABSTAIN). <B>The Board of Directors recommends that shareholders
vote for the option of &#147;3 YEARS&#148; as the preferred frequency of future
Say-on-Pay votes.</B></FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>11</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=CENTER><FONT SIZE=2><B>APPROVAL
OF 2013 EQUITY INCENTIVE PLAN<BR>
Proposal #6</B></FONT></P>

<P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
March 18, 2013, the Board of Directors approved the Electro-Sensors, Inc. 2013
Equity Incentive Plan (the &#147;2013 Plan&#148;), subject to approval by the Company&#146;s
shareholders. If approved, the 2013 Plan will allow the Board to grant stock
options, restricted stock awards, restricted stock units, performance awards
and stock appreciation rights to employees, directors, and consultants. The
Board believes that granting fairly priced stock options and other equity
awards to employees, directors, and consultants is an effective means to
promote the future growth and development of the Company. Such awards, among
other things, increase these individuals&#146; proprietary interest in our success
and enables us to attract and retain qualified personnel. The Board therefore
recommends that all shareholders vote in favor of the 2013 Plan.</FONT></P>

<P ALIGN="JUSTIFY"><FONT SIZE=2><B>Summary of the 2013
Plan</B></FONT></P>

<P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
principal provisions of the 2013 Plan are summarized below. This summary is not
a complete description of all of the 2013 Plan&#146;s provisions, and is qualified
in its entirety by reference to the 2013 Plan which is attached to this Proxy
Statement as Appendix C. Capitalized terms in this summary not defined in this
Proxy Statement have the meanings set forth in the 2013 Plan.</FONT></P>

<P ALIGN="JUSTIFY"><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Purpose and
Eligible Participants</B></I>. The purpose of the 2013 Plan is to
secure and retain competent personnel by furnishing equity incentives to those
employees (including officers), directors, and consultants upon whose efforts
the success of the Company depends. As of the mailing date of this Proxy
Statement, approximately 29 employees (including officers), 4 directors, and no
consultants are eligible to participate in the 2013 Plan.</FONT></P>

<P ALIGN="JUSTIFY"><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Types of
Awards</B></I>. The 2013 Plan permits the grant of the following
types of awards, in the amounts and upon the terms determined by the
Administrator:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
<TR STYLE="FONT-SIZE:1PX">
<TD WIDTH="5%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
<TD WIDTH="95%" VALIGN=TOP>
<P ALIGN=JUSTIFY>&nbsp;</P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Options</I>. Options may either be incentive
stock options (&#147;ISOs&#148;) which are specifically designated as such for purposes
of compliance with Section 422 of the Internal Revenue Code or non-qualified
stock options (&#147;NSOs&#148;). Options shall vest as determined by the
Administrator, subject to certain statutory limitations regarding the maximum
term of ISOs and the maximum value of ISOs that may vest in one year. The
exercise price of each share subject to an ISO will be equal to or greater
than the fair market value of a share on the date of the grant of the ISO,
except in the case of an ISO grant to a shareholder who owns more than 10% of
the Company&#146;s outstanding shares, in which case the exercise price will be
equal to or greater than 110% of the fair market value of a share on the
grant date. The exercise price of each share subject to an NSO shall be
determined by the Board at the time of grant but will not be less than the
fair market value. Recipients of options have no rights as a shareholder with
respect to any shares covered by the award until the award is exercised and a
stock certificate or book entry evidencing such shares is issued or made,
respectively.</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Restricted Stock Awards. </I>Restricted stock
awards consist of shares granted to a participant that are subject to one or
more risks of forfeiture. Restricted stock awards may be subject to risk of
forfeiture based on the passage of time or the satisfaction of other
criteria, such as continued employment or Company performance. Recipients of
restricted stock awards are entitled to vote and receive dividends
attributable to the shares underlying the award beginning on the grant date.</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Restricted Stock Units.</I> Restricted stock
units consist of a right to receive shares (or cash, in the Administrator&#146;s
discretion) on one or more vesting dates in the future. The vesting dates may
be based on the passage of time or the satisfaction of other criteria, such
as continued employment or Company performance. Recipients of restricted
stock units have no rights as a shareholder with respect to any shares
covered by the award until the date a stock certificate or book entry
evidencing such shares is issued or made, respectively.</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Performance Awards. </I>Performance awards,
which may be denominated in cash or shares, are earned upon achievement of
performance objectives during a performance period established by the
Administrator. Recipients of performance awards have no rights as a
shareholder with respect to any shares covered by the award until the date a
stock certificate or book entry evidencing such shares is issued or made,
respectively.</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Stock Appreciation Rights.</I>&nbsp;A stock
appreciation right may be granted independent of or in tandem with a
previously or contemporaneously granted stock option, as determined by the
Administrator. Generally, upon exercise of a stock appreciation right, the
recipient will receive cash, shares of Company stock, or a combination of
cash and stock, with a value equal to the excess of: (i) the fair market
value of a specified number of shares of Company stock on the date of the
exercise, over (ii) a specified exercise price. If a stock appreciation right
is granted in tandem with a stock option, the exercise of the stock
appreciation right will generally cancel a corresponding portion of the
option, and, conversely, the exercise of the stock option will cancel a
corresponding portion of the stock appreciation right.</FONT></P>
</TD>
</TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>12</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=JUSTIFY><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Number of
Shares</B></I>. The stock to be awarded or optioned under this
Plan shall consist of authorized but unissued or reacquired shares of Common
Stock. The maximum aggregate number of shares of Common Stock reserved and
available for awards under the 2013 Plan is 300,000. Shares subject to awards
granted under the 2013 Plan that expire or are terminated or forfeited for any
reason, or which are used to pay the exercise price or satisfy the tax
withholding obligation applicable to an award, or which represent an award to
the extent it is settled in cash, will remain in the pool of shares available
for issuance under the 2013 Plan. As of the date hereof, no awards have been
granted under the 2013 Plan.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Administration</B></I>.
Subject to the terms of the 2013 Plan, the Administrator will have the
discretion to (i) make awards; (ii) determine the terms and conditions of
awards, including the number of shares subject to an award, vesting criteria,
performance conditions and the manner of exercise; (iii) prescribe the form of
agreements to evidence awards; (iv) interpret the 2013 Plan; and (v) make all
other determinations necessary or advisable for the administration of the 2013
Plan or any agreement issued thereunder, to the extent permitted by law and the
2013 Plan. The 2013 Plan will initially be administered by the Board of
Directors of the Company; provided, however, that the Board may delegate some
or all of the administration of the 2013 Plan to a Committee or Committees of
non-employee directors. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Amendments</B></I>.
The Administrator may from time to time, insofar as permitted by law, suspend
or discontinue the 2013 Plan or revise or amend it in any respect. However, to
the extent required by applicable law or regulation, the Administrator may not,
without shareholder approval, revise or amend the 2013 Plan to (i) materially
increase the number of shares subject to the 2013 Plan, (ii) change the
designation of participants, including the class of employees, eligible to
receive awards, (iii) decrease the price at which options or stock appreciation
rights may be granted, (iv) cancel, re-grant, repurchase for cash, or replace
options or stock appreciation rights that have an exercise price in excess of
the fair market value of the Common Stock, or amend the terms of outstanding options
or stock appreciation rights to reduce their exercise price, (v) materially
increase the benefits accruing to participants under the 2013 Plan, or (vi)
make any modification that will cause incentive stock options to fail to meet
the requirements of Internal Revenue Code Section 422.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Term</B></I>.<I>&nbsp;</I>The Administrator may grant awards
pursuant to the 2013 Plan until it is discontinued or terminated; provided,
however, that ISOs may not be granted after March 18, 2023.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Change of
Control</B></I>. Unless otherwise provided in the terms of an
award, upon a change of control of the Company, as defined in the 2013 Plan,
the Board shall have the option to provide for any of the following: (i) the
acceleration of the exercisability, vesting, or lapse of the risks of
forfeiture of any or all awards (or portions thereof); (ii) the complete
termination of the 2013 Plan and the cancellation of any or all awards (or
portions thereof) which have not been exercised, have not vested, or remain
subject to risks of forfeiture, as applicable, in each case as of the effective
date of the Change of Control; (iii) that the entity succeeding the Company by
reason of such change of control, or the parent of such entity, shall assume or
continue any or all awards (or portions thereof) outstanding immediately prior
to the change of control or substitute for any or all such awards (or portions
thereof) a substantially equivalent award with respect to the securities of
such successor entity, as determined in accordance with applicable laws and
regulations; (iv) that holders of outstanding awards shall become entitled to
receive, with respect to each share of Common Stock subject to such award
(whether vested or unvested),&nbsp;as of the effective date of any such change
of control, cash in an amount equal to (a) the holder&#146;s options or stock
appreciation rights, the excess of the fair market value of such Common Stock
on the date immediately preceding the effective date of such change of control
over the exercise price per share of options or stock appreciation rights; or
(b) for Participants holding awards other than options or stock appreciation
rights, the fair market value of such Common Stock on the date immediately
preceding the effective date of such change of control.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Payment</B></I>.
Upon exercise of an option granted under the 2013 Plan, and as permitted in the
Administrator&#146;s discretion, the option holder may pay the exercise price in
cash (or cash equivalent), by surrendering previously-acquired unencumbered
shares of Common Stock, by withholding shares of Common Stock from the number
of shares that would otherwise be issuable upon exercise of the option (<I>e.g.</I>, a net share settlement), through
broker-assisted cashless exercise (if compliant with applicable securities laws
and any insider trading policies of the Company), another form of payment
authorized by the Administrator, or a combination of any of the foregoing. If
the exercise price is paid, in whole or in part, with Common Stock, the
then-current fair market value of the stock delivered or withheld will be used
to calculate the number of shares required to be delivered or withheld.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Transfer
Restrictions</B></I>. Unless permitted by law and expressly
permitted by the Administrator, no award made under the 2013 Plan will be
transferable, other than by will or by the laws of descent and distribution.
The Administrator may permit a recipient of a NSO to transfer the award by gift
to his or her &#147;immediate family&#148; or to certain trusts or partnerships (as
defined and permitted by applicable federal securities law).</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>New Plan
Benefits</B></I>. The amount of future awards will be determined
by the Administrator. The 2013 Plan does not require awards in specific amounts
or to specific recipients or provide formulae to determine the amount or
recipient of awards. As a result, the Company cannot determine the awards that
will be made under the 2013 Plan or that would have been made in the past if
the 2013 Plan had been in place. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>13</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2><B>Federal Income Tax
Matters</B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Options</B></I>.
Under present law, an optionee will not recognize any taxable income on the
date an NSO is granted pursuant to the 2013 Plan. Upon exercise of the option,
however, the optionee must recognize, in the year of exercise, compensation
taxable as ordinary income in an amount equal to the difference between the
option price and the fair market value of Common Stock on the date of exercise.
Upon the sale of the shares, any resulting gain or loss will be treated as
capital gain or loss. The Company will receive an income tax deduction in its
fiscal year in which NSOs are exercised equal to the amount of ordinary income
recognized by those optionees exercising options, and must comply with
applicable tax withholding requirements.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ISOs
granted under the 2013 Plan are intended to qualify for favorable tax treatment
under Section 422 of the Internal Revenue Code. Under Section 422, an optionee
recognizes no taxable income when the option is granted. Further, the optionee
generally will not recognize any taxable income when the option is exercised if
he or she has at all times from the date of the option&#146;s grant until three
months before the date of exercise been an employee of the Company. The Company
ordinarily is not entitled to any income tax deduction upon the grant or
exercise of an incentive stock option. Certain other favorable tax consequences
may be available to the optionee if he or she does not dispose of the shares
acquired upon the exercise of an incentive stock option for a period of two
years from the granting of the option and one year from the receipt of the
shares.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Restricted
Stock Awards</B></I>. Generally, no income is taxable to the
recipient of a restricted stock award in the year that the award is granted.
Instead, the recipient will recognize compensation taxable as ordinary income
equal to the fair market value of the shares in the year in which the risks of
forfeiture restrictions lapse. Alternatively, if a recipient makes an election
under Section 83(b) of the Internal Revenue Code, the recipient will, in the
year that the restricted stock award is granted, recognize compensation taxable
as ordinary income equal to the fair market value of the shares on the date of
the award. The Company normally will receive a corresponding deduction equal to
the amount of compensation the recipient is required to recognize as ordinary
taxable income, and must comply with applicable tax withholding requirements.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Restricted
Stock Units</B></I>. A recipient of restricted stock units will
generally recognize compensation taxable as ordinary income in an amount equal
to the fair market value of the shares (or the amount of cash) distributed to
settle the restricted stock units on the vesting date(s). The Company normally
will receive a corresponding deduction at the time of vesting, equal to the
amount of compensation the recipient is required to recognize as ordinary
taxable income, and must comply with applicable tax withholding requirements.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Performance
Awards</B></I>. A recipient of performance awards will recognize
compensation taxable as ordinary income equal to the value of the shares of
Common Stock or the cash received, as the case may be, in the year that the
recipient receives payment. The Company normally will receive a deduction equal
to the amount of compensation the recipient is required to recognize as
ordinary taxable income, and must comply with applicable tax withholding
requirements.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Stock
Appreciation Rights</B></I>. Generally, a recipient of a stock
appreciation right will recognize compensation taxable as ordinary income equal
to the value of the shares of Common Stock or the cash received in the year
that the stock appreciation right is exercised. The Company normally will
receive a corresponding deduction equal to the amount of compensation the
recipient is required to recognize as ordinary taxable income, and must comply
with applicable tax withholding requirements.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>The
foregoing is only a summary of the effect of U.S. federal income taxation with
respect to the grant and exercise of awards under the 2013 Plan. It does not
purport to be complete, and does not discuss the tax consequences of an
individual&#146;s death or the provisions of the income tax laws of any
municipality, state or foreign country in which any eligible individual may
reside.</B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2><B>Vote
Required for Approval</B></FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
affirmative vote of the holders of a majority of the shares of Common Stock
represented at the Annual Meeting in person or by proxy and entitled to vote is
required for approval of this proposal.</FONT></P>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>The Board of
Directors recommends that shareholders vote FOR approval of the 2013 Equity
Incentive Plan.</B></FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>14</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN="CENTER"><FONT SIZE=2><B>REPORT OF THE AUDIT COMMITTEE</B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Board
of Directors maintains an Audit Committee comprised of three of the Company&#146;s
directors. The Board of Directors and the Audit Committee believe that the
Audit Committee&#146;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 &#147;independent
directors&#148; as that term is defined by Rule 5605(a)(2).</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Audit
Committee of the Board of Directors oversees and monitors the participation of
the Company&#146;s management and independent auditors throughout the financial
reporting process.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
connection with its function to oversee and monitor the financial reporting
process of the Company, the Audit Committee has done the following:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
<TR STYLE="FONT-SIZE:1PX">
<TD WIDTH="5%" VALIGN=TOP>
<P ALIGN=JUSTIFY>&nbsp;</P>
</TD>
<TD WIDTH="95%" VALIGN=TOP>
<P ALIGN=JUSTIFY>&nbsp;</P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN="CENTER"><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>Reviewed and discussed the audited financial statements for the
fiscal year ended December 31, 2012 with the Company&#146;s management;</FONT></P>
</TD>
</TR>

