EXHIBIT 10.1

 

CREDIT AGREEMENT

 

THIS CREDIT AGREEMENT (this “Agreement”) is entered into as of May 1, 2005, by
and between INTERLINK ELECTRONICS, INC., a Delaware corporation (“Borrower”),
and WELLS FARGO BANK, NATIONAL ASSOCIATION (“Bank”).

 

RECITALS

 

Borrower has requested that Bank extend or continue credit to Borrower as
described below, and Bank has agreed to provide such credit to Borrower on the
terms and conditions contained herein.

 

NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Bank and Borrower hereby agree as follows:

 

ARTICLE I

CREDIT TERMS

 

SECTION 1.1 LINE OF CREDIT.

 

(a) Line of Credit. Subject to the terms and conditions of this Agreement, Bank
hereby agrees to make advances to Borrower from time to time up to and including
June 1, 2007, not to exceed at any time the aggregate principal amount of Three
Million and 00/100 Dollars ($3,000,000.00) (“Line of Credit”), the proceeds of
which shall be used to finance Borrower’s working capital requirements.
Borrower’s obligation to repay advances under the Line of Credit shall be
evidenced by a promissory note dated as of May 1, 2005 (“Line of Credit Note”),
all terms of which are incorporated herein by this reference.

 

(b)

Letter of Credit Subfeature As a subfeature under the Line of Credit, Bank
agrees from time to time during the term thereof to issue or cause an affiliate
to issue standby and/or sight commercial letters of credit for the account of
Borrower to finance the purchase of raw materials (each, a “Letter of Credit”
and collectively, “Letters of Credit”); provided however, that the aggregate
undrawn amount of all outstanding Letters of Credit shall not at any time exceed
Two Million Dollars ($2,000,000.00). The form and substance of each Letter of
Credit shall be subject to approval by Bank, in its sole discretion. Each Letter
of Credit shall be issued for a term not to exceed one hundred twenty (120)
days, as designated by Borrower; provided however, that no Letter of Credit
shall have an expiration date subsequent to the maturity date of the Line of
Credit. The undrawn amount of all Letters of Credit shall be reserved under the
Line of Credit and shall not be available for borrowings thereunder. Each Letter
of Credit shall be subject to the additional terms and conditions of the Letter
of Credit agreements, applications and any related documents required by Bank in
connection with the issuance thereof. Each drawing paid under a Letter of Credit
shall be deemed an advance under the Line of Credit and shall be repaid by
Borrower in accordance with the terms and conditions of this Agreement
applicable to such advances; provided however, that if advances under the Line
of Credit are not available, for any reason, at the time any drawing is paid,
then Borrower shall immediately pay to Bank the full amount drawn, together with
interest thereon from the date such drawing is paid to the date such amount is
fully repaid by Borrower, at the rate of interest applicable to advances under
the Line of

 

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Credit. In such event Borrower agrees that Bank, in its sole discretion, may
debit any account maintained by Borrower with Bank for the amount of any such
drawing.

 

(c) Borrowing and Repayment. Borrower may from time to time during the term of
the Line of Credit borrow, partially or wholly repay its outstanding borrowings,
and reborrow, subject to all of the limitations, terms and conditions contained
herein or in the Line of Credit Note; provided however, that the total
outstanding borrowings under the Line of Credit shall not at any time exceed the
maximum principal amount available thereunder, as set forth above.

 

SECTION 1.2 INTEREST/FEES.

 

(a) Interest. The outstanding principal balance of each credit subject hereto
shall bear interest at the rate of interest set forth in each promissory note or
other instrument or document executed in connection therewith.

 

(b) Computation and Payment. Interest shall be computed on the basis of a
360-day year, actual days elapsed. Interest shall be payable at the times and
place set forth in each promissory note or other instrument or document required
hereby.

 

(c) Commitment Fee. Borrower shall pay to Bank a non-refundable commitment fee
for the Line of Credit equal to One Thousand Dollars ($1,000.00), which fee
shall be due and payable in full upon the execution of this Agreement.

 

(d) Unused Commitment Fee. Borrower shall pay to Bank a fee equal to one-quarter
percent (0.25%) per annum (computed on the basis of a 360-day year, actual days
elapsed) on the average daily unused amount of the Line of Credit, which fee
shall be calculated on a quarterly basis by Bank and shall be due and payable by
Borrower in arrears on each March 31, June 30, September 30 and December 31.

 

(e) Letter of Credit Fees. Borrower shall pay to Bank fees upon the issuance of
each Letter of Credit, upon the payment or negotiation of each drawing under any
Letter of Credit and upon the occurrence of any other activity with respect to
any Letter of Credit (including without limitation, the transfer, amendment or
cancellation of any Letter of Credit) determined in accordance with Bank’s
standard fees and charges then in effect for such activity.

 

SECTION 1.3 COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect all
interest and fees due under each credit subject hereto by charging Borrower’s
deposit account number 4796-018083 with Bank, or any other deposit account
maintained by Borrower with Bank, for the full amount thereof. Should there be
insufficient funds in any such deposit account to pay all such sums when due,
the full amount of such deficiency shall be immediately due and payable by
Borrower.

 

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SECTION 1.4 COLLATERAL.

 

As security for all indebtedness of Borrower to Bank subject hereto, Borrower
hereby grants to Bank security interests of first priority in all Borrower’s
accounts receivable and other rights to payment, general intangibles, inventory,
equipment and Wells Fargo Brokerage Account No. 12561247 maintained with Wells
Fargo Institutional Brokerage & Sales.

 

All of the foregoing shall be evidenced by and subject to the terms of such
security agreements, financing statements, deeds or mortgages, and other
documents as Bank shall reasonably require, all in form and substance
satisfactory to Bank. Borrower shall reimburse Bank immediately upon demand for
all costs and expenses incurred by Bank in connection with any of the foregoing
security, including without limitation, filing and recording fees and costs of
appraisals, audits and title insurance.

 

ARTICLE II

REPRESENTATIONS AND WARRANTIES

 

Borrower makes the following representations and warranties to Bank, which
representations and warranties shall survive the execution of this Agreement and
shall continue in full force and effect until the full and final payment, and
satisfaction and discharge, of all obligations of Borrower to Bank subject to
this Agreement.

 

SECTION 2.1 LEGAL STATUS. Borrower is a corporation, duly organized and existing
and in good standing under the laws of Delaware, and is qualified or licensed to
do business (and is in good standing as a foreign corporation, if applicable) in
all jurisdictions in which such qualification or licensing is required or in
which the failure to so qualify or to be so licensed could have a material
adverse effect on Borrower.

 

SECTION 2.2 AUTHORIZATION AND VALIDITY. This Agreement and each promissory note,
contract, instrument and other document required hereby or at any time hereafter
delivered to Bank in connection herewith (collectively, the “Loan Documents”)
have been duly authorized, and upon their execution and delivery in accordance
with the provisions hereof will constitute legal, valid and binding agreements
and obligations of Borrower or the party which executes the same, enforceable in
accordance with their respective terms.

 

SECTION 2.3 NO VIOLATION. The execution, delivery and performance by Borrower of
each of the Loan Documents do not violate any provision of any law or
regulation, or contravene any provision of the Articles of Incorporation or
By-Laws of Borrower, or result in any breach of or default under any contract,
obligation, indenture or other instrument to which Borrower is a party or by
which Borrower may be bound.

 

SECTION 2.4 LITIGATION. There are no pending, or to the best of Borrower’s
knowledge threatened, actions, claims, investigations, suits or proceedings by
or before any governmental authority, arbitrator, court or administrative agency
which could have a material adverse effect on the financial condition or
operation of Borrower other than those disclosed by Borrower to Bank in writing
prior to the date hereof.

 

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SECTION 2.5 CORRECTNESS OF FINANCIAL STATEMENT. The financial statement of
Borrower dated December 31, 2004, a true copy of which has been delivered by
Borrower to Bank prior to the date hereof, (a) is complete and correct and
presents fairly the financial condition of Borrower, (b) discloses all
liabilities of Borrower that are required to be reflected or reserved against
under generally accepted accounting principles, whether liquidated or
unliquidated, fixed or contingent, and (c) has been prepared in accordance with
generally accepted accounting principles consistently applied. Since the date of
such financial statement there has been no material adverse change in the
financial condition of Borrower, nor has Borrower mortgaged, pledged, granted a
security interest in or otherwise encumbered any of its assets or properties
except in favor of Bank or as otherwise permitted by Bank in writing.

 

SECTION 2.6 INCOME TAX RETURNS. Borrower has no knowledge of any pending
assessments or adjustments of its income tax payable with respect to any year.

 

SECTION 2.7 NO SUBORDINATION. There is no agreement, indenture, contract or
instrument to which Borrower is a party or by which Borrower may be bound that
requires the subordination in right of payment of any of Borrower’s obligations
subject to this Agreement to any other obligation of Borrower.

 

SECTION 2.8 PERMITS, FRANCHISES. Borrower possesses, and will hereafter possess,
all permits, consents, approvals, franchises and licenses required and rights to
all trademarks, trade names, patents, and fictitious names, if any, necessary to
enable it to conduct the business in which it is now engaged in compliance with
applicable law.

 

SECTION 2.9 ERISA. Borrower is in compliance in all material respects with all
applicable provisions of the Employee Retirement Income Security Act of 1974, as
amended or recodified from time to time (“ERISA”); Borrower has not violated any
provision of any defined employee pension benefit plan (as defined in ERISA)
maintained or contributed to by Borrower (each, a “Plan”); no Reportable Event
as defined in ERISA has occurred and is continuing with respect to any Plan
initiated by Borrower; Borrower has met its minimum funding requirements under
ERISA with respect to each Plan; and each Plan will be able to fulfill its
benefit obligations as they come due in accordance with the Plan documents and
under generally accepted accounting principles.

 

SECTION 2.10 OTHER OBLIGATIONS. Borrower is not in default on any obligation for
borrowed money, any purchase money obligation or any other material lease,
commitment, contract, instrument or obligation.

