
	Per Share	Total
Public Offering Price	$	$
Underwriting Discount	$	$
Proceeds, before expenses, to Southwall	$	$

		Page
Prospectus Summary		2
Risk Factors		6
Forward-looking Statements		15
Use of Proceeds		16
Dividend Policy		16
Capitalization		17
Price Range of Common Stock		18
Selected Consolidated Financial Data		19
Management's Discussion and Analysis of Financial Condition and Results of Operations		23
Business		37
Management		52
Related Party Transactions		59
Principal and Selling Stockholders		61
Description of Capital Stock		63
Shares Eligible For Future Sale		66
Underwriting		67
Legal Matters		69
Experts		69
Where You Can Find More Information		70

Name	Age	Position
Thomas G. Hood	46	President, Chief Executive Officer and Director
Robert R. Freeman	59	Senior Vice President, Chief Financial Officer and Secretary
Sicco W. T. Westra	51	Senior Vice President, Sales and Marketing
Wolfgang Heinze	52	Vice President, Dresden Operations
Nasser A. Lama	41	Vice President, U.S. Operations
Bruce M. Lairson	40	Vice President and Chief Technology Officer
John Lipscomb	52	Corporate Controller
Joseph B. Reagan(1)(2)	66	Chairman, Board of Directors
Bruce J. Alexander(2)	57	Director
Tadahiro Murakami(2)	60	Director
Robert C. Stempel(1)	68	Director
Walter C. Sedgwick(1)	54	Director

		Percent of Common Stock Outstanding(1)
Name and Address of Beneficial Owner	Number of Shares(1)	Before Offering		After Offering(2)
Teijin Limited(3) 67, Minamihonmachi, 1-chome Chuoku, Osaka 541, Japan	667,000	7.8	%	5.5	%
Advisory Clients of Dimensional Fund Advisors, Inc. 1299 Ocean Avenue, 11^th Floor Santa Monica, CA 90401	509,400	5.9		4.2
Globamatrix Holdings Pte. Ltd. 3 Science Park Drive 01-06 Singapore 118223	408,919	4.8		3.4
Joseph B. Reagan(4)	96,812	1.1		*
Bruce J. Alexander(5)	161,592	1.9		1.3
Tadahiro Murakami	11,750	*		*
Walter C. Sedgwick(6)	278,809	3.2		2.3
Robert C. Stempel(7)	11,750	*		*
Thomas G. Hood(8)	237,641	2.7		1.9
Robert R. Freeman(7)	21,250	*		*
Sicco W. T. Westra(7)	64,400	*		*
Wolfgang Heinze(7)	11,250	*		*
Ted L. Larsen(9)	58,975	*		*
Nasser A. Lama(7)	18,100	*		*
All current executive officers and directors as a group (12 persons)(10)	1,057,369	11.5	%	8.3	%

		Common Stock Beneficially Owned Prior to the Offering(1)				Common Stock Beneficially Owned After the Offering
		Common Stock to be Sold in the Offering
Name and Address of Selling Stockholders
	Number		Percent		Number		Percent
Joseph B. Reagan(2)		96,812		1.1	%	44,326		52,486	*
Walter C. Sedgwick(3)		278,809		3.2		35,000		243,809	1.9	%
Thomas G. Hood(4)		237,641		2.7		78,125		159,516	1.2
Sicco W. T. Westra(5)		64,400		*		25,000		39,400	*
Nasser A. Lama(6)		18,100		*		2,000		16,100	*
All current executive officers and directors as a group (12 persons)(7)		1,057,369		11.5	%	184,451		813,943	6.1	%

		1999		2000		2001
Net income (loss)—as reported		$	(1,865	)	$	(6,180	)	$	4,635
Net income (loss)—pro forma		$	(2,659	)	$	(7,830	)	$	3,833
Net income (loss) per share—as reported
	Basic		$	(0.25	)	$	(0.81	)	$	0.58
	Diluted		$	(0.25	)	$	(0.81	)	$	0.57
Net income (loss) per share—pro forma
	Basic		$	(0.36	)	$	(1.02	)	$	0.48
	Diluted		$	(0.36	)	$	(1.02	)	$	0.47

								Quarter ended
		Year
Customer		April 1, 2001 (unaudited)		March 31, 2002 (unaudited)
	1999		2000		2001
A		18.0	%	14.5	%	24.0	%	20.9	%	20.9	%
B		9.4	%	39.5	%	20.5	%	20.9	%	26.0	%
C		0.0	%	0.0	%	7.7	%	14.6	%	4.9	%
D		11.7	%	6.7	%	15.3	%	10.8	%	18.5	%

	Total		39.1	%	60.7	%	67.5	%	67.2	%	70.3	%

EXHIBIT 1.1

3,500,000 Shares*

SOUTHWALL TECHNOLOGIES INC.

Common Stock

UNDERWRITING AGREEMENT

, 2002

NEEDHAM & COMPANY, INC.

ADAMS, HARKNESS & HILL, INC.

WELLS FARGO SECURITIES, LLC

As Representatives of the several Underwriters

c/o Needham & Company, Inc.

445 Park Avenue

New York, New York 10022

Ladies and Gentlemen:

Southwall Technologies Inc., a Delaware corporation (the “Company”), proposes to issue and sell 3,500,000 shares (the “Firm Shares”) of the Company’s Common Stock, par value $.001 per share (the “Common Stock”), in each case to you and to the several other Underwriters named in Schedule I hereto (collectively, the “Underwriters”), for whom you are acting as Representatives (the “Representatives”). The Company has also agreed to grant to you and the other Underwriters an option (the “Company Option”) to purchase up to an additional [______] shares of Common Stock, on the terms and for the purposes set forth in Section 1(b) (“Company Option Shares”). The stockholders of the Company named in Schedule II hereto (the “Selling Stockholders”) have also agreed to grant to you and the other Underwriters an option (the “Selling Stockholders Option”) to purchase up to an additional [______] shares of Common Stock, on the terms and for the purposes set forth in Section 1(b) (“Selling Stockholders Option Shares”). The Company Option Shares and the Selling Stockholders Option Shares are referred to collectively herein as the “Option Shares.” The Firm Shares and the Option Shares are referred to collectively herein as the “Shares.” The Company Option and the Selling Stockholders Option are referred to collectively herein as the “Option.”

The Company and each of the Selling Stockholders confirm as follows their respective agreements with the Representatives and the several other Underwriters.

1. Agreement to Sell and Purchase.

(a) On the basis of the representations, warranties and agreements of the Company herein contained and subject to all the terms and conditions of this Agreement, (i) the Company agrees to issue and sell the Firm Shares to the several Underwriters and (ii) each of the Underwriters, severally and not jointly, agrees to purchase from the Company the respective number of Firm Shares set forth opposite that Underwriter’s name in Schedule I hereto, at the purchase price of $ for each Firm Share.

(b) Subject to all the terms and conditions of this Agreement, the Company grants the Company Option and the Selling Stockholders grant the Selling Stockholders Option to the several Underwriters to purchase,

* Plus an option to purchase up to an additional 525,000 shares to cover over-allotments.

severally and not jointly, up to the maximum number of Option Shares set forth in Schedule II hereto at the same price per share as the Underwriters shall pay for the Firm Shares. The Option may be exercised only to cover over-allotments in the sale of the Firm Shares by the Underwriters and may be exercised in whole or in part, but pro rata with respect to the Company and each Selling Stockholder, at any time (but not more than once) on or before the 30th day after the date of this Agreement upon written or telegraphic notice (the “Option Shares Notice”) by the Representatives to the Company and the Selling Stockholders no later than 12:00 noon, New York City time, at least two and no more than five business days before the date specified for closing in the Option Shares Notice (the “Option Closing Date”), setting forth the aggregate number of Option Shares to be purchased and the time and date for such purchase. On the Option Closing Date, the Company will issue and sell, and the Selling Stockholders will sell, to the Underwriters the number of Option Shares set forth in the Option Shares Notice with respect to the Company and each Selling Stockholder, as the case may be, and each Underwriter will purchase such percentage of the Option Shares as is equal to the percentage of Firm Shares that such Underwriter is purchasing, as adjusted by the Representatives in such manner as they deem advisable to avoid fractional shares.

2. Delivery and Payment.

Delivery of the Firm Shares shall be made to the Representatives for the accounts of the Underwriters against payment of the purchase price by wire transfer or certified check payable in same-day funds to the order of the Company for the Firm Shares to be sold by it at the office of Needham & Company, Inc., 445 Park Avenue, New York, New York 10022, at 10:00 a.m., New York City time, on the third (or, if the purchase price set forth in Section 1(a) hereof is determined after 4:30 p.m., Washington D.C. time, the fourth) business day following the commencement of the offering contemplated by this Agreement, or at such time on such other date, not later than seven business days after the date of this Agreement, as may be agreed upon by the Company and the Representatives (such date is hereinafter referred to as the “Closing Date”).

To the extent the Option is exercised, delivery of the Option Shares against payment by the Underwriters (in the manner specified above) will take place at the offices specified above for the Closing Date at the time and date (which may be the Closing Date) specified in the Option Shares Notice.

Certificates evidencing the Shares shall be in definitive form and shall be registered in such names and in such denominations as the Representatives shall request at least two business days prior to the Closing Date or the Option Closing Date, as the case may be, by written notice to the Company. For the purpose of expediting the checking and packaging of certificates for the Shares, the Company agrees to make such certificates available for inspection at least 24 hours prior to the Closing Date or the Option Closing Date, as the case may be.

The cost of original issue tax stamps and other transfer taxes, if any, in connection with the issuance and delivery of the Firm Shares and the Option Shares by the Company to the respective Underwriters shall be borne by the Company. The Company or the Selling Stockholders, as appropriate, will pay and save each Underwriter and any subsequent holder of the Shares harmless from any and all liabilities with respect to or resulting from any failure or delay in paying Federal and state stamp and other transfer taxes, if any, which may be payable or determined to be payable in connection with the original issuance or sale to such Underwriter of the Shares.

