2003 10-K Exhibit 10.59.2




Exhibit 10.59.2

SECOND AMENDMENT TO LEASE 

(3969-3975 E. Bayshore Road - Building 1)

 

This Second Amendment to Lease ("Second
Amendment"), is dated, for reference purposes only as February 19, 2004
(the "Effective Date"), and is entered into between Judd Properties,
LLC, a California limited liability company (as assignee of Bay Laurel
Investment Company, a California general partnership ("Bay Laurel")),
as "Lessor", and Southwall Technologies, Inc., a Delaware corporation,
as "Lessee", for the purpose of modifying that certain Lease
Agreement, executed by Bay Laurel and Lessee as of January 1, 1989, (the
"Original Lease"), as amended, concerning the premises commonly known
as Building 1, 3969-3975 E. Bayshore Road, Palo Alto, California (the
"premises").  Capitalized terms, not otherwise defined in this Second
Amendment, shall have the meanings ascribed to such terms in the Lease.  In the
event of any conflict between the terms and conditions of the Lease and this
Second Amendment, this Second Amendment shall be deemed to prevail.

RECITALS




	Lessor and Lessee acknowledge that a true and correct
copy of the Original Lease and the First Amendment to Lease Dated January 1,
1989 (3969-3975 E. Bayshore Road - Building 1) entered into by Lessor and Lessee
on or about January 1, 2000 (herein the "First Amendment" and
collectively with the Original Lease and this Second Amendment, the
"Lease") are attached hereto as Exhibit A and that there are no other
amendments, agreements, or promises concerning the Original Lease, the First
Amendment, the premises, or the rights and obligations of the parties thereto,
other than as set forth in Exhibit A and below in this Second
Amendment.


	Lessee also acknowledges that Lessee's monthly rent for
direct expenses payable under Section 2 of the First Amendment commencing as of
January 1, 2003 was Three Thousand Four Hundred Forty-Eight Dollars ($3,448),
subject to further adjustment as provided in the Lease and that the Lease term
is currently scheduled to expire on December 31, 2004.


	Lessee is in arrears is the payment of the rent and
direct expenses payable to Lessor under the Lease and has advised Lessor that it
cannot or will not perform its obligations under the Lease in accordance with
the existing terms of the Lease.


	Lessee has requested a restructuring of its obligations
under the Lease and Lessor is agreeable to a restructuring of various terms and
conditions of the Lease on the terms and subject to the conditions set forth
below.


	Lessee and Lessor are also parties to that certain Lease
Agreement, dated as of January 1, 1989, as amended by that certain First
Amendment to Lease Dated January 1, 1989 (3977-3995 E. Bayshore Road - Building
2) entered into on or about January 1, 2000 (collectively the "Building 2
Lease"), concerning other premises leased by Lessor to Lessee commonly
known as 3977-3995 E. Bayshore Road, Palo Alto, California (herein
"Building 2").  Concurrently herewith Lessee and Lessor have entered
into a certain Surrender and Termination Agreement with respect to the Building
2 Lease and Building 2 (the "Building 2 Agreement" and, together with
the Building 2 Lease, the "Building 2 Lease
Agreements").

NOW, THEREFORE, for good and valuable consideration, the
adequacy of which is hereby acknowledged, the parties hereto agree as
follow:




	Extension of Term.  Notwithstanding anything to
the contrary in Section 2 of the Original Lease or the First Amendment, the
lease term shall end on January 31, 2005, unless the term is further extended in
accordance with Section 2, below, or earlier terminated in accordance with the
Lease.


	Option For Further Extension of Term.  Lessee
shall have the right to extend the term of the Lease until January 31, 2006, if,
but only if, all of the following conditions (the "Conditions to January
2006 Extension") are satisfied by the dates specified below:

1)  Lessee notifies Lessor of its intent to exercise this
option to extend the term by delivery to Lessor of the Extension Notice,
attached hereto as Exhibit B, no earlier than January 20, 2005 and no later than
January 30, 2005; and

2)  Lessee pays to Lessor on or before the due dates thereof
(but not later than May 1, 2004) all amounts payable by Lessee to Lessor under
Section 2 of the Building 2 Agreement (i.e., Four Hundred Four Thousand Dollars
($404,000) plus the Landlord's Work Amount, as therein defined); and







	Lessee pays all basic monthly rent to be paid by Lessee
on or before December 31, 2004 and all estimated direct expenses to be paid
Lessee on or before January 1, 2005 (i.e., Four Hundred Fifteen Thousand Nine
Hundred Twenty-Eight Dollars ($415,928)) in the amounts and on or before the due
dates specified in Section 3(a), below; and


	As of January 31, 2005 either (A) (i) the Warrant is in
full force and effect for the benefit of Lessor, (ii) any Warrant Shares to be
issued to the Escrow Agent or Lessor, or delivered by the Escrow Agent to
Lessor, pursuant to the Warrant have been issued as and when required by the
terms of the Warrant, (iii) the Registration Rights Agreement is in full force
and effect for the benefit of Lessor, and (iv) Southwall has not failed to
register the Warrant Shares as and when required by the Registration Rights
Agreement or (B) Lessor holds a valid Letter of Credit complying with the terms
and provisions of Section 5(b)(1) of this Second Amendment in the maximum
drawing amount of One Million Dollars ($1,000,000); and


	The representations by Lessee in Section 5(b)(2) are true
and correct in all material respects and Lessee has performed and continues to
perform all of the obligations on its part to be performed under the Lease
(other than the "January 2005 Amount," as defined below) on or before
the times and in the manner required by the Lease and no circumstance which
would constitute a default under Section 22 of the Lease has occurred or is
continuing either on the date of delivery of Lessee's Extension Notice or
January 31, 2005; and


	On or before January 31, 2005, no proceeding has been or
is reasonably likely to be instituted by or against Lessee or any party
controlled by, under common control with, or who controls Lessee under the
Bankruptcy Act of 1978, as amended, or any other federal or state bankruptcy or
insolvency statute, Lessee has not made and is not reasonably likely to make any
assignment for the benefit of creditors, no receiver or other court officer has
been or is reasonably likely to be appointed to take possession of any
substantial part of the asset(s) of Lessee, and Lessee executes and delivers to
Lessor a certification in the form of Exhibit D, certifying that the foregoing
is true and that it has no plans to file any bankruptcy or insolvency proceeding
on or before January 31, 2006.




	Rental.  




	Rental For Period Ending January 31, 2005.  Sections 3 and 4 of the
Original Lease, Section 2(d) of the First Amendment and Exhibit A to the First
Amendment are deleted and, as and for the basic monthly rent and reimbursement
of estimated direct expenses for the premises for the period commencing on the
Effective Date and ending on January 31, 2005, Lessee shall pay to Lessor the
sum of Two Million Two Hundred Three Thousand Four Hundred Forty-Eight Dollars
($2,203,448) in lawful money of the United States of America, without offset,
counterclaim, or deduction.  Said amount shall be paid for the periods, in the
amounts, and on or before the dates specified below.

	
Time Period
	
Due Date*
	
Basic Rent
	
Estimated Direct Expenses**
	
Total Amount

	
Effective Date - Feb 15, 2004
	
Effective Date
	
$   35,000.00
	
$        0.00
	
$   35,000.00

	
Feb. 16  - 29, 2004
	
Earlier of Feb. 29, 2004 or First Needham Closing
	
167,000.00
	
0.00
	
167,000.00

	
Mar. 1 - Apr. 30, 2004
	
Mar. 1, 2004
	
48,000.00
	
6,896.00
	
54,896.00

	
May 1 - 31, 2004
	
Mar. 1, 2004
	
0.00
	
3,448.00
	
3,448.00

	
Jun. 1 - Aug. 31, 2004
	
Jun. 1, 2004
	
48,000.00
	
10,344.00
	
58,344.00

	
Sep. 1 - Nov. 30, 2004
	
Sep. 1, 2004
	
48,000.00
	
10,344.00
	
58,344.00

	
Dec. 1 - 31, 2004
	
Dec. 1, 2004
	
32,000.00
	
3,448.00
	
35,448.00

	
Jan. 1 - 31, 2005
	
Jan. 1, 2005
	
0.00
	
3,448.00
	
3,448.00

	
Jan. 1 - 31, 2005
	
Jan. 20, 2005
	
1,383,520.00
	
0.00
	
1,383,520.00

	
Total
	 	

	

	





*  As used herein the following terms shall have
the following meanings:

**  Estimated direct expenses will be subject to
adjustment at the end of each calendar year in accordance with Section 2 of the
First Amendment.

Notwithstanding the foregoing, Lessor shall forebear until
January 31, 2005, institution of any proceeding for the collection of the One
Million Three Hundred Eighty-Three Thousand Five Hundred Twenty Dollar
($1,383,520) basic rent amount payable by Lessee on or before January 20, 2005
(the "January 2005 Amount").  Furthermore, if (i) Lessee elects to
extend the Lease term to January 31, 2006 in accordance with Section 2, above,
and all of the Conditions to January 2006 Extension described in Section 2,
above, are satisfied as of the dates specified in Section 2, (ii) the Lease
continues to be in full force and effect as of February 1, 2005, (iii) no
default by Lessee (as defined in Section 22 of the Lease) has occurred on or
before February 1, 2005, and (iv) Lessee pays the installments of basic rent and
reimbursements of estimated direct expenses for the premises at the times and in
the amounts specified in Section 3(b), below, then Lessor shall continue to
forebear institution of any proceeding for the collection of the January 2005
Amount and the payments of basic rent (but not reimbursement of estimated direct
expenses) made by Lessee pursuant to Section 3(b) shall be applied to reduce the
January 2005 Amount.  If an event of default under Section 22 of the Lease
occurs or if any installment of the deferred January 2005 Amount specified in
Section 3(b), below, is not paid on or before the dates specified in Section
3(b), then, in addition to its other rights and remedies at law or in equity,
Lessor shall immediately be entitled to pursue collection of the unpaid balance
of the January 2005 Amount. 


	Rental For Period Ending January 31, 2006.  If
Lessee elects to extend the Lease term to January 31 2006 in accordance with
Section 2, above, and all of the Conditions to January 2006 Extension described
in Section 2, above, are satisfied, then, as and for the basic monthly rent and
reimbursement of estimated direct expenses for the premises for the period
commencing on February 1, 2005 and ending on January 31, 2006, Lessee shall pay
to Lessor the sum of One Million Three Hundred Eighty-Three Thousand Five
Hundred Twenty Dollars ($1,383,520) in lawful money of the United States of
America, without offset, counter claim, or deduction.  Said rents shall be paid
for the periods, in the amounts, and on or before the dates specified
below:

	
Time Period
	
Due Date
	
Basic Rent
	
Estimated Direct Expenses**
	
Total Amount

	
Feb. 1 - Apr. 30, 2005
	
Feb. 1, 2005
	
$   48,000.00
	
$   10,344.00
	
$   58,344.00

	
May 1 - July 31, 200
	
May. 1, 2005
	
48,000.00
	
10,344.00
	
58,344.00

	
Aug. 1 - Oct. 31, 2005
	
Aug. 1, 2005
	
48,000.00
	
10,344.00
	
58,344.00

	
Nov. 1 - Dec. 31, 2006
	
Nov. 1, 2005
	
48,000.00
	
0.00
	
48,000.00

	
Nov. 1 - Jan. 31, 2006
	
Nov. 1, 2005
	
0.00
	
10,344.00
	
10,344.00

	
Jan. 1 - 31, 2006
	
Jan. 20, 2006
	
1,191,520.00
	
0.00
	
1,191,520.00

	
Total
	 	

	

	





**  Estimated direct expenses will be subject to
adjustment at the end of each calendar year in accordance with Section 2 of the
First Amendment.