<TR>
<TD VALIGN=TOP>
<P ALIGN="CENTER"><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>Discussed with the Company&#146;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</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN="CENTER"><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>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&#146;s
communications with the Audit Committee concerning independence, and has
discussed with the independent accountant the independent accountant&#146;s
independence.</FONT></P>
</TD>
</TR>
</TABLE>
<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based on
the foregoing, the Audit Committee recommended to the Board of Directors that
the audited financial statements be included in the Company&#146;s annual report on
Form 10-K for the fiscal year ended December 31, 2012.</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
<TR STYLE="FONT-SIZE:1PX">
<TD WIDTH="100%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN="CENTER"><FONT SIZE=2><B>Audit Committee</B></FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN="CENTER"><FONT SIZE=2><I>Joseph A. Marino</I></FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN="CENTER"><FONT SIZE=2><I>Geoffrey W. Miller</I></FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN="CENTER"><FONT SIZE=2><I>Michael C. Zipoy</I></FONT></P>
</TD>
</TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>15</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=CENTER><FONT SIZE=2><B>OTHER
MATTERS</B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>SHAREHOLDER PROPOSALS</B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shareholder
proposals for the proxy statement for the 2014 Annual Meeting of Shareholders
of the Company must be received no later than November 22, 2013 at the
Company&#146;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&#146;s Annual Meeting proxy material under the
SEC&#146;s proxy rules. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Also, if a
shareholder proposal intended to be presented at the next Annual Meeting but not
included in the Company&#146;s proxy statement and proxy is received by the Company
after February 5, 2014, then management named in the Company&#146;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&#146;s
proxy material.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>FORM
10-K</B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A copy of
the Company&#146;s Annual Report to the Securities and Exchange Commission on Form
10-K for the fiscal year ended December 31, 2012 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&#146;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 25, 2013, the record date for the 2013 Annual Meeting, and should
be directed to Mr. Bradley Slye, Chief Executive Officer, at the Company&#146;s
principal address.</FONT></P>

<P><FONT SIZE=2><B>The foregoing Notice
of Annual Meeting and Proxy Statement are sent by order of the Board of
Directors.</B></FONT></P>

<P><FONT SIZE=2>Bradley D.
Slye</FONT></P>

<P><FONT SIZE=2>President<BR>
March 22, 2013</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>16</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>Appendix A <BR>
Audit Committee Charter </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>CHARTER FOR THE AUDIT COMMITTEE<BR>
OF THE BOARD OF DIRECTORS<BR>
OF ELECTRO-SENSORS,INC.</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
<TR STYLE="FONT-SIZE:1PX">
<TD WIDTH="5%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
<TD WIDTH="95%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=2>I.</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>PURPOSE</FONT></P>
</TD>
</TR>
</TABLE>
<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The primary
function of the Audit Committee of Electro-Sensors, Inc. (the &#147;Company&#148;) is to
provide oversight responsibilities by reviewing: the financial reports and
other financial information provided by the Company to any governmental body or
the public and the Company&#146;s systems of internal controls regarding finance,
accounting, legal compliance and ethics that management and the Board of
Directors (the &#147;Board&#148;) have established. The Committee&#146;s primary duties and
responsibilities are to:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="95%" style=margin-left:5%>
<TR STYLE="FONT-SIZE:1PX">
<TD WIDTH="5%" VALIGN=TOP>
<P ALIGN=JUSTIFY>&nbsp;</P>
</TD>
<TD WIDTH="95%" VALIGN=TOP>
<P ALIGN=JUSTIFY>&nbsp;</P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>Serve as an independent and objective party to monitor the Company&#146;s
financial reporting process and internal control system.</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>Coordinate and evaluate the audit efforts of the Company&#146;s
independent auditors.</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>Communicate directly with the independent auditors, the financial and
senior management and the Board regarding the matters related to the Committee&#146;s
responsibilities and duties.</FONT></P>
</TD>
</TR>
</TABLE>
<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Committee will primarily fulfill these responsibilities by carrying out the
activities enumerated in Section III of this Charter.</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
<TR STYLE="FONT-SIZE:1PX">
<TD WIDTH="5%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
<TD WIDTH="95%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=2>II.</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>MEMBERSHIP</FONT></P>
</TD>
</TR>
</TABLE>
<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Committee shall be comprised of three or more directors elected by the Board,
each of whom shall be independent. In addition, no member of the Audit
Committee shall receive any compensation whatsoever from the Company other than
compensation paid to such member as a director of the Company and member of one
or more committee of the Board. Committee members shall serve until the next
annual organizational meeting of the Board, or until their successors are duly
elected and qualified. The Chair of the Committee shall be elected by the
Board. In the absence of the election of a Chair by the Board, the members of
the Committee shall elect a Chair by majority vote of the Committee membership.
</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All
Committee members shall have a working familiarity with basic finance and
accounting practices and shall be able to read and understand financial
statements at the time of their appointment to the Committee. Committee members
may enhance their familiarity with finance and accounting by participating in
educational programs conducted by the Company or an outside consultant. At
least one member of the Committee shall be a &#147;financial expert&#148;, as such term
is defined in applicable regulations of the Securities and Exchange Commission
and The Nasdaq Stock Market, Inc.</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
<TR STYLE="FONT-SIZE:1PX">
<TD WIDTH="5%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
<TD WIDTH="95%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=2>III.</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>RESPONSIBILITIES
AND DUTIES</FONT></P>
</TD>
</TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Independent
Auditors</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
<TR STYLE="FONT-SIZE:1PX">
<TD WIDTH="5%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
<TD WIDTH="5%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
<TD WIDTH="90%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN="JUSTIFY"><FONT SIZE=2>Appoint,
compensate and oversee the Company&#146;s independent auditors. The Company&#146;s
independent auditors shall report directly to the Committee. On an annual
basis, the Committee should review and discuss with the auditors all
significant relationships the auditors have with the Company to determine the
auditors&#146; independence.</FONT></P>
</TD>
</TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>A-1</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
<TR STYLE="FONT-SIZE:1PX">
<TD WIDTH="5%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
<TD WIDTH="5%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
<TD WIDTH="90%" VALIGN=TOP>
<P ALIGN=JUSTIFY>&nbsp;</P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>Review the performance of the independent auditors and discharge the
independent auditors when circumstances warrant. Prior to approval by the
Board, pre-approve all audit services and non-audit services to be performed
by the Company&#146;s independent auditors. Neither the Committee nor the Board
shall approve, and the Company&#146;s independent auditors shall not provide to
the Company, the following non-audit services if such services are to be
provided contemporaneously while serving as independent auditors of the
Company: bookkeeping services; financial IS design and implementation
services; appraisal or valuation services; fairness opinions; contribution-in-kind
reports; actuarial services; internal audit outsourcing services; management
functions or HR; broker/dealer, investment adviser or investment banking
services; and legal services and expert services unrelated to the audit.</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>Financial Reporting Processes</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>Instruct the independent auditors, the Chief Executive Officer and
Chief Financial Officer that the Committee expects to be advised if there are
areas of Company operation that, consistent with the Committee&#146;s purpose,
require its special attention.</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>Periodically consult with the independent auditors out of the
presence of management regarding the adequacy of internal controls.</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>Consider the independent auditors&#146; judgments about the quality and
appropriateness of the Company&#146;s accounting principles as applied and
estimates used in its financial reporting.</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>Periodically consult with the independent auditors out of the
presence of management regarding the accuracy and completeness of the
Company&#146;s financial statements.</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD COLSPAN=2 VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>Documents/Reports Review</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>Review with financial management and the independent auditors any
earnings releases and all Forms 10-Q or 10-K prior to its release or filing.
The Chair of the Committee may represent the entire Committee for purposes of
this review.</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>Review and update this Charter periodically, at least annually, as
conditions dictate.</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD COLSPAN=2 VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>Audit Committee Report</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>Prepare an annual Audit Committee Report to be presented to the
Board. The Committee will prepare the Audit Committee Report with the
understanding that its representations will in used by the Board and the
Company to comply with Item 306 of Regulation S-B and Item 7(d)(3) of
Schedule 14A as those regulations affect the Company.</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD COLSPAN=2 VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>Related-Party Transactions</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>Review and approve all related-party transactions to which the
Company may be a party prior to their implementation to assess whether such
transactions meet applicable legal requirements.</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD COLSPAN=2 VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>Ethical and Legal Compliance</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>Review periodically the Company&#146;s Code of Ethical Conduct for Senior
Financial Officers and management&#146;s enforcement of the Code as it relates to
the Company&#146;s financial reporting process and internal control system.</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>Establish and maintain procedures for efficiently responding to
complaints received by the Company regarding accounting, internal accounting
controls and auditing. At a minimum, these procedures shall allow employees
to submit concerns regarding questionable accounting and auditing matters on a
confidential, anonymous basis.</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD COLSPAN=2 VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>IV.</FONT></P>
</TD>
<TD COLSPAN=2 VALIGN=TOP>
<P><FONT SIZE=2>AUTHORITY</FONT></P>
</TD>
</TR>
</TABLE>