 

SECTION 2.11 ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to Bank in
writing prior to the date hereof, Borrower is in compliance in all material
respects with all applicable federal or state environmental, hazardous waste,
health

 

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and safety statutes, and any rules or regulations adopted pursuant thereto,
which govern or affect any of Borrower’s operations and/or properties, including
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, the Superfund Amendments and Reauthorization Act of 1986,
the Federal Resource Conservation and Recovery Act of 1976, and the Federal
Toxic Substances Control Act, as any of the same may be amended, modified or
supplemented from time to time. None of the operations of Borrower is the
subject of any federal or state investigation evaluating whether any remedial
action involving a material expenditure is needed to respond to a release of any
toxic or hazardous waste or substance into the environment. Borrower has no
material contingent liability in connection with any release of any toxic or
hazardous waste or substance into the environment.

 

ARTICLE III

CONDITIONS

 

SECTION 3.1 CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation of Bank to
extend any credit contemplated by this Agreement is subject to the fulfillment
to Bank’s satisfaction of all of the following conditions:

 

(a) Approval of Bank Counsel. All legal matters incidental to the extension of
credit by Bank shall be satisfactory to Bank’s counsel.

 

(b) Documentation. Bank shall have received, in form and substance satisfactory
to Bank, each of the following, duly executed:

 

  (i) This Agreement and each promissory note or other instrument or document
required hereby.

 

  (ii) Certificate of Incumbency.

 

  (iii) Corporate Resolution: Borrowing.

 

  (iv) Continuing Security Agreement: Rights to Payment and Inventory.

 

  (v) Security Agreement: Equipment.

 

  (vi) Security Agreement: Securities Account.

 

  (vii) Addendum to Security Agreement: Securities Account.

 

  (viii) Securities Account Control Agreement (Wells Fargo Affiliate
Intermediary).

 

  (ix) Statement of Purpose.

 

  (x) UCC Financing Statement.

 

  (xi) Such other documents as Bank may require under any other Section of this
Agreement.

 

(c) Financial Condition. There shall have been no material adverse change, as
determined by Bank, in the financial condition or business of Borrower, nor any
material decline, as determined by Bank, in the market value of any collateral
required hereunder or a substantial or material portion of the assets of
Borrower.

 

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(d) Insurance. Borrower shall have delivered to Bank evidence of insurance
coverage on all Borrower’s property, in form, substance, amounts, covering risks
and issued by companies satisfactory to Bank, and where required by Bank, with
loss payable endorsements in favor of Bank.

 

SECTION 3.2 CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of Bank to
make each extension of credit requested by Borrower hereunder shall be subject
to the fulfillment to Bank’s satisfaction of each of the following conditions:

 

(a) Compliance. The representations and warranties contained herein and in each
of the other Loan Documents shall be true on and as of the date of the signing
of this Agreement and on the date of each extension of credit by Bank pursuant
hereto, with the same effect as though such representations and warranties had
been made on and as of each such date, and on each such date, no Event of
Default as defined herein, and no condition, event or act which with the giving
of notice or the passage of time or both would constitute such an Event of
Default, shall have occurred and be continuing or shall exist.

 

(b) Documentation. Bank shall have received all additional documents which may
be required in connection with such extension of credit.

 

ARTICLE IV

AFFIRMATIVE COVENANTS

 

Borrower covenants that so long as Bank remains committed to extend credit to
Borrower pursuant hereto, or any liabilities (whether direct or contingent,
liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents
remain outstanding, and until payment in full of all obligations of Borrower
subject hereto, Borrower shall, unless Bank otherwise consents in writing:

 

SECTION 4.1 PUNCTUAL PAYMENTS. Punctually pay all principal, interest, fees or
other liabilities due under any of the Loan Documents at the times and place and
in the manner specified therein.

 

SECTION 4.2 ACCOUNTING RECORDS. Maintain adequate books and records in
accordance with generally accepted accounting principles consistently applied,
and permit any representative of Bank, at any reasonable time, to inspect, audit
and examine such books and records, to make copies of the same, and to inspect
the properties of Borrower.

 

SECTION 4.3 FINANCIAL STATEMENTS. Provide to Bank all of the following, in form
and detail satisfactory to Bank:

 

(a) not later than 120 days after and as of the end of each fiscal year, a 10K
report of Borrower filed with the Securities Exchange Commission, prepared by an
independent certified public accountant acceptable to Bank, to include balance
sheet, income statement, statement of cash flow and all supporting schedules;

 

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(b) not later than 120 days after and as of the end of each fiscal quarter, a
10Q report of Borrower filed with the Securities Exchange Commission, prepared
by Borrower, to include balance sheet, income statement, statement of cash flow
and all supporting schedules;

 

(c) from time to time such other information as Bank may reasonably request.

 

SECTION 4.4 COMPLIANCE. Preserve and maintain all licenses, permits,
governmental approvals, rights, privileges and franchises necessary for the
conduct of its business; and comply with the provisions of all documents
pursuant to which Borrower is organized and/or which govern Borrower’s continued
existence and with the requirements of all laws, rules, regulations and orders
of any governmental authority applicable to Borrower and/or its business.

 

SECTION 4.5 INSURANCE. Maintain and keep in force insurance of the types and in
amounts customarily carried in lines of business similar to that of Borrower,
including but not limited to fire, extended coverage, public liability, flood,
property damage and workers’ compensation, with all such insurance carried with
companies and in amounts satisfactory to Bank, and deliver to Bank from time to
time at Bank’s request schedules setting forth all insurance then in effect.

 

SECTION 4.6 FACILITIES. Keep all properties useful or necessary to Borrower’s
business in good repair and condition, and from time to time make necessary
repairs, renewals and replacements thereto so that such properties shall be
fully and efficiently preserved and maintained.

 

SECTION 4.7 TAXES AND OTHER LIABILITIES. Pay and discharge when due any and all
indebtedness, obligations, assessments and taxes, both real or personal,
including without limitation federal and state income taxes and state and local
property taxes and assessments, except such (a) as Borrower may in good faith
contest or as to which a bona fide dispute may arise, and (b) for which Borrower
has made provision, to Bank’s satisfaction, for eventual payment thereof in the
event Borrower is obligated to make such payment.

 

SECTION 4.8 LITIGATION. Promptly give notice in writing to Bank of any
litigation pending or threatened against Borrower with a claim in excess of
$100,000.00.

 

SECTION 4.9 NOTICE TO BANK. Promptly (but in no event more than five (5) days
after the occurrence of each such event or matter) give written notice to Bank
in reasonable detail of: (a) the occurrence of any Event of Default, or any
condition, event or act which with the giving of notice or the passage of time
or both would constitute an Event of Default; (b) any change in the name or the
organizational structure of Borrower; (c) the occurrence and nature of any
Reportable Event or Prohibited Transaction, each as defined in ERISA, or any
funding deficiency with respect to any Plan; or (d) any termination or
cancellation of any insurance policy

 

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which Borrower is required to maintain, or any uninsured or partially uninsured
loss through liability or property damage, or through fire, theft or any other
cause affecting Borrower’s property.

 

ARTICLE V

NEGATIVE COVENANTS

 

Borrower further covenants that so long as Bank remains committed to extend
credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower will not without Bank’s prior written
consent:

 

SECTION 5.1 USE OF FUNDS. Use any of the proceeds of any credit extended
hereunder except for the purposes stated in Article I hereof.

 

SECTION 5.2 CAPITAL EXPENDITURES. Make any additional investment in fixed assets
in any fiscal year in excess of an aggregate of $1,500,000.00.

 

SECTION 5.3 LEASE EXPENDITURES. Incur operating lease expense in any fiscal year
in excess of an aggregate of $500,000.00.

 

SECTION 5.4 OTHER INDEBTEDNESS. Create, incur, assume or permit to exist any
indebtedness or liabilities resulting from borrowings, loans or advances,
whether secured or unsecured, matured or unmatured, liquidated or unliquidated,
joint or several, except (a) the liabilities of Borrower to Bank, and (b) any
other liabilities of Borrower existing as of, and disclosed to Bank prior to,
the date hereof.

 

SECTION 5.5 MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or consolidate
with any other entity; make any substantial change in the nature of Borrower’s
business as conducted as of the date hereof; acquire all or substantially all of
the assets of any other entity; nor sell, lease, transfer or otherwise dispose
of all or a substantial or material portion of Borrower’s assets except in the
ordinary course of its business.

 

SECTION 5.6 GUARANTIES. Guarantee or become liable in any way as surety,
endorser (other than as endorser of negotiable instruments for deposit or
collection in the ordinary course of business), accommodation endorser or
otherwise for, nor pledge or hypothecate any assets of Borrower as security for,
any liabilities or obligations of any other person or entity, except any of the
foregoing in favor of Bank.

 

SECTION 5.7 LOANS, ADVANCES, INVESTMENTS. Make any loans or advances to or
investments in any person or entity, except any of the foregoing existing as of,
and disclosed to Bank prior to, the date hereof.

 

SECTION 5.8 DIVIDENDS, DISTRIBUTIONS. Declare or pay any dividend or
distribution either in cash, stock or any other property on Borrower’s stock now
or

 

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hereafter outstanding, nor redeem, retire, repurchase or otherwise acquire any
shares of any class of Borrower’s stock now or hereafter outstanding.

 

SECTION 5.9 PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to exist a
security interest in, or lien upon, all or any portion of Borrower’s assets now
owned or hereafter acquired, except any of the foregoing in favor of Bank or
which is existing as of, and disclosed to Bank in writing prior to, the date
hereof.

 

ARTICLE VI

EVENTS OF DEFAULT

 

SECTION 6.1 The occurrence of any of the following shall constitute an “Event of
Default” under this Agreement:

 

(a) Borrower shall fail to pay when due any principal, interest, fees or other
amounts payable under any of the Loan Documents.

 

(b) Any financial statement or certificate furnished to Bank in connection with,
or any representation or warranty made by Borrower or any other party under this
Agreement or any other Loan Document shall prove to be incorrect, false or
misleading in any material respect when furnished or made.