Notwithstanding the foregoing, Lessor shall forebear until
January 31, 2006, institution of any proceeding for the collection of the One
Million One Hundred Ninety-One Thousand Five Hundred Twenty Dollar ($1,191,520)
basic rent amount payable by Lessee on or before January 20, 2006 (the
"January 2006 Amount").  Furthermore, if (i) Lessee elects to defer
the payment of the January 2006 Amount in accordance with Section 3(c), below,
(ii) all of the "Conditions to 2006 Deferral" described in Section
3(c), below, are satisfied as of the dates specified in Section 3(c), (iii) the
Lease continues to be in full force and effect as of January 31, 2006, (iv) no
default by Lessee (as defined in Section 22 of the Lease) has occurred on or
before January 31, 2006, and (v) Lessee pays the installments of the deferred
January 2006 Amount at the times and in the amounts specified in Section 3(c),
below, then Lessor shall continue to forebear institution of any proceeding for
the collection of the January 2006 Amount and the payments made pursuant to
Section 3(c) shall be applied to reduce the January 2006 Amount.  If an event of
default under Section 22 of the Lease occurs or if any installment of the
deferred January 2006 Amount specified in Section 3(c), below, is not paid on or
before the dates specified in Section 3(c), then, in addition to its other
rights and remedies at law or in equity, Lessor shall immediately be entitled to
pursue collection of the unpaid balance of the January 2006 Amount.


	Deferral of January 2006 Amount.  Lessee shall
have the right to defer the payment of the January 2006 Amount in accordance
with this Section 3(c), if, but only if, all of the following conditions (the
"Conditions to 2006 Deferral") are satisfied by the dates specified
below:





	Lessee notifies Lessor of its intent to exercise this
option to defer payment of the January 2006 Amount by delivery to Lessor of the
Deferral Notice, attached hereto as Exhibit C, no earlier than January 20, 2006
and no later than January 30, 2006; and


	All Conditions to the January 2006 Extension are
satisfied by the dates specified in such conditions (including, without
limitation, the timely payment of all sums owing under Section 2 of the Building
2 Agreement), and continue to be satisfied as of the date the Deferral Notice
for the January 2006 Amount is delivered and as of January 31, 2006.


	Lessee pays all basic monthly rent to be paid by Lessee
on or before December 31, 2005 and all estimated direct expenses to be paid
Lessee on or before January 1, 2006 (i.e., Six Hundred Forty-Nine Thousand Three
Hundred Four Dollars ($649,304)) in the amounts and on or before the dates
specified in Sections 3(a) and (b), above, and 


	Lessee performs all of the other obligations on its part
to be performed under this Lease (other than the payment of the January 2006
Amount) on or before the times and in the manner required by the Lease,
including without limitation, Lessee's obligation, at Lessee's cost, to remove
all Hazardous Materials introduced to the premises by Lessee and completion of
Lessee's other Building 1 Surrender Obligations on or before the Building 1
Surrender Date; and


	No circumstance which would constitute a default under
Section 22 of the Lease has occurred or is continuing either on the date of
delivery of Lessee's Deferral Notice for the January 2006 Amount or on January
31, 2006; and


	As of January 31, 2006 either (A) (i) the Warrant is in
full force and effect for the benefit of Lessor, (ii) any Warrant Shares to be
issued to the Escrow Agent or Lessor, or delivered by the Escrow Agent to
Lessor, pursuant to the Warrant have been issued as and when required by the
terms of the Warrant, (iii) the Registration Rights Agreement is in full force
and effect for the benefit of Lessor, and/or (iv) Southwall has not failed to
register the Warrant Shares as and when required by the Registration Rights
Agreement or (B) Lessor holds a valid Letter of Credit complying with the terms
and provisions of Section 5(b)(1) of this Second Amendment in the maximum
drawing amount of One Million Dollars ($1,000,000); and


	On or before January 31, 2006, no proceeding has been or
is reasonably likely to be instituted by or against Lessee or any party
controlled by, under common control with, or who controls Lessee under the
Bankruptcy Act of 1978, as amended, or any other federal or state bankruptcy or
insolvency statute, Lessee has not made and is not reasonably likely to make any
assignment for the benefit of creditors, no receiver or other court officer has
been or is reasonably likely to be appointed to take possession of any
substantial part of the asset(s) of Lessee, and Lessee executes and delivers to
Lessor a certification in the form of Exhibit D, certifying that the foregoing
is true and that it has no plans to file any bankruptcy or insolvency proceeding
on or before January 31, 2007.

If Lessee elects to defer payment of the January 2006 Amount
in accordance with this Section and all of the Conditions to 2006 Deferral
described above are satisfied, then, Lessee may pay the January 2006 Amount in
lawful money of the United States of America, without offset, counter claim, or
deduction, in the installment amounts, and on or before the dates, specified
below:


	
Due Date
	
Total Amount

	
Feb. 1, 2006
	
$   68,294.00

	
May. 1, 2006
	
68,294.00

	
Aug. 1, 2006
	
68,294.00

	
Nov. 1, 2006
	
68,294.00

	
Jan. 20, 2007
	
987,520.00

	
Total
	






Notwithstanding the foregoing, Lessor shall forebear until
January 31, 2007, institution of any proceeding for the collection of the Nine
Hundred Eight-Seven Thousand Five Hundred Twenty Dollar ($987,520) deferred
January 2006 Amount payable by Lessee on or before January 20, 2007 (the
"January 2007 Amount").  Furthermore, if (i) Lessee elects to defer
the payment of the January 2007 Amount in accordance with Section 3(d), below,
(ii) all of the "Conditions to 2007 Deferral" described in Section
3(d), below, are satisfied as of the dates specified in Section 3(d), (iii) the
Lease continues to be in full force and effect as of February 1, 2007, (iv) no
default by Lessee (as defined in Section 22 of the Lease) has occurred on or
before February 1, 2007, and (iv) Lessee pays the installments of the deferred
January 2007 Amount at the times and in the amounts specified in Section 3(d),
below, then Lessor shall continue to forebear institution of any proceeding for
the collection of the January 2007 Amount and the payments made pursuant to
Section 3(d) shall be applied to reduce the January 2007 Amount.  If an event of
default under Section 22 of the Lease occurs or if any installment of the
deferred January 2007 Amount specified in Section 3(d), below, is not paid on or
before the dates specified in Section 3(d), then, in addition to its other
rights and remedies at law or in equity, Lessor shall immediately be entitled to
pursue collection of the unpaid balance of the January 2007 Amount.





	Deferral of January 2007 Amount.  Lessee shall
have the right to defer the payment of the January 2007 Amount in accordance
with this Section 3(d), if, but only if, all of the following conditions (the
"Conditions to 2007 Deferral") are satisfied by the dates specified
below:





	Lessee notifies Lessor of its intent to exercise this
option to defer payment of the January 2007 Amount by delivery to Lessor of the
Deferral Notice, attached hereto as Exhibit C, no earlier than January 20, 2007
and no later than January 30, 2007; and


	All of the Conditions to 2006 Deferral are satisfied by
the dates specified in such conditions (including, without limitation, the
timely payment of all sums owing under Section 2 of the Building 2 Agreement and
the completion of the Lessee's Surrender Obligations for the premises), and
continue to be satisfied as of the date the Deferral Notice for the January 2007
Amount is delivered and as of January 31, 2007.


	Lessee pays all basic monthly rent to be paid by Lessee
on or before December 31, 2005 and all estimated direct expenses to be paid
Lessee on or before January 1, 2006 (i.e., Six Hundred Forty-Nine Thousand Three
Hundred Four Dollars ($649,304)) in the amounts and on or before the dates
specified in Sections 3(a) and (b), above, and Lessee pays, on or before the due
dates thereof, those installments of the deferred January 2006 Amount (i.e., Two
Hundred Seventy-Three Thousand One Hundred Seventy-Six Dollars ($273,176)) to be
paid by Lessee on or before December 31, 2006; and


	No circumstance which would constitute a default under
Section 22 of the Lease has occurred or is continuing either on the date of
delivery of Lessee's Deferral Notice for the January 2007 Amount or on January
31, 2007; and


	As of January 31, 2007 either (A) (i) the Warrant is in
full force and effect for the benefit of Lessor, (ii) any Warrant Shares to be
issued to the Escrow Agent or Lessor, or delivered by the Escrow Agent to
Lessor, pursuant to the Warrant have been issued as and when required by the
terms of the Warrant, (iii) the Registration Rights Agreement is in full force
and effect for the benefit of Lessor, and (iv) Southwall has not failed to
register the Warrant Shares as and when required by the Registration Rights
Agreement or (B) Lessor holds a valid Letter of Credit complying with the terms
and provisions of Section 5(b)(1) of this Second Amendment in the maximum
drawing amount of One Million Dollars ($1,000,000); and


	On or before January 31, 2007, no proceeding has been or
is reasonably likely to be instituted by or against Lessee or any party
controlled by, under common control with or who controls Lessee under the
Bankruptcy Act of 1978, as amended, or any other federal or state bankruptcy or
insolvency statute, Lessee has not made and is not reasonably likely to make any
assignment for the benefit of creditors, no receiver or other court officer has
been or is reasonably likely to be appointed to take possession of any
substantial part of the asset(s) of Lessee, and Lessee executes and delivers to
Lessor a certification in the form of Exhibit D, certifying that the foregoing
is true and that it has no plans to file any bankruptcy or insolvency proceeding
on or before January 31, 2008.