3. Representations and Warranties of the Company.

The Company represents, warrants and covenants to each Underwriter that:

(a) The Company meets the requirements for use of Form S-1 and a registration statement (Registration No. 333-85576) on Form S-1 relating to the Shares, including a preliminary prospectus and such amendments to such registration statement as may have been required to the date of this Agreement, has been prepared by the Company under the provisions of the Securities Act of 1933, as amended (the “Act”), and the rules and regulations (collectively referred to as the “Rules and Regulations”) of the Securities and Exchange Commission (the “Commission”) thereunder, and has been filed with the Commission. The term “preliminary prospectus” as used herein means a preliminary prospectus as contemplated by Rule 430 or Rule 430A of the Rules and Regulations included at any time as part of the registration statement. Copies of such registration statement and amendments and of each related preliminary prospectus have been delivered to the Representatives. If such registration statement has not become effective, a further amendment to such registration statement, including a

form of final prospectus, necessary to permit such registration statement to become effective will be filed promptly by the Company with the Commission. If such registration statement has become effective, a final prospectus containing information permitted to be omitted at the time of effectiveness by Rule 430A of the Rules and Regulations will be filed promptly by the Company with the Commission in accordance with Rule 424(b) of the Rules and Regulations. The term “Registration Statement” means the registration statement as amended at the time it becomes or became effective (the “Effective Date”), including financial statements and all exhibits and schedules thereto and any information deemed to be included by Rule 430A, and includes any registration statement relating to the offering contemplated by this Agreement and filed pursuant to Rule 462(b) of the Rules and Regulations. The term “Prospectus” means the prospectus as first filed with the Commission pursuant to Rule 424(b) of the Rules and Regulations or, if no such filing is required, the form of final prospectus included in the Registration Statement at the Effective Date.

(b) No order preventing or suspending the use of any preliminary prospectus has been issued by the Commission, and no stop order suspending the effectiveness of the Registration Statement (including any related registration statement filed pursuant to Rule 462(b) under the Act) or any post-effective amendment thereto has been issued, and no proceeding for that purpose has been initiated or, to the knowledge of the Company, threatened by the Commission. On the Effective Date, the date the Prospectus is first filed with the Commission pursuant to Rule 424(b) (if required), during the period through and including the Closing Date and, if later, the Option Closing Date, and when any post-effective amendment to the Registration Statement becomes effective or any amendment or supplement to the Prospectus is filed with the Commission, the Registration Statement and the Prospectus (as amended or as supplemented if the Company shall have filed with the Commission any amendment or supplement thereto), including the financial statements included in the Prospectus, did and will comply in all material respects with all applicable provisions of the Act and the Rules and Regulations and will contain all statements required to be stated therein in accordance with the Act and the Rules and Regulations. On the Effective Date and when any post-effective amendment to the Registration Statement becomes effective, no part of the Registration Statement, the Prospectus or any such amendment or supplement thereto did or will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. At the Effective Date, the date the Prospectus or any amendment or supplement to the Prospectus is filed with the Commission and at the Closing Date and, if later, the Option Closing Date, the Prospectus did not and will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. The foregoing representations and warranties in this Section 3(b) do not apply to any statements or omissions made in reliance on and in conformity with information relating to any Underwriter furnished in writing to the Company by the Representatives specifically for inclusion in the Registration Statement or Prospectus or any amendment or supplement thereto. The Company acknowledges that the statements set forth in the first, second, ninth, tenth, eleventh and twelfth paragraphs under the heading “Underwriting” in the Prospectus constitute the only information relating to any Underwriter furnished in writing to the Company by the Representatives specifically for inclusion in the Registration Statement or Prospectus or any amendment or supplement thereto.

(c) The Company does not own, and at the Closing Date and, if later, the Option Closing Date, will not own, directly or indirectly, any shares of stock or any other equity or long-term debt securities of any corporation or have any equity interest in any corporation, firm, partnership, joint venture, association or other entity, other than the subsidiaries listed in Exhibit 21 to the Registration Statement (the “Subsidiaries”). The Company and each of its Subsidiaries is, and at the Closing Date and, if later, the Option Closing Date, will be, an entity duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization. The Company and each of its Subsidiaries has, and at the Closing Date and, if later, the Option Closing Date, will have, full power and authority to conduct all the activities conducted by it, to own or lease all the assets owned or leased by it and to conduct its business in all material respects as described in the Registration Statement and the Prospectus. The Company and each of its Subsidiaries is, and at the Closing Date and, if later, the Option Closing Date, will be, duly licensed or qualified to do business and in good standing as a foreign corporation in all jurisdictions in which the nature of the activities conducted by it or the character of the assets owned or leased by it makes such license or qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not reasonably be expected to materially and adversely affect the Company and its Subsidiaries or its or their business, properties, business prospects, condition (financial or other) or results of operations, taken as a whole. All of the outstanding shares of capital stock of each Subsidiary have been duly authorized and validly

issued and are fully paid and nonassessable, and owned by the Company free and clear of all claims, liens, charges and encumbrances. There are no securities outstanding that are convertible into or exercisable or exchangeable for capital stock of any Subsidiary. The Company and its Subsidiaries are not, and at the Closing Date and, if later, the Option Closing Date, will not be, engaged in any discussions or a party to any agreement or understanding, written or oral, regarding the acquisition of an interest in any corporation, firm, partnership, joint venture, association or other entity where such discussions, agreements or understandings would require amendment to the Registration Statement pursuant to applicable securities laws, unless such amendment has been filed. Complete and correct copies of the certificate of incorporation and of the by-laws, or other organizational documents, of the Company and each of its Subsidiaries and all amendments thereto have been delivered to the Representatives, and no changes therein will be made subsequent to the date hereof and prior to the Closing Date or, if later, the Option Closing Date.

(d) All of the outstanding shares of capital stock of the Company (including the Option Shares to be sold by the Selling Stockholders under this Agreement) have been duly authorized, validly issued and are fully paid and nonassessable and were issued in compliance with all applicable state and federal securities laws. The Firm Shares and the Option Shares to be issued by the Company (if any) have been duly authorized and when issued and paid for as contemplated herein will be validly issued, fully paid and nonassessable. No preemptive or similar rights exist with respect to any of the Shares or the issue and sale thereof. The description of the capital stock of the Company in the Registration Statement and the Prospectus is, and at the Closing Date and, if later, the Option Closing Date, will be, complete and accurate in all material respects. Except as set forth in the Prospectus, or as a result of option grants under the Company’s stock option plans in the ordinary course and consistent with past practice, the Company does not have outstanding, and at the Closing Date and, if later, the Option Closing Date, will not have outstanding, any options to purchase, or any rights or warrants to subscribe for, or any securities or obligations convertible into, or any contracts or commitments to issue or sell, any shares of capital stock, or any such warrants, convertible securities or obligations. No further approval or authority of stockholders or the Board of Directors of the Company will be required for the transfer and sale of the Selling Stockholders Option Shares or the issuance and sale of the Firm Shares and the Company Option Shares as contemplated herein.

(e) The financial statements, notes and schedules included in the Registration Statement or the Prospectus present fairly the financial condition of the Company and its consolidated Subsidiaries as of the respective dates thereof and the results of operations and cash flows of the Company and its consolidated Subsidiaries for the respective periods covered thereby, all in conformity with generally accepted accounting principles applied on a consistent basis throughout the entire period involved, except as otherwise disclosed in the Prospectus. No other financial statements or schedules of the Company are required by the Act or the Rules and Regulations to be included in the Registration Statement or the Prospectus. PricewaterhouseCoopers LLP (the “Accountants”), who have reported on such financial statements and schedules, are independent accountants with respect to the Company as required by the Act and the Rules and Regulations. The summary consolidated financial data included in the Registration Statement present fairly the information shown therein and have been compiled on a basis consistent with the audited financial statements presented in the Registration Statement subject, in the case of quarterly information, to normal year-end audit adjustments.

(f) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus and prior to the Closing Date and, if later, the Option Closing Date, except as set forth in or contemplated by the Registration Statement and the Prospectus, (i) there has not been and will not have been any change in the capitalization of the Company (other than in connection with the exercise of options to purchase the Company’s Common Stock granted pursuant to the Company’s stock option plans from the shares reserved therefor and in connection with the purchase of shares under the Company’s stock purchase plan, all as described in the Registration Statement), or any material adverse change in the business, properties, business prospects, condition (financial or otherwise) or results of operations of the Company or any of its Subsidiaries, arising for any reason whatsoever, (ii) neither the Company nor any of its Subsidiaries has incurred nor will any of them incur, except in the ordinary course of business as described in the Prospectus, any material liabilities or obligations, direct or contingent, nor has the Company or any of its Subsidiaries entered into nor will any of them enter into, except in the ordinary course of business as described in the Prospectus, any material transactions other than pursuant to this Agreement and the transactions referred to herein, and (iii) the Company has not and will not have paid or declared any dividends or other distributions of any kind on any class of its capital stock.

(g) The Company is not, will not become as a result of the transactions contemplated hereby, and will not conduct its business in a manner that would cause it to become, an “investment company” or an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment company,” as such terms are defined in the Investment Company Act of 1940, as amended.

(h) Except as set forth in the Registration Statement and the Prospectus, there are no legal actions, suits or proceedings pending or, to the knowledge of the Company, threatened against the Company, or any of its Subsidiaries, or any of its or their officers in their capacity as such, nor, to the knowledge of the Company, any basis therefor, before or by any Federal or state court, commission, regulatory body, administrative agency or other governmental body, domestic or foreign, wherein an unfavorable ruling, decision or finding might materially and adversely affect the Company, any of its Subsidiaries, or the business, properties, business prospects, condition (financial or otherwise) or results of operations of the Company or any of its Subsidiaries.

(i) The Company and each Subsidiary has, and at the Closing Date and, if later, the Option Closing Date, will have, performed all the obligations required to be performed by it, and is not, and at the Closing Date, and, if later, the Option Closing Date, will not be, in default, under any contract or other instrument to which it is a party or by which its property is bound or affected, which default might reasonably be expected to materially and adversely affect the Company or the business, properties, business prospects, condition (financial or other) or results of operations of the Company or any of its Subsidiaries. To the best knowledge of the Company, no other party under any contract or other instrument to which it or any of its Subsidiaries is a party is in default in any respect thereunder, which default might reasonably be expected to materially and adversely affect the Company or any of its Subsidiaries, or the business, properties, business prospects, condition (financial or other) or results of operations of the Company or any of its Subsidiaries. Neither the Company nor any of its Subsidiaries is, and at the Closing Date and, if later, the Option Closing Date, will not be, in violation of any provision of its certificate or articles of organization or by-laws or other organizational documents.

(j) No consent, approval, authorization or order of, or any filing or declaration with, any court or governmental agency or body is required for the consummation by the Company of the transactions on its part contemplated herein, except such as have been obtained under the Act or the Rules and Regulations and such as may be required under state securities or Blue Sky laws or the by-laws and rules of the National Association of Securities Dealers, Inc. (the “NASD”) in connection with the purchase and distribution by the Underwriters of the Shares.