 

(c) Any default in the performance of or compliance with any obligation,
agreement or other provision contained herein or in any other Loan Document
(other than those referred to in subsections (a) and (b) above), and with
respect to any such default which by its nature can be cured, such default shall
continue for a period of twenty (20) days from its occurrence.

 

(d) Any default in the payment or performance of any obligation, or any defined
event of default, under the terms of any contract or instrument (other than any
of the Loan Documents) pursuant to which Borrower, any guarantor hereunder, or
any general partner or joint venturer in any Borrower which is a partnership or
a joint venture (with each such guarantor, general partner and/or joint venturer
referred to herein as a “Third Party Obligor”) has incurred any debt or other
liability to any person or entity, including Bank.

 

(e) The filing of a notice of judgment lien against Borrower or any Third Party
Obligor, or the recording of any abstract of judgment against Borrower or any
Third Party Obligor in any county in which Borrower or any Third Party Obligor
has an interest in real property; or the service of a notice of levy and/or of a
writ of attachment or execution, or other like process, against the assets of
Borrower or any Third Party Obligor; or the entry of a judgment against Borrower
or any Third Party Obligor.

 

(f)

Borrower or any Third Party Obligor shall become insolvent, or shall suffer or
consent to or apply for the appointment of a receiver, trustee, custodian or
liquidator of itself or any of its property, or shall generally fail to pay its
debts as they become

 

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due, or shall make a general assignment for the benefit of creditors; Borrower
or any Third Party Obligor shall file a voluntary petition in bankruptcy, or
seeking reorganization, in order to effect a plan or other arrangement with
creditors or any other relief under the Bankruptcy Reform Act, Title 11 of the
United States Code, as amended or recodified from time to time (“Bankruptcy
Code”), or under any state or federal law granting relief to debtors, whether
now or hereafter in effect; or any involuntary petition or proceeding pursuant
to the Bankruptcy Code or any other applicable state or federal law relating to
bankruptcy, reorganization or other relief for debtors is filed or commenced
against Borrower or any Third Party Obligor, or Borrower or any Third Party
Obligor shall file an answer admitting the jurisdiction of the court and the
material allegations of any involuntary petition; or Borrower or any Third Party
Obligor shall be adjudicated a bankrupt, or an order for relief shall be entered
against Borrower or any Third Party Obligor by any court of competent
jurisdiction under the Bankruptcy Code or any other applicable state or federal
law relating to bankruptcy, reorganization or other relief for debtors.

 

(g) There shall exist or occur any event or condition which Bank in good faith
believes impairs, or is substantially likely to impair, the prospect of payment
or performance by Borrower of its obligations under any of the Loan Documents.

 

(h) The death or incapacity of any individual Borrower or Third Party Obligor.
The dissolution or liquidation of any Borrower or Third Party Obligor which is a
corporation, partnership, joint venture or other type of entity; or any such
Borrower or Third Party Obligor, or any of its directors, stockholders or
members, shall take action seeking to effect the dissolution or liquidation of
such Borrower or Third Party Obligor.

 

(i) Any change in ownership of an aggregate of twenty-five percent (25%) or more
of the common stock in Borrower.

 

SECTION 6.2 REMEDIES. Upon the occurrence of any Event of Default: (a) all
indebtedness of Borrower under each of the Loan Documents, any term thereof to
the contrary notwithstanding, shall at Bank’s option and without notice become
immediately due and payable without presentment, demand, protest or notice of
dishonor, all of which are hereby expressly waived by each Borrower; (b) the
obligation, if any, of Bank to extend any further credit under any of the Loan
Documents shall immediately cease and terminate; and (c) Bank shall have all
rights, powers and remedies available under each of the Loan Documents, or
accorded by law, including without limitation the right to resort to any or all
security for any credit subject hereto and to exercise any or all of the rights
of a beneficiary or secured party pursuant to applicable law. All rights, powers
and remedies of Bank may be exercised at any time by Bank and from time to time
after the occurrence of an Event of Default, are cumulative and not exclusive,
and shall be in addition to any other rights, powers or remedies provided by law
or equity.

 

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ARTICLE VII

MISCELLANEOUS

 

SECTION 7.1 NO WAIVER. No delay, failure or discontinuance of Bank in exercising
any right, power or remedy under any of the Loan Documents shall affect or
operate as a waiver of such right, power or remedy; nor shall any single or
partial exercise of any such right, power or remedy preclude, waive or otherwise
affect any other or further exercise thereof or the exercise of any other right,
power or remedy. Any waiver, permit, consent or approval of any kind by Bank of
any breach of or default under any of the Loan Documents must be in writing and
shall be effective only to the extent set forth in such writing.

 

SECTION 7.2 NOTICES. All notices, requests and demands which any party is
required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to each party at the following address:

 

BORROWER:    Interlink Electronics, Inc.      546 Flynn Road      Camarillo, CA
93012-8027 BANK:    WELLS FARGO BANK, NATIONAL ASSOCIATION      Ventura LPO     
601 Daily Drive, STE #110      Camarillo, CA 93010

 

or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit in
the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy,
upon receipt.

 

SECTION 7.3 COSTS, EXPENSES AND ATTORNEYS’ FEES. Borrower shall pay to Bank
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys’ fees (to include outside
counsel fees and all allocated costs of Bank’s in-house counsel), expended or
incurred by Bank in connection with (a) the negotiation and preparation of this
Agreement and the other Loan Documents, Bank’s continued administration hereof
and thereof, and the preparation of any amendments and waivers hereto and
thereto, (b) the enforcement of Bank’s rights and/or the collection of any
amounts which become due to Bank under any of the Loan Documents, and (c) the
prosecution or defense of any action in any way related to any of the Loan
Documents, including without limitation, any action for declaratory relief,
whether incurred at the trial or appellate level, in an arbitration proceeding
or otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Bank or any other person) relating to any
Borrower or any other person or entity.

 

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SECTION 7.4 SUCCESSORS, ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties; provided however, that
Borrower may not assign or transfer its interest hereunder without Bank’s prior
written consent. Bank reserves the right to sell, assign, transfer, negotiate or
grant participations in all or any part of, or any interest in, Bank’s rights
and benefits under each of the Loan Documents. In connection therewith, Bank may
disclose all documents and information which Bank now has or may hereafter
acquire relating to any credit subject hereto, Borrower or its business, or any
collateral required hereunder.

 

SECTION 7.5 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other Loan
Documents constitute the entire agreement between Borrower and Bank with respect
to each credit subject hereto and supersede all prior negotiations,
communications, discussions and correspondence concerning the subject matter
hereof. This Agreement may be amended or modified only in writing signed by each
party hereto.

 

SECTION 7.6 NO THIRD PARTY BENEFICIARIES. This Agreement is made and entered
into for the sole protection and benefit of the parties hereto and their
respective permitted successors and assigns, and no other person or entity shall
be a third party beneficiary of, or have any direct or indirect cause of action
or claim in connection with, this Agreement or any other of the Loan Documents
to which it is not a party.

 

SECTION 7.7 TIME. Time is of the essence of each and every provision of this
Agreement and each other of the Loan Documents.

 

SECTION 7.8 SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall
be prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or any remaining provisions of this
Agreement.

 

SECTION 7.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when executed and delivered shall be deemed to be an
original, and all of which when taken together shall constitute one and the same
Agreement.

 

SECTION 7.10 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.

 

SECTION 7.11 ARBITRATION.

 

(a)

Arbitration. The parties hereto agree, upon demand by any party, to submit to
binding arbitration all claims, disputes and controversies between or among them

 

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(and their respective employees, officers, directors, attorneys, and other
agents), whether in tort, contract or otherwise arising out of or relating to in
any way (i) the loan and related Loan Documents which are the subject of this
Agreement and its negotiation, execution, collateralization, administration,
repayment, modification, extension, substitution, formation, inducement,
enforcement, default or termination; or (ii) requests for additional credit.

 

(b) Governing Rules. Any arbitration proceeding will (i) proceed in a location
in California selected by the American Arbitration Association (“AAA”); (ii) be
governed by the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the documents
between the parties; and (iii) be conducted by the AAA, or such other
administrator as the parties shall mutually agree upon, in accordance with the
AAA’s commercial dispute resolution procedures, unless the claim or counterclaim
is at least $1,000,000.00 exclusive of claimed interest, arbitration fees and
costs in which case the arbitration shall be conducted in accordance with the
AAA’s optional procedures for large, complex commercial disputes (the commercial
dispute resolution procedures or the optional procedures for large, complex
commercial disputes to be referred to, as applicable, as the “Rules”). If there
is any inconsistency between the terms hereof and the Rules, the terms and
procedures set forth herein shall control. Any party who fails or refuses to
submit to arbitration following a demand by any other party shall bear all costs
and expenses incurred by such other party in compelling arbitration of any
dispute. Nothing contained herein shall be deemed to be a waiver by any party
that is a bank of the protections afforded to it under 12 U.S.C. §91 or any
similar applicable state law.

 

(c) No Waiver of Provisional Remedies, Self-Help and Foreclosure. The
arbitration requirement does not limit the right of any party to (i) foreclose
against real or personal property collateral; (ii) exercise self-help remedies
relating to collateral or proceeds of collateral such as setoff or repossession;
or (iii) obtain provisional or ancillary remedies such as replevin, injunctive
relief, attachment or the appointment of a receiver, before during or after the
pendency of any arbitration proceeding. This exclusion does not constitute a
waiver of the right or obligation of any party to submit any dispute to
arbitration or reference hereunder, including those arising from the exercise of
the actions detailed in sections (i), (ii) and (iii) of this paragraph.