If Lessee elects to defer payment of the January 2007 Amount
in accordance with this Section and all of the Conditions to 2007 Deferral
described above are satisfied, then, Lessee may pay the January 2007 Amount in
lawful money of the United States of America, without offset, counter claim, or
deduction, in the installment amounts, and on or before the dates, specified
below:


	
Due Date
	
Total Amount

	
Feb. 1, 2007
	
$108,943.00

	
May. 1, 2007
	
108,943.00

	
Aug. 1, 2007
	
108,943.00

	
Nov. 1, 2007
	
108,943.00

	
Jan. 20, 2008
	
622,520.00

	
Total
	






Notwithstanding the foregoing, Lessor shall forebear until
January 31, 2008 institution of any proceeding for the collection of the Six
Hundred Twenty-Two Thousand Five Hundred Twenty Dollar ($622,520) deferred
January 2007 Amount payable by Lessee on or before January 20, 2008 (the
"January 2008 Amount").  Furthermore, if (i) Lessee elects to defer
the payment of the January 2008 Amount in accordance with Section 3(e), below,
(ii) all of the "Conditions to 2008 Deferral" described in Section
3(e), below, are satisfied as of the dates specified in Section 3(e), (iii) this
Lease continues to be in full force and effect as of February 1,2008, (iv) no
default by Lessee (as defined in Section 22 of the Lease) has occurred on or
before February 1, 2008, and (iv) Lessee pays the installments of the deferred
January 2008 Amount at the times and in the amounts specified in Section 3(e),
below, then Lessor shall continue to forebear institution of any proceeding for
the collection of the January 2008 Amount and the payments made pursuant to
Section 3(e) shall be applied to reduce the January 2008 Amount.  If an event of
default under Section 22 of the Lease occurs or if any installment of the
deferred January 2008 Amount specified in Section 3(e), below, is not paid on or
before the dates specified in Section 3(e), then, in addition to its other
rights and remedies at law or in equity, Lessor shall immediately be entitled to
pursue collection of the unpaid balance of the January 2008 Amount. 





	Deferral of January 2008 Amount.  Lessee shall
have the right to defer the payment of the January 2008 Amount in accordance
with this Section 3(e), if, but only if, all of the following conditions (the
"Conditions to 2008 Deferral") are satisfied by the dates specified
below:





	Lessee notifies Lessor of its intent to exercise this
option to defer payment of the January 2008 Amount by delivery to Lessor of the
Deferral Notice, attached hereto as Exhibit C, no earlier than January 20, 2008
and no later than January 30, 2008; and


	All of the Conditions to 2007 Deferral are satisfied by
the dates specified in such conditions (including, without limitation, the
timely payment of all sums owing under Section 2 of the Building 2 Agreement and
the completion of the Lessee's Surrender Obligations for the premises), and
continue to be satisfied as of the date the Deferral Notice for the January 2008
Amount is delivered and as of January 31, 2008.


	Lessee pays all basic monthly rent to be paid by Lessee
on or before December 31, 2005 and all estimated direct expenses to be paid
Lessee on or before January 1, 2006 (i.e., Six Hundred Forty-Nine Thousand Three
Hundred Four Dollars ($649,304)) in the amounts and on or before the dates
specified in Sections 3(a) and (b), above, and Lessee pays, on or before the due
dates thereof, those installments of the deferred January 2006 Amount (i.e., Two
Hundred Seventy-Three Thousand One Hundred Seventy-Six Dollars ($273,176)) to be
paid by Lessee on or before December 31, 2006 and those installments of the
deferred January 2007 Amount (i.e., Four Hundred Thirty-Five Thousand Seven
Hundred Seventy-Two Dollars ($435,772)) to be paid by Lessee on or before
December 31, 2007; and


	No circumstance which would constitute a default under
Section 22 of the Lease has occurred or is continuing either on the date of
delivery of Lessee's Deferral Notice for the January 2008 Amount or on January
31, 2008; and


	As of January 31, 2008 either (A) (i) the Warrant is in
full force and effect for the benefit of Lessor, (ii) any Warrant Shares to be
issued to the Escrow Agent or Lessor, or delivered by the Escrow Agent to
Lessor, pursuant to the Warrant have been issued as and when required by the
terms of the Warrant, (iii) the Registration Rights Agreement is in full force
and effect for the benefit of Lessor, and (iv) Southwall has not failed to
register the Warrant Shares as and when required by the Registration Rights
Agreement or (B) Lessor holds a valid Letter of Credit complying with the terms
and provisions of Section 5(b)(1) of this Second Amendment in the maximum
drawing amount of One Million Dollars ($1,000,000); and


	On or before January 31, 2008, no proceeding has been or
is reasonably likely to be instituted by or against Lessee or any party
controlled by, under common control with or who controls Lessee under the
Bankruptcy Act of 1978, as amended, or any other federal or state bankruptcy or
insolvency statute, Lessee has not made and is not reasonably likely to make any
assignment for the benefit of creditors, no receiver or other court officer has
been or is reasonably likely to be appointed to take possession of any
substantial part of the asset(s) of Lessee, and Lessee executes and delivers to
Lessor a certification in the form of Exhibit D, certifying that the foregoing
is true and that it has no plans to file any bankruptcy or insolvency proceeding
on or before January 31, 2009.

If Lessee elects to defer payment of the January 2008 Amount
in accordance with this Section and all of the Conditions to 2008 Deferral
described above are satisfied, then, Lessee may pay the January 2008 Amount in
lawful money of the United States of America, without offset, counter claim, or
deduction, in the installment amounts, and on or before the dates, specified
below:


	
Due Date
	
Total Amount

	
Feb. 1, 2008
	
$106,754.00

	
May. 1, 2008
	
106,754.00

	
Aug. 1, 2008
	
106,754.00

	
Nov. 1, 2008
	
106,754.00

	
Jan. 20, 2009
	
252,520.00

	
Total
	






Notwithstanding the foregoing, Lessor shall forebear until
January 31, 2009 institution of any proceeding for the collection of the Two
Hundred Fifty-Two Thousand Five Hundred Twenty Dollar ($252,520) deferred
January 2008 Amount payable by Lessee on or before January 20, 2008 (the
"January 2009 Amount").  Furthermore, if (i) Lessee elects to defer
the payment of the January 2009 Amount in accordance with Section 3(f), below,
(ii) all of the "Conditions to 2009 Deferral" described in Section
3(f), below, are satisfied as of the dates specified in Section 3(f), (iii) this
Lease continues to be in full force and effect, (iv) no default by Lessee (as
defined in Section 22 of the Lease) has occurred on or before February 1, 2009,
and (v) Lessee pays the installments of the deferred January 2009 Amount at the
times and in the amounts specified in Section 3(f), below, then Lessor shall
continue to forebear institution of any proceeding for the collection of the
January 2009 Amount and the payments made pursuant to Section 3(f) shall be
applied to reduce the January 2009 Amount.  If an event of default under Section
22 of the Lease occurs or if any installment of the deferred January 2009 Amount
specified in Section 3(f), below, is not paid on or before the dates specified
in Section 3(f), then, in addition to its other rights and remedies at law or in
equity, Lessor shall immediately be entitled to pursue collection of the unpaid
balance of the January 2009 Amount. 





	Deferral of January 2009 Amount.  Lessee shall
have the right to defer the payment of the January 2009 Amount in accordance
with this Section 3(f), if, but only if all of the following conditions (the
"Conditions to 2009 Deferral") are satisfied by the dates specified
below:





	Lessee notifies Lessor of its intent to exercise this
option to defer payment of the January 2009 Amount by delivery to Lessor of the
Deferral Notice attached hereto as Exhibit C no earlier than January 20, 2009
and no later than January 30, 2009; and


	All of the Conditions to 2008 Deferral are satisfied by
the dates specified in such conditions (including, without limitation, the
timely payment of all sums owing under Section 2 of the Building 2 Agreement and
the completion of the Lessee's Surrender Obligations for the premises), and
continue to be satisfied as of the date the Deferral Notice for the January 2009
Amount is delivered and as of January 31, 2009.


	Lessee pays all basic monthly rent to be paid by Lessee
on or before December 31, 2005 and all estimated direct expenses to be paid
Lessee on or before January 1, 2006 (i.e., Six Hundred Forty Nine Thousand Three
Hundred Four Dollars ($649,304)) in the amounts and on or before the dates
specified in Sections 3(a) and (b), above, and Lessee pays, on or before the due
dates thereof, those installments of the deferred January 2006 Amount (i.e., Two
Hundred Seventy-Three Thousand One Hundred Seventy-Six Dollars ($273,176)) to be
paid by Lessee on or before December 31, 2006, those installments of the
deferred January 2007 Amount (i.e., Four Hundred Thirty-Five Thousand Seven
Hundred Seventy-Two Dollars ($435,772)) to be paid by Lessee on or before
December 31, 2007, and those installments of the deferred January 2008 Amount
(i.e., Four Hundred Twenty-Seven Thousand Sixteen Dollars ($427,016)) to be paid
by Lessee on or before December 31, 2008; and


	On or before January 31, 2009, no circumstance which
would constitute a default under Section 22 of the Lease has occurred or is
continuing either on the date of delivery of Lessee's Deferral Notice for the
January 2009 Amount or on January 31, 2009; and


	As of January 31, 2009 either (A) (i) the Warrant is in
full force and effect for the benefit of Lessor, (ii) any Warrant Shares to be
issued to the Escrow Agent or Lessor, or delivered by the Escrow Agent to
Lessor, pursuant to the Warrant have been issued as and when required by the
terms of the Warrant, (iii) the Registration Rights Agreement is in full force
and effect for the benefit of Lessor, and (iv) Southwall has not failed to
register the Warrant Shares as and when required by the Registration Rights
Agreement or (B) Lessor holds a valid Letter of Credit complying with the terms
and provisions of Section 5(b)(1) of this Second Amendment in the maximum
drawing amount of One Million Dollars ($1,000,000); and


	On or before January 31, 2009, no proceeding has been or
is reasonably likely to be instituted by or against Lessee or any party
controlled by, under common control with or who controls Lessee under the
Bankruptcy Act of 1978, as amended, or any other federal or state bankruptcy or
insolvency statute, Lessee has not made and is not reasonably likely to make any
assignment for the benefit of creditors, no receiver or other court officer has
been or is reasonably likely to be appointed to take possession of any
substantial part of the asset(s) of Lessee, and Lessee executes and delivers to
Lessor a certification in the form of Exhibit D, certifying that the foregoing
is true and that it has no plans to file any bankruptcy or insolvency proceeding
on or before January 31, 2010.

If Lessee elects to defer payment of the January 2009 Amount
in accordance with this Section and all of the Conditions to 2009 Deferral
described above are satisfied, then, Lessee may pay the January 2009 Amount in
lawful money of the United States of America, without offset, counter claim, or
deduction, in the installment amounts, and on or before the dates, specified
below:


	
Due Date
	
Total Amount

	
Feb. 1, 2009
	
$72,021.00

	
May. 1, 2009
	
72,021.00

	
Aug. 1, 2009
	
72,020.00

	
Nov. 1, 2009
	
72,020.00

	
Total
	









	Prepayments.




	In General.  Lessee may prepay any rent or deferred rental amounts
specified above. 