(k) The Company has full corporate power and authority to enter into this Agreement. This Agreement has been duly authorized, executed and delivered by the Company and constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with the terms hereof, except where the enforcement thereof may be limited by equitable principles or bankruptcy laws. The performance of this Agreement and the consummation of the transactions contemplated hereby will not result in the creation or imposition of any lien, charge or encumbrance upon any of the assets of the Company pursuant to the terms or provisions of, or result in a breach or violation of any of the terms or provisions of, or constitute a default under, or give any party a right to terminate any of its obligations under, or result in the acceleration of any obligation under, the certificate or articles of incorporation or by-laws of the Company or any of its Subsidiaries, any indenture, mortgage, deed of trust, voting trust agreement, loan agreement, bond, debenture, note agreement or other evidence of indebtedness, lease, contract or other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company, any of its Subsidiaries, or any of its or their properties is bound or affected, or violate or conflict with any judgment, ruling, decree, order, statute, rule or regulation of any court or other governmental agency or body applicable to the business or properties of the Company or any of its Subsidiaries.

(l) The Company and its Subsidiaries have good and marketable title to all properties and assets described in the Prospectus as owned by them, free and clear of all liens, charges, encumbrances or restrictions, except such as are described in the Prospectus or are not material to the business of the Company or its Subsidiaries. The Company and its Subsidiaries have valid, subsisting and enforceable leases for the properties described in the Prospectus as leased by them. The Company and its Subsidiaries own or lease all such properties as are necessary to their operations as now conducted or as proposed to be conducted, except where the failure to so own or lease would not materially and adversely affect the business, properties, business prospects, condition (financial or otherwise) or results of operations of the Company or its Subsidiaries.

(m) There is no document, contract, permit or instrument of a character required to be described in the Registration Statement or the Prospectus or to be filed as an exhibit to the Registration Statement which is not described or filed as required. All such contracts to which the Company or any of its Subsidiaries is a party have been duly authorized, executed and delivered by the Company or such Subsidiary, constitute valid and binding agreements of the Company or such Subsidiary and are enforceable against and by the Company or such Subsidiary in accordance with the terms thereof, except where the enforcement thereof may be limited by equitable principles or bankruptcy laws.

(n) No statement, representation, warranty or covenant made by the Company in this Agreement or made in any certificate or document required by Section 6 of this Agreement to be delivered to the Representatives was or will be, when made, inaccurate, untrue or incorrect in any material respect.

(o) The Company has not distributed and will not distribute prior to the later of (i) the Closing Date or, if later, the Option Closing Date, and (ii) completion of the distribution of the Shares, any offering material in connection with the offering and sale of the Shares other than any preliminary prospectuses, the Prospectus, the Registration Statement and other materials, if any, permitted by the Act. Neither the Company nor, to the knowledge of the Company, any of its directors, officers or controlling persons has taken, directly or indirectly, any action designed, or which might reasonably be expected, to cause or result, under the Act or otherwise, in, or which has constituted, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares.

(p) No holder of securities of the Company has rights to the registration of any securities of the Company because of the filing of the Registration Statement, which rights have not been waived by the holder thereof as of the date hereof.

(q) The Company’s Common Stock is included on the Nasdaq National Market (“the NNM”) and the Shares to be sold by the Company hereunder have been approved for inclusion, subject to official notice of issuance of such Shares. The Option Shares to be sold by the Selling Stockholders hereunder are included on the NNM.

(r) Except as disclosed in or specifically contemplated by the Prospectus (i) the Company and its Subsidiaries have sufficient trademarks, trade names, patents, patent rights, mask works, copyrights, licenses, approvals and governmental authorizations to conduct their businesses as now conducted and to the Company’s knowledge, none of the foregoing intellectual property rights owned or licensed by the Company is invalid or unenforceable, (ii) the Company has no knowledge of any infringement by it or any of its Subsidiaries of trademarks, trade names, patents, patent rights, mask work rights, copyrights, licenses, trade secrets or other similar rights of others, where such infringement could have a material and adverse effect on the Company, any of its Subsidiaries, or the business, properties, business prospects, condition (financial or otherwise) or results of operations of the Company or any of its Subsidiaries, (iii) the Company is not aware of any infringement, misappropriation or violation by others of, or conflict by others with rights of the Company with respect to, any of the foregoing intellectual property rights, and (iv) there is no claim being made against the Company or any of its Subsidiaries, or to the Company’s knowledge, any employee of the Company or any of its Subsidiaries, regarding trademark, trade name, patent, mask work, copyright, license, trade secret or other infringement which could reasonably be expected to have a material and adverse effect on the Company, any of its Subsidiaries, or the business, properties, business prospects, condition (financial or otherwise) or results of operations of the Company or any of its Subsidiaries.

(s) The Company and each of its Subsidiaries have filed all federal, state, local and foreign income tax returns which have been required to be filed and have paid all taxes and assessments received by them to the extent that such taxes or assessments have become due. Neither the Company nor any of its Subsidiaries has any tax deficiency which has been or, to the best knowledge of the Company, might be asserted or threatened against them which could reasonably be expected to have a material and adverse effect on the business, properties, business prospects, condition (financial or otherwise) or results of operations of the Company or any of its Subsidiaries, singly or taken as a whole.

(t) The pro forma financial information set forth in the Registration Statement reflects, subject to the limitations and assumptions set forth in the Registration Statement as to such pro forma financial information, the

results of operations of the Company and its consolidated Subsidiaries purported to be shown thereby for the periods indicated and conforms to the requirements of Regulation S-X of the Rules and Regulations, and management of the Company believes (i) the assumptions underlying the pro forma adjustments are reasonable, (ii) that such adjustments have been properly applied to the historical amounts in the compilation of such pro forma statements and notes thereto, and (iii) that such statements and notes thereto present fairly, with respect to the Company and its consolidated Subsidiaries, the pro forma financial position and results of operations and the other information purported to be shown therein at the respective dates or for the respective periods therein specified.

(u) The Company or its Subsidiaries own or possess all authorizations, approvals, orders, licenses, registrations, other certificates and permits of and from all governmental regulatory officials and bodies, necessary to conduct their respective businesses as contemplated in the Prospectus, except where the failure to own or possess all such authorizations, approvals, orders, licenses, registrations, other certificates and permits would not materially and adversely affect the Company, any of its Subsidiaries, or the business, properties, business prospects, condition (financial or otherwise) or results of operations of the Company or any of its Subsidiaries. There is no proceeding pending or threatened (or any basis therefor known to the Company) which may cause any such authorization, approval, order, license, registration, certificate or permit to be revoked, withdrawn, cancelled, suspended or not renewed; and the Company and each of its Subsidiaries is conducting its business in compliance with all laws, rules and regulations applicable thereto (including, without limitation, all applicable federal, state and local environmental laws and regulations), except where such noncompliance would not materially and adversely affect the Company, any of its Subsidiaries, or the business, properties, business prospects, condition (financial or otherwise) or results of operations of the Company or any of its Subsidiaries.

(v) The Company and each of its Subsidiaries maintains insurance of the types and in the amounts generally deemed adequate for its business, including, but not limited to, insurance covering real and personal property owned or leased by the Company and its Subsidiaries against theft, damage, destruction, acts of vandalism and all other risks customarily insured against, all of which insurance is in full force and effect.

(w) Neither the Company nor any of its Subsidiaries has nor, to the Company’s knowledge, any of its or their respective employees or agents at any time during the last five years (i) made any unlawful contribution to any candidate for foreign office, or failed to disclose fully any contribution in violation of law, or (ii) made any payment to any federal or state governmental officer or official, or other person charged with similar public or quasi-public duties, other than payments required or permitted by the laws of the United States or any jurisdiction thereof.

(x) The Company and each of its Subsidiaries is in compliance in all material respects with all presently applicable provisions of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder (“ERISA”); no “reportable event” (as defined in ERISA) has occurred with respect to any “pension plan” (as defined in ERISA) for which the Company or any Subsidiary would have any liability; neither the Company nor any Subsidiary has incurred or expects in incur liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any “pension plan” or (ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended, including the regulations and published interpretations thereunder (the “Code”); and each “pension plan” for which the Company or any Subsidiary would have any liability that is intended to be qualified under Section 401(a) of the Code is so qualified in all material respects, and nothing has occurred, whether by action or by failure to act, which would cause the loss of such qualification.

4. Representations, Warranties and Covenants of the Selling Stockholders.

Each Selling Stockholder, severally and not jointly, represents, warrants and covenants to each Underwriter that:

(a) All consents, approvals, authorizations and orders necessary for the execution and delivery by such Selling Stockholder of this Agreement and the Power-of-Attorney and Custody Agreement (hereinafter referred to as a “Stockholders’ Agreement”) hereinafter referred to, and for the sale and delivery of the Selling Stockholder Option Shares to be sold by such Selling Stockholder hereunder, have been obtained; and such Selling Stockholder has full right, power and authority to enter into this Agreement and the Stockholders’ Agreement, to make the representations, warranties and agreements hereunder and thereunder, and to sell, assign, transfer and deliver the Shares to be sold by such Selling Stockholder hereunder.

(b) Certificates in negotiable form representing all of the Option Shares to be sold by such Selling Stockholder have been placed in custody under the Stockholders’ Agreement, in the form heretofore furnished to you, duly executed and delivered by such Selling Stockholder to the Custodian, and such Selling Stockholder has duly executed and delivered a power-of-attorney, in the form heretofore furnished to you and included in the Stockholders’ Agreement (the “Power-of-Attorney”), appointing Thomas G. Hood and Robert R. Freeman, or either of them, as such Selling Stockholder’s attorney-in-fact (the “Attorneys-in-Fact”) with authority to execute and deliver this Agreement on behalf of such Selling Stockholder, to determine (subject to the provisions of the Stockholders’ Agreement) the purchase price to be paid by the Underwriters to the Selling Stockholders as provided in Section 2 hereof, to authorize the delivery of the Option Shares to be sold by such Selling Stockholder hereunder and otherwise to act on behalf of such Selling Stockholder in connection with the transactions contemplated by this Agreement and the Stockholders’ Agreement.