<P><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Audit Committee shall have the sole authority to:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
<TR STYLE="FONT-SIZE:1PX">
<TD WIDTH="5%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
<TD WIDTH="5%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
<TD WIDTH="90%" VALIGN=TOP>
<P ALIGN=JUSTIFY>&nbsp;</P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>Appoint, discharge and authorize compensation of the Company&#146;s
independent auditors; and</FONT></P>
</TD>
</TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>A-2</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
<TR STYLE="FONT-SIZE:1PX">
<TD WIDTH="5%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
<TD WIDTH="5%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
<TD WIDTH="90%" VALIGN=TOP>
<P ALIGN=JUSTIFY>&nbsp;</P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>At the expense of the Company, to retain such consultants and
advisors as it deems reasonably necessary or appropriate to assist it with
its functions.</FONT></P>
</TD>
</TR>
</TABLE>
<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Audit
Committee shall also have the authority as it deems necessary or appropriate to
the functions of the Audit Committee, to request from the Chief Executive
Officer, the Chief Financial Officer and such other members of Company
management as the Committee shall deem appropriate advice and information,
orally or in writing, concerning the Company&#146;s business operations and
financial condition relevant to the functions of the Committee.</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
<TR STYLE="FONT-SIZE:1PX">
<TD WIDTH="5%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
<TD WIDTH="90%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>V.</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=2>MEETINGS
AND MINUTES</FONT></P>
</TD>
</TR>
</TABLE>

<P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Committee shall meet at least two times annually, or more frequently as
circumstances dictate. The Audit Committee will maintain written minutes of its
meeting. Such minutes will be provided to the Board, and filed with the minutes
of the meetings of the Board.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>A-3</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P><FONT SIZE=2>Appendix B<BR>
Nominating Committee Charter</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>CHARTER FOR THE
NOMINATING<BR>
COMMITTEE OF THE BOARD OF DIRECTORS OF<BR>
ELECTRO-SENSORS, INC.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>PURPOSE:</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Nominating Committee shall be responsible for matters relating to the
governance of Electro-Sensors, Inc. (the &#147;Company&#148;), including selection of
candidates for the Company&#146;s Board of Directors.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>MEMBERSHIP:</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Nominating Committee will be comprised only of independent (as such term is
defined by applicable laws and regulations or the Company&#146;s corporate
governance policies, if any) directors appointed by the Board.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Chair of the Nominating Committee shall be elected by the Board or, if not
elected by the Board, then by the majority of the members of the Committee. The
Chair of the Nominating Committee shall conduct the Committee meetings as well
as represent the Committee at meetings of the Company&#146;s Board.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>RESPONSIBILITIES:</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
<TR STYLE="FONT-SIZE:1PX">
<TD WIDTH="5%" VALIGN=TOP>
<P ALIGN=JUSTIFY>&nbsp;</P>
</TD>
<TD WIDTH="95%" VALIGN=TOP>
<P ALIGN=JUSTIFY>&nbsp;</P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>Developing,
reviewing and revising as appropriate, for adoption by the Board, the
Principles of Corporate Governance by which the Company and the Board shall
be governed.</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>Developing,
reviewing and revising as appropriate, for adoption by the Board, the codes
of ethical conduct and legal compliance by which the Company and its
directors, officers, employees and agents will be governed.</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>Developing and
recommending to the Board policies and processes designed to provide for
effective and efficient governance, including but not limited to: policies
for evaluation of the Board and the chairperson; nomination, election and
reelection of Board members; and succession planning for the Board
chairperson and other Board leaders.</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>Annually
reviewing the composition of the Board, focusing on the governance and
business needs and requirements of the Company, and reporting to the Board
regarding suggested changes in Board composition which will guide the
Committee in the selection, recruitment and recommendation of directors.</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>Overseeing
organization, membership and evaluation of Board committees and committee
members.</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>Reviewing and
making recommends regarding shareholder proposals that related to corporate
governance. </FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>Establishing
Board member selection criteria and meeting as necessary to consider the
nomination and screening of Board member candidates and to evaluate the
performance of the Board and its members.</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>Evaluating the
performance of Board members eligible for reelection; addressing performance
issues as needed; and recommending the reelection of Board members who are
performing effectively and continue to provide a competency needed on the
Board.</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>Annually
reviewing the composition of the Board against a matrix of skills and
characteristics focused on the governance and business needs and requirements
of the Company, and reporting to the Board regarding suggested changes in
Board composition which will guide the Committee in the selection,
recruitment and recommendation of directors.</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2>&#149;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>Review director
nominees proposed by shareholders and recommend the director nominees for the
annual meeting of shareholders. </FONT></P>
</TD>
</TR>
</TABLE>
<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All
members of management of the Company are requested to cooperate with the
Nominating Committee, and to render assistance to it as it shall request in
carrying out its functions.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>B-1</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P ALIGN=JUSTIFY><FONT SIZE=2>MEETINGS:</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Nominating Committee shall/ establish its own schedule or meetings and provide
a copy of it to the Board and will maintain written minutes of its meetings.
Such minutes shall be promptly made available to the members of the Board of
Directors, and filed with the minutes of the meetings of the Board of
Directors.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>AUTHORITY:</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Nominating Committee shall have the authority, as and when it shall determine
to be necessary or appropriate to the functions of the Nominating Committee,</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
<TR STYLE="FONT-SIZE:1PX">
<TD WIDTH="10%" VALIGN=TOP>
<P ALIGN=JUSTIFY>&nbsp;</P>
</TD>
<TD WIDTH="90%" VALIGN=TOP>
<P ALIGN=JUSTIFY>&nbsp;</P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=RIGHT><FONT SIZE=2>(i)</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;at the expense of the Company and not at
the expense of the members thereof, counsel (which may be, but need not be,
the regular corporate counsel to the Company), employ one or more recruiting
firms to assist in the identification and recruitment of director candidates
and other advisors to assist it in connection with its functions; and</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=RIGHT><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>