	Of Deferred January 2006 Amount.  If (i) Lessee is permitted to elect
and does elect to defer the payment of the January 2006 Amount in accordance
with Section 3(c), (ii) Lessee has paid any installments of the deferred January
2006 Amount which have become due on or before the due dates thereof pursuant to
Section 3(c), (iii) Lessee provides Lessor with at least 7 days prior written
notice of its intent to prepay the entire unpaid balance of the deferred January
2006 Amount, and (iv) the Conditions to 2006 Deferral were satisfied as of the
dates specified in Section 3(c), and continue to be satisfied on the date of the
prepayment notice and the date of the prepayment, then Lessee may prepay the
entire (but not less than the entire) unpaid balance of the 2006 Amount and,
upon such prepayment, will receive a credit against such unpaid balance equal to
the sum of (i) $220.49 for each day that a quarterly installment of the January
2006 Amount is prepaid before its due date as set forth in Section 3(c), above,
pursuant to such notice, plus (ii) 5% of the January 2007 Amount that is paid on
or before January 19, 2007.  For the purpose of calculating the deduction amount
pursuant to Section (i) of the foregoing sentence, it shall be presumed that
each quarter consists of three 30-day months.

	Of Deferred January 2007 Amount.  If (i) Lessee is permitted to elect
and does elect to defer the payment of the January 2007 Amount in accordance
with Section 3(d), (ii) Lessee has paid any installments of the deferred January
2007 Amount which have become due on or before the due dates thereof pursuant to
Section 3(d), (iii) Lessee provides Lessor with at least 7 days prior written
notice of its intent to prepay the entire unpaid balance of the deferred January
2007 Amount, and (iv) the Conditions to 2007 Deferral were satisfied as of the
dates specified in Section 3(d), and continue to be satisfied on the date of the
prepayment notice and the date of the prepayment, then Lessee may prepay the
entire (but not less than the entire) unpaid balance of the 2007 Amount and,
upon such prepayment, will receive a credit against such unpaid balance equal to
the sum of (i) $247.34 per day for each day that a quarterly installment of the
January 2007 Amount is prepaid before its due date pursuant to Section 3(c),
plus (ii) 3% of the January 2008 Amount that is paid on or before January 19,
2008.  For the purpose of calculating the deduction amount pursuant to Section
(i) of the foregoing sentence, it shall be presumed that each quarter consists
of three 30-day months.




	Surrender of Premises.  




	Duty to Surrender.  Concurrently with the execution of this Second
Amendment Lessee shall deliver to Lessor an "as built" plan for the
premises and copies of all building permits for the alterations and improvements
installed in the premises by Lessee.  Prior to the construction of any
additional alterations or improvements to the premises, Lessee shall deliver to
Lessor plans for such work and copies of all required building permits and all
such additional alterations and improvements shall be constructed only in
accordance with the other terms and provisions of the Lease.  Notwithstanding
any deferral of the January 2006 Amount, Lessee shall surrender possession of
the premises to Lessor on or before the Building 1 Surrender Date.  On or before
the earlier of July 1, 2005 or the tenth (10th) day following any
earlier Building 1 Surrender Date, Lessee shall provide to Lessor, for Lessor's
approval and comment, its plan for decommissioning and surrender of the
premises, the identity of any third party contractor(s) who will be retained to
complete the work, and the estimated total cost to complete such activities.
Lessee shall, on or before the earlier of January 31, 2006 or the Building 1
Surrender Date, complete the Building 1 Surrender Obligations. The Building 1
Surrender Obligation will continue to be in full force and effect,
notwithstanding the execution of this Second Amendment or the Building 2
Agreement, the performance or non-performance of the Building 2 Surrender
Obligations, the payment of any sums by Lessee to Lessor, the surrender, or
attempted surrender, of possession of the premises or Building 2 to Lessor by
Lessee and/or a termination of the Lease or any Building 2 Agreement for any
reason.

	Letter of Credit or Warrant.  



	Initial Issuance of Letter of Credit.  In consideration of, among
other things, the Building 2 Agreement, the extension of the Lease term, and to
secure the Lessee's Surrender Obligations, on or before March 5, 2004, Lessee
shall arrange for issuance of a Letter of Credit to Lessor, as beneficiary, in
the maximum drawing amount of One Million Dollars ($1,000,000).  Such Letter of
Credit shall be held by Lessor pursuant to Section 9(c) of the Original Lease
and as a security deposit for the faithful performance by Lessee of all of the
terms, covenants and conditions of this Lease and/or the Building 2 Lease
Agreements to be kept and performed by Lessee, including without limitation the
Surrender Obligations.  If any default by Lessee occurs with respect to any
provision of this Lease and/or any Building 2 Lease Agreement, including but not
limited to, any failure of the Lessee to complete its Surrender Obligations by
the Applicable Surrender Dates, then, in addition to its other rights and
remedies, Lessor may (but shall not be required to) draw upon the Letter of
Credit, in whole or in part, and use, apply, or retain such proceeds for the
payment of any amount which Lessor may spend by reason of such default or to
compensate Lessor for any other loss or damage which Lessor may suffer by reason
of default, or as additional security for the completion of the Surrender
Obligations .  Upon demand by Lessee, Lessor shall surrender any undrawn amount
of the Letter of Credit to Lessee or its designee, if and when the following
conditions are met:  (i) no default exists at the time of the demand under the
Lease, (ii) no default exists at the time of the demand under either of the
Building 2 Agreements, and (iii) Lessee has completed the Building 1 Surrender
obligations on or before the Building 1 Surrender Date (if the Building 1
Surrender Date has occurred) and its Building 2 Surrender Obligations on or
before the Building 2 Surrender Date (if the Building 2 Surrender Date has
occurred).  In the event of termination of Lessor's interest in this Lease,
Lessor may transfer the Letter of Credit to Lessor's successor in interest, and
Lessee agrees that Lessor shall thereupon be released from liability for any
obligation to return and surrender the Letter of Credit as may be required by
this Second Amendment. 

	Right to Substitute Warrant/Escrow.  Lessee shall have the right to
substitute a Warrant in the form of attached Exhibit E for the Letter of Credit
by delivery of the Warrant and a fully executed Registration Rights Agreement in
the form of attached Exhibit F to Lessor, together with a certificate of the
president or chief financial officer of Lessee, to the effect that the Warrant
and the Registration Rights Agreement are enforceable in accordance with their
terms, the Warrant Shares to be issued thereunder have been authorized by all
necessary corporate action, and are available for issuance upon exercise of the
Warrant, and that, when all Warrant Shares issuable pursuant to the Warrant have
been issued, the holder of the Warrant Shares will hold 4% of the total
outstanding capital stock of Southwall on a Diluted Basis; provided, but only
provided that all of the following conditions are met on the date Lessee
substitutes the Warrant for the Letter of Credit:  (i) no default exists under
this Lease, (ii) no default exists under either of the Building 2 Agreements,
(iii) the substitution is requested prior to the Building 1 Surrender Date, (iv)
if the substitution is requested after the Building 2 Surrender Date, the
Building 2 Surrender Obligations were complete on or before the Building 2
Surrender Date, and (v) there has been no drawing by Lessor on the Letter of
Credit in accordance with this Agreement.   Upon delivery of the Warrant and the
Registration Rights Agreement to Lessor, Lessor shall immediately become an
operable party to the Rights Agreement.  

Lessee hereby acknowledges and represents to Lessor that the outstanding
capital stock of Southwall Technologies, Inc. on a Diluted Basis is as depicted
on attached Exhibit G and that the Warrant Shares issuable upon full exercise of
the Warrant represents the equivalent of 4% of the outstanding capital stock of
Southwall on a Diluted Basis.  If, at any time prior to the later of (i) the
delivery of the Warrant Shares to Lessor free of any interest of the Lessee and
the escrow holder and (ii) the date that the Warrant Shares first become
tradable by Lessor without legend (either through registration or an exemption
therefrom) on a public exchange or NASDAQ National Market, the number of
outstanding shares of Southwall's outstanding capital stock on a Diluted Basis
is increased above the amounts depicted on attached Exhibit G, then the number
of shares of Warrant Shares issuable upon exercise of the Warrant shall be
adjusted so that the total Warrant Shares issued or issuable pursuant to the
Warrant will represent 4% of such increased amount of the outstanding capital
stock of Southwall on a Diluted Basis (as appropriately adjusted to give effect
to any Letter of Credit posted hereunder).

In connection with its receipt of the Warrant, Lessor hereby represents and
warrants to Lessee as follows:




	Investment Experience.  Lessor is an "accredited investor"
as defined in Rule 501 of the Securities Act.  Lessor is experienced in
investing and acknowledges that an investment in the Warrant and the Warrant
Shares involves a high degree of risk.  Lessor is able to protect Lessor's own
interest in connection with such investment, can bear the economic risk of its
investment (including the possible complete loss of such investment) for an
indefinite period of time, and has such knowledge and experience in financial or
business matters that it is capable of evaluating the merits and risks of the
investment in the Warrant and Warrant Shares.  Lessor understands that the
Warrant and the Warrant Shares have not been registered under the Securities Act
or under the securities laws of any jurisdiction, by reason of reliance upon
certain exemptions, and that the reliance of Lessee on such exemptions is
predicated upon the accuracy of Lessor's representations and warranties in this
Agreement.

	Access to Information.  Lessor has had the opportunity to ask
questions of and receive answers from representatives of Lessee and to obtain
additional information, documents and records relating to Lessee, its business
and the investment contemplated by the receipt of the Warrant and the Warrant
Shares.  Lessor has had the opportunity to review all of Lessee's filings under
the Securities Act (including its most recently filed Forms 10-K, Forms 10-Q and
Forms 8-K).

	Restricted Securities.  Lessor understands that the Warrant and the
Warrant Shares are currently characterized as "restricted securities"
under the federal securities laws inasmuch as they were issued in a transaction
not involving a public offering and that, under such laws and applicable
regulations, such Warrants and Shares may be transferred or resold without
registration under the 1933 Act only in certain limited circumstances and in
accordance with the terms and conditions set forth in the legend described in
paragraph 4 below.  Lessor is familiar with Securities and Exchange Commission
Rule 144, as presently in effect, and understands the resale limitations imposed
thereby and by the Securities Act.

	Legends.  Until such time as the Warrant Shares are registered
pursuant to the Warrant or the Registration Rights Agreement, each certificate
representing Warrant Shares shall bear a legend substantially in the following
form:

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT"), OR THE
SECURITIES LAWS OF ANY STATE. SUCH SHARES MAY NOT BE OFFERED FOR SALE, SOLD,
DELIVERED AFTER SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT COVERING SUCH SHARES UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.


Each Warrant shall bear a legend substantially in the
following form:
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
"ACT"), OR THE SECURITIES LAWS OF ANY STATE.  SUCH SHARES MAY NOT BE
OFFERED FOR SALE, SOLD, DELIVERED AFTER SALE, TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT COVERING SUCH
WARRANT OR SHARES, AS THE CASE MAY BE, UNDER THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS, OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED.







Lessor may exercise the Warrant at any time on and after the "Exercise
Date", as defined therein.  If Lessor exercises the Warrant and, at the
time of the exercise, (i) the Building 2 Surrender Date has occurred, but the
Building 2 Surrender Obligations have not been timely completed by Lessee, or
(ii) the Building 1 Surrender Date has occurred, but the Building 1 Surrender
Obligations have not been timely completed by Lessee, or (iii) a default exists
and is continuing under the Lease or either of the Building 2 Lease Agreements,
then the Warrant Shares issued pursuant to such exercise shall be issued
directly to Lessor.  