(c) Such Selling Stockholder specifically agrees that the Option Shares represented by the certificates held in custody for such Selling Stockholder under the Stockholders’ Agreement are for the benefit of and coupled with and subject to the interests of the Underwriters, the Custodian, the Attorneys-in-Fact, each other Selling Stockholder and the Company, that the arrangements made by such Selling Stockholder for such custody, and the appointment by such Selling Stockholder of the Attorneys-in-Fact by the Power-of-Attorney, are, except as specifically provided in the Stockholders’ Agreement, to that extent irrevocable, and that the obligations of such Selling Stockholder hereunder shall not be terminated by operation of law, whether by the death, disability, incapacity, liquidation or dissolution of any Selling Stockholder or by the occurrence of any other event. If any individual Selling Stockholder or any executor or trustee for a Selling Stockholder should die or become incapacitated, or if any Selling Stockholder that is an estate or trust should be terminated, or if any Selling Stockholder that is a partnership or corporation should be dissolved, or if any other such event should occur, before the delivery of the Option Shares hereunder, certificates representing the Option Shares shall be delivered by or on behalf of the Selling Stockholder in accordance with the terms and conditions of this Agreement and of the Stockholders’ Agreement, and actions taken by the Attorneys-in-Fact pursuant to the Powers-of-Attorney shall be as valid as if such death, incapacity, termination, dissolution or other event had not occurred, regardless of whether or not the Custodian, the Attorneys-in-Fact, or any of them, shall have received notice of such death, incapacity, termination, dissolution or other event.

(d) This Agreement and the Stockholders’ Agreement have each been duly authorized, executed and delivered by or on behalf of such Selling Stockholder and each such document constitutes a valid and binding obligation of such Selling Stockholder, enforceable in accordance with its terms, except where the enforcement thereof may be limited by equitable principles or bankruptcy laws.

(e) No consent, approval, authorization or order of, or any filing or declaration with, any court or governmental agency or body is required in connection with the sale of the Option Shares by such Selling Stockholder or the consummation by such Selling Stockholder of the transactions on its part contemplated by this Agreement and the Stockholders’ Agreement, except such as have been obtained under the Act or the Rules and Regulations and such as may be required under state securities or Blue Sky laws or the by-laws and rules of the NASD in connection with the purchase and distribution by the Underwriters of the Option Shares to be sold by such Selling Stockholder.

(f) The sale of the Option Shares to be sold by such Selling Stockholder hereunder and the performance by such Selling Stockholder of this Agreement and the Stockholders’ Agreement and the consummation of the transactions contemplated hereby and thereby will not result in the creation or imposition of any lien, charge or encumbrance upon any of the assets of such Selling Stockholder pursuant to the terms or provisions of, or result in a breach or violation of any of the terms or provisions of, or constitute a default under, or give any party a right to terminate any of its obligations under, or result in the acceleration of any obligation under, any indenture, mortgage, deed of trust, voting trust agreement, loan agreement, bond, debenture, note agreement or other evidence of indebtedness, lease, contract or other agreement or instrument to which such Selling Stockholder is a party or by which such Selling Stockholder or any of its properties is bound or affected, or violate or conflict with any judgment, ruling, decree, order, statute, rule or regulation of any court or other governmental agency or body applicable to such Selling Stockholder or, if such Selling Stockholder is a corporation, partnership or other entity, the organizational documents of such Selling Stockholder.

(g) Such Selling Stockholder has, and at the Closing Date and, if later, the Option Closing Date, will have, good and marketable title to the Option Shares to be sold by such Selling Stockholder hereunder, free and clear of all liens, encumbrances, equities or claims whatsoever; and, upon delivery of such Option Shares and payment therefor pursuant hereto, good and marketable title to such Option Shares, free and clear of all liens, encumbrances, equities or claims whatsoever, will be delivered to the Underwriters.

(h) On the Option Closing Date, all stock transfer or other taxes (other than income taxes) that are required to be paid in connection with the sale and transfer of the Option Shares to be sold by such Selling Stockholder to the several Underwriters hereunder will have been fully paid or provided for by such Selling Stockholder and all laws imposing such taxes will have been fully complied with.

(i) Other than as permitted by the Act and the Rules and Regulations, such Selling Stockholder has not distributed and will not distribute any preliminary prospectus, the Prospectus or any other offering material in connection with the offering and sale of the Shares. Such Selling Stockholder has not taken and will not at any time take, directly or indirectly, any action designed, or which might reasonably be expected, to cause or result in, or which will constitute, stabilization of the price of shares of Common Stock to facilitate the sale or resale of any of the Shares.

(j) All information with respect to such Selling Stockholder contained in the Registration Statement, any preliminary prospectus, the Prospectus or any amendment or supplement thereto complied or will comply in all material respects with all applicable requirements of the Act and the Rules and Regulations and does not and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading.

(k) Such Selling Stockholder has no knowledge of any material fact or condition not set forth in the Registration Statement or the Prospectus that has adversely affected, or would be reasonably likely to adversely affect, the business, properties, business prospects, condition (financial or otherwise) or results of operations of the Company and its Subsidiaries, and the sale of the Option Shares proposed to be sold by such Selling Stockholder is not prompted by any such knowledge.

(l) Such Selling Stockholder has no reason to believe that the representations and warranties of the Company contained in Section 3 hereof are not true and correct in all material respects.

(m) In order to document the Underwriters’ compliance with the reporting and withholding provisions of the Tax Equity and Fiscal Responsibility Act of 1982 with respect to the transactions herein contemplated, such Selling Stockholder agrees to deliver to you prior to or at the Closing Date a properly completed and executed United States Treasury Department Form W-9 (or other applicable form or statement specified by Treasury Department regulations in lieu thereof).

(n) Such Selling Stockholder, directly or indirectly, has not entered into any commitment, transaction or other arrangement, including any prepaid forward contract, 10b5-1 plan or similar agreement, which transfers or may transfer any of the legal or beneficial ownership or any of the economic consequences of ownership of Common Stock of the Company, except as has been previously disclosed in writing to the Representatives.

5. Agreements of the Company and the Selling Stockholders.

Each of the Company and the Selling Stockholders, as applicable, respectively covenants and agrees with the several Underwriters as follows:

(a) The Company will not, either prior to the Effective Date or thereafter during such period as the Prospectus is required by law to be delivered in connection with sales of the Shares by an Underwriter or dealer, file any amendment or supplement to the Registration Statement or the Prospectus, unless a copy thereof shall first have been submitted to the Representatives within a reasonable period of time prior to the filing thereof and the Representatives shall not have objected thereto in good faith.

(b) The Company will use its best efforts to cause the Registration Statement to become effective, and will notify the Representatives promptly, and will confirm such advice in writing, (i) when the Registration Statement has become effective and when any post-effective amendment thereto becomes effective, (ii) of any request by the Commission for amendments or supplements to the Registration Statement or the Prospectus or for additional information, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose or the threat thereof, (iv) of the happening of any event during the period mentioned in the second sentence of Section 5(e) that in the judgment of the Company makes any statement made in the Registration Statement or the Prospectus untrue or that requires the making of any changes in the Registration Statement or the Prospectus in order to make the statements therein, in the light of the circumstances in which they are made, not misleading and (v) of receipt by the Company or any representative or attorney of the Company of any other communication from the Commission relating to the Company, the Registration Statement, any preliminary prospectus or the Prospectus. If at any time the Commission shall issue any order suspending the effectiveness of the Registration Statement, the Company will make every reasonable effort to obtain the withdrawal of such order at the earliest possible moment. If the Company has omitted any information from the Registration Statement pursuant to Rule 430A of the Rules and Regulations, the Company will comply with the provisions of and make all requisite filings with the Commission pursuant to said Rule 430A and notify the Representatives promptly of all such filings. If the Company elects to rely upon Rule 462(b) under the Act, the Company shall file a registration statement under Rule 462(b) with the Commission in compliance with Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the date of this Agreement, and the Company shall at the time of filing either pay to the Commission the filing fee for such Rule 462(b) registration statement or give irrevocable instructions for the payment of such fee pursuant to the Rules and Regulations.

(c) The Company will furnish to the Representatives, without charge, one signed copy of each of the Registration Statement and of any pre- or post-effective amendment thereto, including financial statements and schedules, and all exhibits thereto, and will furnish to the Representatives, without charge, for transmittal to each of the other Underwriters, a copy of the Registration Statement and any pre- or post-effective amendment thereto, including financial statements and schedules but without exhibits.

(d) The Company will comply with all the provisions of any undertakings contained in the Registration Statement.

(e) On the Effective Date, and thereafter from time to time, the Company will deliver to each of the Underwriters, without charge, as many copies of the Prospectus or any amendment or supplement thereto as the Representatives may reasonably request. The Company consents to the use of the Prospectus or any amendment or supplement thereto by the several Underwriters and by all dealers to whom the Shares may be sold, both in connection with the offering or sale of the Shares and for any period of time thereafter during which the Prospectus is required by law to be delivered in connection therewith. If during such period of time any event shall occur which in the reasonable judgment of the Company or counsel to the Underwriters should be set forth in the Prospectus in order to make any statement therein, in the light of the circumstances under which it was made, not misleading, or if it is necessary to supplement or amend the Prospectus to comply with law, the Company will forthwith prepare and duly file with the Commission an appropriate supplement or amendment thereto, and will deliver to each of the Underwriters, without charge, such number of copies of such supplement or amendment to the Prospectus as the Representatives may reasonably request.

(f) Prior to the public offering of the Shares contemplated by this Agreement, the Company will cooperate with the Representatives and counsel to the Underwriters in connection with the registration or qualification of the Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions as the Representatives may request; provided, that in no event shall the Company be obligated to qualify to do business in any jurisdiction where it is not now so qualified or to take any action which would subject it to general service of process in any jurisdiction where it is not now so subject.

(g) The Company will, so long as and to the extent required under the Rules and Regulations, furnish to its stockholders as soon as practicable after the end of each fiscal year an annual report (including a balance sheet and statements of income, stockholders’ equity and cash flow of the Company and its consolidated Subsidiaries, if any, certified by independent public accountants) and, as soon as practicable after the end of each of the first three quarters of each fiscal year (beginning with the fiscal quarter ending after the effective date of the Registration

Statement), consolidated summary financial information of the Company and its Subsidiaries, if any, for such quarter in reasonable detail.

(h) During the period of five years commencing on the Effective Date, the Company will furnish to the Representatives and each other Underwriter who may so request copies of such financial statements and other periodic and special reports as the Company may from time to time distribute generally to the holders of any class of its capital stock, and will furnish to the Representatives and each other Underwriter who may so request a copy of each annual or other report it shall be required to file with the Commission.

