Document:

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                                                                  Exhibit 10.12

                           JOINT DEVELOPMENT AGREEMENT

                  JOINT DEVELOPMENT AGREEMENT, dated as of March 20, 2002
(this "AGREEMENT"), by and between HEXAL A.G., a German company ("HEXAL"),
and EON LABS, INC., a Delaware corporation ("EON").

                              W I T N E S S E T H :

                  WHEREAS, Hexal and its Affiliates and Eon are currently
developing Technology jointly and desire to continue to cooperate jointly to
develop such Technology.

                  WHEREAS, Hexal and its Affiliates and Eon desire to set
forth each other's right, title and interest in and to the Technology.

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

SECTION 1. DEFINITIONS

                  "Affiliate" with respect to any Person, shall mean any
Person or entity, directly or indirectly controlling, controlled by or under
common control with such Person.

                  "Confidential Information" shall mean any confidential
technical data, trade secrets, know-how or other confidential information
disclosed by any party hereunder in writing, orally, or by drawing or other
form.

                  "Exploitation Rights" shall mean the right to manufacture,
distribute, market, sell, license, sublicense, use or otherwise exploit the
Technology.

                  "Person" shall mean an individual, partnership, joint-stock
company, corporation, limited liability company, trust or unincorporated
organization, and a government or agency or political subdivision thereof.

                  "Products" shall mean the three (3) generic transdermal
patch delivery products.

                  "Proprietary Rights" shall mean any and all technical
information, including, without limitation, all inventions, all improvements
thereto, research, computer software, data, formulas, compositions,
specifications, know-how, drawings, details, blue prints, technical
descriptions, dimensions, part lists, supplier lists, processes, methods, and
procedures.

                  "Technology" shall mean the Products and any Proprietary
Rights now or in the future conceived, created, made or developed jointly by
Hexal and Eon in the course of the development of the Products.

                  "Territory" shall mean the United States.

                                      -1-
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SECTION 2. OWNERSHIP RIGHTS

         2.1.     All Confidential Information of either party which has been
provided to the other party in the course of the development of the Products
shall continue to belong to such providing party.

         2.2.     All Proprietary Rights owned solely by Hexal or its
Affiliates and provided to Eon in the course of the development of the
Products shall belong exclusively to Hexal. All Proprietary Rights owned
solely by Eon and provided to Hexal in the course of the development of the
Products shall belong exclusively to Eon.

SECTION 3. EXPLOITATION RIGHTS

         3.1.     The Parties agree that, subject to securing approval of an
Abbreviated New Drug Application for each of the Products from the United
States Food and Drug Administration (the "FDA"), Eon shall have exclusive
Exploitation Rights for each Product throughout the Territory, and the
Parties shall negotiate in good faith to reach an agreement as soon as
practicable, and in any case no later than promptly following the receipt of
approval from the FDA for each Product, regarding any payments to be made by
Eon to Hexal with respect to Eon's exercise of its Exploitation Rights with
respect to that Product.

         3.2.     The Parties agree that Hexal shall have exclusive
Exploitation Rights with respect to each Product outside the Territory.

SECTION 4. RESTRICTIVE COVENANTS

         4.1.     ASSIGNMENT. Neither party may assign its rights in and to
the Technology or its rights granted hereunder without the prior written
consent of the other party which may not be unreasonably withheld.

SECTION 5. DISCLOSURE OF TECHNOLOGY

         5.1.     Hexal shall communicate promptly and disclose to Eon the
Technology, including all supporting information, details and data, and Hexal
shall execute and deliver to Eon such formal transfers and assignments and
such other papers and documents as may be necessary or required of Hexal to
vest joint ownership of the Technology in Eon.

         5.2.     Eon shall communicate promptly and disclose to Hexal the
Technology, including all supporting information, details and data, and Eon
shall execute and deliver to Hexal such formal transfers and assignments and
such other papers and documents as may be necessary or required of Hexal to
vest joint ownership of the Technology in Hexal.

SECTION 6. CONFIDENTIALITY.

         6.1.     NONDISCLOSURE. The receiving party agrees that it will not
disclose any Confidential Information to any third party, except that Hexal may
disclose Confidential Information to its Affiliates for purposes relating to
this Agreement provided that they shall hold such information in confidence, and
will not use Confidential Information of the disclosing party for any purpose

                                      -2-
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other than for the performance of the rights and obligations hereunder during
the term of this Agreement and for a period of five (5) years thereafter,
without the prior written consent of the disclosing party. The receiving
party further agrees that Confidential Information shall remain the sole
property of the disclosing party and that it will take all reasonable
precautions to prevent any unauthorized disclosure of Confidential
Information by its employees. No license shall be granted by the disclosing
party to the receiving party with respect to Confidential Information
disclosed hereunder unless otherwise expressly provided herein.

         6.2.     RETURN OF CONFIDENTIAL INFORMATION. Upon the request of the
disclosing party, the receiving party will promptly return all Confidential
Information furnished hereunder and all copies thereof.

SECTION 7. MISCELLANEOUS

         7.1.     AGENCY; JOINT VENTURE. The Parties agree that this
Agreement is not intended to create any employment, agency or subcontractor
relationships of any kind between the Parties. Nothing contained in this
Agreement shall constitute or be construed to be or create a partnership or
joint venture between the Parties hereto.

         7.2.     FURTHER ASSURANCES. In case at any time after the date
hereof any further action is necessary to carry out the purposes of this
Agreement, each of the Parties will take such further action (including the
execution and delivery of such further instruments and documents) as the
other party reasonably may request.

         7.3.     THIRD-PARTY BENEFICIARIES. This Agreement shall not confer
any rights or remedies upon any person other than the Parties and their
respective successors and permitted assigns.

         7.4.     TERMINATION. This Agreement shall terminate five (5) years
upon execution unless otherwise terminated beforehand upon the mutual written
consent of the Parties.

         7.5.     PARAGRAPHS AND SECTION HEADINGS. The headings of the
sections and subsections of this Agreement are inserted for convenience only
and shall not be deemed to constitute a part thereof.

         7.6.     NOTICES

                  (a)      All communications under this Agreement shall be
in writing and shall be delivered by hand or facsimile or mailed by overnight
courier or by registered or certified mail, postage prepaid:

                  (i)      if to Hexal, at Industriestrasse 25, 83607
                           Holzkirchen, Germany, marked for the attention of
                           Thomas Strungmann, facsimile +49 8024 908 116, or at
                           such other address as Hexal may have furnished Eon in
                           writing; and

                  (ii)     if to Eon, at 227-15 North Conduit Avenue, Laurelton,
                           New York, 11413, marked for the attention of
                           President, (facsimile: (718) 276-1735), or at such
                           other address as Eon may have furnished Hexal in
                           writing.

                                      -3-
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                  (b)      Any notice so addressed shall be deemed to be
given: if delivered by hand or facsimile, on the date of such delivery; if
mailed by courier, on the first business day following the date of such
mailing; and if mailed by registered or certified mail, on the third business
day after the date of such mailing; except in case of common proof of late
arrival of such notice.

         7.7.     GOVERNING LAW; VENUE. This Agreement shall be governed by
and construed in accordance with the laws of Germany. Jurisdiction for
disputes brought under this Agreement shall be Landgericht Muenchen II.

         7.8.     SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
Parties.

         7.9.     ENTIRE AGREEMENT; AMENDMENT AND WAIVER. This Agreement
constitutes the entire understandings of the Parties hereto and supersedes
all prior agreements, understandings, or representations with respect to the
subject matter hereof among such Parties. This Agreement may be amended, and
the observance of any term of this Agreement may be waived, with (and only
with) the written consent of Hexal and Eon.

         7.10.    SEVERABILITY. In the event that any part or parts of this
Agreement shall be held illegal or unenforceable by any court or
administrative body of competent jurisdiction or otherwise by law, such
determination shall not effect the remaining provision of this Agreement
which shall remain in full force and effect.

         7.11.    COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original all of which together
shall be considered one and the same Agreement.

                                      -4-
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                  IN WITNESS WHEREOF, Hexal and Eon have caused this
Technology Agreement to be duly executed and delivered as of the date first
above written.

                              HEXAL A.G.

                              By: /s/ Thomas Strungmann
                                 -----------------------------------------------
                                   Name:  Thomas Strungmann
                                   Title: Co-President and Co-Chief Executive
                                          Officer

                              EON LABS, INC.

                              By: /s/ Bernhard Hampl, Ph.D.
                                 -----------------------------------------------
                                   Name:  Bernhard Hampl, Ph.D.
                                   Title: President and Chief Executive Officer

                                      -5-EXHIBIT 10.114

 

SOUTHWALL TECHNOLOGIES INC.

 

NOTE SECURED BY STOCK PLEDGE AGREEMENT

 

	
  $ 43,875.00

  	
   

  	
  December 1, 1998

  	
   

  	
  Option Number 311

  

 

FOR VALUE RECEIVED,
Thomas Hood (“Maker”) promises to pay to the order of Southwall Technologies
Inc. (the “Corporation”), at its corporate offices at 1029 Corporation Way,
Palo Alto, CA 94303, the principal sum of Forty Three Thousand Eight Hundred
Seventy-Five and no/100 Dollars ($43,875.00), together with all accrued
interest thereon, upon the terms and conditions specified below.

 

1.             Interest.  Interest
shall accrue on the unpaid balance outstanding from time to time under this
Note at the rate of 7.0% per annum, compounded annually, and shall be payable
annually in arrears.

 

2.             Principal.  The
entire principal balance of this Note, together with all accrued and unpaid
interest, shall become due and payable in one lump sum on December 1,
2002.

 

3.             Payment.  Payment shall be made in lawful tender
of the United States and shall be applied first to the payment of all accrued
and unpaid interest and then to the payment of principal.  Prepayment of the principal balance of this
Note, together with all accrued and unpaid interest, may be made in whole or in
part at any time without penalty.

 

4.             Events of Acceleration. 
The entire unpaid principal balance of this Note, together with all
accrued and unpaid interest, shall become immediately due and payable prior to
the specified due date of this Note upon the occurrence of one or more of the
following events:

 

A.            The failure of the
Maker to pay when due the accrued interest on this Note and the continuation of
such default for more than thirty (30) days; or

 

B.            the expiration of
the thirty (30) day period following the date the Maker ceases for any reason
to remain in the Corporation’s employ; or

 

C.            an acquisition of
the Corporation (whether by merger or acquisition of all or substantially all
of the Corporation’s assets or outstanding voting stock) for consideration
payable in cash or freely-tradable securities; provided, however, that if the
Polling of Interest Method, as described in Accounting Principles Board Opinion
No. 16, is used to account for the acquisition for financial reporting
purposes, acceleration shall not occur prior to the end of the sixty (60) day
period immediately following the end of

 

1

the applicable restriction period required under
Accounting Series Release Numbers 130 and 135; or

 

D.            the insolvency of
the Maker, the commission of any act of bankruptcy by the Maker, the execution
by the Maker of a general assignment for the benefit of creditors, the filing
by or against the Maker of any petition in bankruptcy or any petition for
relief under the provisions of debtors and the continuation of such petition
without dismissal for a period of thirty (30) days or more, the appointment of
a receiver or trustee to take possession of any property or assets of the maker
or the attachment of or execution against any property or assets of the Maker;
or

 

E.             the occurrence of
any event of default under the Stock Pledge Agreement securing this Note or any
obligation secured thereby.

 

5.             Employment.  For
purposes of applying the provisions of this Note, the Maker shall be considered
to remain in the Corporation’s employ for so long as the Maker renders services
as a full-time employee of the Corporation, any successor entity or one or more
of the Corporation’s fifty percent (50%) or more owned (directly or indirectly)
subsidiaries.

 

6.             Security.  The
proceeds of the loan evidenced by this Note shall be applied solely to the
payment of the purchase price of 13,500 Shares of the Corporation’s common
stock and payment of this Note shall be secured by a pledge of those shares
with the Corporation pursuant to the Stock Pledge Agreement to be executed this
date by the Maker.  The Maker, however,
shall remain personally liable for payment of this Note and assets of the
Maker, in addition to the collateral under the Stock Pledge Agreement, may be
applied to the satisfaction of the Maker’s obligation hereunder.

 

7.             Collection.  If action
is instituted to collect this Note, the Maker promises to pay all costs and
expenses (including reasonable attorney fees) incurred in connection with such
action.

 

8.             Waiver.  A waiver
of any term of this Note, The Stock Pledge Agreement or of any of the
obligations secured thereby must be made in writing and signed by a duly
authorized officer of the Corporation and any such waiver shall be limited to
its express terms.  No delay by the
Corporation in acting with respect to the terms of this Note or the stock
Pledge Agreement shall constitute a waiver of any breach, default, or failure
of a condition under this Note, the stock Pledge Agreement or the obligations
secured thereby.