 

(d)

Arbitrator Qualifications and Powers. Any arbitration proceeding in which the
amount in controversy is $5,000,000.00 or less will be decided by a single
arbitrator selected according to the Rules, and who shall not render an award of
greater than $5,000,000.00. Any dispute in which the amount in controversy
exceeds $5,000,000.00 shall be decided by majority vote of a panel of three
arbitrators; provided however, that all three arbitrators must actively
participate in all hearings and deliberations. The arbitrator will be a neutral
attorney licensed in the State of California or a neutral retired judge of the
state or federal judiciary of California, in either case with a minimum of ten
years experience in the substantive law applicable to the subject matter of the
dispute to be arbitrated. The arbitrator will determine

 

--------------------------------------------------------------------------------

 

whether or not an issue is arbitratable and will give effect to the statutes of
limitation in determining any claim. In any arbitration proceeding the
arbitrator will decide (by documents only or with a hearing at the arbitrator’s
discretion) any pre-hearing motions which are similar to motions to dismiss for
failure to state a claim or motions for summary adjudication. The arbitrator
shall resolve all disputes in accordance with the substantive law of California
and may grant any remedy or relief that a court of such state could order or
grant within the scope hereof and such ancillary relief as is necessary to make
effective any award. The arbitrator shall also have the power to award recovery
of all costs and fees, to impose sanctions and to take such other action as the
arbitrator deems necessary to the same extent a judge could pursuant to the
Federal Rules of Civil Procedure, the California Rules of Civil Procedure or
other applicable law. Judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction. The institution and maintenance of an
action for judicial relief or pursuit of a provisional or ancillary remedy shall
not constitute a waiver of the right of any party, including the plaintiff, to
submit the controversy or claim to arbitration if any other party contests such
action for judicial relief.

 

(e) Discovery. In any arbitration proceeding discovery will be permitted in
accordance with the Rules. All discovery shall be expressly limited to matters
directly relevant to the dispute being arbitrated and must be completed no later
than 20 days before the hearing date and within 180 days of the filing of the
dispute with the AAA. Any requests for an extension of the discovery periods, or
any discovery disputes, will be subject to final determination by the arbitrator
upon a showing that the request for discovery is essential for the party’s
presentation and that no alternative means for obtaining information is
available.

 

(f) Class Proceedings and Consolidations. The resolution of any dispute arising
pursuant to the terms of this Agreement shall be determined by a separate
arbitration proceeding and such dispute shall not be consolidated with other
disputes or included in any class proceeding.

 

(g) Payment Of Arbitration Costs And Fees. The arbitrator shall award all costs
and expenses of the arbitration proceeding.

 

(h)

Real Properly Collateral; Judicial Reference. Notwithstanding anything herein to
the contrary, no dispute shall be submitted to arbitration if the dispute
concerns indebtedness secured directly or indirectly, in whole or in part, by
any real property unless (i) the holder of the mortgage, lien or security
interest specifically elects in writing to proceed with the arbitration, or (ii)
all parties to the arbitration waive any rights or benefits that might accrue to
them by virtue of the single action rule statute of California, thereby agreeing
that all indebtedness and obligations of the parties, and all mortgages, liens
and security interests securing such indebtedness and obligations, shall remain
fully valid and enforceable. If any such dispute is not submitted to
arbitration, the dispute shall be referred to a referee in accordance with
California Code of Civil Procedure Section 638 et seq., and this general
reference

 

--------------------------------------------------------------------------------

 

agreement is intended to be specifically enforceable in accordance with said
Section 638. A referee with the qualifications required herein for arbitrators
shall be selected pursuant to the AAA’s selection procedures. Judgment upon the
decision rendered by a referee shall be entered in the court in which such
proceeding was commenced in accordance with California Code of Civil Procedure
Sections 644 and 645.

 

(i) Miscellaneous. To the maximum extent practicable, the AAA, the arbitrators
and the parties shall take all action required to conclude any arbitration
proceeding within 180 days of the filing of the dispute with the AAA. No
arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business or by applicable law or
regulation. If more than one agreement for arbitration by or between the parties
potentially applies to a dispute, the arbitration provision most directly
related to the Loan Documents or the subject matter of the dispute shall
control. This arbitration provision shall survive termination, amendment or
expiration of any of the Loan Documents or any relationship between the parties.

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the day and year first written above.

 

Interlink Electronics, Inc.

By:

 

/s/ Paul D. Meyer

Title:

 

Chief Financial Officer

WELLS FARGO BANK, NATIONAL ASSOCIATION

By:

 

/s/ John E. Ray

   

John E. Ray, Relationship Manager

 

--------------------------------------------------------------------------------

Revolving Line of Credit Note

 

$3,000,000.00   Camarillo, California     May 1, 2005

 

FOR VALUE RECEIVED, the undersigned Interlink Electronics, Inc. (“Borrower”)
promises to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION (“Bank”)
at its office at Ventura LPO, 601 Daily Drive, STE #110, Camarillo, CA 93010, or
at such other place as the holder hereof may designate, in lawful money of the
United States of America and in immediately available funds, the principal sum
of $3,000,000.00, or so much thereof as may be advanced and be outstanding, with
interest thereon, to be computed on each advance from the date of its
disbursement as set forth herein.

 

1. INTEREST:

 

1.1 Interest. The outstanding principal balance of this Note shall bear interest
(computed on the basis of a 360-day year, actual days elapsed) at a rate per
annum equal to the Prime Rate in effect from time to time. The “Prime Rate” is a
base rate that Bank from time to time establishes and which serves as the basis
upon which effective rates of interest are calculated for those loans making
reference thereto. Each change in the rate of interest hereunder shall become
effective on the date each Prime Rate change is announced within Bank.

 

1.2 Payment of Interest. Interest accrued on this Note shall be payable on the
1st day of each month, commencing June 1, 2005.

 

1.3 Default Interest. From and after the maturity date of this Note, or such
earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of this Note shall
bear interest until paid in full at an increased rate per annum (computed on the
basis of a 360-day year, actual days elapsed) equal to 4% above the rate of
interest from time to time applicable to this Note.

 

2. BORROWING AND REPAYMENT:

 

2.1 Borrowing and Repayment. Borrower may from time to time during the term of
this Note borrow, partially or wholly repay its outstanding borrowings, and
reborrow, subject to all of the limitations, terms and conditions of this Note
and of the Credit Agreement between Borrower and Bank defined below; provided
however, that the total outstanding borrowings under this Note shall not at any
time exceed the principal amount stated above. The unpaid principal balance of
this obligation at any time shall be the total amounts advanced hereunder by the
holder hereof less the amount of principal payments made hereon by or for any
Borrower, which balance may be endorsed hereon from time to time by the holder.
The outstanding principal balance of this Note shall be due and payable in full
on June 1, 2007.

 

2.2 Advances. Advances hereunder, to the total amount of the principal sum
available hereunder, may be made by the holder at the oral or written request of
(a) Paul Meyer, Sharon McCracken, any one acting alone, who are authorized to
request advances and

 

--------------------------------------------------------------------------------

direct the disposition of any advances until written notice of the revocation of
such authority is received by the holder at the office designated above, or (b)
any person, with respect to advances deposited to the credit of any deposit
account of any Borrower, which advances, when so deposited, shall be
conclusively presumed to have been made to or for the benefit of each Borrower
regardless of the fact that persons other than those authorized to request
advances may have authority to draw against such account. The holder shall have
no obligation to determine whether any person requesting an advance is or has
been authorized by any Borrower.

 

2.3 Application of Payments. Each payment made on this Note shall be credited
first, to any interest then due and second, to the outstanding principal balance
hereof.

 

3. EVENTS OF DEFAULT:

 

This Note is made pursuant to and is subject to the terms and conditions of that
certain Credit Agreement between Borrower and Bank dated as of May 1, 2005, as
amended from time to time (the “Credit Agreement”). Any default in the payment
or performance of any obligation under this Note, or any defined event of
default under the Credit Agreement, shall constitute an “Event of Default” under
this Note.

 

4. MISCELLANEOUS:

 

4.1 Remedies. Upon the occurrence of any Event of Default, the holder of this
Note, at the holder’s option, may declare all sums of principal and interest
outstanding hereunder to be immediately due and payable without presentment,
demand, notice of nonperformance, notice of protest, protest or notice of
dishonor, all of which are expressly waived by each Borrower, and the
obligation, if any, of the holder to extend any further credit hereunder shall
immediately cease and terminate. Each Borrower shall pay to the holder
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys’ fees (to include outside
counsel fees and all allocated costs of the holder’s in-house counsel), expended
or incurred by the holder in connection with the enforcement of the holder’s
rights and/or the collection of any amounts which become due to the holder under
this Note, and the prosecution or defense of any action in any way related to
this Note, including without limitation, any action for declaratory relief,
whether incurred at the trial or appellate level, in an arbitration proceeding
or otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Bank or any other person) relating to any
Borrower or any other person or entity.

 

4.2 Obligations Joint and Several. Should more than one person or entity sign
this Note as a Borrower, the obligations of each such Borrower shall be joint
and several.

 

4.3 Governing Law. This Note shall be governed by and construed in accordance
with the laws of the State of California.

 

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the undersigned has executed this Note as of the date first
written above.

 

Interlink Electronics, Inc.

By:

 

/s/ Paul D. Meyer

Title:

 

Chief Financial Officer

 

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Security Agreement Securities Account

 

1. GRANT OF SECURITY INTEREST. For valuable consideration, the undersigned
Interlink Electronics, Inc., or any of them (“Debtor”), hereby grants and
transfers to WELLS FARGO BANK, NATIONAL ASSOCIATION (“Bank”) a security interest
in (a) Debtor’s account no. 12561247 (whether held in Debtor’s name or as a Bank
collateral account for the benefit of Debtor), any sub-account thereunder or
consolidated therewith, and all replacements or substitutions therefor,
including any account resulting from a renumbering or other administrative
re-identification thereof (collectively, the “Securities Account”) maintained
with Wells Fargo Institutional Brokerage & Sales (“Intermediary”), (b) all
financial assets credited to the Securities Account, (c) all security
entitlements with respect to the financial assets credited to the Securities
Account, and (d) any and all other investment property or assets maintained or
recorded in the Securities Account (with all the foregoing defined as
“Collateral”), together with whatever is receivable or received when any of the
Collateral or proceeds thereof are sold, collected, exchanged or otherwise
disposed of, whether such disposition is voluntary or involuntary, including
without limitation, (i) all rights to payment, including returned premiums, with
respect to any insurance relating to any of the foregoing, (ii) all rights to
payment with respect to any claim or cause of action affecting or relating to
any of the foregoing, and (iii) all stock rights, rights to subscribe, stock
splits, liquidating dividends, cash dividends, dividends paid in stock, new
securities or other property of any kind which Debtor is or may hereafter be
entitled to receive on account of any securities pledged hereunder, including
without limitation, stock received by Debtor due to stock splits or dividends
paid in stock or sums paid upon or in respect of any securities pledged
hereunder upon the liquidation or dissolution of the issuer thereof (hereinafter
called “Proceeds”). Except as otherwise expressly permitted herein, in the event
Debtor receives any such Proceeds, Debtor will hold the same in trust on behalf
of and for the benefit of Bank and will immediately deliver all such Proceeds to
Bank in the exact form received, with the endorsement of Debtor if necessary
and/or appropriate undated stock powers duly executed in blank, to be held by
Bank as part of the Collateral, subject to all terms hereof. As used herein, the
terms “security entitlement,” “financial asset” and “investment property” shall
have the respective meanings set forth in the California Uniform Commercial
Code.