(i) The Company will timely file such reports under the Exchange Act as are necessary to make generally available to holders of its securities as soon as may be practicable an earning statement (which need not be audited but shall be in reasonable detail) covering a period of 12 months commencing after the Effective Date, which will satisfy the provisions of Section 11(a) of the Act (including Rule 158 of the Rules and Regulations).

(j) Whether or not the transactions contemplated by this Agreement are consummated or this Agreement is terminated, the Company and, unless otherwise paid by the Company, the Selling Stockholders will pay or reimburse if paid by the Representatives, in such proportions as they may agree upon themselves, all costs and expenses incident to the performance of the obligations of the Company and the Selling Stockholders under this Agreement and in connection with the transactions contemplated hereby, including but not limited to costs and expenses of or relating to (i) the preparation, printing and filing of the Registration Statement and exhibits to it, each preliminary prospectus, Prospectus and any amendment or supplement to the Registration Statement or Prospectus, (ii) the preparation and delivery of certificates representing the Shares, (iii) the printing of this Agreement, the Agreement Among Underwriters, any Selected Dealer Agreements, any Underwriters’ Questionnaires, the Stockholders’ Agreements, any Underwriters’ Powers of Attorney, and any invitation letters to prospective Underwriters, (iv) furnishing (including costs of shipping and mailing) such copies of the Registration Statement, the Prospectus and any preliminary prospectus, and all amendments and supplements thereto, as may be requested for use in connection with the offering and sale of the Shares by the Underwriters or by dealers to whom Shares may be sold, (v) the listing of the Shares on the NNM, (vi) any filings required to be made by the Underwriters with the NASD, and the fees, disbursements and other charges of counsel for the Underwriters in connection therewith, (vii) the registration or qualification of the Shares for offer and sale under the securities or Blue Sky laws of such jurisdictions designated pursuant to Section 5(f), including the fees, disbursements and other charges of counsel to the Underwriters in connection therewith, and the preparation and printing of preliminary, supplemental and final Blue Sky memoranda, (viii) fees, disbursements and other charges of counsel to the Company (but not those of counsel for the Underwriters, except as otherwise provided herein) and (ix) the transfer agent for the Shares. The Underwriters may deem the Company to be the primary obligor with respect to all costs, fees and expenses to be paid by the Company and by the Selling Stockholders. The Selling Stockholders will pay (directly or by reimbursement) all fees and expenses incident to the performance of their obligations under this Agreement that are not otherwise specifically provided for herein, including but not limited to any fees and expenses of counsel for such Selling Stockholders, any fees and expenses of the Attorneys-in-Fact and the Custodian, and all expenses and taxes incident to the sale and delivery of the Shares to be sold by such Selling Stockholders to the Underwriters hereunder.

(k) The Company and the Selling Stockholders will not at any time, directly or indirectly, take any action designed or which might reasonably be expected to cause or result in, or which will constitute, stabilization of the price of the shares of Common Stock to facilitate the sale or resale of any of the Shares.

(l) The Company will apply the net proceeds from the offering and sale of the Shares to be sold by the Company in the manner set forth in the Prospectus under “Use of Proceeds.”

(m) During the period beginning from the date hereof and continuing to and including the date 180 days after the date of the Prospectus, without the prior written consent of Needham & Company, Inc., the Company will not (1) offer, sell, contract to sell, pledge, grant options, warrants or rights to purchase or otherwise dispose of any equity securities of the Company or any other securities convertible into or exchangeable for its Common Stock or other equity security (other than pursuant hereto and to employee stock option plans and the stock purchase plan disclosed in the Prospectus or pursuant to the conversion of convertible securities or the exercise of warrants in each case outstanding on the date of this Agreement), or (2) enter into any swap or other derivatives transaction that transfers to another, in whole or in part, any of the economic benefits or risks of ownership of shares of

Common Stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Common Stock or other securities, in cash or otherwise.

(n) During the period of 180 days after the date of the Prospectus, the Company will not, without the prior written consent of Needham & Company, Inc., grant options to purchase shares of Common Stock at a price less than the offering price for the Shares. During the period of 180 days after the date of the Prospectus, the Company will not file with the Commission or cause to become effective any registration statement (other than a registration statement required to be filed by the Company in connection with the exercise of stockholder registration rights disclosed in the Prospectus, or a registration statement on Form S-8 filed to register securities issued or to be issued under employee stock option plans or the employee stock purchase plan, each such plan as disclosed in the Prospectus) filed relating to any securities of the Company without the prior written consent of Needham & Company, Inc.

(o) The Selling Stockholders will, and the Company will cause each of its officers, directors and certain of its stockholders designated by the Representatives to, enter into lock-up agreements with the Representatives to the effect that they will not, without the prior written consent of Needham & Company, Inc., sell, contract to sell or otherwise dispose of any shares of Common Stock or rights to acquire such shares according to the terms and subject to the exceptions set forth in Schedule III hereto.

6. Conditions of the Obligations of the Underwriters.

The obligations of each Underwriter hereunder are subject to the following conditions:

(a) Notification that the Registration Statement has become effective shall be received by the Representatives not later than 5:00 p.m., New York City time, on the date of this Agreement or at such later date and time as shall be consented to in writing by the Representatives and all filings required by Rule 424 and Rule 430A of the Rules and Regulations shall have been made. If the Company has elected to rely upon Rule 462(b), the registration statement filed under Rule 462(b) shall have become effective by 10:00 p.m., Washington, D.C. time, on the date of this Agreement.

(b) (i) No stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall be pending or threatened by the Commission, (ii) no order suspending the effectiveness of the Registration Statement or the qualification or registration of the Shares under the securities or Blue Sky laws of any jurisdiction shall be in effect and no proceeding for such purpose shall be pending before or threatened or contemplated by the Commission or the authorities of any such jurisdiction, (iii) any request for additional information on the part of the staff of the Commission or any such authorities shall have been complied with to the satisfaction of the staff of the Commission or such authorities, (iv) after the date hereof no amendment or supplement to the Registration Statement or the Prospectus shall have been filed unless a copy thereof was first submitted to the Representatives and counsel for the Underwriters and the Representatives do not object thereto in good faith, and (v) the Representatives shall have received certificates, dated the Closing Date and, if later, the Option Closing Date and signed by the Chief Executive Officer and the Chief Financial Officer of the Company (who may, as to proceedings threatened, rely upon the best of their information and belief), to the effect of clauses (i), (ii) and (iii) of this paragraph.

(c) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, (i) there shall not have been a material adverse change in the general affairs, business, business prospects, properties, management, condition (financial or otherwise) or results of operations of the Company or any of its Subsidiaries, whether or not arising from transactions in the ordinary course of business, in each case other than as described in or contemplated by the Registration Statement and the Prospectus, and (ii) the Company shall not have sustained any material loss or interference with its business or properties from fire, explosion, flood or other casualty, whether or not covered by insurance, or from any labor dispute or any court or legislative or other governmental action, order or decree, which is not described in the Registration Statement and the Prospectus, if in the reasonable judgment of the Representatives any such development makes it impracticable or inadvisable to consummate the sale and delivery of the Shares by the Underwriters at the initial public offering price.

(d) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, there shall have been no litigation or other proceeding instituted against the Company, any of its Subsidiaries, or any of its or their officers or directors in their capacities as such, before or by any Federal, state or local court, commission, regulatory body, administrative agency or other governmental body, domestic or foreign, in which litigation or proceeding an unfavorable ruling, decision or finding would, in the reasonable judgment of the Representatives, materially and adversely affect the business, properties, business prospects, condition (financial or otherwise) or results of operations of the Company or any of its Subsidiaries.

(e) Each of the representations and warranties of the Company and the Selling Stockholders contained herein shall be true and correct in all material respects at the Closing Date and, with respect to the Option Shares, at the Option Closing Date, and all covenants and agreements contained herein to be performed on the part of the Company or the Selling Stockholders and all conditions contained herein to be fulfilled or complied with by the Company or the Selling Stockholders at or prior to the Closing Date and, with respect to the Option Shares, at or prior to the Option Closing Date, shall have been duly performed, fulfilled or complied with.

(f) The Representatives shall have received an opinion, dated the Closing Date and, with respect to the Option Shares, the Option Closing Date, satisfactory in form and substance to the Representatives and counsel for the Underwriters, from Choate, Hall & Stewart, counsel to the Company and the Selling Stockholders, with respect to the following matters:

(i) Each of the Company and its Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation; has full corporate power and authority to conduct all the activities conducted by it, to own or lease all the assets owned or leased by it and to conduct its business as described in the Registration Statement and Prospectus; and is duly licensed or qualified to do business and is in good standing as a foreign corporation in all jurisdictions in which the nature of the activities conducted by it or the character of the assets owned or leased by it makes such license or qualification necessary and where the failure to be licensed or qualified would have a material and adverse effect on the business or financial condition of the Company.

(ii) All of the outstanding shares of capital stock of the Company (including the Option Shares to be sold by the Selling Stockholders) have been duly authorized, validly issued and are fully paid and nonassessable, to such counsel’s knowledge, were issued pursuant to exemptions from the registration and qualification requirements of federal and applicable state securities laws, and were not issued in violation of or subject to any preemptive or, to such counsel’s knowledge, similar rights.

(iii) The Shares to be sold by the Company hereunder have been duly authorized and, when issued and paid for as contemplated by this Agreement, will be validly issued, fully paid and nonassessable; and no preemptive or similar rights exist with respect to any of the Shares or the issue and sale thereof.

(iv) All of the outstanding shares of capital stock of each Subsidiary have been duly authorized and validly issued and are fully paid and nonassessable, and owned by the Company free and clear of all claims, liens, charges and encumbrances; to such counsel’s knowledge, there are no securities outstanding that are convertible into or exercisable or exchangeable for capital stock of any Subsidiary.

(v) The authorized and outstanding capital stock of the Company is as set forth in the Registration Statement and the Prospectus in the column entitled “Actual” under the caption “Capitalization” (except for subsequent issuances, if any, pursuant to this Agreement or pursuant to reservations, agreements, employee benefit plans or the exercise of convertible securities, options or warrants referred to in the Prospectus). To such counsel’s knowledge, except as disclosed in or specifically contemplated by the Prospectus, there are no outstanding options, warrants or other rights calling for the issuance of, and no commitments, plans or arrangements to issue, any shares of capital stock of the Company or any security convertible into or exchangeable or exercisable for capital stock of the Company. The description of the capital stock of the Company in the Registration Statement and the Prospectus conforms in all material respects to the terms thereof.