In all other cases, the Warrant Shares shall be placed with an Escrow Agent
selected by Lessor and approved by Lessee, which approval shall not be
unreasonably withheld.  Any Warrant Shares delivered to the Escrow Agent shall
be held by the Escrow Agent, as agent for the Lessor and Lessee, subject to and
in accordance with this Second Amendment, the Building 2 Agreement, and an
escrow agreement in form reasonably acceptable to Lessor, Lessee and the Escrow
Agent, providing in general that (i) the Warrant Shares shall be promptly
delivered by the Escrow Agent to Southwall, free of any claim by the Lessor or
the Escrow Agent, if, but only if, Lessee completes (a) the Building 1 Surrender
Obligations on or before the Building 1 Surrender Date in accordance with this
Lease and (b) the Building 2 Surrender Obligations with respect to Building 2 in
accordance with the Building 2 Lease Agreements on or before the Building 2
Surrender Date; or (ii) in all other cases, the Warrant Shares shall be
delivered by the Escrow Agent to Lessor on the earlier of February 1, 2006 or
the date when the Building 1 Surrender Date and the Building 2 Surrender Date
have both occurred, free of any claim or right by Lessee or the Escrow Agent.
The escrow agreement shall also provide that:


	The escrow shall be in existence throughout the Escrow Period. 
	The Escrow Agent shall hold and safeguard the Escrowed Shares during the
Escrow Period, shall treat such Escrow Shares as a trust fund in accordance with
the terms of this Section and the escrow agreement and not as the property of
Lessor, Lessee or Escrow Agent, and shall hold and dispose of the Escrowed
Shares only in accordance with the terms hereof.
	Any shares of Southwall's Common Stock or other equity securities issued or
distributed by Southwall (including shares issued upon a stock split in respect
of the Escrowed Shares held by the Escrow Agent, and all dividends issued with
respect to the Escrowed Shares shall be added to the Escrowed Shares and become
a part of the escrow.  Any such additional equity securities or cash dividends
issued in respect of Escrowed Shares that have been released from the escrow or
otherwise directly issued to Lessor or its designee (other than the escrow
holder), shall not be added to the Escrowed Shares, but shall be distributed to
the record holders thereof.  
	Lessor shall be shown as the record owner on Southwall's books and records,
and shall not have voting rights with respect to the Escrowed Shares until such
time, if any, that Escrowed Shares are delivered by the Escrow Agent to Lessor
in accordance with this Section and the escrow agreement. 
	If Lessor delivers an Escrow Claim Certificate to the Escrow Agent, then
Escrow Agent shall deliver to Lessor that number of the Escrowed Shares of
Lessor held by the Escrow Agent as are valued in an amount equal to the
unreimbursed amount of the out-of-pocket costs, expenses, liabilities,
diminution in market value, judgments, fines, penalties, attorneys' and experts'
fees, of every type and nature that Lessor may incur with respect to such non-
payment or non-performance by Lessee (herein the "Losses").  For the
purposes of determining the number of shares of Escrowed Shares to be delivered
to Lessor by the Escrow Agent pursuant to this Section, each Escrowed Share
shall be deemed to have a value equal to the closing sales price of Southwall
common stock on the NASDAQ National Market on of the trading day immediately
preceding the date the Escrow Shares are delivered by the Escrow Agent to
Lessor, if the Escrowed Shares are tradable on that market, or in all other
cases the value determined by an investment banker selected by Lessor and
approved by Lessee, which approval shall not be unreasonably withheld.  Such
delivery by Escrow Agent shall be limited only by the following:











	At the time of delivery of any Escrow Claim Certificate to the Escrow Agent,
a duplicate copy of such certificate shall be delivered to Lessee and for a
period of seven (7) days following the delivery date of the Escrow Claim
Certificate to the Escrow Agent and Lessee (herein the "Claim Date"),
Escrow Agent shall make no delivery to Lessor of any Escrowed Shares, unless the
Escrow Agent shall have received written authorization from Lessee to make such
delivery.  On the eighth (8th) day following the Claim Date, the
Escrow Agent shall make delivery of the required number of Escrowed Shares to
Lessor in accordance with the foregoing section, notwithstanding any objection
received from Lessee, unless such objection is made in a writing and delivered
to Escrow Agent on or before 5:00 pm Pacific Time on the day which is the
seventh (7th) day following the Claim Date. 


	If Lessee objects in writing to any claim by Lessor in
any Escrow Claim Certificate, Lessee and Lessor shall attempt in good faith to
agree upon the rights of the respective parties with respect to each of such
claims.  If Lessee and Lessor should so agree, a memorandum setting forth such
agreement shall be prepared and signed by both parties and shall be furnished to
the Escrow Agent and the Escrow Agent shall be entitled to rely on any such
memorandum and shall distribute the Escrowed Shares in accordance with the terms
thereof. If no such agreement can be reached by Lessee and Lessor by 5:00 pm
Pacific Time on the tenth (10th) day following the Claim Date, either
Lessor or Lessee may demand arbitration of the matter in Santa Clara County,
California and in accordance with the rules of the American Arbitration
Association then in effect; and the Escrow Agent shall be entitled to act in
accordance with the decision rendered in the arbitration.  Such decision, if
written, shall be supported by written findings of fact and conclusions, setting
forth the award, judgment, decree or order awarded by the arbitrators, shall be
binding upon the parties, may be entered as a final judgment in Santa Clara
County Superior Court and shall be subject to review only for prejudicial errors
of law and findings of fact not supported by substantial evidence. 


	The prevailing party in the arbitration shall be entitled
to recover its costs of arbitration and reasonably incurred attorneys' and
experts' fees.  


	If Lessee completes its Building 1 Surrender Obligations on or before the
Building 1 Surrender Date and completes its Building 2 Surrender Obligations on
or before the Building 2 Surrender Date and no default by Lessee exists, then
upon Lessee's demand, Escrow Agent will return any Escrowed Shares then held by
the Escrow Agent to Lessee.  All escrowed shares not delivered to Lessee
pursuant to the foregoing sentence shall be delivered to Lessor on the day
immediately following the termination of the Escrow Period. 
	The Escrow Agent shall be obligated only for the performance of such duties
as are specifically set forth in the escrow agreement between the Escrow Agent,
Lessee and Lessor, which will incorporate by reference this Section and the
applicable Section of the Building 2 Agreement and may also generally provide as
follows:











	 The Escrow Agent may receive after the date of the escrow agreement,
instructions which are signed by Lessor and Lessee, and may rely and shall be
protected in relying or refraining from acting on any instrument reasonably
believed to be genuine and to have been signed or presented by the proper party
or parties.


	The Escrow Agent shall not be liable for any act done or
omitted hereunder as Escrow Agent while acting in good faith and in the exercise
of reasonable judgment, and any act done or omitted pursuant to the advice of
counsel shall be conclusive evidence of such good faith.


	The Escrow Agent is hereby expressly authorized to comply
with and obey orders, judgments or decrees of any court of law, notwithstanding
any notices, warnings or other communications from any party or any other person
to the contrary.  In case the Escrow Agent obeys or complies with any such
order, judgment or decree of any court, the Escrow Agent shall not be liable to
any of the parties hereto or to any other person by reason of such compliance,
notwithstanding any such order, judgment or decree being subsequently reversed,
modified, annulled, set aside, vacated or found to have been entered without
jurisdiction.


	The Escrow Agent shall not be liable in any respect on
account of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver this Section and the escrow
agreement or any documents or papers deposited or called for hereunder.


	The Escrow Agent shall not be liable for the expiration
of any rights under any statute of limitations with respect to the escrow, the
Lease, or any documents deposited with the Escrow Agent.


	In performing any duties under this Section or the escrow
agreement, the Escrow Agent shall not be liable to any party for damages,
losses, or expenses, except for gross negligence or willful misconduct on the
part of the Escrow Agent.  The Escrow Agent shall not incur any such liability
for (A) any act or failure to act made or omitted in good faith, or
(B) any action taken or omitted in reliance upon any instrument, including
any written statement or affidavit provided for in this Section or the escrow
agreement that the Escrow Agent shall in good faith believe to be genuine, nor
will the Escrow Agent be liable or responsible for forgeries, fraud,
impersonations, or determining the scope of any representative authority.  In
addition, the Escrow Agent may consult with the legal counsel in connection with
Escrow Agent's duties under this Section or the escrow agreement and shall be
fully protected in any act taken, suffered, or permitted by him/her in good
faith in accordance with the advice of counsel.  The Escrow Agent is not
responsible for determining and verifying the authority of any person acting or
purporting to act on behalf of any party to this Section or the escrow
agreement.


	All fees of the Escrow Agent for performance of its
duties hereunder shall be paid by Lessee, promptly upon demand.  


	If any controversy arises between the parties to the
escrow agreement, or with any other party, concerning the subject matter or the
terms or conditions of this Section or the escrow agreement, the Escrow Agent
will not be required to determine the controversy or to take any action
regarding it.  The Escrow Agent may hold all Escrowed Shares and other property
held in the escrow and may wait for settlement of any such controversy by final
appropriate legal proceedings or other means as, in the Escrow Agent's
discretion, the Escrow Agent may be required, despite what may be set forth
elsewhere in this Section or the escrow agreement.  In such event, the Escrow
Agent will not be liable for damage.  Furthermore, the Escrow Agent may at its
option, file an action of interpleader requiring the parties to answer and
litigate any claims and rights among themselves.  The Escrow Agent is authorized
to deposit with the clerk of the court the Escrowed Shares and all documents and
other property held in escrow.  Upon initiating such action, the Escrow Agent
shall be fully released and discharged of and from all obligations and liability
imposed by the terms of the escrow agreement.


	Except to the extent of the willful misconduct, gross
negligence or breach of any escrow agreement executed by the Escrow Agent, the
parties and their respective successors and assigns agree jointly and severally
to indemnify and hold Escrow Agent harmless against any and all losses, claims,
damages, liabilities, and expenses, including reasonable costs of investigation,
counsel fees, and disbursements that may be imposed on Escrow Agent or incurred
by Escrow Agent in connection with the performance of his/her duties under this
Section or the escrow agreement, including but not limited to any litigation
arising from this Section or the escrow agreement or involving its subject
matter.


	The Escrow Agent may resign at any time upon giving at
least thirty (30) days written notice to the parties; provided, however,
that no such resignation shall become effective until the appointment of a
successor Escrow Agent which shall be accomplished as follows:  the parties
shall use their best efforts to mutually agree on a successor Escrow Agent
within fifteen (15) days after receiving such notice.  If the parties fail to
agree upon a successor Escrow Agent within such time, the Escrow Agent shall
have the right to appoint a successor Escrow Agent authorized to do business in
the State of California.  The successor Escrow Agent shall execute and deliver
an instrument accepting such appointment and it shall, without further acts, be
vested with all the estates, properties, rights, powers, and duties of the
predecessor Escrow Agent as if originally named as Escrow Agent.  The Escrow
Agent shall be discharged from any further duties and liability under this
Section or the escrow agreement upon such delivery to the substituted Escrow
Agent.