<TR>
<TD VALIGN=TOP>
<P ALIGN=RIGHT><FONT SIZE=2>(ii)</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;to request from the Chief Executive
Officer, the Chief Financial Officer, and such other members of the Company&#146;s
management as the Committee shall deem appropriate, advice and information,
orally or in writing, concerning the Company&#146;s business operations and
financial condition relevant to the functions of the Committee.</FONT></P>
</TD>
</TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>B-2</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>
<P><FONT SIZE=2>Appendix C<BR>
2013 Equity Incentive Plan</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>ELECTRO-SENSORS, INC.<BR>
2013 EQUITY INCENTIVE PLAN</B></FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
<TR STYLE="FONT-SIZE:1PX">
<TD WIDTH="100%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2><B>SECTION 1.</B></FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=CENTER><FONT SIZE=2><U><B>DEFINITIONS</B></U></FONT></P>
</TD>
</TR>
</TABLE>
<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As used
herein, the following terms shall have the meanings indicated below:</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Administrator&#148;
shall mean the Board of Directors of the Company (hereinafter referred to as
the &#147;Board&#148;), or one or more Committees appointed by the Board, as the case may
be.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Affiliate(s)&#148;
shall mean a Parent or Subsidiary of the Company.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Agreement&#148;
shall mean the written agreement entered into by the Participant and the
Company evidencing the grant of an Award. Each Agreement shall be in such form
as may be approved from time to time by the Administrator and may vary from
Participant to Participant. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Award&#148;
shall mean any grant pursuant to this Plan of an Incentive Stock Option,
Nonqualified Stock Option, Restricted Stock Award, Restricted Stock Unit Award,
Stock Appreciation Right, or Performance Award.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Change
of Control&#148; shall mean the occurrence, in a single transaction or in a series
of related transactions, of any one or more of the events in subsections (i)
through (iv) below. For purposes of this definition, a person, entity or group
shall be deemed to &#147;Own,&#148; to have &#147;Owned,&#148; to be the &#147;Owner&#148; of, or to have
acquired &#147;Ownership&#148; of securities if such person, entity or group directly or
indirectly, through any contract, arrangement, understanding, relationship or
otherwise, has or shares voting power, which includes the power to vote or to
direct the voting, with respect to such securities.</FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
<TR STYLE="FONT-SIZE:1PX">
<TD WIDTH="6%" VALIGN=TOP>
<P ALIGN=JUSTIFY>&nbsp;</P>
</TD>
<TD WIDTH="93%" VALIGN=TOP>
<P ALIGN=JUSTIFY>&nbsp;</P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>(i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any
person, entity or group becomes the Owner, directly or indirectly, of
securities of the Company representing more than fifty percent (50%) of the
combined voting power of the Company&#146;s then outstanding securities other than
by virtue of a merger, consolidation or similar transaction. Notwithstanding
the foregoing, a Change of Control shall not be deemed to occur (A) on
account of the acquisition of securities of the Company by an investor, any
affiliate thereof or any other person, entity or group from the Company in a
transaction or series of related transactions the primary purpose of which is
to obtain financing for the Company through the issuance of equity
securities, or (B) solely because the level of Ownership held by any person,
entity or group (the &#147;Subject Person&#148;) exceeds the designated percentage
threshold of the outstanding voting securities as a result of a repurchase or
other acquisition of voting securities by the Company reducing the number of
shares outstanding, provided that if a Change of Control would occur (but for
the operation of this sentence) as a result of the acquisition of voting
securities by the Company, and after such share acquisition, the Subject
Person becomes the Owner of any additional voting securities that, assuming
the repurchase or other acquisition had not occurred, increases the
percentage of the then outstanding voting securities Owned by the Subject
Person over the designated percentage threshold, then a Change of Control
shall be deemed to occur;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>(ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There
is consummated a merger, consolidation or similar transaction involving
(directly or indirectly) the Company and, immediately after the consummation
of such merger, consolidation or similar transaction, the shareholders of the
Company immediately prior thereto do not Own, directly or indirectly, either
(A) outstanding voting securities representing more than fifty percent (50%)
of the combined outstanding voting power of the surviving entity in such
merger, consolidation or similar transaction or (B) more than fifty percent
(50%) of the combined outstanding voting power of the parent of the surviving
entity in such merger, consolidation or similar transaction, in each case in
substantially the same proportions as their Ownership of the outstanding
voting securities of the Company immediately prior to such transaction;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>(iii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There
is consummated a sale, lease, exclusive license or other disposition of all
or substantially all of the total gross value of the consolidated assets of
the Company and its subsidiaries, other than a sale, lease, license or other
disposition of all or substantially all of the total gross value of the
consolidated assets of the Company and its subsidiaries to an entity, more
than fifty percent (50%) of the combined voting power of the voting
securities of which are Owned by shareholders of the Company in substantially
the same proportions as their Ownership of the outstanding voting securities
of the Company immediately prior to such sale, lease, license or other
disposition (for purposes of this Section 1(e)(iii), &#147;gross value&#148; means the
value of the assets of the Company or the value of the assets being disposed
of, as the case may be, determined without regard to any liabilities associated
with such assets); or</FONT></P>
</TD>
</TR>
</TABLE>
<P ALIGN=CENTER><FONT SIZE=2>C-1</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<BR>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
<TR STYLE="FONT-SIZE:1PX">
<TD WIDTH="5%" VALIGN=TOP>
<P ALIGN=JUSTIFY>&nbsp;</P>
</TD>
<TD WIDTH="95%" VALIGN=TOP>
<P ALIGN=JUSTIFY>&nbsp;</P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>(iv)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Individuals
who, at the beginning of any consecutive twelve-month period, are members of
the Board (the &#147;Incumbent Board&#148;), cease for any reason to constitute at
least a majority of the members of the Board at any time during that
consecutive twelve-month period; provided, however, that if the appointment
or election (or nomination for election) of any new Board member was approved
or recommended by a majority vote of the members of the Incumbent Board then
still in office, such new member shall, for purposes of this Plan, be
considered as a member of the Incumbent Board. </FONT></P>
</TD>
</TR>
</TABLE>
<P ALIGN=JUSTIFY><FONT SIZE=2>For the avoidance of doubt, the term &#147;Change of Control&#148; shall not
include a sale of assets, merger or other transaction effected exclusively for
the purpose of changing the domicile of the Company. To the extent required,
the determination of whether a Change of Control has occurred shall be made in
accordance with Code Section 409A and the regulations, notices and other
guidance of general applicability issued thereunder. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Close
of Business&#148; of a specified day shall mean 5:00 p.m., Central Time, without
regard to whether such day is a Saturday, Sunday, bank holiday, or other day on
which no business is conducted. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Committee&#148;
shall mean a Committee of two or more Directors who shall be appointed by and
serve at the pleasure of the Board. To the extent necessary for compliance with
Rule 16b-3, each of the members of the Committee shall be a &#147;non-employee
director.&#148; Solely for purposes of this Section 1(g), &#147;non-employee director&#148;
shall have the same meaning as set forth in Rule 16b-3. Further, to the extent
necessary for compliance with the limitations set forth in Internal Revenue
Code Section 162(m), each of the members of the Committee shall be an &#147;outside
director&#148; within the meaning of Code Section 162(m) and the regulations issued
thereunder.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Common
Stock&#148; shall mean the common stock of the Company (subject to adjustment as
provided in Section 14 of this Plan). </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
&#147;Company&#148; shall mean Electro-Sensors, Inc., a Minnesota corporation.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Consultant&#148;
shall mean any person, including an advisor, who is engaged by the Company or
any Affiliate to render consulting or advisory services and is compensated for
such services; provided, however, that no person shall be considered a
Consultant for purposes of the Plan unless such Consultant is a natural person,
renders bona fide services to the Company or any Affiliate, and such services
are not in connection with the offer or sale of securities in a capital raising
transaction and do not directly or indirectly promote or maintain a market for
the Company&#146;s securities. For purposes of this plan, &#147;Consultant&#148; shall also
include a director of an Affiliate who is compensated for services as a
director. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Director&#148;
shall mean a member of the Board. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Effective
Date&#148; shall mean the date the Board adopts the Plan. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(m)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Employee&#148;
shall mean a common-law employee of the Company or any Affiliate, including
&#147;officers&#148; as defined by Section 16 of the Exchange Act; provided, however,
that service solely as a Director or Consultant, regardless of whether a fee is
paid for such service, shall not cause a person to be an Employee for purposes
of the Plan. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(n)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Exchange
Act&#148; shall mean the Securities Exchange Act of 1934, as amended, and the rules
and regulations thereunder. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(o)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Fair
Market Value&#148; of specified stock as of any date shall mean (i) if such stock is
listed on the Nasdaq Global Select Market, Nasdaq Global Market, Nasdaq Capital
Market or an established stock exchange, the price of such stock at the close
of the regular trading session of such market or exchange on such date, as
reported by <U>The Wall Street Journal</U> or a comparable reporting service,
or, if no sale of such stock shall have occurred on such date, on the next
preceding date on which there was a sale of stock; (ii) if such stock is not so
listed on the Nasdaq Global Select Market, Nasdaq Global Market, Nasdaq Capital
Market, or an established stock exchange, the average of the closing &#147;bid&#148; and
&#147;asked&#148; prices quoted by the OTC Bulletin Board, the National Quotation Bureau,
or any comparable reporting service on such date or, if there are no quoted
&#147;bid&#148; and &#147;asked&#148; prices on such date, on the next preceding date for which
there are such quotes; or (iii) if such stock is not publicly traded as of such
date, the per share value as determined by the Board or the Committee in its
sole discretion by applying principles of valuation with respect to Common
Stock.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(p)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Incentive
Stock Option&#148; shall mean an option granted pursuant to Section 8 of this Plan
that is intended to satisfy the provisions of Code Section 422, or any
successor provision. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(q)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
&#147;Internal Revenue Code&#148; or &#147;Code&#148; shall mean the Internal Revenue Code of 1986,
as amended from time to time.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(r)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Option&#148;
shall mean an Incentive Stock Option or Nonqualified Stock Option granted
pursuant to the Plan. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>C-2</FONT></P>

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<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(s)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Nonqualified
Stock Option&#148; shall mean an option granted pursuant to Section 9 of this Plan
or an option (or portion thereof) that does not qualify as an Incentive Stock
Option. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(t)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Parent&#148;
shall mean any parent corporation of the Company within the meaning of Code
Section 424(e), or any successor provision. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(u)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Participant&#148;
shall mean an Employee to whom an Incentive Stock Option has been granted or an
Employee, a Director, or a Consultant to whom a Nonqualified Stock Option,
Restricted Stock Award, Restricted Stock Unit Award, Performance Award or Stock
Appreciation Right has been granted. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Performance
Award&#148; shall mean any Performance Shares or Performance Cash Units granted
pursuant to Section 12 of this Plan. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(w)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Performance
Objective(s)&#148; shall mean one or more performance objectives established by the
Administrator, in its sole discretion, for Awards granted under this Plan. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(x)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Performance
Period&#148; shall mean the period, established at the time any Performance Award is
granted or at any time thereafter, during which any Performance Objectives
specified by the Administrator with respect to such Performance Award are to be
measured. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(y)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Performance
Share&#148; shall mean any grant of an Award pursuant to Section 12 of this Plan,
the value of which, if any, shall be paid to a Participant by delivery of
shares of Common Stock upon achievement of such Performance Objectives during
the Performance Period as the Administrator shall establish at the time of such
grant or thereafter. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(z)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Performance
Cash Unit&#148; shall mean any grant of an Award pursuant to Section 12 of this
Plan, the value of which, if any, shall be paid to a Participant by delivery of
cash upon achievement of such Performance Objectives during the Performance
Period as the Administrator shall establish at the time of such grant or
thereafter. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(aa)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
&#147;Plan&#148; means the Electro-Sensors, Inc. 2013 Equity Incentive Plan, as amended
hereafter from time to time, including the form of Agreements as they may be
modified by the Administrator from time to time. <BR><BR>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(bb)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Restricted Stock Award&#148;
shall mean any grant of restricted shares of Common Stock pursuant to Section
10 of this Plan. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(cc)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Restricted
Stock Unit Award&#148; shall mean any grant of any restricted stock units pursuant
to Section 11 of this Plan. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(dd)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Rule
16b-3&#148; shall mean Rule 16b-3, or any successor provision, as then in effect, of
the General Rules and Regulations under the Exchange Act. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ee)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&#147;Stock
Appreciation Right&#148; shall mean a grant pursuant to Section 13 of this Plan. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ff)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A
&#147;Subsidiary&#148; shall mean any subsidiary corporation of the Company within the
meaning of Code Section 424(f), or any successor provision. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>SECTION 2.<BR>
<U>PURPOSE</U></B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
purpose of the Plan is to promote the success of the Company and its Affiliates
by facilitating the employment and retention of competent personnel and by
furnishing incentives to those Employees, Directors and Consultants upon whose
efforts the success of the Company and its Affiliates will depend to a large
degree. It is the intention of the Company to carry out the Plan through the
granting of Incentive Stock Options, Nonqualified Stock Options, Restricted
Stock Awards, Restricted Stock Unit Awards, Performance Awards and Stock
Appreciation Rights. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>SECTION 3.<BR>
<U>EFFECTIVE DATE AND DURATION OF PLAN</U> </B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Plan
shall be effective on the Effective Date; provided, however, that adoption of
this Plan shall be and is expressly subject to the condition of approval by the
shareholders of the Company within twelve (12) months before or after the
Effective Date. Notwithstanding anything in this Plan to the contrary, until
shareholder approval of the Plan is obtained in accordance with applicable
stock exchange listing standards, no Awards other than Options may be granted
and no Options may be made exercisable. If shareholder approval is not obtained
within the twelve (12) month period referenced in this Section 3, this Plan and
all Awards granted after the Effective Date shall be null and void. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>C-3</FONT></P>

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<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Administrator may grant Awards pursuant to the Plan from time to time until the
Administrator discontinues or terminates the Plan; provided, however, that in
no event may Incentive Stock Options be granted pursuant to the Plan after the
earlier of (i) the date the Administrator discontinues or terminates the Plan
or (ii) the Close of Business on the day immediately preceding the tenth
anniversary of the Effective Date. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>SECTION 4.<BR>
<U>ADMINISTRATION</U></B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Plan
shall be administered by the Board; provided, however, that the Board may delegate
some or all of the administration of the Plan to a Committee or Committees. The
Board and any Committee appointed by the Board to administer the Plan are
collectively referred to in this Plan as the &#147;Administrator.&#148; </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except as
otherwise provided herein, the Administrator shall have all of the powers
vested in it under the provisions of the Plan, including but not limited to
exclusive authority to determine, in its sole discretion, whether an Award
shall be granted; the individuals to whom, and the time or times at which,
Awards shall be granted; the number of shares subject to each Award; the
exercise price of Options granted hereunder; and the performance criteria, if
any, and any other terms and conditions of each Award. The Administrator shall
have full power and authority to administer and interpret the Plan; to make and
amend rules, regulations and guidelines for administering the Plan; to
prescribe the form and conditions of the respective Agreements evidencing each
Award (which may vary from Participant to Participant); and to make all other
determinations necessary or advisable for the administration of the Plan,
including to correct any defect, omission or inconsistency in the Plan or any
Agreement, to the extent permitted by law and this Plan. The Administrator&#146;s
interpretation of the Plan, and all actions taken and determinations made by
the Administrator pursuant to the power vested in it hereunder, shall be
conclusive and binding on all parties concerned. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No member
of the Board or Committee shall be liable for any action taken or determination
made in good faith in connection with the administration of the Plan. In the
event the Board appoints a Committee as provided hereunder, any action of the
Committee with respect to the administration of the Plan shall be taken
pursuant to a majority vote of the Committee members or pursuant to the written
resolution of all Committee members. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>SECTION 5.<BR>
<U>PARTICIPANTS</U></B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Administrator may grant Awards under this Plan to any Employee, Director, or
Consultant; provided, however, that only Employees are eligible to receive
Incentive Stock Options. In designating Participants, the Administrator shall
also determine the number of shares or cash units to be optioned or awarded to each
such Participant and the performance criteria applicable to each Performance
Award. The Administrator may from time to time designate individuals as being
ineligible to participate in the Plan. The power of the Administrator under
this Section 5 shall be exercised from time to time in the sole discretion of
the Administrator and without approval by the shareholders. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>SECTION 6.<BR>
<U>STOCK</U></B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The stock
to be awarded or optioned under this Plan shall consist of authorized but
unissued or reacquired shares of Common Stock. Subject to Section 14 of this
Plan, the maximum aggregate number of shares of Common Stock reserved and
available for Awards under the Plan is Three Hundred Thousand (300,000). The
maximum aggregate number of shares of Common Stock that may be issued through
Incentive Stock Options shall also be Three Hundred Thousand (300,000).</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
following shares of Common Stock shall continue to be reserved and available
for Awards granted pursuant to the Plan: (i) any outstanding Award that expires
or is forfeited for any reason, (ii) any portion of an outstanding Option or
Stock Appreciation Right that is terminated prior to exercise, (iii) any
portion of an Award that is terminated prior to the lapsing of the risks of
forfeiture on such Award, (iv) shares of Common Stock used to pay the exercise
price under any Award, (v) shares of Common Stock used to satisfy any tax
withholding obligation attributable to any Award, whether such shares are
withheld by the Company or tendered by the Participant, and (vi) shares of
Common Stock covered by an Award to the extent the Award is settled in cash. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>SECTION 7.<BR>
<U>PAYMENT OF OPTION EXERCISE PRICE</U></B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon
exercise of an option, Participants may pay the exercise price of an Option (i)
in cash, or with a personal check, certified check, or other cash equivalent,
(ii) by the surrender by the Participant to the Company of previously acquired
unencumbered shares of Common Stock (through physical delivery or attestation),
(iii) through the withholding of shares of Common Stock from the number of
shares otherwise issuable upon the exercise of the Option (<I>e.g</I>., a net share settlement), (iv)
through broker-assisted cashless exercise if such exercise complies with
applicable securities laws and any insider trading policy of the Company, (v)
such other form of payment as may be authorized by the Administrator, or (vi) by a combination thereof. In
the event the Participant elects to pay the exercise price, in whole or in
part, with previously acquired shares of Common Stock or through a net share
settlement, the then-current Fair Market Value of the stock delivered or
withheld shall equal the total exercise price for the shares being purchased in
such manner.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>C-4</FONT></P>