(vi) To such counsel’s knowledge, there are no legal or governmental proceedings pending or threatened to which the Company or any of its Subsidiaries is a party or to which any of their respective properties is subject that are required to be described in the Registration Statement or the Prospectus but are not so described.

(vii) No consent, approval, authorization or order of, or any filing or declaration with, any court or governmental agency or body is required for the consummation by the Company of the transactions on its part contemplated under this Agreement, except such as have been obtained or made under the Act or the Rules and Regulations and such as may be required under state securities or Blue Sky laws or the by-laws and rules of the NASD in connection with the purchase and distribution by the Underwriters of the Shares.

(viii) The Company has full corporate power and authority to enter into this Agreement. This Agreement has been duly authorized, executed and delivered by the Company.

(ix) The execution and delivery of this Agreement, the compliance by the Company with all of the terms hereof and the consummation of the transactions contemplated hereby do not contravene any provision of applicable law or the Certificate of Incorporation or By-Laws of the Company or any of its Subsidiaries, and to such counsel’s knowledge will not result in the creation or imposition of any lien, charge or encumbrance upon any of the assets of the Company or any of its Subsidiaries pursuant to the terms and provisions of, result in a breach or violation of any of the terms or provisions of, or constitute a default under, or give any party a right to terminate any of its obligations under, or result in the acceleration of any obligation under, any indenture, mortgage, deed of trust, voting trust agreement, loan agreement, bond, debenture, note agreement or other evidence of indebtedness, lease, contract or other agreement or instrument known to such counsel to which the Company or any of its Subsidiaries is a party or by which the Company, any of its Subsidiaries, or any of their respective properties is bound or affected, or violate or conflict with (i) any judgment, ruling, decree or order known to such counsel, or (ii) any statute, rule or regulation of any court or other governmental agency or body, applicable to the business or properties of the Company or any of its Subsidiaries.

(x) To such counsel’s knowledge, there is no document or contract of a character required to be described in the Registration Statement or the Prospectus or to be filed as an exhibit to the Registration Statement which is not described or filed or incorporated by reference as required, and each description of such contracts and documents that is contained in the Registration Statement and Prospectus fairly presents in all material respects the information required under the Act and the Rules and Regulations.

(xi) The statements under the captions “Risk Factors - Offering Risks - Certain provisions of our charter, by-laws and Delaware law make a takeover difficult,” “Risk Factors - Offering Risks - The market price of our common stock may drop significantly when the restrictions on resale by our existing securityholders lapse,” “Management - 1997 Stock Incentive Plan and 1998 Stock Option Plan for Employees and Consultants,” “Related Party Transactions,” “Description of Capital Stock,” and “Shares Eligible for Future Sale” in the Prospectus, insofar as the statements constitute a summary of documents referred to therein or matters of law, are accurate summaries and fairly and correctly present, in all material respects, the information called for with respect to such documents and matters (provided, however, that such counsel may rely on representations of the Company and the Selling Stockholders, as appropriate, with respect to the factual matters contained in such statements, and provided further that such counsel shall state that nothing has come to the attention of such counsel which leads them to believe that such representations are not true and correct in all material respects).

(xii) The Company is not an “investment company” or an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment company,” as such terms are defined in the Investment Company Act of 1940, as amended.

(xiii) The Shares to be sold by the Selling Stockholders are duly listed on the NNM and the Shares to be sold by the Company have been duly authorized for listing on the NNM, subject to official notice of issuance.

(xiv) To such counsel’s knowledge, no holder of securities of the Company has rights, which have not been waived or satisfied, to require the register with the Commission shares of Common Stock or other securities, as part of the offering contemplated hereby.

(xv) Based upon a statement from an official with the Commission, the Registration Statement has become effective under the Act, and to the best of such counsel’s knowledge, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceeding for that purpose has been instituted or is pending, threatened or contemplated.

(xvi) The Registration Statement and the Prospectus comply as to form in all material respects with the requirements of the Act and the Rules and Regulations (other than the financial statements, schedules and other financial data contained in the Registration Statement or the Prospectus, as to which such counsel need express no opinion).

(xvii) Such counsel has participated in the preparation of the Registration Statement and Prospectus and has no reason to believe that, as of the Effective Date the Registration Statement, or any amendment or supplement thereto, (other than the financial statements, schedules and other financial data contained therein, as to which such counsel need express no opinion) contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus, or any amendment or supplement thereto, as of its date and the Closing Date and, if later, the Option Closing Date, contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading (other than the financial statements, schedules and other financial data contained therein, as to which such counsel need express no opinion).

(xviii) The documents incorporated by reference in the Prospectus (other than the financial statements, schedules and other financial data contained therein, as to which such counsel need express no opinion), when they were filed with the Commission, complied as to form in all material respects with the requirements of the Exchange Act and the Exchange Act Rules and Regulations.

(xix) This Agreement and the Stockholders’ Agreement have each been duly executed and delivered by or on behalf of each Selling Stockholder; the Stockholders’ Agreement constitutes a valid and binding agreement of such Selling Stockholder in accordance with its terms, except as enforceability may be limited by the application of bankruptcy, insolvency or other laws affecting creditors’ rights generally or by general principles of equity; the Attorneys-in-Fact and the Custodian have been duly authorized by such Selling Stockholder to deliver the Shares on behalf of such Selling Stockholder in accordance with the terms of this Agreement; and, to such counsel’s knowledge, the sale of the Shares to be sold by such Selling Stockholder hereunder, the performance by such Selling Stockholder of this Agreement and the Stockholders’ Agreement and the consummation of the transactions contemplated hereby and thereby will not result in a breach or violation of any of the terms or provisions of, or constitute a default under, or give any party a right to terminate any of its obligations under, or result in the acceleration of any obligation under any indenture, mortgage, deed of trust, voting trust agreement, loan agreement, bond, debenture, note agreement or other evidence of indebtedness, lease, contract or other agreement or instrument to which such Selling Stockholder is a party or by which such Selling Stockholder or any of its properties is bound or affected, or violate or conflict with any judgment, ruling, decree, order, statute, rule or regulation of any court or other governmental agency or body applicable to such Selling Stockholder or, if such Selling Stockholder is a corporation, partnership or other entity, the organizational documents of such Selling Stockholder.

(xx) No consent, approval, authorization or order of, or any filing or declaration with, any court or governmental agency or body is required for the consummation by the Selling Stockholders of the transactions on their part contemplated by this Agreement, except such as have been obtained or made under the Act or the Rules and Regulations and such as may be required under state securities or Blue Sky laws or the by-laws and rules of the NASD in connection with the purchase and distribution by the Underwriters of the Shares.

(xxi) Each Selling Stockholder has full legal right, power and authority to enter into this Agreement and the Stockholders’ Agreement and to sell, assign, transfer and deliver the Shares to be sold by such Selling Stockholder hereunder and, upon payment for such Shares and assuming that the Underwriters are purchasing such Shares in good faith and without notice of any other adverse claim within the meaning of the Uniform Commercial Code, the Underwriters will have acquired all rights of such Selling Stockholder in such Shares free of any adverse claim, any lien in favor of the Company and any restrictions on transfer imposed by the Company.

In rendering the opinions in subparagraphs (xix) - (xxi), such counsel may rely upon opinions of other counsel retained by the Selling Stockholders reasonably acceptable to the Representatives and as to matters of fact on certificates of the Selling Stockholders, officers of the Company and governmental officials and the representations and warranties of the Company and the Selling Stockholders contained in this Agreement and the Stockholders’ Agreement, provided that the opinion of counsel to the Company and Selling Stockholders shall state that they are doing so, that they have no reason to believe that they and the Underwriters are not entitled to rely on such opinions or certificates and that copies of such opinions or certificates are to be attached to the opinion.

In rendering such opinion, such counsel may rely upon as to matters of local law on opinions of counsel satisfactory in form and substance to the Representatives and counsel for the Underwriters, provided that the opinion of counsel to the Company and the Selling Stockholders shall state that they are doing so, that they have no reason to believe that they and the Underwriters are not entitled to rely on such opinions and that copies of such opinions are to be attached to the opinion.

(g) The Representatives shall have received an opinion, dated the Closing Date and the Option Closing Date, from Tonkon Torp LLP, counsel to the Underwriters, with respect to the Registration Statement, the Prospectus and this Agreement, which opinion shall be satisfactory in all respects to the Representatives.

(h) Concurrently with the execution and delivery of this Agreement, the Accountants shall have furnished to the Representatives a letter, dated the date of its delivery, addressed to the Representatives and the Company’s Board of Directors, and in form and substance satisfactory to the Representatives, confirming that they are independent accountants with respect to the Company and its Subsidiaries as required by the Act, the Exchange Act, the Rules and Regulations and the Exchange Act Rules and Regulations, and with respect to certain financial and other statistical and numerical information contained in the Registration Statement. At the Closing Date and, as to the Option Shares, the Option Closing Date, the Accountants shall have furnished to the Representatives and the Company’s Board of Directors a letter, dated the date of its delivery, which shall confirm, on the basis of a review in accordance with the procedures set forth in the letter from the Accountants, that nothing has come to their attention during the period from the date of the letter referred to in the prior sentence to a date (specified in the letter) not more than three days prior to the Closing Date and the Option Closing Date, as the case may be, which would require any change in their letter dated the date hereof if it were required to be dated and delivered at the Closing Date and the Option Closing Date.

(i) Concurrently with the execution and delivery of this Agreement and at the Closing Date and, as to the Option Shares, the Option Closing Date, there shall be furnished to the Representatives a certificate, dated the date of its delivery, signed by each of the Chief Executive Officer and the Chief Financial Officer of the Company, in form and substance satisfactory to the Representatives, to the effect that:

(i) Each signer of such certificate has carefully examined the Registration Statement and the Prospectus and (A) as of the date of such certificate, such documents are true and correct in all material respects and do not omit to state a material fact required to be stated therein or necessary in order to make the statements therein not untrue or misleading, and (B) in the case of the certificate delivered at the Closing Date and the Option Closing Date, since the Effective Date, no event has occurred as a result of which it is necessary to amend or supplement the Prospectus in order to make the statements therein not untrue or misleading.

(ii) Each of the representations and warranties of the Company contained in this Agreement were, when originally made, and are, at the time such certificate is delivered, true and correct.

(iii) Each of the covenants required to be performed by the Company herein on or prior to the date of such certificate has been duly, timely and fully performed and each condition herein required to be satisfied or fulfilled on or prior to the date of such certificate has been duly, timely and fully satisfied or fulfilled.