 

The Maker
waives presentment, demand, notice of dishonor, notice of default or
delinquency, notice of acceleration, notice or protest and nonpayment, notice
of costs, expenses or losses and interest thereon, notice of interest on
interest and diligence in taking any action to collect any sums owing under
this Note or in proceeding against any of the rights or interests in or to
properties securing payment of this Note.

 

2

 

SOUTHWALL TECHNOLOGIES INC.

 

STOCK PLEDGE AGREEMENT

 

AGREEMENT, made as
of this 1st day of December, 1998 by and between Southwall
Corporation, Inc., a California corporation (the “Corporation”) and
Thomas Hood (“Pledgor”).

 

RECITALS

 

A.            In
connection with the purchase 13,500 Shares of the Corporation’s Common Stock
(the “Purchased Shares”) on the date of this Agreement from the Corporation,
Pledgor has issued that certain promissory note (the “Note”) dated
December 1, 1998 payable to the order of the Corporation in the principal
amount of Forty Three Thousand Eight Hundred Seventy-Five and 00/100 Dollars
($43,875.00).

 

B.            Such Note is secured by the Purchased
Shares and other collateral upon the terms set forth in this Agreement.

 

NOW, THEREFORE, it
is hereby agreed as follows:

 

1.             Grant of Security Interest.  Pledgor hereby grants the Corporation a security interest in, and
assigns, transfers to and pledges with the Corporation, the following
securities and other property (collectively, the “Collateral”):

 

(i)            the Purchased Shares delivered to
and deposited with the Corporation as collateral for the Note;

 

(ii)           any and all new, additional or
different securities or other property subsequently distributed with respect to
the Purchased Shares which are to be delivered to and deposited with the
Corporation pursuant to the requirements of Paragraph 3 of this Agreement;

 

(iii)          any and all other property and money which
is delivered to or comes into possession of the Corporation pursuant to the
terms of this Agreement; and

 

(iv)          the proceeds of any sale, exchange or
disposition of the property and securities described in subparagraphs (i), (ii)
or (iii) above.

 

2.             Warranties. 
Pledgor hereby warrants that Pledgor is the owner of the Collateral and
has the right to pledge the Collateral and that the Collateral is free from all
liens, adverse claims and other security interests (other than those created
hereby).

 

3.             Duty
to Deliver.  Any new,
additional or different securities or other property (other than regular cash
dividends) which may now or hereafter become distributable with

 

1

 

respect to the Collateral by
reason of (i) any stock split, stock dividend, recapitalization, combination of
shares, exchange of shares or other change affecting the Common Stock as a
class without the Corporation’s receipt of consideration or (ii) any merger,
consolidation or other reorganization affecting the capital structure of the Corporation
shall, upon receipt by Pledgor be promptly delivered to and deposited with the
Corporation as part of the Collateral hereunder.  Any such securities shall be accompanied by one or more properly
endorsed stock power assignments.

 

4.             Payment of Taxes and Other Charges.  Pledgor shall pay, prior to the delinquency
date, all taxes, liens, assessments and other charges against the Collateral,
or all of such taxes and other charges without contesting the validity or
legality thereof.  The payments so made
shall become part of the indebtedness secured hereunder and until paid shall
bear interest at the minimum per annum rate, compounded semi-annually, required
to avoid the imputation of interest income to the Corporation and compensation
income to Pledgor under the Federal tax laws.

 

5.             Shareholder Rights. 
So long as there exists no event of default under Paragraph 10 of this
Agreement, Pledgor may exercise all shareholder voting rights and be entitled
to receive any and all regular cash dividends paid on the Collateral and all
proxy statements and other shareholder materials pertaining to the Collateral.

 

6.             Rights and Powers of Corporation.  The corporation may, without obligation to
do so, exercise at any time and from time to time one or more of the following
rights and powers with respect to any or all of the Collateral:

 

(i)            Subject to the applicable
limitations of Paragraph 9, accept in its discretion other property of pledgor
in exchange for all or part of the Collateral and release Collateral to Pledgor
to the extent necessary to effect such exchange, and in such event the other
property received in the exchange shall become part of the Collateral
hereunder;

 

(ii)           Perform such acts as are necessary to
preserve and protect the Collateral and the rights, powers and remedies granted
with respect to such Collateral by this Agreement;

 

(iii)          Transfer record ownership of the
Collateral to the Corporation or its nominee and receive, endorse and give
receipt for, or collect by legal proceedings or otherwise, dividends or other
distributions made or paid with respect to the Collateral, provided and only
if there exists at the time an outstanding event of default under Paragraph 10
of this Agreement.  Any cash sums which
the Corporation may so receive shall be applied to the payment of the Note and
any other indebtedness secured hereunder, in such order of application as the
Corporation deems appropriate.  Any
remaining cash shall be paid over to Pledgor.

Any action by
the Corporation pursuant to the provisions of this Paragraph 6 may be taken
without notice to Pledgor.  Expenses
reasonable incurred in connection with such action shall be payable by Pledgor
and form part of the indebtedness secured hereunder as provided in

 

2

 

Paragraph 12.

 

7.             Care of Collateral. 
The corporation shall exercise reasonable care in the custody and
preservation of the Collateral. 
However, the Corporation shall have no obligation to (i) initiate any
action with respect to, or otherwise inform Pledgor of, any conversion, call, exchange
right, preemptive right, subscription right, purchase offer or other right or
privilege relating to or affecting the Collateral, (ii) preserve the rights of
Pledgor against adverse claims or protect the Collateral against the
possibility of a decline in market value or (iii) take any action with respect
to the Collateral requested by Pledgor unless the request is made in writing
and the Corporation determines that the requested action will not unreasonable
jeopardize the value of the Collateral as security for the Note and other
indebtedness secured hereunder.

 

Subject to the
limitations of Paragraph 9, the Corporation may at any time release and deliver
all or part of the Collateral to Pledgor, and the receipt thereof by Pledgor
shall constitute a complete and full acquittance for the Collateral so released
and delivered.  The Corporation shall
accordingly be discharged from any further liability or responsibility for the
Collateral, and the released Collateral shall no longer be subject to the provisions
of this Agreement.

 

8.             Transfer of Collateral. 
In connection with the transfer or assignment of the Note (whether by
negotiation, discount or otherwise), the corporation may transfer all or any
part of the Collateral, and the transferee shall thereupon succeed to all the
rights, power and remedies granted the Corporation hereunder with respect to
the Collateral so transferred.  Upon
such transfer, the Corporation shall be fully discharged from all liability and
responsibility for the transferred Collateral.

 

9.             Release of Collateral. 
Provided all indebtedness secured hereunder (other than payments not yet
due and payable under the Note) shall at the time have been paid in full and
there does not otherwise exist any event of default under Paragraph 10, the
Purchased Shares, together with any additional Collateral which may hereafter
be pledged and deposited hereunder, shall be released from pledge and returned
to Pledgor in accordance with the following provisions:

 

(i)            Upon payment or prepayment of principal
under the Note, together with payment of all accrued interest to day, one or
more of the Purchased Shares held as Collateral hereunder shall (subject to the
applicable limitation of Paragraphs 9 (iii) and prepayment.  The number of the shares to be so released
shall be equal to the number obtained by multiplying (i) the total number of
Purchased Shares held under this Agreement at the time of the payment or
prepayment, by (ii) a fraction, the numerator of which shall be the amount of
the principal paid or prepaid and the denominator of which shall be the unpaid
principal balance of the Note immediately prior to such payment or
prepayment.  In no event, however, shall
any fractional shares be released.

 

3

 

(ii)           Any additional Collateral which may hereafter
be pledged and deposited with the corporation (pursuant to the requirements of
Paragraph 3) with respect to the Purchased Shares shall be released at the same
time the particular shares of Common stock to which the additional Collateral
related are to be released in accordance with the applicable provisions of
Paragraph 9(i).

 

(iii)          Under no circumstances, however, shall
any Purchased Shares or any other Collateral be released if previously applied
to the payment of any indebtedness secured hereunder.  In addition, in no event shall any Purchased Shares or other
Collateral be released pursuant to the provisions of Paragraph 9 (i) or 9 (ii)
if, and to the extent, the fair market value of the Common Stock and all other
Collateral which would otherwise remain in pledge hereunder after such release
were effected would be less than the unpaid principal and accrued interest
under the Note.

 

(iv)          For all valuation purposes under this
Agreement, the fair market value per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:

 

(A)          If the common Stock is at the time
traded on the Nasdaq National Market, the fair market value shall be the
closing selling price per share of Common Stock on the date in question, as
such prices are reported by the National Association of Securities Dealers on
its Nasdaq system or any successor system. 
If there is no reported closing selling price for the Common Stock on
the date in question, then the closing selling price on the last preceding date
for which such quotation exists shall be determinative of fair market value.

 

(B)           If the Common stock is at the time
listed on the American Stock Exchange or the New York Stock Exchange, then the
fair market value shall be the closing selling price per share of Common Stock
on the date in question on the securities exchange serving as the primary
market for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange.  If there is not reported sale of Common Stock on such exchange on
the date in question, then the fair market value shall be the closing selling
price on the exchange on the last preceding date for which such quotation
exists.

 

(v)           In the event the Collateral becomes
in whole or in part comprised of “margin securities” with the meaning of 207.2
(e)(1) of Regulation G of the Federal Reserve Board, then no Collateral shall
there after be substituted for any Collateral under the provisions of Paragraph
6(i) or be released under Paragraph 9(i) or (ii), unless there is compliance
with each of the following additional requirements:

 

(A)          The substitution or release must not
increase the amount by which the indebtedness secured hereunder at the time of
such substitution or release exceeds the maximum loan value (as defined below)
of the Collateral immediately prior to such substitution or release.

 

4

 

(B)           The substitution or release must not
cause the amount of indebtedness secured hereunder at the time of such
substitution or release to exceed the maximum loan value of the Collateral
remaining after such substitution or release is effected.

 

(C)           For purposed of this Paragraph 9(v),
the maximum loan value of each item of collateral shall be determined on the
day the substitution or release is to be effected and shall, in the case of the
shares of Common Stock and any additional Collateral (other than margin
securities), equal the good faith loan value thereof (as defined in Section
207.2 (e)(1) of Regulation (G) and shall, in the case of all margin securities
(other than the Common Stock), equal fifty percent (50%) of the current market
value of such securities.

 

10.           Events
of Default.  The
occurrence of one or more of the following events shall constitute an event of
default under this Agreement:

 

(i)            the failure of Pledgor to pay, when
due, under the Note, any installment of principal or accrued interest; or

 

(ii)           the occurrence of any other
acceleration event specified in the Note; or

 

(iii)          the failure of Pledgor to perform any
obligation imposed upon Pledgor by reason of this Agreement; or

 

(iv)          the breach of any warranty or Pledgor
contained in this Agreement.

 

Upon the
occurrence of any such event of default, the Corporation may, at its election,
declare the Note and all other indebtedness secured hereunder to become
immediately due and payable and may exercise any or all of the rights and
remedies grated to a secured party under the provisions of the California
Uniform Commercial Code (as now or hereafter in effect), including (without
limitation) the power to dispose of the Collateral by public or private sale or
to accept the Collateral in full payment of the Note and all other indebtedness
secured hereunder.

 

Any proceeds
realized from the disposition of the Collateral pursuant to the foregoing power
of sale shall be applied first to the payment of expenses incurred by the
Corporation in connection with the disposition, then to the payment of the Note
and finally to any other indebtedness secured hereunder.  Any surplus proceeds shall be paid over to
Pledgor.  However, in the event such
proceeds prove insufficient to satisfy all obligations of Pledgor under the
Note, then Pledgor shall remain personally liable for the resulting deficiency.

 

11.  Other
Remedies.  The rights,
power and remedies granted to the Corporation pursuant to the provisions of
this Agreement shall be in addition to all rights, powers and remedies granted
to the Corporation under any statute or rule of law.  Any forbearance, failure or delay by the corporation in exercising
any right, power or remedy under this Agreement shall not be deemed to be a
waiver of such right, power or remedy. 
Any single or partial exercise of any

 

5

right, power or remedy under this Agreement shall not preclude the
further exercise thereof, and every right, power and remedy of the
Corporation under this Agreement shall continue in full force and effect unless
such right, power or remedy is specifically waived by an instrument executed by
the Corporation.

 

12.  Costs
and Expenses.  All costs
and expenses (including reasonable attorney’s fees) incurred by the Corporation
in the exercise or enforcement of any right, power or remedy granted it under
this Agreement shall become part of the indebtedness secured hereunder and
shall constitute a personal liability of Pledgor payable immediately upon
demand and bearing interest until paid at the minimum per annum rate,
compounded semi-annually, required to avoid the imputation of interest income
to the corporation and compensation income to Pledgor under the federal tax
laws.