 

2. OBLIGATIONS SECURED. The obligations secured hereby are the payment and
performance of: (a) all present and future Indebtedness of Debtor to Bank; (b)
all obligations of Debtor and rights of Bank under this Agreement; and (c) all
present and future obligations of Debtor to Bank of other kinds. The word
“Indebtedness” is used herein in its most comprehensive sense and includes any
and all advances, debts, obligations and liabilities of Debtor, or any of them,
heretofore, now or hereafter made, incurred or created, whether voluntary or
involuntary and however arising, whether due or not due, absolute or contingent,
liquidated or unliquidated, determined or undetermined, and whether Debtor may
be liable individually or jointly, or whether recovery upon such Indebtedness
may be or hereafter becomes unenforceable.

 

3. TERMINATION. This Agreement will terminate upon the performance of all
obligations of Debtor to Bank, including without limitation, the payment of all
Indebtedness of Debtor to Bank, and the termination of all commitments of Bank
to

 

--------------------------------------------------------------------------------

extend credit to Debtor, existing at the time Bank receives written notice from
Debtor of the termination of this Agreement.

 

4. OBLIGATIONS OF BANK. Bank has no obligation to make any loans hereunder. Any
money received by Bank in respect of the Collateral may be deposited, at Bank’s
option, into a non-interest bearing account over which Debtor shall have no
control, and the same shall, for all purposes, be deemed Collateral hereunder.
Bank shall have no duty to take any steps necessary to preserve the rights of
Debtor against prior parties, or to initiate any action to protect against the
possibility of a decline in the market value of the Collateral or Proceeds. Bank
shall not be obligated to take any action with respect to the Collateral or
Proceeds requested by Debtor unless such request is made in writing and Bank
determines, in its sole discretion, that the requested action would not
unreasonably jeopardize the value of the Collateral and Proceeds as security for
the Indebtedness.

 

5. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to Bank that:
(a) Debtor’s legal name is exactly as set forth on the first page of this
Agreement, and all of Debtor’s organizational documents or agreements delivered
to Bank are complete and accurate in every respect; (b) Debtor is the owner of
the Collateral and Proceeds; (c) Debtor has the exclusive right to grant a
security interest in the Collateral and Proceeds; (d) all Collateral and
Proceeds are genuine, free from liens, adverse claims, setoffs, default,
prepayment, defenses and conditions precedent of any kind or character, except
the lien created hereby or as otherwise agreed to by Bank, or heretofore
disclosed by Debtor to Bank, in writing; (e) all statements contained herein
and, where applicable, in the Collateral, are true and complete in all material
respects; (f) no financing statement or control agreement covering any of the
Collateral or Proceeds, and naming any secured party other than Bank, exists or
is on file in any public office or remains in effect; (g) no person or entity,
other than Debtor, Bank and Intermediary, has any interest in or control over
the Collateral; and (h) specifically with respect to Collateral and Proceeds
consisting of investment securities, instruments, chattel paper, documents,
contracts, insurance policies or any like property, (i) all persons appearing to
be obligated thereon have authority and capacity to contract and are bound as
they appear to be, and (ii) the same comply with applicable laws concerning
form, content and manner of preparation and execution.

 

6. COVENANTS OF DEBTOR.

 

6.1 Debtor Agrees in general: (a) to pay Indebtedness secured hereby when due;
(b) to indemnify Bank against all losses, claims, demands, liabilities and
expenses of every kind caused by property subject hereto; (c) to pay all costs
and expenses, including reasonable attorneys’ fees, incurred by Bank in the
perfection and preservation of the Collateral or Bank’s interest therein and/or
the realization, enforcement and exercise of Bank’s rights, powers and remedies
hereunder; (d) to permit Bank to exercise its powers; (e) to execute and deliver
such documents as Bank deems necessary to create, perfect and continue the
security interests contemplated hereby; (f) not to change its name, and as
applicable, its chief executive office, its principal residence or the
jurisdiction in which it

 

--------------------------------------------------------------------------------

is organized and/or registered without giving Bank prior written notice thereof;
(g) not to change the places where Debtor keeps any Collateral or Debtor’s
records concerning the Collateral and Proceeds without giving Bank prior written
notice of the address to which Debtor is moving same; and (h) to cooperate with
Bank in perfecting all security interests granted herein and in obtaining such
agreements from third parties as Bank deems necessary, proper or convenient in
connection with the preservation, perfection or enforcement of any of its rights
hereunder.

 

6.2 Debtor agrees with regard to the Collateral and Proceeds, unless Bank agrees
otherwise in writing: (a) that Bank is authorized to file financing statements
in the name of Debtor to perfect Bank’s security interest in Collateral and
Proceeds; (b) not to permit any security interest in or lien on the Collateral
or Proceeds, except in favor of Bank and except liens in favor of Intermediary
to the extent expressly permitted by Bank in writing; (c) not to hypothecate or
permit the transfer by operation of law of any of the Collateral or Proceeds or
any interest therein; (d) to keep, in accordance with generally accepted
accounting principles, complete and accurate records regarding all Collateral
and Proceeds, and to permit Bank to inspect the same and make copies thereof at
any reasonable time; (e) if requested by Bank, to receive and use reasonable
diligence to collect Proceeds, in trust and as the property of Bank, and to
immediately endorse as appropriate and deliver such Proceeds to Bank daily in
the exact form in which they are received together with a collection report in
form satisfactory to Bank; (f) in the event Bank elects to receive payments of
Proceeds hereunder, to pay all expenses incurred by Bank in connection
therewith, including expenses of accounting, correspondence, collection efforts,
filing, recording, record keeping and expenses incidental thereto; (g) to
provide any service and do any other acts which may be necessary to keep all
Collateral and Proceeds free and clear of all defenses, rights of offset and
counterclaims; and (h) if the Collateral or Proceeds consists of securities and
so long as no Event of Default exists, to vote said securities and to give
consents, waivers and ratifications with respect thereto, provided that no vote
shall be cast or consent, waiver or ratification given or action taken which
would impair Bank’s interests in the Collateral and Proceeds or be inconsistent
with or violate any provisions of this Agreement. Debtor further agrees that any
party now or at any time hereafter authorized by Debtor to advise or otherwise
act with respect to the Securities Account shall be subject to all terms and
conditions contained herein and in any control, custodial or other similar
agreement at any time in effect among Bank, Debtor and Intermediary relating to
the Collateral.

 

7. POWERS OF BANK. Debtor appoints Bank its true attorney-in-fact to perform any
of the following powers, which are coupled with an interest, are irrevocable
until termination of this Agreement and may be exercised from time to time by
Bank’s officers and employees, or any of them, whether or not Debtor is in
default: (a) to perform any obligation of Debtor hereunder in Debtor’s name or
otherwise; (b) to notify any person obligated on any security, instrument or
other document subject to this Agreement of Bank’s rights hereunder; (c) to
collect by legal proceedings or otherwise all dividends, interest, principal or
other sums now or hereafter payable upon or on account of the Collateral or
Proceeds; (d) to enter into any extension, modification, reorganization,
deposit, merger or consolidation agreement, or any other agreement relating to
or

 

--------------------------------------------------------------------------------

affecting the Collateral or Proceeds, and in connection therewith to deposit or
surrender control of the Collateral and Proceeds, to accept other property in
exchange for the Collateral and Proceeds, and to do and perform such acts and
things as Bank may deem proper, with any money or property received in exchange
for the Collateral or Proceeds, at Bank’s option, to be applied to the
Indebtedness or held by Bank under this Agreement; (e) to make any compromise or
settlement Bank deems desirable or proper in respect of the Collateral and
Proceeds; (f) to insure, process and preserve the Collateral and Proceeds; (g)
to exercise all rights, powers and remedies which Debtor would have, but for
this Agreement, with respect to all Collateral and Proceeds subject hereto; and
(h) to do all acts and things and execute all documents in the name of Debtor or
otherwise, deemed by Bank as necessary, proper and convenient in connection with
the preservation, perfection or enforcement of its rights hereunder. To effect
the purposes of this Agreement or otherwise upon instructions of Debtor, or any
of them, Bank may cause any Collateral and/or Proceeds to be transferred to
Bank’s name or the name of Bank’s nominee. If an Event of Default has occurred
and is continuing, any or all Collateral and/or Proceeds consisting of
securities may be registered, without notice, in the name of Bank or its
nominee, and thereafter Bank or its nominee may exercise, without notice, all
voting and corporate rights at any meeting of the shareholders of the issuer
thereof, any and all rights of conversion, exchange or subscription, or any
other rights, privileges or options pertaining to such Collateral and/or
Proceeds, all as if it were the absolute owner thereof. The foregoing shall
include, without limitation, the right of Bank or its nominee to exchange, at
its discretion, any and all Collateral and/or Proceeds upon the merger,
consolidation, reorganization, recapitalization or other readjustment of the
issuer thereof, or upon the exercise by the issuer thereof or Bank of any right,
privilege or option pertaining to any shares of the Collateral and/or Proceeds,
and in connection therewith, the right to deposit and deliver any and all of the
Collateral and/or Proceeds with any committee, depository, transfer agent,
registrar or other designated agency upon such terms and conditions as Bank may
determine. All of the foregoing rights, privileges or options may be exercised
without liability on the part of Bank or its nominee except to account for
property actually received by Bank. Bank shall have no duty to exercise any of
the foregoing, or any other rights, privileges or options with respect to the
Collateral or Proceeds and shall not be responsible for any failure to do so or
delay in so doing.