If Lessee performs its Surrender Obligations for the premises and Building 2
on or before the Applicable Surrender Dates, then the Warrant and any Warrant
Shares held by the Escrow Agent following an exercise of the Warrant shall be
surrendered by Lessor and the Escrow Agent to Lessee upon demand.



	Right to Reduce Issuable Warrant Shares After Substitution.  If a
Warrant is substituted for the Letter of Credit pursuant to the foregoing, then,
at any time prior to the Building 1 Surrender Date, Lessee may, from time to
time, reduce the number of Warrant Shares issuable under the Warrant by putting
in place one or more Letters of Credit in drawing amounts which are multiples of
$25,000.  The reduction in the number of Warrant Shares issuable pursuant to the
Warrant will be equal 1/40th of the number of Warrant Shares
originally issuable pursuant to the Warrant (as adjusted in accordance
therewith) for each $25,000 in drawable amount of Letter of Credit.  If any such
Letter of Credit is issued, they shall be held, drawn upon and surrendered by
Lessor in accordance with Section 5(b)(1), above, and in accordance with the
Building 2 Agreement.

	General Provisions.  Lessee shall not, without just cause, delay
issuance of the Warrant Shares pursuant to the Warrant, interfere with the
transfer of the Warrant Shares to the Escrow Agent, transfer of the Warrant
Shares by the Escrow Agent to Lessor, any subsequent sale of the Warrant Shares
by Lessor, or any drawing of a Letter of Credit by Lessor in accordance with the
terms of the Letter of Credit as permitted by this Second Amendment or the
Building 2 Agreement.

Subject to the next succeeding paragraph, Lessee's Surrender Obligations for
the premises are in addition to and shall not be limited by this Section or the
consideration received by Lessor pursuant to the Lease or the Building 2 Lease
Agreements, if any, including without limitation the Warrant, the Warrant
Shares, and/or any drawing on the Letter of Credit; and Lessee's Surrender
Obligations with respect to the premises and Building 2 will continue,
notwithstanding the termination of the Lease or any Building 2 Lease Agreement,
the surrender of possession of the premises or Building 2 to Lessor by Lessee,
the acceptance of possession of the premises and/or Building 2 by Lessor, the
delivery to Lessor of the Warrant or the Warrant Shares, and/or the drawing by
Lessor upon the Letter of Credit.  Furthermore, Lessor's right to receive the
Warrant and the Warrant Shares and the Lessor's right to draw upon the Letter of
Credit are in addition to all other rights and remedies for breach by Lessee of
obligations under the Lease and/or any Building 2 Lease Agreement.

Payment by the issuing bank to Lessor or a drawing request under the Letter
of Creditor delivery to any Warrant Shares to Lessor shall not be deemed to be a
cure of any default under the Lease, the Building 2 Agreement and/or the
Building 2 Lease; provided, however, that:




	any damages that may be payable by Lessee to Lessor pursuant to a judgment
compensating Landlord for any failure of Lessee to perform its Surrender
Obligations, shall be reduced dollar for dollar (without double counting and not
below zero) by (i) any net proceeds (after deduction of commissions and all
other out-of-pocket costs of sale) actually received by Lessor in connection
with Lessor's sale of any Warrant Shares, (ii) the amounts, if any, drawn by
Lessor from the Letter of Credit as of the date of the judgment, and (iii) an
amount equal to the number of Warrant Shares held by Lessor which are freely
tradable on the NASDAQ National Market on the date of the judgment  times the
closing sales price on the NASDAQ National Market of such shares on the trading
date immediately preceding the date the judgment is entered less the reasonably
expected out-of-pocket cost of trading such shares; and 





(2)credit shall be given to Lessee for any amount received by Lessor from
Lessee in satisfaction of a judgment compensating Landlord for any failure of
Lessee to perform its Surrender Obligations as follow:  For each $25,000 in
judgment proceeds received by Lessor, the number of Warrant Shares issuable
pursuant to the Warrant shall be reduced by 1/40th of the number of
Warrant Shares originally issuable pursuant to the Warrant (as adjusted in
accordance therewith) and, if there does not remain issuable pursuant to the
Warrant a sufficient number of Warrant Shares to make such adjustment, the
Escrow Agent shall return such number of Warrant Shares as shall make up the
difference to Lessee upon demand, and, if the Escrow Agent does not then hold a
sufficient number of Warrant Shares to make up the difference, upon demand,
Lessor shall surrender to Lessee the number of Warrant Shares then held by
Lessor; provided, however that in no event shall Lessor be required to surrender
to Lessee more Warrant Shares that it then holds.






	Environmental.  On or before February 25, 2004,
Lessee shall deliver to Lessor (i) a list of all Hazardous Materials that have
been, or are currently being, used, stored, discharged, emitted, or transported
on, at, to or from the premises, (ii) a copy of Lessee's hazardous material
management plan, and (iii) copies of all permits and licenses held by Lessee
with respect to Hazardous Materials at the premises.  All provisions of the
Lease concerning the environment or the presence of Hazardous Materials on or
about the premises continue in full force and effect, including without
limitation Section 14.  In connection with the surrender of possession of the
premises to Lessor by Lessee, Lessor shall have the right to retain an
environmental consultant to inspect the premises to confirm that all Hazardous
Materials have been removed from the premises and that the applicable
governmental authorities having jurisdiction over closure of the Lessee's
Hazardous Material use at the premises have inspected the premises, determined
that all Hazardous Material closure activities required for the premises have
been completed, and have released the premises for reletting to another Lessee
who might use Hazardous Materials.  If the consultant determines that any such
Hazardous Materials remain on the premises or that any additional closure
activities have not been completed, Lessee shall perform the work recommended by
the consultant to remove such Hazardous Materials and complete such closure to
the reasonable satisfaction of such consultant and shall reimburse Lessor for
the fees charged by Lessor's consultant.


	Destruction and Condemnation of the Premises.
Sections 19 and 35 of the Original Lease are deleted in their entirety.  Lessee
hereby waives any right to terminate this Lease on account of the condition of
the premises or any destruction of the premises by any casualty or condemnation,
waives the benefits of California Civil Code Sections 1265.130, and each subpart
of California Civil Code Sections 1932, 1933, 1941 and 1942, or any similar
statute or common law, as the same may be amended or supplemented from time to
time, to the extent such sections would entitle Lessee to terminate this Lease
on account of the condition of the premises or any casualty or condemnation, and
agrees that, notwithstanding any termination of Lessee's right to possession of
the premises in accordance with the Lease, as a consequence of Lessee's default
or any other cause, its obligations to pay the sums owing to Lessor pursuant to
Section 3 shall continue as a separate, independent and personal covenant of
Lessee to Lessor.  Subject to the foregoing, if, prior to the Building 1
Surrender Date:




	the premises are damaged or destroyed, in whole or in
part by any casualty, then Lessor may elect, by delivery of written notice to
Lessee within 30 days following such event, to not repair the premises, in which
event the Building 1 Surrender Date shall be accelerated to the date following
the date premises were damaged or destroyed that Lessee completes its Surrender
Obligations; or


	the premises are damaged or destroyed from any cause
(other than the acts or omissions of Lessee, its successors or assigns, or their
respective agents, employees, contractors, or invitees) and the damage to the
premises cannot be repaired within two hundred seventy (270) days after the date
of the damage or destruction under the Laws of State, Federal, County, or
Municipal authorities (as reasonably determined by Lessor), then Lessee may
accelerate the Building 1 Surrender Date to a date selected by Lessee, which
date shall be not earlier than the date (i) Lessee completes its Surrender
Obligations, and (ii) the Building 1 Surrender Date would have otherwise
occurred, or


	all of the premises is taken or conveyed to a
governmental authority as a consequence of the exercise by the governmental
authority of the power of eminent domain or the Lessor elects, in its
discretion, to accelerate the Building 1 Surrender Date in connection with any
such exercise by a governmental authority, then the Building 1 Surrender Date
shall be accelerated to the date of the taking, or 


	the premises is partially taken or conveyed in connection
with an exercise by a governmental authority of the power of eminent domain and,
after such taking or conveyance, Lessee's ability to utilize the remaining
premises for the purposes permitted by the Lease is substantially impaired, then
Lessee may accelerate the Building 1 Surrender Date to the date selected by
Lessee, which shall be not earlier than the date (i) Lessee completes its
Surrender Obligations for the premises in accordance with this Lease and the
Surrender Obligations for Building 2 in accordance with the Building 2 Agreement
and the Building 2 Lease, and (ii) the Building 1 Surrender Date would have
otherwise occurred.

If the Building 1 Surrender Date is accelerated by Lessor or
Lessee pursuant to the foregoing, Lessee shall complete its Surrender
Obligations with respect to the premises and surrender possession of the
premises to Lessor in the condition required by the Lease, the effects of the
casualty and the condemnation excepted, but free of Hazardous Materials
introduced to the premises during the Lease term; and Lessee shall continue to
pay the sums payable to Lessor pursuant to this Second Amendment
(notwithstanding such surrender), subject, however, to the following abatements:

(i) If Lessee is permitted to accelerate and actually does
accelerate the Building 1 Surrender Date pursuant to this Section to a date on
or before December 31, 2004 and completes its Surrender Obligations with respect
to the premises and Building 2 on or before such Building 1 Surrender Date, then
the amounts payable by Lessee pursuant to Section 3(a) shall be revised as
follows:  (a) the reimbursement of direct charges payable pursuant to Sections
3(a) and 3(b) shall be terminated for the period commencing on and after such
Building 1 Surrender Date (with a proration, based on a thirty day month, for
any partial month following such Building 1 Surrender Date), and (b) the basic
rent amounts payable under Section 3(a) shall be reduced, in reverse order of
payment (i.e., the reductions shall first apply to the January 2005 Amount and,
only if that amount is entirely exhausted then first, to the December
1st basic rent payment, etc.) by an amount equal to Three Thousand
Nine Hundred Ninety-Four and 38/100 Dollars ($3,994.38) per day for each day in
the period commencing the date after such accelerated Building 1 Surrender Date
and Lessee's completion of the Surrender Obligations for the premises and
Building 2 and ending on and including December 31, 2004, provided, however,
that such abatement shall not exceed $1,761,520 minus the product of Three
Thousand Nine Hundred Ninety-Four and 38/100 Dollars ($3,994.38) per day times
the number of days from and November 15, 2003 through and including such
Building 1 Surrender Date and the completion by Lessee of its Surrender
Obligations in accordance with this Lease, and  