 

13.  Applicable
Law.  This Agreement
shall be governed by and construed in accordance with the laws of the State of
California without resort to that State’s conflict-of-laws rules.

 

14.  Successors.  This Agreement shall be binding upon the
corporation and its successors and assigns and upon Pledgor and the executors,
heirs and legatees of Pledgor’s estate.

 

15.  Severability.  If
any provision of this Agreement is held to be invalid under applicable law,
then such provision shall be ineffective only to the extent of such invalidity,
and neither the remainder of such provision nor any other provisions of this
Agreement shall be affected thereby.

 

IN WITNESS WHEREOF, this Agreement has been executed by Pledgor
and the Corporation on the 11th day of March, 2002.

 

 

	
  SOUTHWALL TECHNOLOGIES INC.

  	
  /s/ Thomas
  Hood

  
	
   

  	
  PLEDGOR:  Thomas Hood

  
	
   

  	
   

  
	
  By:

  	
  /s/ [ILLEGIBLE]

  	
   

  	
  address:

  	
   

  	
  15 ALISO WAY

  
	
  Title:

  	
  SVP CFO

  	
   

  	
   

  	
  Portola  Valley 
  CA. 

  
	
  Dated:

  	
  3/11/02

  	
   

  	
   

  	
   

  	
  94028

  
	
   

  	
  Dated:

  	
   

  	
  March 11,
  2002

  
								

 

6

 

SOUTHWALL
TECHNOLOGIES INC.

 

NOTE SECURED BY STOCK PLEDGE AGREEMENT

 

	
  $14,062.50

  	
   

  	
  June 28,
  1999

  	
   

  	
  Option Number 822

  

 

FOR VALUE RECEIVED,  Thomas Hood (“Maker”) promises to pay to the
order of Southwall Technologies Inc. (the “Corporation”), at its corporate offices
at 1029 Corporation Way, Palo Alto, CA 94303, the principal sum of Fourteen
Thousand Sixty-Two and 50/100 Dollars ($ 14,062.50), together with all accrued
interest thereon, upon the terms and conditions specified below.

 

1.             Interest.  Interest shall accrue on the unpaid balance outstanding from time
to time under this Note at the rate of 7.0 % per annum, compounded annually,
and shall be payable annually in arrears.

 

2.             Principal.  The entire principal balance of this Note, together with all
accrued and unpaid interest, shall become due and payable in one lump sum on
June 28, 2002.

 

3.             Payment.  Payment shall be made in lawful tender of the United States and
shall be applied first to the payment of all accrued and unpaid interest and
then to the payment of principal. 
Prepayment of the principal balance of this Note, together with all
accrued and unpaid interest, may be made in whole or in part at any time
without penalty.

 

4.             Events of Acceleration.  The entire unpaid principal balance of this
Note, together with all accrued and unpaid interest, shall become immediately
due and payable prior to the specified due date of this Note upon the
occurrence of one or more of the following events:

 

A.            The failure of the
Maker to pay when due the accrued interest on this Note and the continuation of
such default for more than thirty (30) days; or

 

B.            the expiration of
the thirty (30) day period following the date the Maker ceases for any reason
to remain in the Corporation’s employ; or

 

C.            an acquisition of
the Corporation (whether by merger or acquisition of all or substantially all
of the Corporation’s assets or outstanding voting stock) for consideration
payable in cash or freely-tradable securities; provided, however, that if the
Polling of Interest Method, as described in Accounting Principles Board Opinion
No. 16, is used to account for the acquisition for financial reporting
purposes, acceleration shall not occur prior to the end of the sixty (60) day
period immediately following the end of

 

1

 

the applicable
restriction period required under Accounting Series Release Numbers 130 and
135; or

 

D.            the insolvency of
the Maker, the commission of any act of bankruptcy by the Maker, the execution
by the Maker of a general assignment for the benefit of creditors, the filing
by or against the Maker of any petition in bankruptcy or any petition for
relief under the provisions of debtors and the continuation of such petition
without dismissal for a period of thirty (30) days or more, the appointment of
a receiver or trustee to take possession of any property or assets of the maker
or the attachment of or execution against any property or assets of the Maker;
or

 

E.             the occurrence of
any event of default under the Stock Pledge Agreement securing this Note or any
obligation secured thereby.

 

5.             Employment.  For
purposes of applying the provisions of this Note, the Maker shall be considered
to remain in the Corporation’s employ for so long as the Maker renders services
as a full–time employee of the Corporation, any successor entity or one
or more of the Corporation’s fifty percent (50%) or more owned (directly or
indirectly) subsidiaries.

 

6.             Security.  The proceeds of the loan evidenced by this
Note shall be applied solely to the payment of the purchase price of 5,625
Shares of the Corporation’s common stock and payment of this Note shall be
secured by a pledge of those shares with the Corporation pursuant to the Stock
Pledge Agreement to be executed this date by the Maker.  The Maker, however, shall remain personally
liable for payment of this Note and assets of the Maker, in addition to the
collateral under the Stock Pledge Agreement, may be applied to the satisfaction
of the Maker’s obligation hereunder.

 

7.             Collection.  If
action is instituted to collect this Note, the Maker promises to pay all costs
and expenses (including reasonable attorney fees) incurred in connection with
such action.

 

8.             Waiver.  A waiver
of any term of this Note, The Stock Pledge Agreement or of any of the
obligations secured thereby must be made in writing and signed by a duly
authorized officer of the Corporation and any such waiver shall be limited to
its express terms.  No delay by the
Corporation in acting with respect to the terms of this Note or the stock
Pledge Agreement shall constitute a waiver of any breach, default, or failure
of a condition under this Note, the stock Pledge Agreement or the obligations
secured thereby.

 

The Maker
waives presentment, demand, notice of dishonor, notice of default or
delinquency, notice of acceleration, notice or protest and nonpayment, notice
of costs, expenses or losses and interest thereon, notice of interest on
interest and diligence in taking any action to collect any sums owing under
this Note or in proceeding against any of the rights or interests in or to
properties securing payment of this Note.

 

2

 

9.             Conflicting Agreements. 
In the event of any inconsistencies between the terms of this Note and
the terms of any other document related to the loan evidenced by the Note, the
terms of this Note shall prevail.

 

10.           Governing
Law.  This Note shall be
construed in accordance with the laws of the State of California.

 

	
   

  	
   

  	
  Thomas Hood:

  	
  /s/ Thomas
  Hood

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Date:

  	
  March 11,
  2002

  	
   

  
	
   

  	
   

  	
   

  

 

3

 

SOUTHWALL
TECHNOLOGIES INC.

 

STOCK PLEDGE
AGREEMENT

 

AGREEMENT, made
as of this 28th day of June, 1999 by and between Southwall Corporation, Inc., a
California corporation (the “Corporation”) and Thomas Hood (“Pledgor”).

 

RECITALS

 

A.            In connection with
the purchase of 5,625 Shares of the Corporation’s Common Stock (the “Purchased
Shares”) on the date of this Agreement from the Corporation, Pledgor has issued
that certain promissory note (the “Note”) dated June 28,1999 payable to the
order of the Corporation in the principal amount of Fourteen Thousand Sixty–two
and 50/100 Dollars ($ 14,062.50).

 

B.            Such Note is secured
by the Purchased Shares and other collateral upon the terms set forth in this
Agreement.

 

NOW, THEREFORE, it
is hereby agreed as follows:

 

l.              Grant of Security Interest.  Pledgor hereby grants the Corporation a security interest in, and
assigns, transfers to and pledges with the Corporation, the following
securities and other property (collectively, the “Collateral”):

 

(i)            the Purchased
Shares delivered to and deposited with the Corporation as collateral for the
Note;

 

(ii)           any and all new,
additional or different securities or other property subsequently distributed with
respect to the Purchased Shares which are to be delivered to and deposited with
the Corporation pursuant to the requirements of Paragraph 3 of this Agreement;

 

(iii)          any and all other
property and money which is delivered to or comes into possession of the
Corporation pursuant to the terms of this Agreement; and

 

(iv)          the proceeds of any
sale, exchange or disposition of the property and securities described in
subparagraphs (i), (ii) or (iii) above.

 

2.             Warranties.  Pledgor
hereby warrants that Pledgor is the owner of the Collateral and has the right
to pledge the Collateral and that the Collateral is free from all liens,
adverse claims and other security interests (other than those created hereby).

 

3.             Duty to Deliver.   Any
new, additional or different securities or other property (other than regular
cash dividends) which may now or hereafter become distributable with

 

1

 

respect to the Collateral by
reason of (i) any stock split, stock dividend, recapitalization, combination of
shares, exchange of shares or other change affecting the Common Stock as a
class without the Corporation’s receipt of consideration or (ii) any merger,
consolidation or other reorganization affecting the capital structure of the
Corporation shall, upon receipt by Pledgor be promptly delivered to and
deposited with the Corporation as part of the Collateral hereunder.  Any such securities shall be accompanied by
one or more properly endorsed stock power assignments.

 

4.             Payment of Taxes and Other Charges.  Pledgor
shall pay, prior to the delinquency date, all taxes, liens, assessments and
other charges against the Collateral, or all of such taxes and other charges
without contesting the validity or legality thereof.  The payments so made shall become part of the indebtedness
secured hereunder and until paid shall bear interest at the minimum per annum
rate, compounded semi–annually, required to avoid the imputation of
interest income to the Corporation and compensation income to Pledgor under the
Federal tax laws.

 

5.             Shareholder Rights.   So long as there exists no event of default under Paragraph 10 of
this Agreement, Pledgor may exercise all shareholder voting rights and be
entitled to receive any and all regular cash dividends paid on the Collateral
and all proxy statements and other shareholder materials pertaining to the
Collateral.

 

6.             Rights and Powers of Corporation.  The
corporation may, without obligation to do so, exercise at any time and from
time to time one or more of the following rights and powers with respect to any
or all of the Collateral:

 

(i).           Subject to the
applicable limitations of Paragraph 9, accept in its discretion other property
of pledgor in exchange for all or part of the Collateral and release Collateral
to Pledgor to the extent necessary to effect such exchange, and in such event
the other property received in the exchange shall become part of the Collateral
hereunder;

 

(ii).          Perform such acts
as are necessary to preserve and protect the Collateral and the rights, powers
and remedies granted with respect to such Collateral by this Agreement;

 

(iii).         Transfer record
ownership of the Collateral to the Corporation or its nominee and receive,
endorse and give receipt for, or collect by legal proceedings or otherwise,
dividends or other distributions made or paid with respect to the Collateral, provided
and only if there exists at the time an outstanding event of default under
Paragraph 10 of this Agreement.  Any
cash sums which the Corporation may so receive shall be applied to the payment
of the Note and any other indebtedness secured hereunder, in such order of
application as the Corporation deems appropriate.  Any remaining cash shall be paid over to Pledgor.

 

Any
action by the Corporation pursuant to the provisions of this Paragraph 6 may be
taken without notice to Pledgor. 
Expenses reasonable incurred in connection with such action shall be
payable by Pledgor and form part of the indebtedness secured hereunder as provided
in

 

2

 

Paragraph 12.

 

7.             Care of
Collateral.   The
corporation shall exercise reasonable care in the custody and preservation of
the Collateral.  However, the
Corporation shall have no obligation to (i) initiate any action with respect
to, or otherwise inform Pledgor of, any conversion, call, exchange right,
preemptive right, subscription right, purchase offer or other right or
privilege relating to or affecting the Collateral; (ii) preserve the rights of
Pledgor against adverse claims or protect the Collateral against the
possibility of a decline in market value or (iii) take any action with respect
to the Collateral requested by Pledgor unless the request is made in writing
and the Corporation determines that the requested action will not unreasonable
jeopardize the value of the Collateral as security for the Note and other
indebtedness secured hereunder.

 

Subject to the
limitations of Paragraph 9, the Corporation may at any time release and deliver
all or part of the Collateral to Pledgor, and the receipt thereof by Pledgor
shall constitute a complete and full acquittance for the Collateral so released
and delivered.  The Corporation shall
accordingly be discharged from any further liability or responsibility for the
Collateral, and the released Collateral shall no longer be subject to the
provisions of this Agreement.

 

8.             Transfer of Collateral.   In connection with the transfer or assignment of the Note
(whether by negotiation, discount or otherwise), the corporation may transfer
all or any part of the Collateral, and the transferee shall thereupon succeed
to all the rights, powers and remedies granted the Corporation hereunder with
respect to the Collateral so transferred. 
Upon such transfer, the Corporation shall be fully discharged from all
liability and responsibility for the transferred Collateral.