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<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Administrator may, in its sole discretion, limit the forms of payment available
to the Participant and may exercise such discretion any time prior to the
termination of the Option granted to the Participant or upon any exercise of
the Option by the Participant. &#147;Previously acquired shares of Common Stock&#148;
means shares of Common Stock which the Participant owns on the date of exercise
(or for such other period of time, if any, as may be required by generally
accepted accounting principles or any successor principles applicable to the Company).
</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With
respect to payment in the form of Common Stock, the Administrator may require
advance approval or adopt such rules as it deems necessary to assure compliance
with Rule 16b-3, if applicable. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>SECTION 8.<BR>
<U>TERMS AND CONDITIONS OF INCENTIVE STOCK OPTIONS</U></B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each
Incentive Stock Option shall be evidenced by an Incentive Stock Option
Agreement, which shall comply with and be subject to the following terms and
conditions: </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Number
of Shares and Exercise Price</U>. The Incentive Stock Option Agreement shall
state the total number of shares covered by the Incentive Stock Option. Except
as permitted by Code Section 424(a), or any successor provision, the exercise
price per share shall not be less than one hundred percent (100%) of the per
share Fair Market Value of the Common Stock on the date the Administrator
grants the Incentive Stock Option; provided, however, that if a Participant
owns stock possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or of its Parent or any
Subsidiary, the exercise price per share of an Incentive Stock Option granted
to such Participant shall not be less than one hundred ten percent (110%) of
the per share Fair Market Value of Common Stock on the date of the grant of the
Incentive Stock Option. The Administrator shall have full authority and
discretion in establishing the exercise price and shall be fully protected in
so doing. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Exercisability
and Term</U>. The Incentive Stock Option Agreement shall state when the
Incentive Stock Option becomes exercisable (<I>i.e.</I>
&#147;vests&#148;).&nbsp;The Participant may exercise the Incentive Stock Option, in full or
in part, upon or after the vesting date of such Option (or portion thereof).&nbsp;Notwithstanding
anything in this Plan or the Agreement to the contrary, the Participant may not
exercise an Incentive Stock Option after the maximum term of such Option, as
such term is specified in the Incentive Stock Option Agreement.&nbsp;Except as
permitted by Code Section 424(a), in no event shall any Incentive Stock Option
be exercisable during a term of more than ten (10) years after the date on
which it is granted; provided, however, that if a Participant owns stock
possessing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or of its Parent or any Subsidiary, the
Incentive Stock Option granted to such Participant shall be exercisable during
a term of not more than five (5) years after the date on which it is granted. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Administrator may accelerate the exercisability of any Incentive Stock Option
granted hereunder which is not immediately exercisable as of the date of
grant.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>No
Rights as Shareholder</U>. A Participant (or the Participant&#146;s successors)
shall have no rights as a shareholder with respect to any shares covered by an
Incentive Stock Option until the date of the issuance of the Common Stock
subject to such Award upon exercise, as evidenced by a stock certificate or as
reflected in the books and records of the Company or its designated agent (<I>i.e.</I>, a &#147;book entry&#148;). Except as provided
in Section 14 of the Plan, no adjustment shall be made for dividends (ordinary
or extraordinary, whether in cash, securities or other property), distributions
or other rights for which the record date is prior to the date such shares are
actually issued (as evidenced in either certificated or book entry form).</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Withholding</U>.
The Company or its Affiliate shall be entitled to withhold and deduct from any
future payments to the Participant all legally required amounts necessary to
satisfy any and all withholding and employment-related taxes attributable to
the Participant&#146;s exercise of an Incentive Stock Option or a &#147;disqualifying
disposition&#148; of shares acquired through the exercise of an Incentive Stock
Option as defined in Code Section 421(b) or require the Participant to remit an
amount sufficient to satisfy such withholding requirements, or any combination
thereof.&nbsp;In the event the Participant is required under the Incentive Stock
Option Agreement to pay the Company, or make arrangements satisfactory to the
Company respecting payment of, such withholding and employment-related taxes,
the Administrator may, in its sole discretion, require the Participant to
satisfy such obligation, in whole or in part, by delivering shares of Common
Stock or by electing to have the Company withhold shares of Common Stock
otherwise issuable to the Participant as a result of the exercise of the
Incentive Stock Option.&nbsp;Such shares shall have a Fair Market Value equal to the
minimum required tax withholding, based on the minimum statutory withholding
rates for federal and state tax purposes, including payroll taxes, that are applicable
to the supplemental income resulting from such exercise or disqualifying
disposition.&nbsp;In no event may the Participant deliver shares, nor may the
Company or any Affiliate withhold shares, having a Fair Market Value in excess
of such statutory minimum required tax withholding.&nbsp;The Participant&#146;s delivery
of shares or the withholding of shares for this purpose shall occur on or
before the later of (i) the date the Incentive Stock Option is exercised or the date of the disqualifying disposition, as the case may
be, or (ii) the date that the amount of tax to be withheld is determined under
applicable tax law. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>C-5</FONT></P>

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<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Vesting
Limitation</U>. Notwithstanding any other provision of the Plan, the aggregate
Fair Market Value (determined as of the date an Incentive Stock Option is
granted) of the shares of Common Stock with respect to which Incentive Stock
Options are exercisable for the first time by a Participant during any calendar
year under the Plan and any other &#147;incentive stock option&#148; plans of the Company
or any Affiliate shall not exceed $100,000 (or such other amount as may be
prescribed by the Code from time to time); provided, however, that if the
exercisability or vesting of an Incentive Stock Option is accelerated as
permitted under the provisions of the Plan and such acceleration would result
in a violation of the limit imposed by this Section 8(e), such acceleration
shall be of full force and effect but the number of shares of Common Stock that
exceed such limit shall be treated as having been granted pursuant to a
Nonqualified Stock Option; and provided, further, that the limits imposed by
this Section 8(e) shall be applied to all outstanding Incentive Stock Options
under the Plan and any other &#147;incentive stock option&#148; plans of the Company or
any Affiliate in chronological order according to the dates of grant. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Other
Provisions</U>. The Incentive Stock Option Agreement authorized under this
Section 8 shall contain such other provisions as the Administrator shall deem
advisable. Any such Incentive Stock Option Agreement shall contain such
limitations and restrictions upon the exercise of the Incentive Stock Option as
shall be necessary to ensure that such Incentive Stock Option will be
considered an &#147;incentive stock option&#148; as defined in Code Section 422 or to
conform to any change therein. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>SECTION 9.</B><BR>
<U><B>TERMS AND CONDITIONS OF NONQUALIFIED STOCK
OPTIONS</B></U></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each
Nonqualified Stock Option shall be evidenced by a Nonqualified Stock Option
Agreement, which shall comply with and be subject to the following terms and
conditions: </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Number
of Shares and Exercise Price</U>. The Nonqualified Stock Option Agreement shall
state the total number of shares covered by the Nonqualified Stock Option. The
exercise price per share shall be equal to one hundred percent (100%) of the
per share Fair Market Value of the Common Stock on the date of grant of the
Nonqualified Stock Option, or such higher price as the Administrator
determines. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Exercisability
and Term</U>. The Nonqualified Stock Option Agreement shall state when the
Nonqualified Stock Option becomes exercisable (<I>i.e.</I>
&#147;vests&#148;). The Participant may exercise the Nonqualified Stock Option, in full
or in part, upon or after the vesting date of such Option (or portion thereof);
provided, however, that the Participant may not exercise a Nonqualified Stock
Option after the maximum term of such Option, as such term is specified in the
Nonqualified Stock Option Agreement. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Administrator may accelerate the exercisability of any Nonqualified Stock
Option granted hereunder which is not immediately exercisable as of the date of
grant. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>No
Rights as Shareholder</U>. A Participant (or the Participant&#146;s successors)
shall have no rights as a shareholder with respect to any shares covered by a
Nonqualified Stock Option until the date of the issuance of the Common Stock
subject to such Award upon exercise, as evidenced by a stock certificate or as
reflected in the books and records of the Company or its designated agent (<I>i.e.</I>, a &#147;book entry&#148;). Except as provided
in Section 14 of the Plan, no adjustment shall be made for dividends (ordinary
or extraordinary, whether in cash, securities or other property), distributions
or other rights for which the record date is prior to the date such shares are
actually issued (as evidenced in either certificated or book entry form). </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Withholding</U>.
The Company or its Affiliate shall be entitled to withhold and deduct from any
future payments to the Participant all legally required amounts necessary to
satisfy any and all withholding and employment-related taxes attributable to
the Participant&#146;s exercise of a Nonqualified Stock Option, or require the
Participant to remit an amount sufficient to satisfy such withholding
requirements. In the event the Participant is required under the Nonqualified
Stock Option Agreement to pay the Company, or make arrangements satisfactory to
the Company respecting payment of, such withholding and employment-related
taxes, the Administrator may, in its sole discretion, require the Participant
to satisfy such obligation, in whole or in part, by delivering shares of Common
Stock or by electing to have the Company withhold shares of Common Stock
otherwise issuable to the Participant as a result of the exercise of the
Nonqualified Stock Option. Such shares shall have a Fair Market Value equal to
the minimum required tax withholding, based on the minimum statutory
withholding rates for federal and state tax purposes, including payroll taxes,
that are applicable to the supplemental income resulting from such exercise. In
no event may the Participant deliver shares, nor may the Company or any
Affiliate withhold shares, having a Fair Market Value in excess of such
statutory minimum required tax withholding. The Participant&#146;s delivery of
shares or the withholding of shares for this purpose shall occur on or before
the later of (i) the date the Nonqualified Stock Option is exercised, or (ii)
the date that the amount of tax to be withheld is determined under applicable
tax law. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Other
Provisions</U>. The Nonqualified Stock Option Agreement authorized under this
Section 9 shall contain such other provisions as the Administrator shall deem
advisable. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>C-6</FONT></P>