 

8. PAYMENT OF PREMIUMS, TAXES, CHARGES, LIENS AND ASSESSMENTS. Debtor agrees to
pay, prior to delinquency, all insurance premiums, taxes, charges, liens and
assessments against the Collateral and Proceeds, and upon the failure of Debtor
to do so, Bank at its option may pay any of them and shall be the sole judge of
the legality or validity thereof and the amount necessary to discharge the same.
Any such payments made by Bank shall be obligations of Debtor to Bank, due and
payable immediately upon demand, together with interest at a rate determined in
accordance with the provisions of this Agreement, and shall be secured by the
Collateral and Proceeds, subject to all terms and conditions of this Agreement.

 

9. EVENTS OF DEFAULT. The occurrence of any of the following shall constitute an
“Event of Default” under this Agreement: (a) any default in the payment or
performance of any obligation, or any defined event of default, under (i) any
contract or

 

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instrument evidencing any Indebtedness, (ii) any other agreement between Debtor
and Bank, including without limitation any loan agreement, relating to or
executed in connection with any Indebtedness, or (iii) any control, custodial or
other similar agreement in effect among Bank, Debtor and Intermediary relating
to the Collateral; (b) any representation or warranty made by Debtor herein
shall prove to be incorrect, false or misleading in any material respect when
made; (c) Debtor shall fail to observe or perform any obligation or agreement
contained herein; (d) any impairment of the rights of Bank in any Collateral or
Proceeds or any attachment or like levy on any property of Debtor; and (e) Bank,
in good faith, believes any or all of the Collateral and/or Proceeds to be in
danger of misuse, dissipation, commingling, loss, theft, damage or destruction,
or otherwise in jeopardy or unsatisfactory in character or value.

 

10. REMEDIES. Upon the occurrence of any Event of Default, Bank shall have the
right to declare immediately due and payable all or any Indebtedness secured
hereby and to terminate any commitments to make loans or otherwise extend credit
to Debtor. Bank shall have all other rights, powers, privileges and remedies
granted to a secured party upon default under the California Uniform Commercial
Code or otherwise provided by law, including without limitation, the right (a)
to contact all persons obligated to Debtor on any Collateral or Proceeds and to
instruct such persons to deliver all Collateral and/or Proceeds directly to
Bank, and (b) to sell, lease, license or otherwise dispose of any or all
Collateral. All rights, powers, privileges and remedies of Bank shall be
cumulative. No delay, failure or discontinuance of Bank in exercising any right,
power, privilege or remedy hereunder shall affect or operate as a waiver of such
right, power, privilege or remedy; nor shall any single or partial exercise of
any such right, power, privilege or remedy preclude, waive or otherwise affect
any other or further exercise thereof or the exercise of any other right, power,
privilege or remedy. Any waiver, permit, consent or approval of any kind by Bank
of any default hereunder, or any such waiver of any provisions or conditions
hereof, must be in writing and shall be effective only to the extent set forth
in writing. It is agreed that public or private sales or other dispositions, for
cash or on credit, to a wholesaler or retailer or investor, or user of property
of the types subject to this Agreement, or public auctions, are all commercially
reasonable since differences in the prices generally realized in the different
kinds of dispositions are ordinarily offset by the differences in the costs and
credit risks of such dispositions.

 

While an Event of Default exists: (a) Debtor will not dispose of any Collateral
or Proceeds except on terms approved by Bank; (b) Bank may appropriate the
Collateral and apply all Proceeds toward repayment of the Indebtedness in such
order of application as Bank may from time to time elect; (c) Bank may take any
action with respect to the Collateral contemplated by any control, custodial or
other similar agreement then in effect among Bank, Debtor and Intermediary; and
(d) at Bank’s request, Debtor will assemble and deliver all books and records
pertaining to the Collateral or Proceeds to Bank at a reasonably convenient
place designated by Bank. For any Collateral or Proceeds consisting of
securities, Bank shall have no obligation to delay a disposition of any portion
thereof for the period of time necessary to permit the issuer thereof to
register such securities for public sale under any applicable state or Federal
law, even if the issuer

 

--------------------------------------------------------------------------------

thereof would agree to do so. Debtor further agrees that Bank shall have no
obligation to process or prepare any Collateral for sale or other disposition.

 

11. DISPOSITION OF COLLATERAL AND PROCEEDS; TRANSFER OF INDEBTEDNESS. In
disposing of Collateral hereunder, Bank may disclaim all warranties of title,
possession, quiet enjoyment and the like. Any proceeds of any disposition of any
Collateral or Proceeds, or any part thereof, may be applied by Bank to the
payment of expenses incurred by Bank in connection with the foregoing, including
reasonable attorneys’ fees, and the balance of such proceeds may be applied by
Bank toward the payment of the Indebtedness in such order of application as Bank
may from time to time elect. Upon the transfer of all or any part of the
Indebtedness, Bank may transfer all or any part of the Collateral or Proceeds
and shall be fully discharged thereafter from all liability and responsibility
with respect to any of the foregoing so transferred, and the transferee shall be
vested with all rights and powers of Bank hereunder with respect to any of the
foregoing so transferred; but with respect to any Collateral or Proceeds not so
transferred Bank shall retain all rights, powers, privileges and remedies herein
given.

 

12. STATUTE OF LIMITATIONS. Until all Indebtedness shall have been paid in full
and all commitments by Bank to extend credit to Debtor have been terminated, the
power of sale or other disposition and all other rights, powers, privileges and
remedies granted to Bank hereunder shall continue to exist and may be exercised
by Bank at any time and from time to time irrespective of the fact that the
Indebtedness or any part thereof may have become barred by any statute of
limitations, or that the personal liability of Debtor may have ceased, unless
such liability shall have ceased due to the payment in full of all Indebtedness
secured hereunder.

 

13. MISCELLANEOUS. When there is more than one Debtor named herein: (a) the word
“Debtor” shall mean all or any one or more of them as the context requires; (b)
the obligations of each Debtor hereunder are joint and several; and (c) until
all Indebtedness shall have been paid in full, no Debtor shall have any right of
subrogation or contribution, and each Debtor hereby waives any benefit of or
right to participate in any of the Collateral or Proceeds or any other security
now or hereafter held by Bank. Debtor hereby waives any right to require Bank to
(i) proceed against Debtor or any other person, (ii) proceed against or exhaust
any security from Debtor or any other person, (iii) perform any obligation of
Debtor with respect to any Collateral or Proceeds, and (d) make any presentment
or demand, or give any notice of nonpayment or nonperformance, protest, notice
of protest or notice of dishonor hereunder or in connection with any Collateral
or Proceeds. Debtor further waives any right to direct the application of
payments or security for any Indebtedness of Debtor or indebtedness of customers
of Debtor.

 

14. NOTICES. All notices, requests and demands required under this Agreement
must be in writing, addressed to Bank at the address specified in any other loan
documents entered into between Debtor and Bank and to Debtor at the address of
its chief executive office (or principal residence, if applicable) specified
below or to such other address as any party may designate by written notice to
each other party, and shall be

 

--------------------------------------------------------------------------------

deemed to have been given or made as follows: (a) if personally delivered, upon
delivery; (b) if sent by mail, upon the earlier of the date of receipt or 3 days
after deposit in the U. S. mail, first class and postage prepaid; and (c) if
sent by telecopy, upon receipt.

 

15. COSTS, EXPENSES AND ATTORNEYS’ FEES. Debtor shall pay to Bank immediately
upon demand the full amount of all payments, advances, charges, costs and
expenses, including reasonable attorneys’ fees (to include outside counsel fees
and all allocated costs of Bank’s in-house counsel), expended or incurred by
Bank in exercising any right, power, privilege or remedy conferred by this
Agreement or in the enforcement thereof, whether incurred at the trial or
appellate level, in an arbitration proceeding or otherwise, and including any of
the foregoing incurred in connection with any bankruptcy proceeding (including
without limitation, any adversary proceeding, contested matter or motion brought
by Bank or any other person) relating to Debtor or in any way affecting any of
the Collateral or Bank’s ability to exercise any of its rights or remedies with
respect thereto. All of the foregoing shall be paid by Debtor with interest from
the date of demand until paid in full at a rate per annum equal to the greater
of ten percent (10%) or Bank’s Prime Rate in effect from time to time.

 

16. SUCCESSORS; ASSIGNS; AMENDMENT. This Agreement shall be binding upon and
inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties, and may be amended or
modified only in writing signed by Bank and Debtor.

 

17. OBLIGATIONS OF MARRIED PERSONS. Any married person who signs this Agreement
as Debtor hereby expressly agrees that recourse may be had against his or her
separate property for all his or her Indebtedness to Bank secured by the
Collateral and Proceeds under this Agreement.

 

18. SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall be held
to be prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or any remaining provisions of this
Agreement.

 

19. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.

 

20. ADDENDUM. Additional terms and conditions relating to the Securities Account
are set forth in an Addendum attached hereto and incorporated herein by this
reference.

 

Debtor warrants that Debtor is an organization registered under the laws of
Delaware.

 

Debtor warrants that its chief executive office (or principal residence, if
applicable) is located at the following address: 546 Flynn Road, Camarillo, CA
93012-8027

 

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, this Agreement has been duly executed as of May 1, 2005.

 

Interlink Electronics, Inc. By:  

/s/ Paul D. Meyer

Title:

 

Chief Financial Officer

 

--------------------------------------------------------------------------------

Securities Account Control Agreement

 

THIS SECURITIES ACCOUNT CONTROL AGREEMENT (this “Agreement”) is entered into as
of May 1, 2005, by and among Interlink Electronics, Inc. (“Customer”), Wells
Fargo Institutional Brokerage and Sales (“Intermediary”), and WELLS FARGO BANK,
NATIONAL ASSOCIATION (“Secured Party”).