 

9.             Release of Collateral.  Provided
all indebtedness secured hereunder (other than payments not yet due and payable
under the Note) shall at the time have been paid in full and there does not otherwise
exist any event of default under Paragraph 10, the Purchased Shares, together
with any additional Collateral which may hereafter be pledged and deposited
hereunder, shall be released from pledge and returned to Pledgor in accordance
with the following provisions:

 

(i).           Upon payment or prepayment of
principal under the Note, together with payment of all accrued interest to day,
one or more of the Purchased Shares held as Collateral hereunder shall (subject
to the applicable limitation of Paragraphs 9 (iii) and prepayment.  The number of the shares to be so released
shall be equal to the number obtained by multiplying (i) the total number of
Purchased Shares held under this Agreement at the time of the payment or
prepayment, by (ii) a fraction, the numerator of which shall be the amount of
the principal paid or prepaid and the denominator of which shall be the unpaid
principal balance of the Note immediately prior to such payment or
prepayment.  In no event, however, shall
any fractional shares be released.

 

3

 

(ii).          Any additional Collateral which may
hereafter be pledged and deposited with the corporation (pursuant to the
requirements of Paragraph 3) with respect to the Purchased Shares shall be
released at the same time the particular shares of Common stock to which the
additional Collateral related are to be released in accordance with the
applicable provisions of Paragraph 9 (i).

 

(iii)          Under no circumstances, however, shall
any Purchased Shares or any other Collateral be released if previously applied
to the payment of any indebtedness secured hereunder.  In addition, in no event shall any Purchased Shares or other
Collateral be released pursuant to the provisions of Paragraph 9 (i) or 9 (ii)
if, and to the extent, the fair market value of the Common Stock and all other
Collateral which would otherwise remain in pledge hereunder after such release
were effected would be less than the unpaid principal and accrued interest
under the Note.

 

(iv)          For all valuation purposes under this
Agreement, the fair market value per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:

 

(A)          If the common Stock is at the time
traded on the Nasdaq National Market, the fair market value shall be the
closing selling price per share of Common Stock on the date in question, as
such prices are reported by the National Association of Securities Dealers on
its Nasdaq system or any successor system. 
If there is no reported closing selling price for the Common Stock on
the date in question, then the closing selling price on the last preceding date
for which such quotation exists shall be determinative of fair market value.

 

(B)           If the Common stock is at the time
listed on the American Stock Exchange or the New York Stock Exchange, then the
fair market value shall be the closing selling price per share of Common Stock
on the date in question on the securities exchange serving as the primary
market for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange.  If there is not reported sale of Common Stock on such exchange on
the date in question, then the fair market value shall be the closing selling
price on the exchange on the last preceding date for which such quotation
exists.

 

(v)           In the event the Collateral becomes
in whole or in part comprised of “margin securities” with the meaning of 207.2
(e)(1) of Regulation G of the Federal Reserve Board, then no Collateral shall
there after be substituted for any Collateral under the provisions of Paragraph
6(i) or be released under Paragraph 9(i) or (ii), unless there is compliance
with each of the following additional requirements:

 

(A)          The substitution or release must not
increase the amount by which the indebtedness secured hereunder at the time of
such substitution or release exceeds the maximum loan value (as defined below)
of the Collateral immediately prior to such substitution or release.

 

4

 

(B)           The substitution or release must not
cause the amount of indebtedness secured hereunder at the time of such
substitution or release to exceed the maximum loan value of the Collateral
remaining after such substitution or release is effected.

 

(C)           For purposed of this Paragraph 9(v),
the maximum loan value of each item of collateral shall be determined on the
day the substitution or release is to be effected and shall, in the case of the shares of Common Stock and any
additional Collateral (other than margin securities), equal the good faith loan
value thereof (as defined in Section 207.2 (e)(1) of Regulation (G) and shall,
in the case of all margin securities (other than the Common Stock), equal fifty
percent (50%) of the current market value of such securities.

 

10.           Events of Default.  The
occurrence of one or more of the following events shall constitute an event of
default under this Agreement:

 

(i)            the failure of Pledgor to pay, when
due, under the Note, any installment of principal or accrued interest; or

 

(ii)           the occurrence of any other
acceleration event specified in the Note; or

 

(iii)          the failure of Pledgor to perform any
obligation imposed upon Pledgor by reason of this Agreement; or

 

(iv)          the breach of any warranty or Pledgor
contained in this Agreement.

 

Upon the
occurrence of any such event of default, the Corporation may, at its election,
declare the Note and all other indebtedness secured hereunder to become
immediately due and payable and may exercise any or all of the rights and
remedies grated to a secured party under the provisions of the California
Uniform Commercial Code (as now or hereafter in effect), including (without
limitation) the power to dispose of the Collateral by public or private sale or
to accept the Collateral in full payment of the Note and all other indebtedness
secured hereunder.

 

Any proceeds
realized from the disposition of the Collateral pursuant to the foregoing power
of sale shall be applied first to the payment of expenses incurred by the
Corporation in connection with the disposition, then to the payment of the Note
and finally to any other indebtedness secured hereunder.  Any surplus proceeds shall be paid over to
Pledgor.  However, in the event such
proceeds prove insufficient to satisfy all obligations of Pledgor under the
Note, then Pledgor shall remain personally liable for the resulting deficiency.

 

11.  Other Remedies.  The rights, power and
remedies granted to the Corporation pursuant to the provisions of this
Agreement shall be in addition to all rights, powers and remedies granted to
the Corporation under any statute or
ruleof law.  Any forbearance,
failure or delay by the corporation in exercising any right, power or remedy
under this Agreement shall not be deemed to be a waiver of such right, power or
remedy.  Any single or partial exercise
of any

 

5

 

right, power or remedy under
this Agreement shall not preclude the further exercise thereof, and every
right, power and remedy of the Corporation under this Agreement shall continue
in full force and effect unless such right, power or remedy is specifically
waived by an instrument executed by the Corporation.

 

12.  Costs
and Expenses.  All costs
and expenses (including reasonable attorney’s fees) incurred by the Corporation
in the exercise or enforcement of any right, power or remedy granted it under
this Agreement shall become part of the indebtedness secured hereunder and
shall constitute a personal liability of Pledgor payable immediately upon demand
and bearing interest until paid at the minimum per annum rate, compounded semi–annually,
required to avoid the imputation of interest income to the corporation and
compensation income to Pledgor under the federal tax laws.

 

13.  Applicable Law.   This Agreement shall be governed by and construed in
accordance with the laws of the State of California without resort to that
State’s conflict–of-laws rules.

 

14.  Successors.  This Agreement shall be binding upon the
corporation and its successors and assigns and upon Pledgor and the executors,
heirs and legatees of Pledgor’s estate.

 

15.  Severability.  If any provision of this Agreement is held
to be invalid under applicable law, then such provision shall be ineffective
only to the extent of such invalidity, and neither the remainder of such
provision nor any other provisions of this Agreement shall be affected thereby.

 

IN WITNESS WHEREOF,
this Agreement has been executed by Pledgor and the Corporation on the 11th day
of March, 2002.

 

	
  SOUTHWALL TECHNOLOGIES INC.

  	
   

  	
  /s/ Thomas
  Hood

  	
   

  
	
   

  	
   

  	
  PLEDGOR: 
  Thomas Hood

  
	
   

  	
   

  	
   

  
	
  By:

  	
  Robert
  Freeman

  	
   

  	
   

  	
  address:

  	
  15 ALISO WAY

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:

  	
  SVP

  	
   

  	
   

  	
   

  	
  Portola
  Valley, CA

  	
   

  
	
   

  	
   

  	
   

  
	
  Dated:

  	
  3/11/02

  	
   

  	
   

  	
   

  	
  94028

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Dated:

  	
  March 11,
  2002

  	
   

  

 

6

 

SOUTHWALL TECHNOLOGIES INC.

 

NOTE SECURED BY STOCK PLEDGE AGREEMENT

 

	
  $11,250.00

  	
   

  	
  December 15, 1999

  	
   

  	
  Option Number 894

  	
   

  

 

FOR VALUE RECEIVED, Thomas Hood (“Maker”) promises to pay to the order of
Southwall Technologies Inc. (the “Corporation”), at its corporate offices at
1029 Corporation Way, Palo Alto, CA 94303, the principal sum of Eleven Thousand
Two  Hundred Fifty and 00/100 Dollars ($11,250.00), together with all
accrued interest thereon, upon the terms and conditions specified below.

 

1.           Interest.  Interest shall accrue on the unpaid balance
outstanding from time to time under this Note at the rate of 7.0  % per
annum, compounded annually, and shall be payable annually in arrears.

 

2.            Principal.  The entire principal
balance of this Note, together with all accrued and unpaid interest, shall
become due and payable in one lump sum on December 15, 2002.

 

3.             Payment.  Payment shall be made in lawful tender of
the United States and shall be applied first to the payment of all accrued and
unpaid interest and then to the payment of principal.  Prepayment of the principal balance of this Note, together with
all accrued and unpaid interest, may be made in whole or in part at any time
without penalty.

 

4.             Events of
Acceleration.  The entire
unpaid principal balance of this Note, together with all accrued and unpaid
interest, shall become immediately due and payable prior to the specified due
date of this Note upon the occurrence of one or more of the following events:

 

A.           The failure of the Maker to pay when
due the accrued interest on this Note and the continuation of such default for
more than thirty (30) days; or

 

B.            the expiration of the thirty (30)
day period following the date the Maker ceases for any reason to remain in the
Corporation’s employ; or

 

C.            an acquisition of the Corporation
(whether by merger or acquisition of all or substantially all of the
Corporation’s assets or outstanding voting stock) for consideration payable in
cash or freely–tradable securities; provided, however, that if the
Polling of Interest Method, as described in Accounting Principles Board Opinion
No. 16, is used to account for the acquisition for financial reporting
purposes, acceleration shall not occur prior to the end of the sixty (60) day
period immediately following the end of

 

1

 

the applicable
restriction period required under Accounting Series Release Numbers 130 and
135; or

 

D.           the insolvency of the Maker, the
commission of any act of bankruptcy by the Maker, the execution by the Maker of
a general assignment for the benefit of creditors, the filing by or against the
Maker of any petition in bankruptcy or any petition for relief under the
provisions of debtors and the continuation of such petition without dismissal
for a period of thirty (30) days or more, the appointment of a receiver or
trustee to take possession of any property or assets of the maker or the
attachment of or execution against any property or assets of the Maker; or

 

E.            the occurrence of any event of
default under the Stock Pledge Agreement securing this Note or any obligation
secured thereby.

 

5.           Employment.  For purposes of applying
the provisions of this Note, the Maker shall be considered to remain in the
Corporation’s employ for so long as the Maker renders services as a full–time
employee of the Corporation, any successor entity or one or more of the
Corporation’s fifty percent (50%) or more owned (directly or indirectly)
subsidiaries.

 

6.           Security.  The proceeds of the loan
evidenced by this Note shall be applied solely to the payment of the purchase
price of 4,500 Shares of the Corporation’s common stock and payment of this
Note shall be secured by a pledge of those shares with the Corporation pursuant
to the Stock Pledge Agreement to be executed this date by the Maker.  The Maker, however, shall remain personally
liable for payment of this Note and assets of the Maker, in addition to the
collateral under the Stock Pledge Agreement, may be applied to the satisfaction
of the Maker’s obligation hereunder.

 

7.            Collection.  If action is instituted
to collect this Note, the Maker promises to pay all costs and expenses
(including reasonable attorney fees) incurred in connection with such action.

 

8.            Waiver.  A waiver of any term of
this Note, The Stock Pledge Agreement or of any of the obligations secured
thereby must be made in writing and signed by a duly authorized officer of the
Corporation and any such waiver shall be limited to its express terms.  No delay by the Corporation in acting with
respect to the terms of this Note or the stock Pledge Agreement shall
constitute a waiver of any breach, default, or failure of a condition under
this Note, the stock Pledge Agreement or the obligations secured thereby.

 

The
Maker waives presentment, demand, notice of dishonor, notice of default or
delinquency, notice of acceleration, notice or protest and nonpayment, notice
of costs, expenses or losses and interest thereon, notice of interest on
interest and diligence in taking any action to collect any sums owing under
this Note or in proceeding against any of the rights or interests in or to
properties securing payment of this Note.

 

2

 

9.            Conflicting Agreements.   In the event of any inconsistencies between
the terms of this Note and the terms of any other document related to the loan
evidenced by the Note, the terms of this Note shall prevail.

 

10.          Governing
Law.  This Note shall be
construed in accordance with the laws of the State of California.

 

	
   

  	
  Thomas Hood:

  	
  /s/ Thomas Hood

  	
   

  
	
   

  	
   

  
	
   

  	
  Date:

  	
  March 11, 2002

  	
   

  

 

3

 

SOUTHWALL
TECHNOLOGIES INC.

 

STOCK PLEDGE AGREEMENT

 

AGREEMENT, made as of this 15th  day of December, 1999 by and
between Southwall Corporation, Inc., a California corporation (the
“Corporation”) and Thomas Hood 
(“Pledgor”).