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<P ALIGN=CENTER><FONT SIZE=2><B>SECTION 10.</B><BR>
<U><B>RESTRICTED STOCK AWARDS</B></U></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each
Restricted Stock Award shall be evidenced by a Restricted Stock Award
Agreement, which shall comply with and be subject to the following terms and
conditions: </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Number
of Shares</U>. The Restricted Stock Award Agreement shall state the total
number of shares of Common Stock covered by the Restricted Stock Award. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Risks
of Forfeiture</U>. The Restricted Stock Award Agreement shall set forth the
risks of forfeiture, if any, including risks of forfeiture based on Performance
Objectives, which shall apply to the shares of Common Stock covered by the
Restricted Stock Award, and shall specify the manner in which such risks of
forfeiture shall lapse. The Administrator may, in its sole discretion, modify
the manner in which such risks of forfeiture shall lapse but only with respect
to those shares of Common Stock which are restricted as of the effective date
of the modification. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Issuance
of Shares; Rights as Shareholder</U>. Except as provided below, the Company
shall cause a stock certificate to be issued and shall deliver such certificate
to the Participant or hold such certificate in a manner determined by the
Administrator in its sole discretion; provided, however, that in lieu of a
stock certificate, the Company may evidence the issuance of shares by a book
entry in the records of the Company or its designated agent (if permitted by
the Company&#146;s designated agent and applicable law, as determined by the
Administrator in its sole discretion). The Company shall cause a legend or
notation to be placed on such certificate or book entry describing the risks of
forfeiture and other transfer restrictions set forth in the Participant&#146;s
Restricted Stock Award Agreement and providing for the cancellation and, if
applicable, return of such certificate or book entry if the shares of Common
Stock subject to the Restricted Stock Award are forfeited. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Until
the risks of forfeiture have lapsed or the shares subject to such Restricted
Stock Award have been forfeited, the Participant shall be entitled to vote the
shares of Common Stock represented by such stock certificates and shall receive
all dividends attributable to such shares, but the Participant shall not have
any other rights as a shareholder with respect to such shares. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Withholding
Taxes</U>. The Company or its Affiliate shall be entitled to withhold and
deduct from any future payments to the Participant all legally required amounts
necessary to satisfy any and all withholding and employment-related taxes
attributable to the Participant&#146;s Restricted Stock Award, or require the
Participant to remit an amount sufficient to satisfy such withholding
requirements. In the event the Participant is required under the Restricted
Stock Award Agreement to pay the Company, or make arrangements satisfactory to
the Company respecting payment of, such withholding and employment-related
taxes, the Administrator may, in its sole discretion, require the Participant
to satisfy such obligations, in whole or in part, by delivering shares of
Common Stock, including shares of Common Stock received pursuant to the
Restricted Stock Award on which the risks of forfeiture have lapsed. Such
shares shall have a Fair Market Value equal to the minimum required tax
withholding, based on the minimum statutory withholding rates for federal and
state tax purposes, including payroll taxes, that are applicable to the
supplemental income resulting from the lapsing of the risks of forfeiture on
such Restricted Stock Award. In no event may the Participant deliver shares
having a Fair Market Value in excess of such statutory minimum required tax
withholding. The Participant&#146;s delivery of shares shall occur on or before the
date that the amount of tax to be withheld is determined under applicable tax
law. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Other
Provisions</U>. The Restricted Stock Award Agreement authorized under this
Section 10 shall contain such other provisions as the Administrator shall deem
advisable. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>SECTION 11.</B><BR>
<U><B>RESTRICTED STOCK UNIT AWARDS</B></U></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>Each Restricted Stock Unit Award shall be evidenced by a Restricted
Stock Unit Award Agreement, which shall comply with and be subject to the
following terms and conditions: </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Number
of Shares</U>. The Restricted Stock Unit Award Agreement shall state the total
number of shares of Common Stock covered by the Restricted Stock Unit Award. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Vesting</U>.
The Restricted Stock Unit Award Agreement shall set forth the period over which
the Restricted Stock Unit Award may become vested and/or the conditions,
including conditions based on Performance Objectives, to which such vesting is
subject. The Administrator may, in its sole discretion, accelerate the vesting
of any Restricted Stock Unit Award. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>C-7</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Issuance
of Shares; Rights as Shareholder</U>. The Participant shall be entitled to
payment of the Restricted Stock Unit Award as the units subject to such Award
vest. The Administrator may, in its sole discretion, pay Restricted Stock Units
in cash, shares of Common Stock or any combination thereof. If payment is made in shares of
Common Stock, the Administrator shall cause to be issued one or more stock
certificates in the Participant&#146;s name and shall deliver such certificates to
the Participant in satisfaction of such units; provided, however, that in lieu
of stock certificates, the Company may evidence such shares by a book entry in
the records of the Company or its designated agent (if permitted by the
Company&#146;s designated agent and applicable law, as determined by the
Administrator in its sole discretion). Until the units subject to the
Restricted Stock Unit Award have vested, the Participant shall not be entitled
to vote any shares of stock which may be acquired through the Award, shall not
receive any dividends attributable to such shares, and shall not have any other
rights as a shareholder with respect to such shares. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Withholding
Taxes</U>. The Company or its Affiliate shall be entitled to withhold and
deduct from any future payments to the Participant all legally required amounts
necessary to satisfy any and all withholding and employment-related taxes
attributable to the Participant&#146;s Restricted Stock Unit Award, or require the
Participant to remit an amount sufficient to satisfy such withholding
requirements. In the event the Participant is required under the Restricted
Stock Unit Award Agreement to pay the Company, or make arrangements
satisfactory to the Company respecting payment of, such withholding and
employment-related taxes, the Administrator may, in its sole discretion,
require the Participant to satisfy such obligations, in whole or in part, by
delivering shares of Common Stock, including shares of Common Stock received
pursuant to the Restricted Stock Unit Award. Such shares shall have a Fair
Market Value equal to the minimum required tax withholding, based on the
minimum statutory withholding rates for federal and state tax purposes,
including payroll taxes, that are applicable to the supplemental income
resulting from the lapsing of the risks of forfeiture on such Restricted Stock
Unit Award. In no event may the Participant deliver shares having a Fair Market
Value in excess of such statutory minimum required tax withholding. The
Participant&#146;s delivery of shares for this purpose shall occur on or before the
date that the amount of tax to be withheld is determined under applicable tax law.
</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Other
Provisions</U>. The Restricted Stock Unit Award Agreement authorized under this
Section 11 shall contain such other provisions as the Administrator shall deem
advisable. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>SECTION 12.</B><BR>
<B><U>PERFORMANCE AWARDS</U></B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each
Performance Award shall be evidenced by a Performance Award Agreement, which
shall comply with and be subject to the following terms and conditions: </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Awards</U>.
Performance Awards may be in the form of Performance Cash Units or Performance
Shares. Performance Cash Units shall consist of monetary awards which may be
earned or become vested in whole or in part if the Company or the Participant
achieves certain Performance Objectives established by the Administrator over a
specified Performance Period. Performance Shares shall consist of shares of
Common Stock or other Awards denominated in shares of Common Stock that may be
earned or become vested in whole or in part if the Company or the Participant
achieves certain Performance Objectives established by the Administrator over a
specified Performance Period. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE="2">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Performance
Objectives, Performance Period and Payment by the Company</U>. The Performance
Award Agreement shall set forth: </FONT> </P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;the number of Performance Cash
Units or Performance Shares subject to the Performance Award, and the dollar
value of each Performance Cash Unit; </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;one or more Performance Objectives
established by the Administrator and the method for measuring performance; </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;the Performance Period over which
Performance Cash Units or Performance Shares may be earned or may become
vested; </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;the extent to which partial
achievement of the Performance Objectives may result in a payment or vesting of
the Performance Award, as determined by the Administrator; and </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;the date upon which payment of
Performance Cash Units will be made or Performance Shares will be issued, as
the case may be, and the extent to which such payment or the receipt of such
Performance Shares may be deferred. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Withholding
Taxes</U>. The Company or its Affiliates shall be entitled to withhold and
deduct from any future payments to the Participant all legally required amounts
necessary to satisfy any and all withholding and employment-related taxes
attributable to the Participant&#146;s Performance Award, or require the Participant
to remit an amount sufficient to satisfy such withholding requirements. In the
event the Participant is required under the Performance Award Agreement to pay
the Company or its Affiliates, or make arrangements satisfactory to the Company
or its Affiliates respecting payment of, such withholding and employment-related
taxes, the Administrator may, in its sole discretion, require the Participant to satisfy such
obligations, in whole or in part, by delivering shares of Common Stock,
including shares of Common Stock received pursuant to the Performance Award.
Such shares shall have a Fair Market Value equal to the minimum required tax
withholding, based on the minimum statutory withholding rates for federal and
state tax purposes, including payroll taxes. In no event may the Participant
deliver shares having a Fair Market Value in excess of such statutory minimum
required tax withholding. The Participant&#146;s delivery of shares for this purpose
shall occur on or before the date that the amount of tax to be withheld is
determined under applicable tax law.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>C-8</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>No
Rights as Shareholder</U>. A Participant (or the Participant&#146;s successors)
shall have no rights as a shareholder with respect to any shares covered by a
Performance Shares Award until the date of the issuance of a stock certificate
evidencing such shares (after such Award has vested); provided, however, that
in lieu of a stock certificate, the Company may evidence such shares by a book
entry in the records of the Company or its designated agent (if permitted by
the Company&#146;s designated agent and applicable law, as determined by the
Administrator in its sole discretion). No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property), distributions or other rights for which the record date is prior to
the date such stock certificate is actually issued or such book entry is made,
except as otherwise provided in Section 14 of the Plan.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Other
Provisions</U>. The Performance Award Agreement authorized under this Section
12 shall contain such other provisions as the Administrator shall deem
advisable. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>SECTION 13.<BR>
<U>STOCK APPRECIATION RIGHTS</U></B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Each Stock
Appreciation Right shall be evidenced by a Stock Appreciation Right Agreement,
which shall comply with and be subject to the following terms and conditions:</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Awards</U>.
A Stock Appreciation Right shall entitle the Participant to receive, upon
exercise, cash, shares of Common Stock, or any combination thereof, having a
value equal to the excess of (i) the Fair Market Value of a specified number of
shares of Common Stock on the date of such exercise, over (ii) a specified
exercise price. The number of shares and the exercise price of the Stock
Appreciation Right shall be determined by the Administrator on the date of
grant. Unless otherwise determined by the Administrator, the specified exercise
price shall not be less than 100% of the Fair Market Value of such shares of
Common Stock on the date of grant of the Stock Appreciation Right. A Stock
Appreciation Right may be granted independent of or in tandem with a previously
or contemporaneously granted Option. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Exercisability
and Term</U>. The Stock Appreciation Right Agreement shall state when the Stock
Appreciation Right becomes exercisable (<I>i.e. </I>&#147;vests&#148;). The Participant may
exercise the Stock Appreciation Right, in full or in part, upon or after the
vesting date of such Stock Appreciation Right (or portion thereof); provided,
however, that the Participant may not exercise a Stock Appreciation Right after
the maximum term of such Stock Appreciation Right, as such term is specified in
the Stock Appreciation Right Agreement. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Administrator may accelerate the exercisability of any Stock Appreciation Right
granted hereunder which is not immediately exercisable as of the date of grant.
If a Stock Appreciation Right is granted in tandem with an Option, the Stock
Appreciation Right Agreement shall set forth the extent to which the exercise
of all or a portion of the Stock Appreciation Right shall cancel a
corresponding portion of the Option, and the extent to which the exercise of
all or a portion of the Option shall cancel a corresponding portion of the
Stock Appreciation Right.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Withholding
Taxes</U>. The Company or its Affiliate shall be entitled to withhold and
deduct from any future payments to the Participant all legally required amounts
necessary to satisfy any and all withholding and employment-related taxes
attributable to the Participant&#146;s Stock Appreciation Right, or require the
Participant to remit an amount sufficient to satisfy such withholding
requirements. In the event the Participant is required under the Stock
Appreciation Right to pay the Company or its Affiliate, or make arrangements
satisfactory to the Company or its Affiliate respecting payment of, such withholding
and employment-related taxes, the Administrator may, in its sole discretion,
require the Participant to satisfy such obligation, in whole or in part, by
delivering shares of Common Stock or by electing to have the Company withhold
shares of Common Stock otherwise issuable to the Participant as a result of the
exercise of the Stock Appreciation Right. Such shares shall have a Fair Market
Value equal to the minimum required tax withholding, based on the minimum
statutory withholding rates for federal and state tax purposes, including
payroll taxes, that are applicable to the supplemental income resulting from
such exercise. In no event may the Participant deliver shares, nor may the
Company or any Affiliate withhold shares, having a Fair Market Value in excess
of such statutory minimum required tax withholding. The Participant&#146;s delivery
of shares or the withholding of shares for this purpose shall occur on or
before the later of (i) the date the Stock Appreciation Right is exercised, or
(ii) the date that the amount of tax to be withheld is determined under
applicable tax law. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>C-9</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>No
Rights as Shareholder</U>. A Participant (or the Participant&#146;s successors)
shall have no rights as a shareholder with respect to any shares covered by a
Stock Appreciation Right until the date of the issuance of a stock certificate
evidencing such shares; provided, however, that in lieu of stock certificates,
the Company may evidence such shares by a book entry in the records of the
Company or its designated agent (if permitted by the Company&#146;s designated agent and
applicable law, as determined by the Administrator in its sole discretion). No
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property), distributions or other rights for which
the record date is prior to the date such stock certificate is actually issued
or such book entry is made (except as otherwise provided in Section 14 of the
Plan).</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Other
Provisions</U>. The Stock Appreciation Right Agreement authorized under this
Section 13 shall contain such other provisions as the Administrator shall deem
advisable, including but not limited to any restrictions on the exercise of the
Stock Appreciation Right which may be necessary to comply with Rule 16b-3. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>SECTION
14.<BR>
<U>RECAPITALIZATION, EXCHANGE,<BR>
LIQUIDATION, OR CHANGE OF CONTROL</U></B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>In
General</U>. In the event of an increase or decrease in the number of shares of
Common Stock resulting from a stock dividend, stock split, reverse split,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without
receipt of consideration by the Company, other than due to conversion of the
convertible securities of the Company, the Administrator may, in its sole
discretion, adjust the class and number of shares of stock reserved under
Section 6 of this Plan, the class and number of shares of stock covered by each
outstanding Award, and, if and as applicable, the exercise price per share of
each outstanding Award to reflect such change. Additional shares which may
become covered by the Award pursuant to such adjustment shall be subject to the
same restrictions as are applicable to the shares with respect to which the
adjustment relates.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Liquidation</U>.
Unless otherwise provided in the Agreement evidencing an Award, in the event of
a dissolution or liquidation of the Company, the Administrator may provide for
one or both of the following: </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
<TR STYLE="FONT-SIZE:1PX">
<TD WIDTH="5%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
<TD WIDTH="95%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;the
acceleration of the exercisability of any or all outstanding Options or Stock
Appreciation Rights, the vesting and payment of any or all Performance Awards
or Restricted Stock Unit Awards, or the lapsing of the risks of forfeiture on
any or all Restricted Stock Awards; provided, however, that no such
acceleration, vesting or payment shall occur if the acceleration, vesting or
payment would violate the requirements of Code Section 409A; or </FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN="JUSTIFY"><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;the
complete termination of this Plan and the cancellation of any or all Awards
(or portions thereof) which have not been exercised, have not vested, or
remain subject to risks of forfeiture, as applicable, in each case
immediately prior to the completion of such a dissolution or liquidation.</FONT></P>
</TD>
</TR>
</TABLE>
<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Change
of Control</U>. Unless otherwise provided in the Agreement evidencing an Award,
in the event of a Change of Control, the Administrator may provide for one or
more of the following: </FONT></P>