 

RECITALS

 

A. Customer maintains that certain account no. 12561247, and may now or
hereafter maintain sub-accounts thereunder or consolidated therewith
(collectively, the “Securities Account”) with Intermediary pursuant to an
agreement between Intermediary and Customer dated as of October 12, 2000 (the
“Account Agreement”), and Customer has granted to Secured Party a security
interest in the Securities Account and all financial assets and other property
now or at any time hereafter held in the Securities Account.

 

B. Secured Party, Customer and Intermediary have agreed to enter into this
Agreement to perfect Secured Party’s security interests in the Collateral, as
defined below.

 

NOW, THEREFORE, in consideration of their mutual covenants and promises, the
parties agree as follows:

 

21. DEFINITIONS. As used herein:

 

21.1 the term “Collateral” shall mean: (a) the Securities Account; (b) all
financial assets credited to the Securities Account; (c) all security
entitlements with respect to the financial assets credited to the Securities
Account; (d) any and all other investment property or assets maintained or
recorded in the Securities Account; and (e) all replacements or substitutions
for, and proceeds of the sale or other disposition of, any of the foregoing,
including without limitation, cash proceeds; and

 

21.2 the terms “investment property,” “entitlement order,” “financial asset” and
“security entitlement” shall have the respective meanings set forth in the
California Uniform Commercial Code. The parties hereby expressly agree that all
property, including without limitation, cash, certificates of deposit and mutual
funds, at any time held in the Securities Account is to be treated as a
“financial asset.”

 

22. AGREEMENT FOR CONTROL. Intermediary is authorized by Customer and agrees to
comply with all entitlement orders originated by Secured Party with respect to
the Securities Account, and all other requests or instructions from Secured
Party regarding disposition and/or delivery of the Collateral, without further
consent or direction from Customer or any other party.

 

23. CUSTOMER’S RIGHTS WITH RESPECT TO THE COLLATERAL.

 

23.1 Until Intermediary is notified otherwise by Secured Party: (a) Customer, or
any party authorized by Customer to act with respect to the Securities Account,
may give trading instructions to Intermediary with respect to Collateral in the
Securities Account;

 

--------------------------------------------------------------------------------

and (b) Intermediary may distribute to Customer or any other party in accordance
with Customer’s directions only that portion of the Collateral which consists of
interest and/or cash dividends earned on financial assets maintained in the
Securities Account.

 

23.2 Without Secured Party’s prior written consent, except to the extent
permitted by the preceding paragraph: (a) neither Customer nor any party other
than Secured Party may withdraw any Collateral from the Securities Account; and
(b) Intermediary will not comply with any entitlement order or request to
withdraw any Collateral from the Securities Account given by any party other
than Secured Party.

 

23.3 Upon receipt of either written or oral notice from Secured Party: (a)
Intermediary shall promptly cease complying with entitlement orders and other
instructions concerning the Collateral, including the Securities Account, from
all parties other than Secured Party; and (b) Intermediary shall not make any
further distributions of any Collateral to any party other than Secured Party,
nor permit any further voluntary changes in the financial assets.

 

24. INTERMEDIARY’S REPRESENTATIONS AND WARRANTIES. Intermediary represents and
warrants to Secured Party that:

 

24.1 The Securities Account is maintained with Intermediary solely in Customer’s
name.

 

24.2 Intermediary has no knowledge of any claim to, security interest in or lien
upon any of the Collateral, except: (a) the security interests in favor of
Secured Party; and (b) Intermediary’s liens securing fees and charges, or
payment for open trade commitments, as described in the last paragraph of this
Section.

 

24.3 Any claim to, security interest in or lien upon any of the Collateral which
Intermediary now has or at any time hereafter acquires shall be junior and
subordinate to the security interests of Secured Party in the Collateral, except
for Intermediary’s liens securing: (a) fees and charges owed by Customer with
respect to the operation of the Securities Account; and (b) payment owed to
Intermediary for open trade commitments for purchases in and for the Securities
Account.

 

25. AGREEMENTS OF INTERMEDIARY AND CUSTOMER. Intermediary and Customer agree
that:

 

25.1 Intermediary shall flag its books, records and systems to reflect Secured
Party’s security interests in the Collateral, and shall provide notice thereof
to any party making inquiry as to Customer’s accounts with Intermediary to whom
or which Intermediary is legally required or permitted to provide information.

 

25.2 Intermediary shall send copies of all statements relating to the Securities
Account simultaneously to Customer and Secured Party.

 

--------------------------------------------------------------------------------

25.3 Intermediary shall promptly notify Secured Party if any other party asserts
any claim to, security interest in or lien upon any of the Collateral, and
Intermediary shall not enter into any control, custodial or other similar
agreement with any other party that would create or acknowledge the existence of
any such other claim, security interest or lien.

 

25.4 Without Secured Party’s prior written consent, Intermediary and Customer
shall not amend or modify the Account Agreement, other than: (a) amendments to
reflect ordinary and reasonable changes in Intermediary’s fees and charges for
handling the Securities Account; and (b) operational changes initiated by
Intermediary as long as they do not alter any of Secured Party’s rights
hereunder.

 

25.5 Neither Intermediary nor Customer shall terminate the Account Agreement
without giving 30 days’ prior written notice to Secured Party.

 

26. MISCELLANEOUS.

 

26.1 This Agreement shall not create any obligation or duty of Intermediary
except as expressly set forth herein.

 

26.2 As to the matters specifically the subject of this Agreement, in the event
of any conflict between this Agreement and the Account Agreement or any other
agreement between Intermediary and Customer, the terms of this Agreement shall
control.

 

26.3 All notices, requests and demands which any party is required or may desire
to give to any other party under any provision of this Agreement must be in
writing (unless otherwise specifically provided) and delivered to each party at
the address or facsimile number set forth below its signature, or to such other
address or facsimile number as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
facsimile, upon receipt; and (c) if sent by mail, upon the earlier of the date
of receipt or 3 days after deposit in the U.S. mail, first class and postage
prepaid.

 

26.4 This Agreement shall be binding upon and inure to the benefit of the heirs,
executors, administrators, legal representatives, successors and assigns of the
parties; provided however, that Intermediary may not assign its obligations
hereunder without Secured Party’s prior written consent. This Agreement may be
amended or modified only in writing signed by all parties hereto.

 

26.5 This Agreement shall terminate upon: (a) Intermediary’s receipt of written
notice from Secured Party expressly stating that Secured Party no longer claims
any security interest in the Collateral; or (b) termination of the Account
Agreement pursuant to the terms hereof, and Intermediary’s delivery of all
Collateral to Secured Party or its designee in accordance with Secured Party’s
written instructions.

 

26.6 This Agreement shall be governed by and construed in accordance with the
laws of the State of California.

 

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.

 

Wells Fargo Institutional Brokerage and Sales WELLS FARGO BANK, NATIONAL
ASSOCIATION

 

By:  

/s/ Kelly Whittle

      By:  

/s/ John E. Ray

   

Kelly Whittle, Operations Manager

         

John E. Ray, Relationship Manager

 

Address:

 

608 2nd Avenue South

Minneapolis, MN 55402

     

Address:

 

601 Daily Drive, STE #110

Camarillo, CA 93010

 

Interlink Electronics, Inc.

By:  

/s/ Paul D. Meyer

Title:

 

Chief Financial Officer

Address:

 

546 Flynn Rd

Camarillo, CA 93012-8027

 

--------------------------------------------------------------------------------

ADDENDUM TO SECURITY AGREEMENT: SECURITIES ACCOUNT

 

THIS ADDENDUM is attached to and made a part of that certain Security Agreement:
Securities Account executed by INTERLINK ELECTRONICS, INC. (“Debtor”) in favor
of WELLS FARGO BANK, NATIONAL ASSOCIATION (“Bank”), dated as of May 1, 2005 (the
“Agreement”).

 

The following provisions are hereby incorporated into the Agreement:

 

1. Securities Account Activity. So long as no Event of Default exists, Debtor,
or any party authorized by Debtor to act with respect to the Securities Account,
may (a) receive payments of interest and/or cash dividends earned on financial
assets maintained in the Securities Account, and (b) trade financial assets
maintained in the Securities Account. Without Bank’s prior written consent,
except as permitted by the preceding sentence, neither Debtor nor any party
other than Bank may withdraw or receive any distribution of any Collateral from
the Securities Account. The Collateral Value of the Securities Account shall at
all times be equal to or greater than one hundred percent (100%) of the
outstanding principal balance of the Indebtedness, including the amount of all
issued and outstanding letters of credit if any, secured hereby. In the event
that the Collateral Value, for any reason and at any time, is less than the
required amount, Debtor shall promptly make a principal reduction on the
Indebtedness or deposit additional assets of a nature satisfactory to Bank into
the Securities Account, in either case in amounts or with values sufficient to
achieve the required Collateral Value.

 

2. “Collateral Value” means the percentage set forth below of the lower of the
face or market value, or the lower of the face or redemption value, as
appropriate, for each type of investment property held in the Securities Account
at the time of computation, with such value and the classification of any
particular investment property in all instances determined by Bank in its sole
discretion, and excluding from such computation (a) all WF Securities and
Collective Investment Funds, (b) any stock with a market value of $10.00 or
less, and (c) all investment property from an issuer if Bank determines such
issuer to be ineligible.