 

RECITALS

 

A.          In connection with the purchase of 4,500 Shares of the
Corporation’s Common Stock (the “Purchased Shares”) on the date of this
Agreement from the Corporation, Pledgor has issued that certain promissory note
(the “Note”) dated December 15, 1999 payable to the order of the Corporation in
the principal amount of Eleven Thousand Two Hundred Fifty and 00/100 Dollars ($
11,250.00).

 

B.           Such Note is secured by the Purchased
Shares and other collateral upon the terms set forth in this Agreement.

 

NOW,
THEREFORE, it is
hereby agreed as follows:

 

1.           Grant of Security
Interest. Pledgor hereby grants the Corporation a security
interest in, and assigns, transfers to and pledges with the Corporation, the following
securities and other property (collectively, the “Collateral”):

 

(i)            the
Purchased Shares delivered to and deposited with the Corporation as collateral
for the Note;

 

(ii)           any
and all new, additional or different securities or other property subsequently
distributed with respect to the Purchased Shares which are to be delivered to
and deposited with the Corporation pursuant to the requirements of Paragraph 3
of this Agreement;

 

(iii)          any
and all other property and money which is delivered to or comes into possession
of the Corporation pursuant to the terms of this Agreement; and

 

(iv)          the
proceeds of any sale, exchange or disposition of the property and securities
described in subparagraphs (i), (ii) or (iii) above.

 

2.             Warranties  Pledgor hereby warrants that Pledgor is the owner of the Collateral and
has the right to pledge the Collateral and that the Collateral is free from all
liens, adverse claims and other security interests (other than those created
hereby).

 

3.             Duty to
Deliver.   Any new, additional or different securities or
other property (other than regular cash dividends) which may now or hereafter
become distributable with

 

1

 

respect to the Collateral by reason of (i) any stock split, stock
dividend, recapitalization, combination of shares, exchange of shares or other
change affecting the Common Stock as a class without the Corporation’s receipt
of consideration or (ii) any merger, consolidation or other reorganization
affecting the capital structure of the Corporation shall, upon receipt by
Pledgor be promptly delivered to and deposited with the Corporation as part of
the Collateral hereunder.  Any such
securities shall be accompanied by one or more properly endorsed stock power
assignments.

 

4.             Payment
of Taxes and Other Charges.  Pledgor shall pay, prior to the delinquency date,
all taxes, liens, assessments and other charges against the Collateral, or all
of such taxes and other charges without contesting the validity or legality
thereof.  The payments so made shall
become part of the indebtedness secured hereunder and until paid shall bear
interest at the minimum per annum rate, compounded semi-annually, required to
avoid the imputation of interest income to the Corporation and compensation
income to Pledgor under the Federal tax laws.

 

5.             Shareholder
Rights.  So  long
as there exists no event of default under Paragraph 10 of this Agreement,
Pledgor may exercise all
shareholder voting rights and be entitled to receive any and all regular cash
dividends paid on the Collateral and all proxy statements and other shareholder
materials pertaining to the Collateral.

 

6.             Rights
and Powers of Corporation.  The
corporation may, without obligation to do so, exercise at any time and from
time to time one or more of the following rights and powers with respect to any
or all of the Collateral:

 

(i).            Subject
to the applicable limitations of Paragraph 9, accept in its discretion other
property of pledgor in exchange for all or part of the Collateral and release
Collateral to Pledgor to the extent necessary to effect such exchange, and in
such event the other property received in the exchange shall become part of the
Collateral hereunder;

 

(ii).           Perform such acts as are necessary to preserve and protect
the Collateral and the rights, powers and remedies granted with respect to such
Collateral by this Agreement;

 

(iii).          Transfer
record ownership of the Collateral to the Corporation or its nominee and
receive, endorse and give receipt for, or collect by legal proceedings or
otherwise, dividends or other distributions made or paid with respect to the
Collateral, provided and only if there exists at the time an outstanding event
of default under Paragraph 10 of this Agreement.  Any cash sums which the Corporation may so receive shall be
applied to the payment of the Note and any other indebtedness secured
hereunder, in such order of application as the Corporation deems
appropriate.  Any remaining cash shall
be paid over to Pledgor.

 

Any action by the Corporation pursuant to the
provisions of this Paragraph 6 may be taken without notice to Pledgor.  Expenses reasonable incurred in connection
with such action shall be payable by Pledgor and form part of the indebtedness
secured hereunder as provided in

 

2

 

Paragraph 12.

 

7.              Care
of Collateral.  The corporation shall exercise
reasonable care in the custody and preservation of the Collateral.  However, the Corporation shall have no
obligation to (i) initiate any action with respect to, or otherwise inform
Pledgor of, any conversion, call, exchange right, preemptive right,
subscription right, purchase offer or other right or privilege relating to or
affecting the Collateral, (ii) preserve the rights of Pledgor against adverse
claims or protect the Collateral against the possibility of a decline in market
value or (iii) take any action with respect to the Collateral requested by
Pledgor unless the request is made in writing and the Corporation determines
that the requested action will not unreasonable jeopardize the value of the
Collateral as security for the Note and other indebtedness secured hereunder.

 

Subject to the limitations of Paragraph 9, the Corporation may at any
time release and deliver all or part of the Collateral to Pledgor, and the
receipt thereof by Pledgor shall constitute a complete and full acquittance for
the Collateral so released and delivered. 
The Corporation shall accordingly be discharged from any further liability
or responsibility for the Collateral, and the released Collateral shall no
longer be subject to the provisions of this Agreement.

 

8              Transfer
of Collateral.  In connection with the transfer or
assignment of the Note (whether by negotiation, discount or otherwise), the
corporation may transfer all or any part of the Collateral, and the transferee
shall thereupon succeed to all the rights, powers and remedies granted the
Corporation hereunder with respect to the Collateral so transferred.  ‘Upon such transfer, the Corporation shall
be fully discharged from all liability and responsibility for the transferred
Collateral.

 

9              Release
of Collateral.  Provided all indebtedness secured
hereunder (other than payments not yet due and payable under the Note) shall at
the time have been paid in full and there does not otherwise exist any event of
default under Paragraph 10, the Purchased Shares, together with any additional
Collateral which may hereafter be pledged and deposited hereunder, shall be
released from pledge and returned to Pledgor in accordance with the following
provisions:

 

(i).            Upon
payment or prepayment of principal under the Note, together with payment of all
accrued interest to day, one or more of the Purchased Shares held as Collateral
hereunder shall (subject to the applicable limitation of Paragraphs 9 (iii) and
prepayment.  The number of the shares to
be so released shall be equal to the number obtained by multiplying (i) the
total number of Purchased Shares held under this Agreement at the time of the
payment or prepayment, by (ii) a fraction, the numerator of which shall be the
amount of the principal paid or prepaid and the denominator of which shall be
the unpaid principal balance of the Note immediately prior to such payment or
prepayment.  In no event, however, shall
any fractional shares be released.

 

3

 

(ii).           Any
additional Collateral which may hereafter be pledged and deposited with the
corporation (pursuant to the requirements of Paragraph 3) with respect to the
Purchased Shares shall be released at the same time the particular shares of
Common stock to which the additional Collateral related are to be released in
accordance with the applicable provisions of Paragraph 9 (i).

(iii)           Under
no circumstances, however, shall any Purchased Shares or any other Collateral
be released if previously applied to the payment of any indebtedness secured
hereunder.  In addition, in no event
shall any Purchased Shares or other Collateral be released pursuant to the
provisions of Paragraph 9 (i) or 9 (ii) if, and to the extent, the fair market
value of the Common Stock and all other Collateral which would otherwise remain
in pledge hereunder after such release were effected would be less than the
unpaid principal and accrued interest under the Note.

 

(iv)           For
all valuation purposes under this Agreement, the fair market value per share of
Common Stock on any relevant date shall be determined in accordance with the
following provisions:

 

(A)          If
the common Stock is at the time traded on the Nasdaq National Market, the fair
market value shall be the closing selling price per share of Common Stock on
the date in question, as such prices are reported by the National Association
of Securities Dealers on its Nasdaq system or any successor system.  If there is no reported closing selling
price for the Common Stock on the date in question, then the closing selling
price on the last preceding date for which such quotation exists shall be
determinative of fair market value.

 

(B)           If
the Common stock is at the time listed on the American Stock Exchange or the
New York Stock Exchange, then the fair market value shall be the closing
selling price per share of Common Stock on the date in question on the
securities exchange serving as the primary market for the Common Stock, as such
price is officially quoted in the composite tape of transactions on such
exchange.  If there is not reported sale
of Common Stock on such exchange on the date in question, then the fair market
value shall be the closing selling price on the exchange on the last preceding
date for which such quotation exists.

 

(v)            In
the event the Collateral becomes in whole or in part comprised of “margin
securities” with the meaning of 207.2 (e)(1) of Regulation G of the Federal
Reserve Board, then no Collateral shall there after be substituted for any
Collateral under the provisions of Paragraph 6(i) or be released under
Paragraph 9(i) or (ii), unless there is compliance with each of the following
additional requirements:

 

(A)          The
substitution or release must not increase the amount by which the indebtedness
secured hereunder at the time of such substitution or release exceeds the
maximum loan value (as defined below) of the Collateral immediately prior to
such substitution or release.

 

4

 

(B)           The
substitution or release must not cause the amount of indebtedness secured
hereunder at the time of such substitution or release to exceed the maximum
loan value of the Collateral remaining after such substitution or release is
effected.

(C)           For
purposed of this Paragraph 9(v), the maximum loan value of each item of
collateral shall be determined on the day the substitution or release is to be
effected and shall, in the case of the shares of Common Stock and any
additional Collateral (other than margin securities), equal the good faith loan
value thereof (as defined in Section 207.2 (e)(l) of Regulation (G) and shall,
in the case of all margin securities (other than the Common Stock), equal fifty
percent (50%) of the current market value of such securities.

 

10.           Events of
Default.  The occurrence of one or more of the
following events shall constitute an event of default under this Agreement:

 

(i)            the failure of Pledgor to pay, when due, under the Note,
any installment of principal or accrued interest; or

 

(ii)           the
occurrence of any other acceleration event specified in the Note; or

 

(iii)          the failure of Pledgor to perform any obligation imposed
upon Pledgor by reason of this Agreement; or

 

(iv)          the
breach of any warranty or Pledgor contained in this Agreement.

 

Upon the occurrence of any such event of default, the Corporation may,
at its election, declare the Note and all other indebtedness secured hereunder
to become immediately due and payable and may exercise any or all of the rights
and remedies grated to a secured party under the provisions of the California
Uniform Commercial Code (as now or hereafter in effect), including (without
limitation) the power to dispose of the Collateral by public or private sale or
to accept the Collateral in full payment of the Note and all other indebtedness
secured hereunder.

 

Any proceeds realized from the disposition of the Collateral pursuant
to the foregoing power of sale shall be applied first to the payment of
expenses incurred by the Corporation in connection with the disposition, then
to the payment of the Note and finally to any other indebtedness secured
hereunder.  Any surplus proceeds shall
be paid over to Pledgor.  However, in
the event such proceeds prove insufficient to satisfy all obligations of
Pledgor under the Note, then Pledgor shall remain personally liable for the
resulting deficiency.

 

11.  Other Remedies.  The
rights, power and remedies granted to the Corporation pursuant to the
provisions of this Agreement shall be in addition to all rights, powers and
remedies granted to the Corporation under any statute or rule of law.  Any forbearance, failure or delay by the
corporation in exercising any right, power or remedy under this Agreement shall
not be deemed to be a waiver of such right, power or remedy.  Any single or partial exercise of any

 

5

 

right,
power or remedy under this Agreement shall not preclude the further exercise
thereof, and every right, power and remedy of the Corporation under this
Agreement shall continue in full force and effect unless such right, power or
remedy is specifically waived by an instrument executed by the Corporation.

 

12.  Costs and
Expenses.  All costs and
expenses (including reasonable attorney’s fees) incurred by the Corporation in
the exercise or enforcement of any right, power or remedy granted it under this
Agreement shall become part of the indebtedness secured hereunder and shall
constitute a personal liability of Pledgor payable immediately upon demand and
bearing interest until paid at the minimum per annum rate, compounded
semi-annually, required to avoid the imputation of interest income to the
corporation and compensation income to Pledgor under the federal tax laws.

 

13.  Applicable
Law.  This Agreement shall be governed by
and construed in accordance with the laws of the State of California without
resort to that State’s conflict-of-laws rules.

 

14.  Successors.  This
Agreement shall be binding upon the corporation and its successors and assigns
and upon Pledgor and the executors, heirs and legatees of Pledgor’s estate.

 

15.  Severability.  If
any provision of this Agreement is held to be invalid under applicable law,
then such provision shall be ineffective only to the extent of such invalidity,
and neither the remainder of such provision nor any other provisions of this
Agreement shall be affected thereby.