(ii) If Lessee or Lessor is permitted to accelerate (and does
accelerate) the Building 1 Surrender Date pursuant to this Section to a date on
or before January 31, 2006, and Lessee completes its Surrender Obligations with
respect to the premises and Building 2 on or before said accelerated Building 1
Surrender Date, then the amounts payable by Lessee pursuant to Section 3(b) of
this Lease shall be revised as follows:  (i) the payments scheduled to be paid
on February 1, May 1, August 1, and November 1, 2005 (each a "Scheduled
Payment Date") shall be completely abated to the extent that the
accelerated Building 1 Surrender Date occurs on or before such Schedule Payment
Date, and, (ii) if such accelerated Building 1 Surrender Date occurs between any
two Scheduled Payment Dates or between November 1, 2005 and January 31, 2006,
the January 2006 Amount shall be reduced by an amount equal to the number of
days in the period commencing on the day after such accelerated Building 1
Surrender Date and the completion of the Lessee Surrender Obligations for the
premises and Building 2 in accordance with this Lease and the Building 2
Agreement and Building 2 Lease and ending on and including the day immediately
preceding the next Scheduled Payment Date thereafter, times Five Hundred Thirty-
Three and 33/100 Dollars ($533.33) per day, provided however, that the abatement
for any such period shall not be more or less than $16,000 for any full calendar
month during such period; and

(iii) If the premises are condemned or damaged and destroyed
from any cause (other than the acts or omissions of Lessee, its successors or
assigns, or their respective agents, employees, contractors, or invitees), but
the Building 1 Surrender Date is not accelerated pursuant to this Section, then
the reimbursement of direct charges payable pursuant to Section 3(a) and, if
applicable, Section 3(b), above, for the period commencing on the date of the
casualty or condemnation and ending on the earlier of (i) the date the premises
are restored so as to become reasonably usable by Lessee of the permitted uses
under this Lease or (ii) the Building 1 Surrender Date and the completion by
Lessee of its Surrender Obligations with respect to the premises and Building 2
in accordance with this Lease and the Building 2 Agreement and Building 2 Lease,
shall be abated in proportion to the interference, if any, with Lessee's use of
the premises occasioned by such casualty, condemnation, or the associated
restoration of the premises, and (2) the basic rent amount payable on each
payment date (other than January 20, 2005 and January 20, 2006) pursuant to
Section 3(a) and, if applicable 3(b), above, shall be reduced by an amount equal
to $0.01667 per day times the number of square feet of the premises not
reasonably usable by Lessee on each day of the Lease period to which such
payment relates as a consequence of the destruction, condemnation, or associated
restoration of the premises, provided, however that the maximum reduction in the
basic rent shall not exceed $0.50 per month per square foot of such space that
is not reasonably usable by Lessee.







	Additional Security.  Lessor and Lessee acknowledge that Lessee has
deposited with Bank of America, the sum of One Hundred Thousand ($100,000)
pursuant to Section 9(c) of the Lease and, other than as provided in Section
5(b), above, that Lessor holds no other security for Lessee's obligations under
the Lease.  Concurrently herewith, Lessee shall arrange for the issuance of a
substitute certificate of deposit payable to "Judd Properties, LLC, as
lessor under that certain Lease Agreement for 3969-3975 E. Bayshore Road, Palo
Alto, California, as amended, and as lessor under that certain Lease Agreement
for 3977-3995 E. Bayshore Road, Palo Alto, California, as amended.  Such
certificate of deposit shall be held by Lessor pursuant to Section 9(c) of the
Original Lease and as a security deposit for the faithful performance by Lessee
of all of the terms, covenants and conditions of this Lease, the Building 2
Agreement, and/or the Building 2 Lease to be kept and performed by Lessee.  If
any default by Lessee occurs with
respect to any provision of this Lease, the Building 2 Agreement, and/or the
Building 2 Lease, including but not limited to, the provisions relating to the
payment of basic rent, direct charges, or deferred and other amounts thereunder,
and/or the Lessee's Surrender Obligations pursuant thereto, then, in addition to
its other rights and remedies, Lessor may (but shall not be required to) draw
upon the certificate of deposit and use, apply, or retain such
proceeds for the payment of any
amount which Lessor may spend by reason of such default or
to compensate Lessor for any other loss or damage which Lessor may suffer by
reason of default.  If any portion of said deposit is so
used or if any drawing is made on such deposit by Lessor in accordance with the
Building 2 Agreement, Lessee shall, within ten (10) days after written demand
therefore, deposit cash with Lessor in the amount sufficient to restore such
security deposit to its original amount; Lessee's failure to do so shall be a
material breach of this Lease.  All interest on the certificate of deposit shall
be added to the certificate of deposit and shall become additional security for
this Lease, the Building 2 Agreement, and the Building 2 Lease.  Provided that no default has occurred under the Lease, Lessee
has completed its Surrender Obligations for the premises pursuant to this Lease
and for Building 2 pursuant to the Building 2 Agreement and the Building 2
Lease, and has paid the deferred rent amount, Lessor shall deliver any undrawn
amount of the certificate of deposit and the balance of any additional cash
security deposit made by Lessee to Lessee.  In the event of termination of
Lessor's interest in this Lease, Lessor shall transfer said deposit to Lessor's
successor in interest, and Lessee agrees that Lessor shall thereupon be released
from liability for the return of such deposit or any accounting therefore.

	Keys.  Concurrently herewith, Lessee shall deliver to Lessor a key to
all locks on the premises (other than keys to Lessee's private safes, file
cabinets and similar personal property).

	Needham Agreement.  Lessee shall deliver to Lessor a true, correct,
and complete copy of (i) the Needham Restructuring Documents concurrently
herewith and (ii) any amendment, modification, termination, or supplement of any
Needham Agreement within seven (7) days following the execution of the same by
Lessee.

	Miscellaneous.  This Agreement contains the entire agreement of the
parties with respect to the subject matter hereof, shall be construed in
accordance with its fair meaning and not for or against any party.  The parties
hereby agrees that the sole jurisdiction for any action or proceeding brought
with respect to this Agreement or the Lease is in the federal courts of the
Northern District of California and the courts of the State of California for
the County of Santa Clara and that this Agreement and the Lease shall be
interpreted in all respects solely in accordance with the laws of the State of
California, without regard to any conflict of laws.  All letters of
understanding and proposals between the parties concerning the subject matter
hereof are merged into this Agreement and no representation, warranty, or oral
promise between the parties not contained herein with respect to the subject
matter hereof shall be enforceable against any party hereto.  The provisions of
this Agreement shall be binding upon the parties and their respective successors
and assigns and may be waived, amended, or deleted only by a writing signed by
the party to be charged.

	Deleted Provisions.  Lessee and Lessor agree that the following
provision are deleted from the Lease:  Original Lease - Sections 20 (2nd
paragraph only), 25, 28, 29, and 49 and First Amendment  - Section 1 and
subparts (c) and (d) of Section 2.

	Defined Terms.  The terms -- "Second Amendment",
"Effective Date", "Bay Laurel", "Original Lease",
and "premises" -- are defined in the preamble to this Second
Amendment, the terms -- "First Amendment", "Lease",
"Building 2 Lease", "Building 2 Agreement", and
"Building 2 Lease Agreements" are defined in the Recitals for this
Second Amendment, the terms -- "Conditions to January 2006 Extension",
"Conditions to 2006 Deferral", "Conditions to 2007 Deferral"
"Conditions to 2008 Deferral", "Conditions to 2009
Deferral", "January 2005 Amount", "January 2006 Amount"
"January 2007 Amount" "January 2008 Amount", and
"January 2009 Amount" --are defined in Section 2 of this Second
Amendment, the terms - "Losses" and "Claim Date" are defined
in Section 5 of this Agreement, the term "Remaining Escrowed Shares"
is defined in Section 6 of this Second Amendment, and the term --
"Scheduled Payment Date" - is defined in Section 8 of this Second
Amendment.  The following additional terms used in this Second Amendment shall
have the following meanings:

"Applicable Surrender Date", with respect to the premises, shall
mean the Building 1 Surrender Date" and, with respect to Building 2, shall
mean the "Building 2 Surrender Date".

"Building 1 Surrender Date" shall mean the earliest of the
following dates: (i) January 31, 2006, (ii) the date that is determined, in
accordance with Section 7 of this Second Amendment, to be the "Building 1
Surrender Date" as a consequence of a casualty or condemnation, or (iii)
the earlier termination of this Lease for any other cause, in each case in the
surrender condition required by the Lease.

"Building 1 Surrender Obligations" means performance by Lessee of
all of the following on or before the Building 1 Surrender Date:  (i) at no cost
to Lessor, perform all of the decommissioning and surrender activities for the
premises contained on the Plan or otherwise required of Lessee under the Lease,
including without limitation, Sections 7 and 30 of the Original Lease, and
Section 9 of this Second Amendment, and (ii) within 15 days following completion
of such work, deliver to Lessor unconditional waivers of any mechanic's liens
arising from its performance of the other Surrender Obligations, together with
such other evidence of payment by Lessee of the costs associated therewith as
Lessor may reasonably request.

"Building 2 Surrender Obligations" are the obligations of the
Lessee to decommission and surrender Building 2 on or before the Building 2
Surrender Date (as defined in the Building 2 Agreement) in accordance with the
Building 2 Agreement and the Building 2 Lease.

"default" shall mean (i) the failure of Lessee to (i) perform its
Surrender Obligations on or before the Applicable Surrender Date in accordance
with the Lease and the Building 2 Agreements, as applicable, (ii) the failure of
Lessee to timely perform any other obligation on its part to be performed under
the specified agreement in any material respect, (iii) any other circumstance
which is a default in any material respect under the specified agreement, or
(iv) any other circumstance, which with the passage of time, the giving of
notice or both, would be a default in any material respect under the specified
agreement.

"Diluted Basis" shall mean calculation of the percentage of the
total outstanding capital stock represented by the referenced shares on the
referenced date, calculated on a fully diluted basis, after giving effect to the
Needham Restructuring Documents, all warrants, options, and convertible
securities, and any other unperformed agreements, contingent or non-contingent,
for the issuance of Southwall Technologies, Inc. capital stock binding upon said
company as of the referenced date.  

"Escrow Agent" shall mean an escrow holder designated by Lessor,
subject to the approval of Lessee, which approval shall not be unreasonably
withheld and, if not reasonably withheld within 7 days following delivery of
written notice of the identity of the Escrow Agent to Lessee, shall be deemed
given.

"Escrow Claim Certificate" shall mean a certificate signed by
Lessor and delivered to the Escrow Agent at any time on or before the last day
of the Escrow Period stating that Lessee has either (1) failed to complete
Lessee's Surrender Obligations for the premises in accordance with the Lease
and/or failed to complete Lessee's Surrender Obligations for Building 2 (as
defined in and in accordance with the Building 2 Lease Agreements), in either
case by the time specified and in the manner required by the Lease, the Building
2 Lease Agreements, as applicable, and/or (2) failed to pay any sums owing by
Lessee to Lessor or other otherwise failed to perform any obligation on Lessee's
part to be performed under the Lease, the Building 2 Lease Agreements in
accordance with and within the time permitted by such agreements.

