INTELLECTUAL PROPERTY SECURITY AGREEMENT

 

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                                                                   EXHIBIT 10.26

 

                    INTELLECTUAL PROPERTY SECURITY AGREEMENT

 

         This Intellectual Property Security Agreement (this "IP AGREEMENT") is

made as of the Effective Date, by and between Poly Circuits, Inc., an Illinois

corporation ("GRANTOR"), and Silicon Valley Bank, a California banking

corporation ("BANK").

 

                                    RECITALS

 

         A.       Bank will make advances to Grantor ("ADVANCES") as described

in the Accounts Receivable Finance Agreement (the "FINANCING AGREEMENT"), but

only if Grantor grants Bank a security interest in its Copyrights, Trademarks,

Patents, and Mask Works. Defined terms used but not defined herein shall have

the same meanings as in the Financing Agreement.

 

         B.       Pursuant to the terms of the Financing Agreement, Grantor has

granted to Bank a security interest in all of Grantor's right title and

interest, whether presently existing or hereafter acquired in, to and under all

of the Collateral.

 

         NOW, THEREFORE, for good and valuable consideration, receipt of which

is hereby acknowledged and intending to be legally bound, as collateral security

for the prompt and complete payment when due of Grantor's Indebtedness under the

Financing Agreement, Grantor hereby represents, warrants, covenants and agrees

as follows:

 

         1.       Grant of Security Interest. As collateral security for the

prompt and complete payment and performance of all of Grantor's present or

future Indebtedness, obligations and liabilities to Bank, Grantor hereby grants

a security interest in all of Grantor's right, title and interest in, to and

under its Intellectual Property Collateral (all of which shall collectively be

called the "INTELLECTUAL PROPERTY COLLATERAL"), including, without limitation,

the following:

 

                  (a)      Any and all copyright rights, copyright applications,

copyright registrations and like protections in each work or authorship and

derivative work thereof, whether published or unpublished and whether or not the

same also constitutes a trade secret, now or hereafter existing, created,

acquired or held, including without limitation those set forth on EXHIBIT A

attached hereto (collectively, the "COPYRIGHTS");

 

                  (b)      Any and all trade secrets, and any and all

intellectual property rights in computer software and computer software products

now or hereafter existing, created, acquired or held;

 

                  (c)      Any and all design rights which may be available to

Grantor now or hereafter existing, created, acquired or held;

 

                  (d)      All patents, patent applications and like protections

including, without limitation, improvements, divisions, continuations, renewals,

reissues, extensions and continuations-in-part of the same, including without

limitation the patents and patent applications set forth on EXHIBIT B attached

hereto (collectively, the "PATENTS");

 

                  (e)      Any trademark and servicemark rights, whether

registered or not, applications to register and registrations of the same and

like protections, and the entire goodwill of the business of Grantor connected

with and symbolized by such trademarks, including without limitation those set

forth on EXHIBIT C attached hereto (collectively, the "TRADEMARKS")

 

                  (f)      All mask works or similar rights available for the

protection of semiconductor chips, now-owned or hereafter acquired, including,

without limitation those set forth on EXHIBIT D attached hereto (collectively,

the "MASK WORKS");

 

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                  (g)      Any and all claims for damages by way of past,

present and future infringements of any of the rights included above, with the

right, but not the obligation, to sue for and collect such damages for said use

or infringement of the intellectual property rights identified above;

 

                  (h)      All licenses or other rights to use any of the

Copyrights, Patents, Trademarks, or Mask Works and all license fees and

royalties arising from such use to the extent permitted by such license or

rights;

 

                  (i)      All amendments, extensions, renewals and extensions

of any of the Copyrights, Trademarks, Patents, or Mask Works; and

 

                  (j)      All proceeds and products of the foregoing, including

without limitation all payments under insurance or any indemnity or warranty

payable in respect of any of the foregoing.

 

         2.       Authorization and Request. Grantor authorizes and requests

that the Register of Copyrights and the Commissioner of Patents and Trademarks

record this IP Agreement.

 

         3.       Covenants and Warranties. Grantor represents, warrants,

covenants and agrees as follows:

 

                  (a)      Grantor is now the sole owner of the Intellectual

Property Collateral, except for nonexclusive licenses granted by Grantor to its

customers in the ordinary course of business.

 

                  (b)      Performance of this IP Agreement does not conflict

with or result in a breach of any IP Agreement to which Grantor is bound, except

to the extent that certain intellectual property agreements prohibit the

assignment of the rights thereunder to a third party without the licensor's or

other party's consent and this IP Agreement constitutes a security interest.