 

IN
WITNESS WHEREOF,
this Agreement has been executed by Pledgor and the Corporation on the 11th day
of March, 2002.

 

	
  SOUTHWALL
  TECHNOLOGIES INC.

  	
  /s/ Thomas Hood

  	
   

  
	
   

  	
  PLEDGOR: Thomas Hood

  
	
   

  	
   

  
	
  By:

  	
  /s/ Robert Freeman

  	
   

  	
  address:

  	
  15 ALISO WAY

  	
   

  
	
   

  	
   

  
	
  Title:

  	
  SVP

  	
   

  	
   

  	
  Portola Valley, CA.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  94028

  	
   

  
	
  Dated:

  	
  3/11/02

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Dated:

  	
  March 11, 2002

  	
   

  
							

 

6

 

SOUTHWALL TECHNOLOGIES INC.

 

NOTE SECURED BY STOCK PLEDGE AGREEMENT

 

	
  $ 18,750.00

  	
  February 13, 2001

  	
  Option Number 977

  

 

FOR VALUE RECEIVED,
Thomas Hood (“Maker”) promises to pay to the order of Southwall Technologies
Inc, (the “Corporation”), at its corporate offices at 1029 Corporation Way,
Palo Alto, CA 94303, the principal sum of Eighteen Thousand Seven Hundred Fifty
and no/100 Dollars ($18,750.00), together with all accrued interest thereon,
upon the terms and conditions specified below.

 

1.             Interest.  Interest
shall accrue on the unpaid balance outstanding from time to time under this
Note at the rate of 7.0 % per annum, compounded annually, and shall be
payable annually in arrears.

 

2.             Principal.  The
entire principal balance of this Note, together with all accrued and unpaid
interest, shall become due and payable in one lump sum on February 13, 2003.

 

3.             Payment.  Payment
shall be made in lawful tender of the United States and shall be applied first
to the payment of all accrued and unpaid interest and then to the payment of
principal.  Prepayment of the principal
balance of this Note, together with all accrued and unpaid interest, may be
made in whole or in part at any time without penalty.

 

4.             Events of Acceleration. 
The entire unpaid principal balance of this Note, together with all
accrued and unpaid interest, shall become immediately due and payable prior to
the specified due date of this Note upon the occurrence of one or more of the
following events:

 

A.            The failure of the
Maker to pay when due the accrued interest on this Note and the continuation of
such default for more than thirty (30) days; or

 

B.            the expiration of
the thirty (30) day period following the date the Maker ceases for any reason
to remain in the Corporation’s employ; or

 

C.            an acquisition of
the Corporation (whether by merger or acquisition of all or substantially all
of the Corporation’s assets or outstanding voting stock) for consideration
payable in cash or freely–tradable securities; provided, however, that if
the Polling of Interest Method, as described in Accounting Principles Board
Opinion No. 16, is used to account for the acquisition for financial reporting
purposes, acceleration shall not occur prior to the end of the sixty (60) day
period immediately following the end of

 

1

 

the applicable
restriction period required under Accounting Series Release Numbers 130 and
135; or

 

D.            the insolvency of
the Maker, the commission of any act of bankruptcy by the Maker, the execution
by the Maker of a general assignment for the benefit of creditors, the filing
by or against the Maker of any petition in bankruptcy or any petition for
relief under the provisions of debtors and the continuation of such petition
without dismissal for a period of thirty (30) days or more, the appointment of
a receiver or trustee to take possession of any property or assets of the maker
or the attachment of or execution against, any property or assets of the Maker;
or

 

E.             the occurrence of
any event of default under the Stock Pledge Agreement securing this Note or any
obligation secured thereby.

 

5.             Employment.  For
purposes of applying the provisions of this Note, the Maker shall be considered
to remain in the Corporation’s employ for so long as the Maker renders services
as a full–time employee of the Corporation, any successor entity or one
or more of the Corporation’s fifty percent (50%) or more owned (directly or
indirectly) subsidiaries.

 

6.             Security.  The
proceeds of the loan evidenced by this Note shall be applied solely to the
payment of the purchase price of 7,500 Shares of the Corporation’s common stock
and payment of this Note shall be secured by a pledge of those shares with the
Corporation pursuant to the Stock Pledge Agreement to be executed this date by
the Maker.  The Maker, however, shall
remain personally liable for payment of this Note and assets of the Maker, in
addition to the collateral under the Stock Pledge Agreement, may be applied to
the satisfaction of the Maker’s obligation hereunder

 

7.             Collection.  If
action is instituted to collect this Note, the Maker promises to pay all costs
and expenses (including reasonable attorney fees) incurred in connection with
such action.

 

8.             Waiver.  A waiver
of any term of this Note, The Stock Pledge Agreement or of any of the
obligations secured thereby must be made in writing and signed by a duly
authorized officer of the Corporation and any such waiver shall be limited to
its express terms.  No delay by the
Corporation in acting with respect to the terms of this Note or the stock
Pledge Agreement shall constitute a waiver of any breach, default, or failure
of a condition under this Note, the stock Pledge Agreement or the obligations
secured thereby.

 

The Maker
waives presentment, demand, notice of dishonor, notice of default or
delinquency, notice of acceleration, notice or protest and nonpayment, notice
of costs, expenses or losses and interest thereon, notice of interest on
interest and diligence in taking any action to collect any sums owing under
this Note or in proceeding against any of the rights or interests in or to
properties securing payment of this Note.

 

2

 

9.             Conflicting Agreements. 
In the event of any inconsistencies between the terms of this Note and
the terms of any other document related to the loan evidenced by the Note, the
terms of this Note shall prevail.

 

10.           Governing
Law.   This Note shall be
construed in accordance with the laws of the State of California.

 

	
  Thomas Hood:

  	
   

  	
  /s/ Thomas
  Hood

  	
   

  
	
   

  	
   

  
	
  Date:

  	
   

  	
  March 11,
  2002

  	
   

  

 

3

 

SOUTHWALL TECHNOLOGIES INC.

 

STOCK PLEDGE AGREEMENT

 

AGREEMENT, made as
of this 13th day of February, 2001
by and between Southwall Corporation. Inc., a California corporation (the
“Corporation”) and Thomas Hood (“Pledgor”)

 

RECITALS

 

A.            In connection with the purchase
of  7,500 Shares of the Corporation’s
Common Stock (the “Purchased Shares”) on the date of this Agreement from the
Corporation, Pledgor has issued that certain promissory note (the “Note”) dated
February l3 , 2001 payable to the order of the Corporation in the principal
amount of Eighteen Thousand Seven Hundred Fifty and 00/100 Dollars ($ 18,
750,00).

 

B.            Such Note is secured by the
Purchased Shares and other collateral upon the terms set forth in this
Agreement.

 

NOW, THEREFORE, it
is hereby agreed as follows:

 

1.             Grant of Security Interest.  Pledgor hereby grants the Corporation a security interest in, and
assigns, transfers to and pledges with the Corporation, the following
securities and other property (collectively, the “Collateral”):

 

(i)            the Purchased
Shares delivered to and deposited with the Corporation as collateral for the
Note;

 

(ii)           any and all new, additional or
different securities or other property subsequently distributed with respect to
the Purchased Shares which are to be delivered to and deposited with the
Corporation pursuant to the requirements of Paragraph 3 of this Agreement;

 

(iii)          any and all other property and money
which is delivered to or comes into possession of the Corporation pursuant to
the terms of this Agreement; and

 

(iv)          the proceeds of any sale, exchange or
disposition of the property and securities described in subparagraphs (i), (ii)
or (iii) above.

 

2.             Warranties.  Pledgor hereby warrants that Pledgor is the owner of the
Collateral and has the right to pledge the Collateral and that the Collateral
is free from all liens, adverse  claims and
other security interests (other than those created hereby).

 

3.             Duty to Deliver. 
Any new, additional or different securities or other property (other
than regular cash dividends) which may now or hereafter become distributable
with

 

1

 

respect to the Collateral by
reason of (i) any stock split, stock dividend, recapitalization, combination of
shares, exchange of shares or other change affecting the Common Stock as a
class without the Corporation’s receipt of consideration or (ii) any merger,
consolidation or other reorganization affecting the capital structure of the
Corporation shall, upon receipt by Pledgor be promptly delivered to and
deposited with the Corporation as part of the Collateral hereunder.  Any such securities shall be accompanied by
one or more properly endorsed stock power assignments.

 

4.             Payment of Taxes and Other Charges.  Pledgor shall pay, prior to the delinquency
date, all taxes, liens, assessments and other charges against the Collateral,
or all of such taxes and other charges without contesting the validity or
legality thereof.  The payments so made
shall become part of the indebtedness secured hereunder and until paid shall
bear interest at the minimum per annum rate, compounded semi–annually,
required to avoid the imputation of interest income to the Corporation and
compensation income to Pledgor under the Federal tax laws.

 

5.             Shareholder Rights. 
So long as there exists no event of default under Paragraph 10 of this
Agreement, Pledgor may exercise all shareholder voting rights and be entitled
to receive any and all regular cash dividends paid on the Collateral and all
proxy statements and other shareholder materials pertaining to the Collateral.

 

6.             Rights and Powers of Corporation.  The corporation may, without obligation to
do so, exercise at any time and from time to time one or more of the following
rights and powers with respect to any or all of the Collateral:

 

(i).           Subject to the applicable limitations
of Paragraph 9, accept in its discretion other property of pledgor in exchange
for all or part of the Collateral and release Collateral to Pledgor to the
extent necessary to effect such exchange, and in such event the other property
received in the exchange shall become part of the Collateral hereunder;

 

(ii).          Perform such acts as are necessary to
preserve and protect the Collateral and the rights, powers and remedies granted
with respect to such Collateral by this Agreement;

 

(iii).         Transfer record ownership of the
Collateral to the Corporation or its nominee and receive, endorse and give
receipt for, or collect by legal proceedings or otherwise, dividends or other
distributions made or paid with respect to the Collateral, provided and only if
there exists at the time an outstanding event of default under Paragraph 10 of
this Agreement.  Any cash sums which the
Corporation may so receive shall be applied to the payment of the Note and any
other indebtedness secured hereunder, in such order of application as the
Corporation deems appropriate.  Any
remaining cash shall be paid over to Pledgor.

 

Any action by
the Corporation pursuant to the provisions of this Paragraph 6 may be taken
without notice to Pledgor.  Expenses
reasonable incurred in connection with such action shall be payable by Pledgor
and form part of the indebtedness secured hereunder as provided in

 

2

 

Paragraph 12.

 

7.             Care of Collateral. 
The corporation shall exercise reasonable care in the custody and
preservation of the Collateral. 
However, the Corporation shall have no obligation to (i) initiate any
action with respect to, or otherwise inform Pledgor of, any conversion, call,
exchange right, preemptive right, subscription right, purchase offer or other
right or privilege relating to or affecting the Collateral, (ii) preserve the
rights of Pledgor against adverse claims or protect the Collateral against the
possibility of a decline in market value or (iii) take any action with respect
to the Collateral requested by Pledgor unless the request is made in writing
and the Corporation determines that the requested action will not unreasonable
jeopardize the value of the Collateral as security for the Note and other
indebtedness secured hereunder.

 

Subject to the
limitations of Paragraph 9, the Corporation may at any time release and deliver
all or part of the Collateral to Pledgor, and the receipt thereof by Pledgor
shall constitute a complete and full acquittance for the Collateral so released
and delivered.  The Corporation shall
accordingly be discharged from any further liability or responsibility for the
Collateral, and the released Collateral shall no longer be subject to the
provisions of this Agreement.

 

8.             Transfer of Collateral. 
In connection with the transfer or assignment of the Note (whether by
negotiation, discount or otherwise), the corporation may transfer all or any
part of the Collateral, and the transferee shall thereupon succeed to all the
rights, powers and remedies granted the Corporation hereunder with respect to
the Collateral so transferred.  Upon
such transfer, the Corporation shall be fully discharged from all liability and
responsibility for the transferred Collateral.

 

9.             Release of Collateral. 
Provided all indebtedness secured hereunder (other than payments not yet
due and payable under the Note) shall at the time have been paid in full and
there does not otherwise exist any event of default under Paragraph 10, the
Purchased Shares, together with any additional Collateral which may hereafter
be pledged and deposited hereunder, shall be released from pledge and returned
to Pledgor in accordance with the following provisions:

 

(i)            Upon payment or prepayment of
principal under the Note, together with payment of all accrued interest to day,
one or more of the Purchased Shares held as Collateral hereunder shall (subject
to the applicable limitation of Paragraphs 9 (iii) and prepayment.  The number of the shares to be so released
shall be equal to the number obtained by multiplying (i) the total number of
Purchased Shares held under this Agreement at the time of the payment or prepayment,
by (ii) a fraction, the numerator of which shall be the amount of the principal
paid or prepaid and the denominator of which shall be the unpaid principal
balance of the Note immediately prior to such payment or prepayment.  In no event, however, shall any fractional
shares be released.