<TABLE BORDER=0 CELLSPACING=0 CELLPADDING=0 WIDTH="100%">
<TR STYLE="FONT-SIZE:1PX">
<TD WIDTH="5%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
<TD WIDTH="94%" VALIGN=TOP>
<P>&nbsp;</P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;the
acceleration of the exercisability, vesting, or lapse of the risks of
forfeiture of any or all Awards (or portions thereof);</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;the
complete termination of this Plan and the cancellation of any or all Awards
(or portions thereof) which have not been exercised, have not vested, or
remain subject to risks of forfeiture, as applicable, in each case as of the
effective date of the Change of Control; </FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;that
the entity succeeding the Company by reason of such Change of Control, or the
parent of such entity, shall assume or continue any or all Awards (or
portions thereof) outstanding immediately prior to the Change of Control or
substitute for any or all such Awards (or portions thereof) a substantially
equivalent award with respect to the securities of such successor entity, as
determined in accordance with applicable laws and regulations; </FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
</TR>
<TR>
<TD VALIGN=TOP>
<P><FONT SIZE=1>&nbsp;</FONT></P>
</TD>
<TD VALIGN=TOP>
<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;that
Participants holding outstanding Awards shall become entitled to receive,
with respect to each share of Common Stock subject to such Award (whether
vested or unvested, as determined by the Administrator pursuant to subsection
(c)(i) hereof) as of the effective date of any such Change of Control, cash
in an amount equal to (1) for Participants holding Options or Stock
Appreciation Rights, the excess of the Fair Market Value of such Common Stock
on the date immediately preceding the effective date of such Change of
Control over the exercise price per share of Options or Stock Appreciation
Rights; or (2) for Participants holding Awards other than Options or Stock
Appreciation Rights, the Fair Market Value of such Common Stock on the date
immediately preceding the effective date of such Change of Control. </FONT></P>
</TD>
</TR>
</TABLE>
<P ALIGN=JUSTIFY><FONT SIZE=2>The Administrator need not take the same action with respect to all
Awards (or portions thereof) or with respect to all Participants. In addition,
the Administrator may restrict the rights of or the applicability of this
Section 14 to the extent necessary to comply with Section 16(b) of the Exchange
Act, the Internal Revenue Code or any other applicable law or regulation. The
grant of an Award pursuant to the Plan shall not limit in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of its capital or
business structure or to merge, exchange or consolidate or to dissolve,
liquidate, sell or transfer all or any part of its business or assets.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>C-10</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=CENTER><FONT SIZE=2><B>SECTION
15.<BR>
<U>NON-TRANSFERABILITY</U></B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except as
expressly provided in this Plan or an Agreement, no Award shall be transferable
by the Participant, in whole or in part, other than by will or by the laws of
descent and distribution. If the Participant shall attempt any transfer of any
Award, such transfer shall be void and the Award shall terminate. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Notwithstanding
anything in this Section 15 to the contrary, Nonqualified Stock Options shall
be transferable, in whole or in part, by the Participant by will or by the laws
of descent and distribution. In addition, the Administrator may, in its sole
discretion, permit the Participant to transfer any or all Nonqualified Stock
Option to any member of the Participant&#146;s &#147;immediate family&#148; as such term is
defined in Rule 16a-1(e) of the Exchange Act, or any successor provision, or to
one or more trusts whose beneficiaries are members of such Participant&#146;s
&#147;immediate family&#148; or partnerships in which such family members are the only
partners; provided, however, that the Participant cannot receive any
consideration for the transfer and such transferred Nonqualified Stock Option
shall continue to be subject to the same terms and conditions as were
applicable to such Nonqualified Stock Option immediately prior to its transfer.
</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>SECTION
16.<BR>
<U>INVESTMENT PURPOSE AND SECURITIES COMPLIANCE</U></B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No shares
of Common Stock shall be issued pursuant to the Plan unless and until there has
been compliance, in the opinion of Company&#146;s counsel, with all applicable legal
requirements, including without limitation, those relating to securities laws
and stock exchange listing requirements. As a condition to the issuance of
Common Stock to Participant, the Administrator may require Participant to (a)
represent that the shares of Common Stock are being acquired for investment and
not resale and to make such other representations as the Administrator shall
deem necessary or appropriate to qualify the issuance of the shares as exempt
from the Securities Act of 1933 and any other applicable securities laws, and
(b) represent that Participant shall not dispose of the shares of Common Stock
in violation of the Securities Act of 1933 or any other applicable securities
laws. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a
further condition to the grant of any Option or the issuance of Common Stock to
a Participant, the Participant agrees to the following:</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the event the Company advises the Participant that it plans an underwritten
public offering of its Common Stock in compliance with the Securities Act of
1933, as amended, the Participant will execute any lock-up agreement the
Company and the underwriter(s) deem necessary or appropriate, in their sole
discretion, in connection with such public offering. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the event the Company makes any public offering of its securities and
determines in its sole discretion that it is necessary to reduce the number of
outstanding Awards so as to comply with any state&#146;s securities or Blue Sky law
limitations with respect thereto, the Board shall have the right (i) to
accelerate the exercisability of any Award and the date on which such Award
must be exercised or remove the risks of forfeiture to which the Award is
subject, provided that the Company gives Participant prior written notice of
such acceleration or removal, and (ii) to cancel any outstanding Awards (or
portions thereof) which Participant does not exercise prior to or
contemporaneously with such public offering. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
the event of a Change of Control, Participant will comply with Rule 145 of the
Securities Act of 1933 and any other restrictions imposed under other applicable
legal or accounting principles if Participant is an &#147;affiliate&#148; (as defined in
such applicable legal and accounting principles) at the time of the Change of
Control, and Participant will execute any documents necessary to ensure
compliance with such rules.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company
reserves the right to place a legend on any stock certificate (or a notation on
any book entry shares permitted by the Administrator) issued in connection with
an Award pursuant to the Plan to assure compliance with this Section 16.</FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company
shall not be required to register or maintain the registration of the Plan, any
Award, or any Common Stock issued or issuable pursuant to the Plan under the
Securities Act of 1933 or any other applicable securities laws. If the Company
is unable to obtain the authority that the Company or its counsel deems
necessary for the lawful issuance and sale of Common Stock under the Plan, the
Company shall not be liable for the failure to issue and sell Common Stock upon
the exercise, vesting, or lapse of restrictions of forfeiture of an Award
unless and until such authority is obtained. A Participant shall not be
eligible for the grant of an Award or the issuance of Common Stock pursuant to
an Award if such grant or issuance would violate any applicable securities law.
</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>C-11</FONT></P>