 

Type of Investment Property

--------------------------------------------------------------------------------

   Percentage

--------------------------------------------------------------------------------

 

Cash and Cash Equivalents

   100 %

U.S. Government Bills, Notes and U.S. Government

Sponsored Agency Securities:

      

(a)

   with maturities less than or equal to 5 years    90 %

(b)

   with maturities greater than 5 years but less than or equal to 10 years    85
%

(c)

   with maturities greater than 10 years    80 %

Corporate and Municipal Bonds and Notes:

      

(a)

   rated AAA/Aaa, AA/Aa or SP-1 by a nationally recognized rating agency with
maturities less than or equal to 5 years    85 %

(b)

   rated AAA/Aaa, AA/Aa or SP-1 by a nationally recognized rating agency with
maturities greater than 5 years but less than or equal to 10 years    80 %

(c)

   rated AAA/Aaa, AA/Aa or SP-1 by a nationally recognized rating agency with
maturities greater than 10 years    75 %

(d)

   rated A, Baa, BBB or SP-2 by a nationally recognized rating agency with
maturities less than or equal to 5 years    80 %

 

--------------------------------------------------------------------------------

(e)

   rated A, Baa, BBB or SP-2 by a nationally recognized rating agency with
maturities greater than 5 years but less than or equal to 10 years    75 %

(f)

   rated A, Baa, BBB or SP-2 by a nationally recognized rating agency with
maturities greater than 10 years    70 %

Commercial Paper:

      

(a)

   rated Al or P1 by a nationally recognized rating agency    80 %

(b)

   rated A2 or P2 by a nationally recognized rating agency    70 %

Common and Preferred Stock:

      

(a)

   traded on the New York Stock Exchange    75 %

(b)

   traded on NASDAQ, the American Stock Exchange or a regional exchange:       
    

(i)     with a market capitalization greater than $7.5B and

           

** rated A+, A or A- by a nationally recognized rating agency

   75 %     

** rated B+ by a nationally recognized rating agency

   60 %     

** rated B, B- or C by a nationally recognized rating agency

   50 %     

(ii)    with a market capitalization greater than $1B but less than or equal to
$7.5B and

           

** rated A+, A or A- by a nationally recognized rating agency

   60 %     

** rated B+ by a nationally recognized rating agency

   50 %     

** rated B, B- or C by a nationally recognized rating agency

   40 %     

(iii)  with a market capitalization greater than or equal to $500MM but less
than $1B and

           

** rated A+, A or A- by a nationally recognized rating agency

   50 %     

** rated B+ by a nationally recognized rating agency

   40 %     

** rated B, B- or C by a nationally recognized rating agency

   30 %

Mutual Funds:

      

(a)

   Listed Money Market    95 %

(b)

   Short Term Taxable or Tax Exempt Bonds    90 %

(c)

   Intermediate Term Taxable or Tax Exempt Bonds    85 %

(d)

   General Taxable Bonds    80 %

(e)

   Municipal Bonds, Single State Bonds or Long Term Corporate Taxable Bonds   
75 %

 

--------------------------------------------------------------------------------

(f)

   Balanced Stock and Bond Funds (includes flexible portfolio)    75 %

(g)

   Domestic Large Cap Stock    70 %

(h)

   Domestic Equity Income Stock    70 %

(i)

   Domestic Mortgage Taxable Bonds    70 %

(j)

   Multi Cap Growth, Value and Core Stock    60 %

(k)

   Mid Cap Growth, Value and Core Stock    60 %

(l)

   Small Cap Growth, Value and Core Stock    50 %

(m)

   Specialty Equity Stock    50 %

(n)

   Sector, International, High Yield Taxable and Tax Exempt Stocks and Bonds   
50 %

(o)

   Listed NASDAQ Mutual Funds    50 %

 

3. Exclusion from Collateral. Notwithstanding anything herein to the contrary,
the terms “Collateral” and “Proceeds” do not include, and Bank disclaims a
security interest in all WF Securities and Collective Investment Funds now or
hereafter maintained in the Securities Account.

 

4. “Collective Investment Funds” means collective investment funds as described
in 12 CFR 9.18 and includes, without limitation, common trust funds maintained
by Bank for the exclusive use of its fiduciary clients.

 

5. “WF Securities” means stock, securities or obligations of Wells Fargo &
Company or of any affiliate thereof (as the term affiliate is defined in Section
23A of the Federal Reserve Act (12 USC 371(c), as amended from time to time).

 

IN WITNESS WHEREOF, this Addendum has been executed as of the same date as the
Agreement.

 

INTERLINK ELECTRONICS, INC.

     

WELLS FARGO BANK,

NATIONAL ASSOCIATION

By:

 

/s/ Paul D. Meyer

     

By:

 

/s/ John E. Ray

               

John E. Ray

Title:

 

Chief Financial Officer

         

Vice President

 

--------------------------------------------------------------------------------

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

Statement of Purpose for an Extension of Credit Secured By Margin Stock

 

(Federal Reserve Form U-1)

 

Wells Fargo Bank, National Association

Name of Bank

 

This report is required by law (15 U.S.C. §§78g and 78w; 12 CFR 221).

 

The Federal Reserve may not conduct or sponsor, and an organization (or a
person) is not required to respond to, a collection of information unless it
displays a currently valid OMB control number.

 

Public reporting burden for this collection of information is estimated to
average 10 minutes per response, including the time to gather and maintain in
the required form and to review instructions and complete the information
collection. Send comments regarding this burden estimate or any other aspect of
this collection of information, including suggestions for reducing this burden
to: Secretary, Board of Governors of the Federal Reserve System, 20th and C
Streets, N. W., Washington, DC 20551; and to the Office of Management and
Budget, Paperwork Reduction Project (7100-0011), Washington, DC 20503.

 

INSTRUCTIONS

 

1. This form must be completed when a bank extends credit in excess of
$100,000.00 secured directly or indirectly, in whole or in part, by any margin
stock.

 

2. The term “margin stock” is defined in Regulation U (12 CFR 221) and includes,
principally: (1) stocks that are registered on a national securities exchange;
(2) debit securities (bonds) that are convertible into margin stocks; (3) any
over-the-counter security designated as qualified for trading in the National
Market System under a designation plan approved by the Securities and Exchange
Commission (NMS security); and (4) shares of most mutual funds, unless 95 per
cent of the assets of the fund are continuously invested in U.S. government,
agency, state, or municipal obligations

 

3. Please print or type (if space is inadequate, attach separate sheet.)

 

PART I. To be completed by borrower(s).

 

1. What is the amount of the credit being extended? $ 3,000,000.00

 

2. Will any part of this credit be used to purchase or carry margin stock? ¨
Yes  x No

 

--------------------------------------------------------------------------------

If the answer is “no”, describe the specific purpose of the credit. To finance
Borrower’s working capital requirements.

 

I (We) have read this form and certify that to the best of my (our) knowledge
and belief the information given is true, accurate, and compete, and that the
margin stock and any other securities collateralizing this credit are authentic,
genuine, unaltered, and not stolen, forged, or counterfeit.

 

Signed: Interlink Electronics, Inc.

     

Signed:

        May 1, 2005                

By:

 

Paul D. Meyer

  Date          

Borrower’s signature

  Date                           Title:  

Chief Financial Officer

             

Print or type name

  Date                              

Borrower’s signature

  Date          

Borrower’s signature

  Date                              

Print or type name

             

Print or type name

   

 

This form should not be signed if blank.

 

A borrower who falsely certifies the purpose of a credit on this form or
otherwise willfully or intentionally evades the provisions of Regulation U will
also violate Federal Reserve Regulation X, “Borrowers of Securities Credit.”

 

--------------------------------------------------------------------------------

FEDERAL RESERVE FORM U-1

(Continued)

 

Loan No.3792917406

 

PART II. To be completed by bank only if the purpose of the credit is to
purchase or carry margin stock ( Part I (2) answered “yes”).

 

1. List the margin stock securing this credit; do not include debt securities
convertible into margin stock. The maximum loan value of margin stock is 50 per
cent of its current market value under the current supplement to Regulation U.

 

No. of
Shares

--------------------------------------------------------------------------------

   Issue

--------------------------------------------------------------------------------

  

Market Price

per share

--------------------------------------------------------------------------------

  

Date and source

of valuation

(See note below)

--------------------------------------------------------------------------------

  

Total Market

value per issue

--------------------------------------------------------------------------------

                     

 

2. List the debt securities convertible into margin stock securing this credit.
The maximum loan value of such debt securities is 50 per cent of the current
market value under the current Supplement to Regulation U.

 

Principal
amount

--------------------------------------------------------------------------------

   Issue

--------------------------------------------------------------------------------

   Market
Price

--------------------------------------------------------------------------------

   Date and source
of valuation
(See note below)

--------------------------------------------------------------------------------

   Total Market
value per issue

--------------------------------------------------------------------------------

                     

 

3. List other collateral including nonmargin stock securing this credit.

 

Describe briefly

--------------------------------------------------------------------------------

   Market Price

--------------------------------------------------------------------------------

   Date and source
of valuation
(See note below)

--------------------------------------------------------------------------------

   Good faith
loan value

--------------------------------------------------------------------------------

                

 

Note: Bank need not complete ‘Date and source of valuation’ if the market value
was obtained from regularly published information in a journal of general
circulation or an automated quotation system.

 

--------------------------------------------------------------------------------

PART III. To be signed by a bank officer in all instances.

 

I am a duly authorized representative of the bank and understand that this
credit secured by margin stock may be subject to the credit restrictions of
Regulation U. I have read this form and any attachments, and I have accepted the
customer’s statement in Part I in good faith as required by Regulation U*, and I
certify that to the best of my knowledge and belief, all the information given
is true, accurate, and complete. I also certify that if any securities that
directly secure the credit are not or will not be registered in the name of the
borrower or its nominee, I have or will cause to have examined the written
consent of the registered owner to pledge such securities. I further certify
that any securities that have been or will be physically delivered to the bank
in connection with this credit have been or will be examined, that all
validation procedures required by bank policy and the Securities Exchange Act of
1934 (section 17(f), as amended) have been or will be performed, and that I am
satisfied to the best of my knowledge and belief that such securities are
genuine and not stolen or forged and their faces have not been altered.

 

       

Signed:

May 1, 2005

     

/s/ John E. Ray

Date

     

Bank officer’s signature

Vice President

     

John E. Ray

Title

     

Print or type name

 

* To accept the customer’s statement in good faith, the officer of the bank must
be alert to the circumstances surrounding the credit and, if in possession of
any information that would cause a prudent person not to accept the statement
without inquiry, most have investigated and be satisfied that the statement is
truthful. Among the facts which would require such investigation are receipt of
the statement through the mail or from a third party.

 

This form must be retained by the lender for three years after the credit is
extinguished.