 

3

 

(ii)           Any additional Collateral which may
hereafter be pledged and deposited with the corporation (pursuant to the
requirements of Paragraph 3) with respect to the Purchased Shares shall be
released at the same time the particular shares of Common stock to which the
additional Collateral related are to be released in accordance with the
applicable provisions of Paragraph 9 (i).

 

(iii)          Under no circumstances, however, shall
any Purchased Shares or any other Collateral be released if previously applied
to the payment of any indebtedness secured hereunder.   In addition, in no event shall any Purchased Shares or other
Collateral be released pursuant to the provisions of Paragraph 9(i) or 9 (ii)
if, and to the extent, the fair market value of the Common Stock and all other
Collateral which would otherwise remain in pledge hereunder after such release
were effected would be less than the unpaid principal and accrued interest
under the Note.

 

(iv)          For all valuation purposes under this
Agreement, the fair market value per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:

 

(A)          If the common Stock
is at the time traded on the Nasdaq National Market, the fair market value
shall be the closing selling price per share of Common Stock on the date in
question, as such prices are reported by the National Association of Securities
Dealers on its Nasdaq system or any successor system.  If there is no reported closing selling price for the Common
Stock on the date in question, then the closing selling price on the last
preceding date for which such quotation exists shall be determinative of fair
market value.

 

(B)           If the Common stock
is at the time listed on the American Stock Exchange or the New York Stock
Exchange, then the fair market value shall be the closing selling price per
share of Common Stock on the date in question on the securities exchange
serving as the primary market for the Common Stock, as such price is officially
quoted in the composite tape of transactions on such exchange.  If there is not reported sale of Common
Stock on such exchange on the date in question, then the fair market value
shall be the closing selling price on the exchange on the last preceding date
for which such quotation exists.

 

(v)           In the event the Collateral becomes
in whole or in part comprised of “margin securities” with the meaning of 207.2
(e)(1) of Regulation G of the Federal Reserve Board, then no Collateral shall
there after be substituted for any Collateral under the provisions of Paragraph
6(i) or be released under Paragraph 9(i) or (ii), unless there is compliance
with each of the following additional requirements:

 

(A)          The substitution or release must not
increase the amount by which the indebtedness secured hereunder at the time of
such substitution or release exceeds the maximum loan value (as defined below)
of the Collateral immediately prior to such substitution or release.

 

4

 

(B)           The
substitution or release must not cause the amount of indebtedness secured
hereunder at the time of such substitution or release to exceed the maximum
loan value of the Collateral remaining after such substitution or release is
effected.

 

(C)           For purposed of this Paragraph 9(v),
the maximum loan value of each item of collateral shall be determined on the
day the substitution or release is to be effected and shall, in the case of the
shares of Common Stock and any additional Collateral (other than margin
securities), equal the good faith loan value thereof (as defined in Section
207.2 (e)(1) of Regulation (G) and shall, in the case of all margin securities
(other than the Common Stock), equal fifty percent (50%) of the current market
value of such securities.

 

10.           Events
of Default.  The
occurrence of one or more of the following events shall constitute an event of
default under this Agreement:

 

(i)            the failure of
Pledgor to pay, when due, under the Note, any installment of principal or
accrued interest; or

 

(ii)           the occurrence of any other
acceleration event specified in the Note; or

 

(iii)          the failure of Pledgor to perform any
obligation imposed upon Pledgor by reason of this Agreement; or

 

(iv)          the breach of any warranty or Pledgor
contained in this Agreement.

 

Upon the
occurrence of any such event of default, the Corporation may, at its election,
declare the Note and all other indebtedness secured hereunder to become
immediately due and payable and may exercise any or all of the rights and
remedies grated to a secured party under the provisions of the California
Uniform Commercial Code (as now or hereafter in effect), including (without
limitation) the power to dispose of the Collateral by public or private sale or
to accept the Collateral in full payment of the Note and all other indebtedness
secured hereunder.

 

Any proceeds
realized from the disposition of the Collateral pursuant to the foregoing power
of sale shall be applied first to the payment of expenses incurred by the
Corporation in connection with the disposition, then to the payment of the Note
and finally to any other indebtedness secured hereunder.  Any surplus proceeds shall be paid over to
Pledgor.  However, in the event such
proceeds prove insufficient to satisfy all obligations of Pledgor under the
Note, then Pledgor shall remain personally liable for the resulting deficiency.

 

11.  Other
Remedies.  The rights,
power and remedies granted to the Corporation pursuant to the provisions of
this Agreement shall be in addition to all rights, powers and remedies granted
to the Corporation under any statute or rule of law.  Any forbearance, failure or delay by the corporation in
exercising any right, power or remedy under this Agreement shall not be deemed
to be a waiver of such right, power or remedy. 
Any single or partial exercise of any

 

5

 

right, power or remedy under
this Agreement shall not preclude the further exercise thereof; and every
right, power and remedy of the Corporation under this Agreement shall continue
in full force and effect unless such right, power or remedy is specifically
waived by an instrument executed by the Corporation.

 

12.  Costs
and Expenses.   All costs
and expenses (including reasonable attorney’s fees) incurred by the Corporation
in the exercise or enforcement of any right, power or remedy granted it under
this Agreement shall become part of the indebtedness secured hereunder and
shall constitute a personal liability of Pledgor payable immediately upon
demand and bearing interest until paid at the minimum per annum rate,
compounded semi-annually, required to avoid the imputation of interest income
to the corporation and compensation income to Pledgor under the federal tax laws,

 

13.  Applicable
Law.  This Agreement
shall be governed by and construed in accordance with the laws of the State of
California without resort to that State’s conflict–of–laws rules.

 

14.  Successors.  This Agreement shall be binding upon the
corporation and its successors and assigns and upon Pledgor and the executors,
heir and legatees of Pledgor’s estate.

 

15.  Severability.  If any provision of this Agreement is held
to be invalid under applicable law, then such provision shall be ineffective
only to the extent of such invalidity, and neither the remainder of such
provision nor any other provisions of this Agreement shall be affected thereby,

 

IN WITNESS WHEREOF,
this Agreement has been executed by Pledgor and the Corporation on the 11th day of March, 2002.

 

	
  SOUTHWALL TECHNOLOGIES INC.

  	
   

  	
  /s/ Thomas
  Hood

  	
   

  
	
   

  	
   

  	
  PLEDGOR: Thomas Hood

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  Robert
  Freeman

  	
   

  	
   

  	
  address:

  	
  15 ALISO WAY

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
  SUP CFO

  	
   

  	
   

  	
   

  	
  Portola
  Valley, CA

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Dated:

  	
  3/11/02

  	
   

  	
   

  	
   

  	
  94028

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Dated:

  	
  March 11,
  2002

  	
   

  
									

 

6

 

SOUTHWALL TECHNOLOGIES INC.

 

NOTE SECURED BY STOCK PLEDGE AGREEMENT

 

	
  $ 14,700.00

  	
  March 8, 2002

  	
  Option Number 1074

  

 

FOR VALUE RECEIVED,
Thomas Hood (“Maker”) promises to pay to the order of Southwall Technologies Inc.
(the “Corporation”), at its corporate offices at 1029 Corporation Way, Palo
Alto, CA 94303, the principal sum of 
Fourteen thousand and seven hundred/100 Dollars ($ 14,700.00), together
with all accrued interest thereon, upon the terms and conditions specified
below.

 

1.             Interest.  Interest
shall accrue on the unpaid balance outstanding from time to time under this
Note at the rate of 7.0 % per annum, compounded annually, and shall be
payable annually in arrears.

 

2.             Principal.  The
entire principal balance of this Note, together with all accrued and unpaid
interest, shall become due and payable in one lump sum on March 8, 2003.

 

3.             Payment.  Payment
shall be made in lawful tender of the United States and shall be applied first
to the payment of all accrued and unpaid interest and then to the payment of
principal.  Prepayment of the principal
balance of this Note, together with all accrued and unpaid interest, may be
made in whole or in part at any time without penalty.

 

4.             Events of Acceleration. 
The entire unpaid principal balance of this Note, together with all
accrued and unpaid interest, shall become immediately due and payable prior to
the specified due date of this Note upon the occurrence of one or more of the
following events:

 

A.            The
failure of the Maker to pay when due the accrued interest on this Note and the
continuation of such default for more than thirty (30) days; or

 

B.            the
expiration of the thirty (30) day period following the date the Maker ceases
for any reason to remain in the Corporation’s employ; or

 

C.            an
acquisition of the Corporation (whether by merger or acquisition of all or
substantially all of the Corporation’s assets or outstanding voting stock) for
consideration payable in cash or freely–tradable securities; provided,
however, that if the Polling of Interest Method, as described in Accounting
Principles Board Opinion No. 16, is used to account for the acquisition for
financial reporting purposes, acceleration shall not occur prior to the end of
the sixty (60) day period immediately following the end of

 

1

 

the applicable
restriction period required under Accounting Series Release Numbers 130 and
135; or

 

D.            the insolvency of
the Maker, the commission of any act of bankruptcy by the Maker, the execution
by the Maker of a general assignment for the benefit of creditors, the filing
by or against the Maker of any petition in bankruptcy or any petition for
relief under the provisions of debtors and the continuation of such petition without
dismissal for a period of thirty (30) days or more, the appointment of a
receiver or trustee to take possession of any property or assets of the maker
or the attachment of or execution against any property or assets of the Maker;
or

 

E.             the occurrence of
any event of default under the Stock Pledge Agreement securing this Note or any
obligation secured thereby.

 

5.             Employment.  For
purposes of applying the provisions of this Note, the Maker shall be considered
to remain in the Corporation’s employ for so long as the Maker renders services
as a full–time employee of the Corporation, any successor entity or one
or more of the Corporation’s fifty percent (50%) or more owned (directly or
indirectly) subsidiaries.

 

6.             Security.  The
proceeds of the loan evidenced by this Note shall be applied solely to the
payment of the purchase price of  5,000
Shares of the Corporation’s common stock and payment of this Note shall be
secured by a pledge of those shares with the Corporation pursuant to the Stock
Pledge Agreement to be executed this date by the Maker.  The Maker, however, shall remain personally
liable for payment of this Note and assets of the Maker, in addition to the
collateral under the Stock Pledge Agreement, may be applied to the satisfaction
of the Maker’s obligation hereunder.

 

7.             Collection.  If
action is instituted to collect this Note, the Maker promises to pay all costs
and expenses (including reasonable attorney fees) incurred in connection with
such action.

 

8.             Waiver.  A waiver
of any term of this Note, The Stock Pledge Agreement or of any of the
obligations secured thereby must be made in writing and signed by a duly
authorized officer of the Corporation and any such waiver shall be limited to
its express terms.  No delay by the
Corporation in acting with respect to the terns of this Note or the stock
Pledge Agreement shall constitute a waiver of any breach, default, or failure
of a condition under this Note, the stock Pledge Agreement or the obligations
secured thereby.

 

The Maker
waives presentment, demand, notice of dishonor, notice of default or
delinquency, notice of acceleration, notice or protest and nonpayment, notice
of costs, expenses or losses and interest thereon, notice of interest on
interest and diligence in taking any action to collect any sums owing under
this Note or in proceeding against any of the rights or interests in or to
properties securing payment of this Note.

 

2

 

9.             Conflicting Agreements. 
In the event of any inconsistencies between the terms of this Note and
the terms of any other document related to the loan evidenced by the Note, the
terms of this Note shall prevail.

 

10.           Governing
Law.  This Note shall be
construed in accordance with the laws of the State of California.

 

	
  Maker: Thomas Hood:

  	
   

  	
  /s/ Thomas
  Hood

  	
   

  
	
   

  	
   

  
	
  Date:

  	
   

  	
  March 11,
  2002

  	
   

  

 

3

 

SOUTHWALL TECHNOLOGIES INC.

 

STOCK PLEDGE AGREEMENT

 

AGREEMENT, made as
of this 8th day of March, 2002 by
and between Southwall Corporation, Inc., a California corporation (the
“Corporation”) and Thomas Hood (“Pledgor”).

 

RECITALS

 

A.            In connection with the purchase of
5,000 Shares of the Corporation’s Common Stock (the “Purchased Shares”) on the
date of this Agreement from the Corporation, Pledgor has issued that certain
promissory note (the “Note”) dated March 8, 2002 payable to the order of the
Corporation in the principal amount of Fourteen thousand seven hundred and
00/100 Dollars ($ 14,700.00).

 

B.            Such Note is secured by the Purchased
Shares and other collateral upon the terms set forth in this Agreement.