<HR NOSHADE ALIGN=CENTER WIDTH="100%" SIZE=3><P STYLE='PAGE-BREAK-BEFORE: ALWAYS'></P><PAGE>

<P ALIGN=CENTER><FONT SIZE=2><B>SECTION
17.<BR>
<U>AMENDMENT OF THE PLAN</U></B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Board
may from time to time, insofar as permitted by law, suspend or discontinue the
Plan or revise or amend it in any respect; provided, however, that no such suspension,
termination, revision, or amendment, except as is authorized in Section 14,
shall impair the terms and conditions of any Award which is outstanding on the
date of such suspension, termination, revision, or amendment to the material
detriment of the Participant without the consent of the Participant.
Notwithstanding the foregoing, except as provided in Section 14 of the Plan or
to the extent required by applicable law or regulation, the Board may not,
without shareholder approval, revise or amend the Plan to (i) materially
increase the number of shares subject to the Plan, (ii) change the designation
of Participants, including the class of Employees, eligible to receive Awards,
(iii) decrease the price at which Options or Stock Appreciation Rights may be
granted, (iv) cancel, re-grant, repurchase for cash, or replace Options or
Stock Appreciation Rights that have an exercise price in excess of the Fair
Market Value of the Common Stock, or amend the terms of outstanding Options or
Stock Appreciation Rights to reduce their exercise price, (v) materially
increase the benefits accruing to Participants under the Plan, or (vi) make any
modification that will cause Incentive Stock Options to fail to meet the
requirements of Code Section 422. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To the extent
applicable, the Plan and all Agreements shall be interpreted to be exempt from
or comply with the requirements of Code Section 409A and, if applicable, to
comply with Code Section 422, in each case including the regulations, notices,
and other guidance of general applicability issued thereunder. Furthermore,
notwithstanding anything in the Plan or any Agreement to the contrary, the
Board may amend the Plan or Agreement to the extent necessary or desirable to
comply with such requirements without the consent of the Participant. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>SECTION
18.<BR>
<U>NO OBLIGATION TO EXERCISE OPTION;<BR>
NO EMPLOYMENT OR OTHER SERVICE RIGHTS</U></B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
granting of an Option or Stock Appreciation Right shall impose no obligation
upon the Participant to exercise such Option or Stock Appreciation Right.
Further, the granting of an Award hereunder shall not impose upon the Company
or any Affiliate any obligation to retain the Participant in its employ or
service for any period.</FONT></P>

<P ALIGN=CENTER><FONT SIZE=2><B>SECTION
19.<BR>
<U>MISCELLANEOUS</U></B></FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Issuance
of Shares</U>. The Company is not required to issue or remove restrictions on
shares of Common Stock granted pursuant to the Plan until the Administrator
determines that: (i) all conditions of the Award have been satisfied, (ii) all
legal matters in connection with the issuance have been satisfied, and (iii)
the Participant has executed and delivered to the Company such representations
or agreements as the Administrator may consider appropriate, in its sole
discretion, to satisfy the requirements of any applicable law or regulation. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Choice
of Law</U>. The law of the state of Minnesota shall govern all questions
concerning the construction, validity, and interpretation of this Plan, without
regard to that state&#146;s conflict of laws rules. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Severability</U>.
In the event that any provision of this Plan shall be held illegal or invalid
for any reason, such illegality or invalidity shall not affect the remaining
provisions of this Plan, and the Plan shall be construed and enforced as if the
illegal or invalid provision had not been included. </FONT></P>

<P ALIGN=JUSTIFY><FONT SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>No
Duty to Notify</U>. The Company shall have no duty or obligation to any
Participant to advise such Participant as to the time and manner of exercising
an Award or as to the pending termination or expiration of such Award. In
addition, the Company has no duty or obligation to minimize the tax
consequences of an Award to the Participant. </FONT></P>

<P ALIGN=CENTER><FONT SIZE=2>C-12</FONT></P>

<P STYLE="text-align: center"></P>

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<P STYLE="text-align: center"></P>

<P STYLE="font: 11pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>ELECTRO-SENSORS, INC.</B></P>

<P STYLE="font: 11pt 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: 11pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>PROXY FOR ANNUAL MEETING</B></P>

<P STYLE="font: 11pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>April 24, 2013</B></P>

<P STYLE="font: 11pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 11pt 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 24, 2013,
and at any adjournment thereof. The undersigned hereby revokes all proxies previously granted with respect to such meeting.</P>

<P STYLE="font: 11pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P>

<P STYLE="font: 11pt 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 &ldquo;FOR&rdquo; PROPOSALS 1, 2, 3, 4
AND 6, AND FOR &ldquo;3 YEARS&rdquo; ON PROPOSAL 5.</B></P>

<P STYLE="font: 11pt Times New Roman, Times, Serif; margin: 0"><B>&nbsp;</B></P>

<P STYLE="font: bold 11pt Times New Roman, Times, Serif; margin: 0; text-align: center">DETACH BELOW AND RETURN USING THE ENVELOPE
PROVIDED</P>

<P STYLE="font: 12pt 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: 3%">&nbsp;</TD>
    <TD STYLE="width: 55%">&nbsp;</TD>
    <TD STYLE="width: 12%; text-align: center"><FONT STYLE="font-size: 10pt; color: black"><B>FOR</B></FONT></TD>
    <TD STYLE="width: 15%; text-align: center"><FONT STYLE="font-size: 10pt; color: black"><B>AGAINST</B></FONT></TD>
    <TD STYLE="width: 15%; text-align: center"><FONT STYLE="font-size: 10pt; color: black"><B>ABSTAIN</B></FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="font-size: 10pt">1.</FONT></TD>
    <TD><FONT STYLE="font-size: 10pt">To set the number of directors at five.</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt MS Mincho">&#9744;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt MS Mincho">&#9744;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt MS Mincho">&#9744;</FONT></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><FONT STYLE="font-size: 10pt">2.</FONT></TD>
    <TD COLSPAN="2"><FONT STYLE="font-size: 10pt">To elect five directors to serve until the next annual meeting of shareholders: </FONT></TD>
    <TD>&nbsp;</TD>
    <TD ROWSPAN="2"><FONT STYLE="font: 10pt MS Mincho">&#9744;</FONT><FONT STYLE="font-size: 10pt; color: black"> &nbsp;Vote <B>FOR</B> all nominees, except as withheld below:</FONT></TD>
    <TD ROWSPAN="2">&nbsp;</TD>
    <TD ROWSPAN="2"><FONT STYLE="font: 10pt MS Mincho">&#9744;</FONT><FONT STYLE="font-size: 10pt; color: black">&nbsp;&nbsp;Vote <B>WITHHELD</B> from all nominees.</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">01 Bradley D. Slye</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">02 Jeffrey D. Peterson</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">03 Geoffrey W. Miller</P></TD>
    <TD>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">04 Joseph A. Marino</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">05 Michael C. Zipoy</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0">&nbsp;</P></TD>
    <TD>&nbsp;</TD></TR>
<TR>
    <TD STYLE="width: 3%"><FONT STYLE="font-size: 1pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 25%"><FONT STYLE="font-size: 1pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 25%"><FONT STYLE="font-size: 1pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 5%"><FONT STYLE="font-size: 1pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 20%"><FONT STYLE="font-size: 1pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 2%"><FONT STYLE="font-size: 1pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 20%"><FONT STYLE="font-size: 1pt">&nbsp;</FONT></TD></TR>
</TABLE>
<P STYLE="font: 1pt 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: 4%">&nbsp;</TD>
    <TD STYLE="width: 51%">&nbsp;</TD>
    <TD STYLE="width: 3%">&nbsp;</TD>
    <TD STYLE="width: 42%">
        <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: 10pt Times New Roman, Times, Serif; margin: 0"><B>__________________________</B></P></TD></TR>
</TABLE>
<P STYLE="font: 8pt 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: 3%">&nbsp;</TD>
    <TD STYLE="width: 55%">&nbsp;</TD>
    <TD STYLE="width: 12%; text-align: center"><FONT STYLE="font-size: 10pt; color: black"><B>FOR</B></FONT></TD>
    <TD STYLE="width: 15%; text-align: center"><FONT STYLE="font-size: 10pt; color: black"><B>AGAINST</B></FONT></TD>
    <TD STYLE="width: 15%; text-align: center"><FONT STYLE="font-size: 10pt; color: black"><B>ABSTAIN</B></FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="font-size: 10pt">3.</FONT></TD>
    <TD><FONT STYLE="font-size: 10pt">To ratify the appointment of Boulay, Heutmaker, Zibell &amp; Co. P.L.L.P as independent auditors for the fiscal year ending December 31, 2013.</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt MS Mincho">&#9744;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt MS Mincho">&#9744;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt MS Mincho">&#9744;</FONT></TD></TR>
<TR>
    <TD STYLE="vertical-align: top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="vertical-align: bottom; text-align: center"><FONT STYLE="font-size: 10pt; color: black"><B>FOR</B></FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font-size: 10pt; color: black"><B>AGAINST</B></FONT></TD>
    <TD STYLE="vertical-align: bottom; text-align: center"><FONT STYLE="font-size: 10pt; color: black"><B>ABSTAIN</B></FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="font-size: 10pt">4.</FONT></TD>
    <TD><FONT STYLE="font-size: 10pt">Advisory vote on executive compensation (a &ldquo;Say-on-Pay&rdquo; vote).</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt MS Mincho">&#9744;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt MS Mincho">&#9744;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt MS Mincho">&#9744;</FONT></TD></TR>
</TABLE>
<P STYLE="font: 8pt 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>
    <TD STYLE="vertical-align: top; width: 3%">&nbsp;</TD>
    <TD STYLE="vertical-align: top; width: 53%">&nbsp;</TD>
    <TD STYLE="width: 11%; text-align: center"><FONT STYLE="font-size: 10pt; color: black"><B>1 Year</B></FONT></TD>
    <TD STYLE="width: 11%; text-align: center"><FONT STYLE="font-size: 10pt; color: black"><B>2 Years</B></FONT></TD>
    <TD STYLE="width: 11%; text-align: center"><FONT STYLE="font-size: 10pt; color: black"><B>3 Years</B></FONT></TD>
    <TD STYLE="width: 11%; text-align: center"><FONT STYLE="font-size: 10pt; color: black"><B>ABSTAIN</B></FONT></TD></TR>
<TR>
    <TD STYLE="vertical-align: top"><FONT STYLE="font-size: 10pt">5.</FONT></TD>
    <TD STYLE="vertical-align: top"><FONT STYLE="font-size: 10pt">Advisory vote on the frequency of Say-on-Pay votes.</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt MS Mincho">&#9744;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt MS Mincho">&#9744;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt MS Mincho">&#9744;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt MS Mincho">&#9744;</FONT></TD></TR>
</TABLE>
<P STYLE="font: 8pt 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: 3%"><FONT STYLE="font-size: 10pt">6.</FONT></TD>
    <TD STYLE="width: 55%"><FONT STYLE="font-size: 10pt">Approve the 2013 Equity Incentive Plan.</FONT></TD>
    <TD STYLE="width: 12%; text-align: center"><FONT STYLE="font-size: 10pt; color: black"><B>FOR</B></FONT></TD>
    <TD STYLE="width: 15%; text-align: center"><FONT STYLE="font-size: 10pt; color: black"><B>AGAINST</B></FONT></TD>
    <TD STYLE="width: 15%; text-align: center"><FONT STYLE="font-size: 10pt; color: black"><B>ABSTAIN</B></FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt MS Mincho">&#9744;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt MS Mincho">&#9744;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font: 10pt MS Mincho">&#9744;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="font-size: 10pt">7.</FONT></TD>
    <TD><FONT STYLE="font-size: 10pt">To transact such other business as may properly come before the meeting or any adjournment or postponement thereof.</FONT></TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD>
    <TD STYLE="text-align: center">&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: 95%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 58%">&nbsp;</TD>
    <TD STYLE="width: 42%; border-bottom: windowtext 1pt solid"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">Date:</FONT></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: windowtext 1pt solid">&nbsp;<BR><BR>
<BR>

</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD><FONT STYLE="font: 10pt Times New Roman, Times, Serif">Signature(s) in Box</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-size: 9pt">&nbsp;</TD>
    <TD STYLE="font-size: 9pt"><FONT STYLE="font: 9pt Times New Roman, Times, Serif">(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.)</FONT></TD></TR>
</TABLE>
<P STYLE="font: 11pt Times New Roman, Times, Serif; margin: 0; text-align: center">&nbsp;</P>

<P STYLE="font: 11pt 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: 11pt 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: 11pt Times New Roman, Times, Serif; margin: 0; text-align: center"><B>http://www.idelivercommunications.com/proxy/else</B></P>

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