(j) Concurrently with the execution and delivery of this Agreement and at the Closing Date, and, as to the Option Shares, the Option Closing Date, there shall be furnished to the Representatives a certificate, dated the date of its delivery, signed by the Selling Stockholders (or the Attorneys-in-Fact on their behalf), in form and substance satisfactory to the Representatives, to the effect that the representations and warranties of the Selling Stockholders contained herein are true and correct in all material respects on and as of the date of such certificate as if made on and as of the date of such certificate, and each of the covenants and conditions required herein to be performed or complied with by the Selling Stockholders on or prior to the date of such certificate has been duly, timely and fully performed or complied with.

(k) On or prior to the Closing Date, the Representatives shall have received the executed agreements referred to in Section 5(o).

(l) The Shares shall be qualified for sale in such jurisdictions as the Representatives may reasonably request and each such qualification shall be in effect and not subject to any stop order or other proceeding on the Closing Date or the Option Closing Date.

(m) Prior to the Closing Date, the Firm Shares and the Company Option Shares shall have been duly authorized for listing on the NNM upon official notice of issuance.

(n) The Company and the Selling Stockholders shall have furnished to the Representatives such certificates, in addition to those specifically mentioned herein, as the Representatives may have reasonably requested as to the accuracy and completeness at the Closing Date and the Option Closing Date of any statement in the Registration Statement or the Prospectus, as to the accuracy at the Closing Date and the Option Closing Date of the representations and warranties of the Company and the Selling Stockholders herein, as to the performance by the Company and the Selling Stockholders of its and their respective obligations hereunder, or as to the fulfillment of the conditions concurrent and precedent to the obligations hereunder of the Representatives.

7. Indemnification.

(a) The Company and each of the Selling Stockholders, jointly and severally, will indemnify and hold harmless each Underwriter, the directors, officers, employees and agents of each Underwriter and each person, if any, who controls each Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, from and against any and all losses, claims, liabilities, expenses and damages (including any and all investigative, legal and other expenses reasonably incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted), to which they, or any of them, may become subject under the Act, the Exchange Act, or other Federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, liabilities, expenses or damages arise out of or are based on any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus, the Registration Statement or the Prospectus, or any amendment or supplement to the Registration Statement or the Prospectus, or the omission or alleged omission to state in such document a material fact required to be stated in it or necessary to make the statements in it not misleading in the light of the circumstances in which they were made, or arise out of or are based in whole or in part on any inaccuracy in the representations and warranties of the Company or the Selling Stockholders contained herein or any failure of the Company or the Selling Stockholders to perform its or their obligations hereunder or under law in connection with the transactions contemplated hereby; provided, however, that (i) the Company and the Selling Stockholders will not be liable to the extent that such loss, claim, liability, expense or damage arises from the sale of the Shares in the public offering to any person by an Underwriter and is based on an untrue statement or omission or alleged untrue statement or omission made in reliance on and in conformity with information relating to any Underwriter furnished in writing to the Company by the Representatives, on behalf of any Underwriter, expressly for inclusion in the Registration Statement, the preliminary prospectus or the Prospectus; (ii) the Company and the Selling Stockholders will not be liable to any Underwriter, the directors, officers, employees or agents of such Underwriter or any person controlling such Underwriter with respect to any loss, claim, liability, expense, or

damage arising out of or based on any untrue statement or omission or alleged untrue statement or omission or alleged omission to state a material fact in the preliminary prospectus which is corrected in the Prospectus if the person asserting any such loss, claim, liability, charge or damage purchased Shares from such Underwriter but was not sent or given a copy of the Prospectus at or prior to the written confirmation of the sale of such Shares to such person and if copies of the Prospectus were timely delivered to such Underwriter pursuant to Section 5 hereof; and (iii) the liability of each Selling Stockholder under this Section 7(a) shall not exceed the product of the purchase price for each Share set forth in Section 1(a) hereof multiplied by the number of Option Shares sold by such Selling Stockholder hereunder. The Company and the Selling Stockholders acknowledge that the statements set forth in the first, second, ninth, tenth, eleventh and twelfth paragraphs under the heading “Underwriting” in the preliminary prospectus and the Prospectus constitute the only information relating to any Underwriter furnished in writing to the Company by the Representatives on behalf of the Underwriters expressly for inclusion in the Registration Statement, the preliminary prospectus or the Prospectus. This indemnity agreement will be in addition to any liability that the Company and the Selling Stockholders might otherwise have.

(b) Each Underwriter will indemnify and hold harmless the Company, each director of the Company, each officer of the Company who signs the Registration Statement, each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, and each Selling Stockholder to the same extent as the foregoing indemnity from the Company and each Selling Stockholder to each Underwriter, as set forth in Section 7(a), but only insofar as losses, claims, liabilities, expenses or damages arise out of or are based on any untrue statement or omission or alleged untrue statement or omission made in reliance on and in conformity with information relating to any Underwriter furnished in writing to the Company by the Representatives, on behalf of such Underwriter, expressly for use in the Registration Statement, the preliminary prospectus or the Prospectus. The Company and the Selling Stockholders acknowledge that the statements set forth in the first, second, ninth, tenth, eleventh and twelfth paragraphs under the heading “Underwriting” in the preliminary prospectus and the Prospectus constitute the only information relating to any Underwriter furnished in writing to the Company by the Representatives on behalf of the Underwriters expressly for inclusion in the Registration Statement, the preliminary prospectus or the Prospectus. This indemnity will be in addition to any liability that each Underwriter might otherwise have.

(c) Any party that proposes to assert the right to be indemnified under this Section 7 shall, promptly after receipt of notice of commencement of any action against such party in respect of which a claim is to be made against an indemnifying party or parties under this Section 7, notify each such indemnifying party in writing of the commencement of such action, enclosing with such notice a copy of all papers served, but the omission so to notify such indemnifying party will not relieve it from any liability that it may have to any indemnified party under the foregoing provisions of this Section 7 unless, and only to the extent that, such omission results in the loss of substantive rights or defenses by any indemnifying party. If any such action is brought against any indemnified party and it notifies the indemnifying party of its commencement, the indemnifying party will be entitled to participate in and, to the extent that it elects by delivering written notice to the indemnified party promptly after receiving notice of the commencement of the action from the indemnified party, jointly with any other indemnifying party similarly notified, to assume the defense of the action, with counsel reasonably satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense, the indemnifying party will not be liable to the indemnified party for any legal or other expenses except as provided below and except for the reasonable costs of investigation incurred by the indemnified party in connection with the defense. The indemnified party will have the right to employ its own counsel in any such action, but the fees, expenses and other charges of such counsel will be at the expense of such indemnified party unless (i) the employment of counsel by the indemnified party has been authorized in writing by the indemnifying party, (ii) the indemnified party has reasonably concluded (based on advice of counsel) that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party, (iii) a conflict or potential conflict exists (based on advice of counsel to the indemnified party) between the indemnified party and the indemnifying party (in which case the indemnifying party will not have the right to direct the defense of such action on behalf of the indemnified party), or (iv) the indemnifying party has not in fact employed counsel to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, in each of which cases the reasonable fees, disbursements and other charges of counsel will be at the expense of the indemnifying party or parties. It is understood that the indemnifying party or parties shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements and other charges of more than one separate firm admitted to practice in such

jurisdiction at any one time for all such indemnified party or parties. All such fees, disbursements and other charges will be reimbursed by the indemnifying party promptly as they are incurred. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement (i) includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action, and (ii) does not include a statement as to, or an admission of, fault, culpability or a failure to act by or on behalf of an indemnified party. An indemnifying party will not be liable for any settlement of any action or claim effected without its written consent (which consent will not be unreasonably withheld or delayed).

(d) If the indemnification provided for in this Section 7 is applicable in accordance with its terms but for any reason is held to be unavailable to or insufficient to hold harmless an indemnified party under paragraphs (a), (b) and (c) of this Section 7 in respect of any losses, claims, liabilities, expenses and damages referred to therein, then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable (including any investigative, legal and other expenses reasonably incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted, but after deducting any contribution received by the Company or the Selling Stockholders from persons other than the Underwriters, such as persons who control the Company within the meaning of the Act, officers of the Company who signed the Registration Statement and directors of the Company, who also may be liable for contribution) by such indemnified party as a result of such losses, claims, liabilities, expenses and damages in such proportion as shall be appropriate to reflect the relative benefits received by the Company and the Selling Stockholders, on the one hand, and the Underwriters, on the other hand. The relative benefits received by the Company and the Selling Stockholders, on the one hand, and the Underwriters, on the other hand, shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company and the Selling Stockholders bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. If, but only if, the allocation provided by the foregoing sentence is not permitted by applicable law, the allocation of contribution shall be made in such proportion as is appropriate to reflect not only the relative benefits referred to in the foregoing sentence but also the relative fault of the Company and the Selling Stockholders, on the one hand, and the Underwriters, on the other hand, with respect to the statements or omissions which resulted in such loss, claim, liability, expense or damage, or action in respect thereof, as well as any other relevant equitable considerations with respect to such offering. Such relative fault shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company, the Selling Stockholders or the Representatives on behalf of the Underwriters, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, the Selling Stockholders and the Underwriters agree that it would not be just and equitable if contributions pursuant to this Section 7(d) were to be determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss claim, liability, expense or damage, or action in respect thereof, referred to above in this Section 7(d) shall be deemed to include, for purposes of this Section 7(d), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7(d), no Underwriter shall be required to contribute any amount in excess of the underwriting discounts received by it and no person found guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) will be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters’ obligations to contribute as provided in this Section 7(d) are several in proportion to their respective underwriting obligations and not joint. For purposes of this Section 7(d), any person who controls a party to this Agreement within the meaning of the Act will have the same rights to contribution as that party, and each officer of the Company who signed the Registration Statement will have the same rights to contribution as the Company, subject in each case to the provisions hereof. Any party entitled to contribution, promptly after receipt of notice of commencement of any action against any such party in respect of which a claim for contribution may be made under this Section 7(d), will notify any such party or parties from whom contribution may be sought, but the omission so to notify will not relieve the party or parties from whom contribution may be sought from any other obligation it or they may have under this Section 7(d). No party will be liable for contribution with respect to any action or claim settled without its written consent (which consent will not be unreasonably withheld).

(e) The indemnity and contribution agreements contained in this Section 7 and the representations and warranties of the Company and the Selling Stockholders contained in this Agreement shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of the Underwriters, (ii) acceptance of any of the Shares and payment therefor, or (iii) any termination of this Agreement.