 

NOW, THEREFORE, it
is hereby agreed as follows:

 

1.             Grant of Security Interest.  Pledgor hereby grants the Corporation a security interest in, and
assigns, transfers to and pledges with the Corporation, the following
securities and other property (collectively, the “Collateral”):

 

(i)            the Purchased Shares delivered to
and deposited with the Corporation as collateral for the Note;

 

(ii)           any and all new, additional or
different securities or other property subsequently distributed with respect to
the Purchased Shares which are to be delivered to and deposited with the
Corporation pursuant to the requirements of Paragraph 3 of this Agreement;

 

(iii)          any and all other property and money
which is delivered to or comes into possession of the Corporation pursuant to
the terms of this Agreement; and

 

(iv)          the proceeds of any sale, exchange or
disposition of the property and securities described in subparagraphs (i), (ii)
or (iii) above.

 

2.             Warranties. 
Pledgor hereby warrants that Pledgor is the owner of the Collateral and
has the right to pledge the Collateral and that the Collateral is free from all
liens, adverse claims and other security interests (other than those created
hereby).

 

3.             Duty to Deliver. 
Any new, additional or different securities or other property (other
than regular cash dividends) which may now or hereafter become distributable
with

 

1

 

respect to the Collateral by reason
of (i) any stock split, stock dividend, recapitalization, combination of
shares, exchange of shares or other change affecting the Common Stock as a
class without the Corporation’s receipt of consideration or (ii) any merger,
consolidation or other reorganization affecting the capital structure of the
Corporation shall, upon receipt by Pledgor be promptly delivered to and
deposited with the Corporation as part of the Collateral hereunder.  Any such securities shall be accompanied by
one or more properly endorsed stock power assignments.

 

4.             Payment of Taxes and Other Charges.  Pledgor shall pay, prior to the delinquency
date, all taxes, liens, assessments and other charges against the Collateral,
or all of such taxes and other charges without contesting the validity or
legality thereof.  The payments so made
shall become part of the indebtedness secured hereunder and until paid shall
bear interest at the minimum per annum rate, compounded semi–annually,
required to avoid the imputation of interest income to the Corporation and
compensation income to Pledgor under the Federal tax laws.

 

5.             Shareholder Rights. 
So long as there exists no event of default under Paragraph 10 of this
Agreement, Pledgor may exercise all shareholder voting rights and be entitled to
receive any and all regular cash dividends paid on the Collateral and all proxy
statements and other shareholder materials pertaining to the Collateral.

 

6.             Rights and Powers of Corporation.  The corporation may, without obligation to
do so, exercise at any time and from time to time one or more of the following
rights and powers with respect to any or all of the Collateral:

 

(i).           Subject to the applicable limitations
of Paragraph 9, accept in its discretion other property of pledgor in exchange
for all or part of the Collateral and release Collateral to Pledgor to the
extent necessary to effect such exchange, and in such event the other property
received in the exchange shall become part of the Collateral hereunder;

 

(ii).          Perform such acts as are necessary to
preserve and protect the Collateral and the rights, powers and remedies granted
with respect to such Collateral by this Agreement;

 

(iii).         Transfer record ownership of the
Collateral to the Corporation or its nominee and receive, endorse and give receipt
for, or collect by legal proceedings or otherwise, dividends or other
distributions made or paid with respect to the Collateral, provided and only if
there exists at the time an outstanding event of default under Paragraph 10 of
this Agreement.  Any cash sums which the
Corporation may so receive shall be applied to the payment of the Note and any
other indebtedness secured hereunder, in such order of application as the
Corporation deems appropriate.  Any
remaining cash shall be paid over to Pledgor.

 

Any action by
the Corporation pursuant to the provisions of this Paragraph 6 may be taken
without notice to Pledgor.  Expenses
reasonable incurred in connection with such action shall be payable by Pledgor
and form part of the indebtedness secured hereunder as provided in

 

2

 

Paragraph 12.

 

7.             Care of Collateral. 
The corporation shall exercise reasonable care in the custody and
preservation of the Collateral. 
However, the Corporation shall have no obligation to (i) initiate any
action with respect to, or otherwise inform Pledgor of, any conversion, call,
exchange right, preemptive right, subscription right, purchase offer or other
right or privilege relating to or affecting the Collateral, (ii) preserve the rights
of Pledgor against adverse claims or protect the Collateral against the
possibility of a decline in market value or (iii) take any action with respect
to the Collateral requested by Pledgor unless the request is made in writing
and the Corporation determines that the requested action will not unreasonable
jeopardize the value of the Collateral as security for the Note and other
indebtedness secured hereunder.

 

Subject to the
limitations of Paragraph 9, the Corporation may at any time release and deliver
all or part of the Collateral to Pledgor, and the receipt thereof by Pledgor
shall constitute a complete and full acquittance for the Collateral so released
and delivered.  The Corporation shall
accordingly be discharged from any further liability or responsibility for the
Collateral, and the released Collateral shall no longer be subject to the
provisions of this Agreement.

 

8.             Transfer of Collateral. 
In connection with the transfer or assignment of the Note (whether by
negotiation, discount or otherwise), the corporation may transfer all or any
part of the Collateral, and the transferee shall thereupon succeed to all the
rights, powers and remedies granted the Corporation hereunder with respect to
the Collateral so transferred.  Upon
such transfer, the Corporation shall be fully discharged from all liability and
responsibility for the transferred Collateral.

 

9.             Release of Collateral. 
Provided all indebtedness secured hereunder (other than payments not yet
due and payable under the Note) shall at the time have been paid in full and
there does not otherwise exist any event of default under Paragraph 10, the
Purchased Shares, together with any additional Collateral which may hereafter
be pledged and deposited hereunder, shall be released from pledge and returned
to Pledgor in accordance with the following provisions:

 

(i)            Upon payment or prepayment of
principal under the Note, together with payment of all accrued interest to day,
one or more of the Purchased Shares held as Collateral hereunder shall (subject
to the applicable limitation of Paragraphs 9 (iii) and prepayment.  The number of the shares to be so released
shall be equal to the number obtained by multiplying (i) the total number of
Purchased Shares held under this Agreement at the time of the payment or
prepayment, by (ii) a fraction, the numerator of which shall be the amount of
the principal paid or prepaid and the denominator of which shall be the unpaid
principal balance of the Note immediately prior to such payment or prepayment.  In no event, however, shall any fractional
shares be released.

 

3

 

(ii)           Any additional Collateral which may
hereafter be pledged and deposited with the corporation (pursuant to the
requirements of Paragraph 3) with respect to the Purchased Shares shall be
released at the same time the particular shares of Common stock to which the
additional Collateral related are to be released in accordance with the
applicable provisions of Paragraph 9 (i).

 

(iii)          Under no circumstances, however, shall
any Purchased Shares or any other Collateral be released if previously applied
to the payment of any indebtedness secured hereunder.  In addition, in no event shall any Purchased Shares or other Collateral
be released pursuant to the provisions of Paragraph 9 (i) or 9 (ii) if, and to
the extent, the fair market value of the Common Stock and all other Collateral
which would otherwise remain in pledge hereunder after such release were
effected would be less than the unpaid principal and accrued interest under the
Note.

 

(iv)          For all valuation purposes under this
Agreement, the fair market value per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:

 

(A)          if the common Stock is at the time
traded on the Nasdaq National Market, the fair market value shall be the
closing selling price per share of Common Stock on the date in question, as
such prices are reported by the National Association of Securities Dealers on
its Nasdaq system or any successor system. 
If there is no reported closing selling price for the Common Stock on
the date in question, then the closing selling price on the last preceding date
for which such quotation exists shall be determinative of fair market value.

 

(B)           If the Common stock is at the time
listed on the American Stock Exchange or the New York Stock Exchange, then the
fair market value shall be the closing selling price per share of Common Stock
on the date in question on the securities exchange serving as the primary
market for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange.  If there is not reported sale of Common Stock on such exchange on
the date in question, then the fair market value shall be the closing selling
price on the exchange on the last preceding date for which such quotation
exists.

 

(v)           In the event the Collateral becomes
in whole or in part comprised of “margin securities” with the meaning of 207.2
(e)(1) of Regulation G of the Federal Reserve Board, then no Collateral shall
there after be substituted for any Collateral under the provisions of Paragraph
6(i) or be released under Paragraph 9(i) or (ii), unless there is compliance
with each of the following additional requirements:

 

(A)          The substitution or release must not
increase the amount by which the indebtedness secured hereunder at the time of
such substitution or release exceeds the maximum loan value (as defined below)
of the Collateral immediately prior to such substitution or release.

 

4

 

(B)           The substitution or release must not
cause the amount of indebtedness secured hereunder at the time of such
substitution or release to exceed the maximum loan value of the Collateral
remaining after such substitution or release is effected.

 

(C)           For purposed of this Paragraph 9(v),
the maximum loan value of each item of collateral shall be determined on the
day the substitution or release is to be effected and shall, in the case of the
shares of Common Stock and any additional Collateral (other than margin
securities), equal the good faith loan value thereof (as defined in Section
207.2 (e)(1) of Regulation (G) and shall, in the case of all margin securities
(other than the Common Stock), equal fifty percent (50%) of the current market
value of such securities.

 

10.           Events
of Default.  The
occurrence of one or more of the following events shall constitute an event of
default under this Agreement:

 

(i)            the failure of Pledgor to pay, when
due, under the Note, any installment of principal or accrued interest; or

 

(ii)           the occurrence of any other
acceleration event specified in the Note; or

 

(iii)          the failure of Pledgor to perform any
obligation imposed upon Pledgor by reason of this Agreement; or

 

(iv)          the breach of any warranty or Pledgor
contained in this Agreement.

 

Upon the
occurrence of any such event of default, the Corporation may, at its election,
declare the Note and all other indebtedness secured hereunder to become
immediately due and payable and may exercise any or all of the rights and
remedies grated to a secured party under the provisions of the California
Uniform Commercial Code (as now or hereafter in effect), including (without
limitation) the power to dispose of the Collateral by public or private sale or
to accept the Collateral in full payment of the Note and all other indebtedness
secured hereunder.

 

Any proceeds
realized from the disposition of the Collateral pursuant to the foregoing power
of sale shall be applied first to the payment of expenses incurred by the
Corporation in connection with the disposition, then to the payment of the Note
and finally to any other indebtedness secured hereunder.  Any surplus proceeds shall be paid over to
Pledgor.  However, in the event such
proceeds prove insufficient to satisfy all obligations of Pledgor under the
Note, then Pledgor shall remain personally liable for the resulting deficiency.

 

11.           Other
Remedies.  The rights,
power and remedies granted to the Corporation pursuant to the provisions of
this Agreement shall be in addition to all rights, powers and remedies granted
to the Corporation under any statute or rule of law.  Any forbearance, failure or delay by the corporation in
exercising any right, power or remedy under this Agreement shall not be deemed
to be a waiver of such right, power or remedy. 
Any single or partial exercise of any

 

5

 

right, power or remedy under this Agreement shall not
preclude the further exercise thereof, and every right, power and remedy of the
Corporation under this Agreement shall continue in full force and effect unless
such right, power or remedy is specifically waived by an instrument executed by
the Corporation.

 

12.           Costs
and Expenses.  All costs
and expenses (including reasonable attorney’s fees) incurred by the Corporation
in the exercise or enforcement of any right, power or remedy granted it under
this Agreement shall become part of the indebtedness secured hereunder and
shall constitute a personal liability of Pledgor payable immediately upon
demand and bearing interest until paid at the minimum per annum rate,
compounded semi–annually, required to avoid the imputation of interest
income to the corporation and compensation income to Pledgor under the federal
tax laws.

 

13.           Applicable
Law.  This Agreement
shall be governed by and construed in accordance with the laws of the State of
California without resort to that State’s conflict–of–laws rules.

 

l4.            Successors.  This Agreement shall be binding upon the corporation
and its successors and assigns and upon Pledgor and the executors, heirs and
legatees of Pledgor’s estate.

 

15.           Severability.  If any provision of this Agreement is held
to be invalid under applicable law, then such provision shall be ineffective
only to the extent of such invalidity, and neither the remainder of such
provision nor any outer provisions of this Agreement shall be affected thereby.

 

IN WITNESS WHEREOF,
this Agreement has been executed by Pledgor and the Corporation on the 8th day of March, 2002.

 

	
  SOUTHWALL TECHNOLOGIES INC.

  	
   

  	
  /s/ Thomas
  Hood

  	
   

  
	
   

  	
   

  	
  PLEDGOR: Thomas Hood

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Robert
  Freeman

  	
   

  	
  address:

  	
  15 ALISO WAY

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:

  	
  Sr V.P. CEO

  	
   

  	
   

  	
  Portola
  Valley, CA 

  	
   

  
	
   

  	
   

  	
   

  
	
  Date:

  	
  3/1/2002

  	
   

  	
   

  	
  94028

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Dated:

  	
  March 11,
  2002

  	
   

  
								

 

6

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