"Escrow Period" means the period commencing on the issuance of the
Warrant and ending on the earlier of (A) February 1, 2006, or (B) the date when
all of the following have occurred: (i) the Building 1 Surrender Date pursuant
to the Lease, (ii) the Building 2 Surrender Date (as defined in and pursuant to
the Building 2 Agreements), and (iii) the completion by Lessee of its Surrender
Obligations for the premises and Building 2.

"First Needham Closing" shall mean the receipt by the Lessee of
proceeds from the Investors pursuant to the Needham Restructuring Documents in
the amount of at least One Million Five Hundred Thousand Dollars
($1,500,000).

"Letter of Credit" shall mean a letter of credit: (i) issued to
Judd Properties, LLC, as the beneficiary thereof pursuant to the Lease and the
Building 2 Agreement, (ii) issued by a nationally recognized commercial bank
reasonably acceptable to Lessor; (iii) having a termination date for drawings of
February 29, 2006, (iv) that provides for a drawing(s) by Lessor upon delivery
to the issuer of the Letter of Credit of a certification by Lessor that Lessee
failed to complete its Surrender Obligations for the premises and Building 2 on
or before the Applicable Surrender Date or otherwise is in default of its
obligations under this Lease, the Building 2 Lease Agreements; and (iv) in a
form consistent with the intent of this Agreement and approved by Lessor and
Lessee, which approval shall not be unreasonably withheld.

"Needham Restructuring Documents" shall mean the Investment
Agreement, dated December 18, 2003, by and among Lessee, Needham & Company,
Inc., ("Needham") and certain other investors named therein
(collectively, the "Investors"), and the Registration Rights
Agreement, dated December 18, 2003, by and among Lessee and the Investors
therein identified, as the same may be amended or supplemented by the parties
from time to time (herein, respectively the "Investment Agreement" and
the "Registration Rights Agreement").

"Registration Rights Agreement" shall mean the Registration Rights
Agreement to be entered into by Lessor, Lessee and the other parties thereto in
the form of attached Exhibit F.

"Securities Act" means the Securities Act of 1933, as amended.

"Surrender Obligations" means the Building 1 Surrender Obligations
and the Building 2 Surrender Obligations.

"Warrant" shall mean a warrant to purchase at least 1,517,893
shares of the Common Stock of Southwall Technologies, Inc., (subject to
adjustment) at an exercise price of $0.01 (subject to adjustment) in the form of
attached Exhibit E.

"Warrant Shares" shall mean the common stock of Southwall
Technologies, Inc. issued or issuable pursuant to the Warrant.

	Effectiveness of Second Amendment.  At the election of Lessor, by
delivery of written notice to Lessee, this Second Amendment shall be rendered
null and void and of no force or effect, if (i) Lessee fails to pay Lessor Two
Hundred Two Thousand Dollars ($202,000), for application to the sums first
payable by Lessee pursuant to Section 3(a) of this Agreement on or before
February 25, 2004, (ii) Lessee fails to pay Lessor Four Hundred Four Thousand
Dollars ($404,000), for application to the sums owing by Lessee to Lessor under
Section 2(a) of the Building 2 Agreement on or before February 25, 2004, (iii)
any other sums payable by Lessee on or before May 1, 2004 pursuant to this
Second Amendment (i.e., Fifty Eight Thousand Three Hundred Forty-Four Dollars
($58,344)) or pursuant to Section 2 of the Building 2 Agreement (i.e., the
"Landlord's Work Amount" as therein defined)) are not paid on or
before the due dates thereof, (ii) as of May 1, 2004 or such earlier date is as
required by this Agreement (a) the Letter of Credit (or substitute Warrant)
required by Section 5(b) above  has not been issued to Lessor or is otherwise
not in full force and effect for the benefit of Lessor, (b) any Warrant Shares
to be issued to the Escrow Agent or Lessor, or delivered by the Escrow Agent to
Lessor, pursuant to the Warrant have not been issued or delivered as and when
required by the terms of the Warrant, (c) if a Warrant has been issued to
Lessor, the Registration Rights Agreement is not in full force and effect for
the benefit of Lessor, and/or (d) if a Warrant has been issued to Lessor,
Southwall has failed to register the Warrant Shares as and when required by the
Registration Rights Agreement, or (iii) on or before May 1, 2004 the Lease is
rejected in any bankruptcy or insolvency proceeding brought by or against
Lessee.  

Upon delivery of any such notice by Lessor rescinding this Second Amendment,
(1) the Original Lease, as amended by the First Amendment, shall be reinstated,
(2) any sums received by Lessor pursuant to this Second Amendment shall be
deemed paid on account of the sums owing by Lessee under the Original Lease, as
amended only by the First Amendment, and, (3) if, after taking into account such
payments, any late charges or interest could have been imposed for late payment
of the sums owing under the Original Lease, as amended only by the First
Amendment, such late charges and interest shall be deemed to be owing by Lessee
to Lessor and shall be paid by Lessee to Lessor upon demand.  Further, if, after
application of such sums, any amount owing by Lessee under the Original Lease,
as amended only by the First Amendment, are unpaid or if any other default
exists under Section 22 of the Original Lease, as amended only by the First
Amendment and without regard to any of the actions of Lessor with respect to
this Second Amendment or the Building 2 Agreement, Lessor shall be entitled to
pursue any remedy available with respect thereto under the Lease or at law or in
equity.  If, but only if, Lessee (i) pays to Lessor the Two Hundred Two Thousand
Dollars ($202,000) for application to the sums first payable by Lessee pursuant
to Section 3(a) of this Agreement on or before February 25, 2004, (ii) pays to
Lessor the Four Hundred Four Thousand Dollars ($404,000), for application to the
sums owing by Lessee to Lessor under Section 2(a) of the Building 2 Agreement on
or before February 25, 2004, (iii) pays to Lessor the other sums payable by
Lessee on or before May 1, 2004 pursuant to this Second Amendment or the
Building 2 Agreement (i.e., Fifty Eight Thousand Three Hundred Forty-Four
Dollars ($58,344) plus the "Landlord's Work Amount" as defined in
Section 2 of the Building 2 Agreement), and (iv) delivers to Lessor the Letter
of Credit required by Section 5(b) and the Certificate of Deposit required by
Section 8 of this Second Amendment on or before the due dates thereof specified
in this Second Amendment, then effective on May 1, 2004, Lessor shall be deemed
to have waived the defaults by Lessee in the payment of the sums to be paid
under the Lease in consideration for the performance by Lessee of its
restructured obligations under the Lease pursuant to the Lease as amended by
this Second Amendment.

[SIGNATURES ON NEXT PAGE]



 

IN WITNESS WHEREOF, the parties hereto have executed this
Second Amendment intending to be bound thereby.




	
LESSOR
	
LESSEE

	
JUDD PROPERTIES, LLC,

a California limited liability company

 

By:  

F. Clay Judd, president 
	SOUTHWALL TECHNOLOGIES, INC.,

a Delaware corporation

 

 

 

By:  

 

Printed Name: 

 

Its: 

 

 

By:  

 

Printed Name: 

 

Its: 







 

 

EXHIBITS

 

A-Lease and First Amendment

B-Notice to Extend Lease Term

C-Notice to Defer Payment

D-Solvency/Bankruptcy Certification

E-Form of Warrant

F-Registration Rights Agreement

G-Capitalization 

 

 

EXHIBIT B

NOTICE TO EXTEND LEASE TERM

 

Date: <insert>

 

To:Judd Properties, LLC

Palo Alto, California

 

Notice is hereby given that the undersigned elects to extend the term of the
Lease for 3969-3975 E. Bayshore Road - Building 1, until January 31, 2005.  The
undersigned represents that all of the conditions to the extension as set forth
in said Lease have been satisfied and that the undersigned will pay the rental
amounts owing with respect to the premises in accordance with Section
<insert payment schedule Section of Second Amendment> of the Second
Amendment to said Lease, as and when due and payable.

 

Southwall Technologies, Inc.,

 

By:  

Its: 



 

EXHIBIT C

NOTICE TO DEFER RENT PAYMENT

 

Date:  <insert>

To:Judd Properties, LLC

Palo Alto, California

 

Notice is hereby given that the undersigned elects to defer the rent payment
owing by the undersigned on January 20 <insert year> in
accordance with Section <insert appropriate Section of Second
Amendment> of the Second Amendment to the Lease Agreement for 3969-3975
E. Bayshore Road - Building 1.  The undersigned represents and confirms that all
of the conditions to the deferment set for in said Second Amendment have been
satisfied and the undersigned will pay the deferred amount in accordance with
Section <insert payment schedule Section of Second Amendment> of
said Second Amendment as and when due and payable.

Southwall Technologies, Inc.,

 

By:  

Its: 



 

EXHIBIT D

LESSEE'S CERTIFICATE

 

Date:  <insert>

To:Judd Properties, LLC

Palo Alto, California

 

The undersigned is the President or Chief Financial Officer of Southwall
Technologies, Inc., and on behalf of Southwall Technologies, Inc., hereby
represents and warrants to Judd Properties, LLC that each of the following are
true and correct as of the date of this certificate:




	All of the Conditions to <insert either
Extension of the Lease Term to January 31, 2005 /or/ the
<insert year> Deferral were satisfied as of the dates specified in
such conditions (including, without limitation, the timely payment of all sums
owing under Section 2 of the Building 2 Agreement and the completion of the
Lessee's Surrender Obligations for the premises), and continue to be satisfied
as of the date hereof.


	The undersigned has timely paid to Lessor all basic
monthly rent to and all estimated direct expenses due and owing to Lessor prior
to the date hereof.


	No circumstance which would constitute a default under
Section 22 of the Lease has occurred or is continuing as of the date of this
certificate.


	As of the date hereof either (A) the Warrant is in full
force and effect for the benefit of Lessor, any Warrant Shares to be issued to
the Escrow Agent or Lessor, or delivered by the Escrow Agent to Lessor, pursuant
to the Warrant have been issued as and when required by the terms of the
Warrant, the Registration Rights Agreement is in full force and effect for the
benefit of Lessor, and/or Southwall has not failed to register the Warrant
Shares as and when required by the Registration Rights Agreement, or (B) Lessee
holds a valid Letter of Credit conforming to the requirements of Section 5 of
the Second Amendment to the Lease in the drawable amount of $1 million;
and


	No proceeding has been or is reasonably likely to be
instituted by or against Lessee or any party controlled by, under common control
with or who controls Lessee under the Bankruptcy Act of 1978, as amended, or any
other federal or state bankruptcy or insolvency statute, Lessee has not made and
is not reasonably likely to make any assignment for the benefit of creditors, no
receiver or other court officer has been or is reasonably likely to be appointed
to take possession of any substantial part of the asset(s) of Lessee, and Lessee
has no plans to file any bankruptcy or insolvency proceeding on or before
January 31, <insert extension date>.

In witness whereof, the undersigned has executed this certificate under
penalty of perjury as of the date first above written.  

 


Name

 



Title