 

                  (c)      During the term of this IP Agreement, Grantor will

not transfer or otherwise encumber any interest in the Intellectual Property

Collateral, except for non-exclusive licenses granted by Grantor in the ordinary

course of business or as set forth in this IP Agreement;

 

                  (d)      To its knowledge, each of the Patents is valid and

enforceable, and no part of the Intellectual Property Collateral has been judged

invalid or unenforceable, in whole or in part, and no claim has been made that

any part of the Intellectual Property Collateral violates the rights of any

third party;

 

                  (e)      Grantor shall promptly advise Bank of any material

adverse change in the composition of the Collateral, including but not limited

to any subsequent ownership right of the Grantor in or to any Trademark, Patent,

Copyright, or Mask Work specified in this IP Agreement;

 

                  (f)      Grantor shall (i) protect, defend and maintain the

validity and enforceability of the Trademarks, Patents, Copyrights, and Mask

Works deemed material by the Borrower in its reasonable business judgment, (ii)

use its reasonable efforts to detect infringements of the Trademarks, Patents,

Copyrights, and Mask Works and promptly advise Bank in writing of material

infringements detected and (iii) not allow any Trademarks, Patents, Copyrights,

or Mask Works which Borrower deems material in its reasonable business judgment

to be abandoned, forfeited or dedicated to the public without the written

consent of Bank, which shall not be unreasonably withheld, unless Grantor

determines that reasonable business practices suggest that abandonment is

appropriate.

 

                  (g)      Grantor shall promptly register the most recent

version of any of Grantor's Copyrights, if not so already registered, and shall,

from time to time, execute and file such other instruments, and take such

further actions as Bank may reasonably request from time to time to perfect or

continue the perfection of Bank's interest in the Intellectual Property

Collateral;

 

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                  (h)      This IP Agreement creates, and in the case of after

acquired Intellectual Property Collateral, this IP Agreement will create at the

time Grantor first has rights in such after acquired Intellectual Property

Collateral, in favor of Bank a valid and perfected first priority security

interest in the Intellectual Property Collateral in the United States securing

the payment and performance of the obligations evidenced by the Financing

Agreement upon making the filings referred to in clause (i) below;

 

                  (i)      To its knowledge, except for, and upon, the filing

with the United States Patent and Trademark office with respect to the Patents

and Trademarks and the Register of Copyrights with respect to the Copyrights and

Mask Works necessary to perfect the security interests created hereunder and

except as has been already made or obtained, no authorization, approval or other

action by, and no notice to or filing with, any U.S. governmental authority of

U.S. regulatory body is required either (i) for the grant by Grantor of the

security interest granted hereby or for the execution, delivery or performance

of this IP Agreement by Grantor in the U.S. or (ii) for the perfection in the

United States or the exercise by Bank of its rights and remedies thereunder;

 

                  (j)      All information heretofore, herein or hereafter

supplied to Bank by or on behalf of Grantor with respect to the Intellectual

Property Collateral is accurate and complete in all material respects.

 

                  (k)      Grantor shall not enter into any agreement that would

materially impair or conflict with Grantor's obligations hereunder without

Bank's prior written consent, which consent shall not be unreasonably withheld.

Grantor shall not permit the inclusion in any material contract to which it

becomes a party of any provisions that could or might in any way prevent the

creation of a security interest in Grantor's rights and interest in any property

included within the definition of the Intellectual Property Collateral acquired

under such contracts, except that certain contracts may contain anti-assignment

provisions that could in effect prohibit the creation of a security interest in

such contracts.

 

                  (l)      Upon any executive officer of Grantor obtaining

actual knowledge thereof, Grantor will promptly notify Bank in writing of any

event that materially adversely affects the value of any material Intellectual

Property Collateral, the ability of Grantor to dispose of any material

Intellectual Property Collateral of the rights and remedies of Bank in relation

thereto, including the levy of any legal process against any of the Intellectual

Property Collateral.

 

         4.       Bank's Rights. Bank shall have the right, but not the

obligation, to take, at Grantor's sole expense, any actions that Grantor is

required under this IP Agreement to take but which Grantor fails to take, after

fifteen (15) days' notice to Grantor. Grantor shall reimburse and indemnify Bank

for all reasonable costs and reasonable expenses incurred in the reasonable

exercise of its rights under this section 4.

 

         5.       Inspection Rights. Grantor hereby grants to Bank and its

employees, representatives and agents the right to visit, during reasonable

hours upon prior reasonable written notice to Grantor,