8. Reimbursement of Certain Expenses.

In addition to its other obligations under Section 7(a) of this Agreement, the Company hereby agrees to reimburse on a quarterly basis the Underwriters for all reasonable legal and other expenses incurred in connection with investigating or defending any claim, action, investigation, inquiry or other proceeding arising out of or based upon, in whole or in part, any statement or omission or alleged statement or omission, or any inaccuracy in the representations and warranties of the Company or the Selling Stockholders contained herein or failure of the Company or the Selling Stockholders to perform its or their respective obligations hereunder or under law, all as described in Section 7(a), notwithstanding the absence of a judicial determination as to the propriety and enforceability of the obligations under this Section 8 and the possibility that such payment might later be held to be improper; provided, however, that, to the extent any such payment is ultimately held to be improper, the persons receiving such payments shall promptly refund them.

9. Termination.

The obligations of the several Underwriters under this Agreement may be terminated at any time on or prior to the Closing Date (or, with respect to the Option Shares, on or prior to the Option Closing Date), by notice to the Company and the Selling Stockholders from the Representatives, without liability on the part of any Underwriter to the Company if, prior to delivery and payment for the Firm Shares or Option Shares, as the case may be, in the sole judgment of the Representatives (i) trading in any of the equity securities of the Company shall have been suspended by the Commission or by The Nasdaq Stock Market, (ii) trading in securities generally on The Nasdaq Stock Market shall have been suspended or limited or minimum or maximum prices shall have been generally established in such market, or additional material governmental restrictions, not in force on the date of this Agreement, shall have been imposed upon trading in securities generally by such market, by order of the Commission or any court or other governmental authority, (iii) a general banking moratorium shall have been declared by Federal authority, or (iv) any material adverse change in the financial or securities markets in the United States or in political, financial or economic conditions in the United States or any outbreak or material escalation of war or armed hostilities or other national or international calamity, crisis or terrorist act shall have occurred, the effect of which is such as to make it, in the sole judgment of the Representatives, impracticable or inadvisable to proceed with completion of the public offering or the delivery of and payment for the Shares.

If this Agreement is terminated pursuant to Section 9 hereof, neither the Company nor any Selling Stockholder shall be under any liability to any Underwriter except as provided in Sections 5(j), 7 and 8 hereof; but, if due to the breach of this Agreement by the Company or the Selling Stockholders the purchase of the Shares by the Underwriters is not consummated or if for any reason the Company shall be unable to perform its obligations hereunder, the Company and the Selling Stockholders in addition to any liability under Sections 5(j), 7 and 8 or otherwise hereunder will reimburse the several Underwriters for all reasonable out-of-pocket expenses (including the reasonable fees, disbursements and other charges of counsel to the Underwriters) incurred by them in connection with the offering of the Shares.

10. Substitution of Underwriters.

If any one or more of the Underwriters shall fail or refuse to purchase any of the Firm Shares which it or they have agreed to purchase hereunder, and the aggregate number of Firm Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase is not more than one-tenth of the aggregate number of Firm Shares, the other Underwriters shall be obligated, severally, to purchase the Firm Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase, in the proportions which the number of Firm Shares which they have respectively agreed to purchase pursuant to Section 1 bears to the aggregate number of Firm Shares which all such non-defaulting Underwriters have so agreed to purchase, or in such other proportions as the Representatives may specify; provided that in no event shall the maximum number of Firm Shares which any Underwriter has become obligated to purchase pursuant to Section 1 be increased pursuant to this

Section 10 by more than one-ninth of such number of Firm Shares without the prior written consent of such Underwriter. In any such case either the Representatives or the Company shall have the right to postpone the Closing Date, but in no event for longer than seven days, in order that the required changes, if any, in the Registration Statement and the Prospectus or in any other documents or arrangements may be effected. If any Underwriter or Underwriters shall fail or refuse to purchase any Firm Shares and the aggregate number of Firm Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase exceeds one-tenth of the aggregate number of the Firm Shares and arrangements satisfactory to the Representatives and the Company for the purchase of such Firm Shares are not made within 48 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Underwriter, the Company or the Selling Stockholders for the purchase or sale of any Shares under this Agreement. Any action taken pursuant to this Section 10 shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement.

11. Miscellaneous.

Notice given pursuant to any of the provisions of this Agreement shall be in writing and, unless otherwise specified, shall be mailed or delivered (a) if to the Company or the Selling Stockholders, at the office of the Company, 1029 Corporation Way, Palo Alto, California 94303, Attention: Chief Executive Officer, with a copy to James W. Hackett, Jr., Esq., Choate, Hall & Stewart, 53 State Street, Boston, Massachusetts 02109, or (b) if to the Underwriters, to Needham & Company, Inc., 445 Park Avenue, New York, New York 10022, Attention: Corporate Finance Department, with a copy to Thomas P. Palmer, Esq., Tonkon Torp LLP, 888 S.W. Fifth Avenue, Portland, Oregon 97204. Any such notice shall be effective only upon receipt. Any notice under such Section 9 or 10 may be made by telecopier or telephone, but if so made shall be subsequently confirmed in writing.

This Agreement has been and is made solely for the benefit of the several Underwriters, the Company, the Selling Stockholders and the controlling persons, directors and officers referred to in Section 7, and their respective successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. The term “successors and assigns” as used in this Agreement shall not include a purchaser, as such purchaser, of Shares from any of the several Underwriters.

Any action required or permitted to be taken by the Representatives under this Agreement may be taken by them jointly or by Needham & Company, Inc.

This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed entirely within such State.

This Agreement may be signed in two or more counterparts with the same effect as if the signatures thereto and hereto were upon the same instrument.

In case any provision in this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

The Company and the Underwriters each hereby waive any right they may have to a trial by jury in respect of any claim based upon or arising out of this Agreement or the transactions contemplated hereby.

Please confirm that the foregoing correctly sets forth the agreement among the Company, the Selling Stockholders and the several Underwriters.

	Very truly yours,

	SOUTHWALL TECHNOLOGIES INC.

	By:
		Title:

	SELLING STOCKHOLDERS
	(named in Schedule II hereto)

	By:
	Attorney-in-Fact


Confirmed as of the date first
above mentioned:

NEEDHAM & COMPANY, INC.

	Acting on behalf of themselves
	and as the Representatives of
	the other several Underwriters
	named in Schedule I hereto.

NEEDHAM & COMPANY, INC.
By:
	Title:

ADAMS, HARKNESS & HILL, INC.

	Acting on behalf of themselves
	and as the Representatives of
	the other several Underwriters
	named in Schedule I hereto.

ADAMS, HARKNESS & HILL, INC.

By:
	Title:

WELLS FARGO SECURITIES, LLC

	Acting on behalf of themselves
	and as the Representatives of
	the other several Underwriters
	named in Schedule I hereto.

WELLS FARGO SECURITIES, LLC

By:
	Title:

SCHEDULE I

UNDERWRITERS

Underwriters		Number of Firm Shares to be Purchased

Needham & Company, Inc.
Adams, Harkness & Hill, Inc.
Wells Fargo Securities, LLC

Total

SCHEDULE II

	Total Number of Firm Shares to be Sold	Total Number of Option Shares to be Sold

Southwall Technologies Inc.
[Selling Stockholder 1]
[Selling Stockholder 2]
TOTALS

SCHEDULE III

SOUTHWALL TECHNOLOGIES INC.

LOCK-UP AGREEMENT

_______________, 200_

Needham & Company, Inc.

445 Park Avenue

New York, NY 10022

Ladies and Gentlemen:

The undersigned is a holder of securities of Southwall Technologies Inc., a Delaware corporation (the “Company”), and wishes to facilitate the public offering of shares of the Common Stock (the “Common Stock”) of the Company (the “Offering”). The undersigned recognizes that such Offering will be of benefit to the undersigned.

In consideration of the foregoing and in order to induce you to act as underwriters in connection with the Offering, the undersigned hereby agrees that he, she or it will not, without the prior written approval of Needham & Company, Inc., acting on its own behalf and/or on behalf of other representatives of the underwriters, directly or indirectly, sell, contract to sell, make any short sale, pledge, or otherwise dispose of, or enter into any hedging transaction that is likely to result in a transfer of, any shares of Common Stock, options to acquire shares of Common Stock or securities exchangeable for or convertible into shares of Common Stock of the Company which he, she or it may own, exclusive of any shares of Common Stock purchased in the public trading market and exclusive of any shares of Common Stock disposed of under the terms of the attached Rule 10b5-1 trading plan, for a period commencing as of the date hereof and ending on the date which is one hundred eighty (180) days after the date of the final Prospectus relating to the Offering. The undersigned confirms that he, she or it understands that the underwriters and the Company will rely upon the representations set forth in this Agreement in proceeding with the Offering. The undersigned further confirms that the agreements of the undersigned are irrevocable and shall be binding upon the undersigned’s heirs, legal representatives, successors and assigns. The undersigned agrees and consents to the entry of stop transfer instructions with the Company’s transfer agent against the transfer of securities held by the undersigned except in compliance with this Agreement.

This Agreement shall be binding on the undersigned and his, her or its respective successors, heirs, personal representatives and assigns.

	Very truly yours,


	(Print Shareholder Name)

	By:
	Title, if applicable:

EXHIBIT 10.119

STANDARD INDUSTRIAL LEASE

BY AND BETWEEN

C & J DEVELOPMENT CO.,

AS LANDLORD

AND

SOUTHWALL TECHNOLOGIES, INC.

AS TENANT

TABLE OF CONTENTS

ITEM

1.	USE
2.	TERM
3.	POSSESSION
4.	MONTHLY RENT
5.	ADJUSTMENT OF BASIC RENT
6.	RESTRICTION ON USE
7.	COMPLIANCE WITH LAWS
8.	ALTERATIONS
9.	REPAIR AND MAINTENANCE
10.	LIENS
11.	INSURANCE
12.	UTILITIES AND SERVICE
13.	TAXES AND OTHER CHARGES
14.	ENTRY BY LANDLORD
15.	COMMON AREA; PARKING
16.	COMMON AREA CHARGES
17.	DAMAGE BY FIRE; CASUALTY
18.	INDEMNIFICATION
19.	ASSIGNMENT AND SUBLETTING
20.	DEFAULT
21.	LANDLORD’S RIGHT TO CURE TENANT’S DEFAULT
22.	EMINENT DOMAIN
23.	NOTICE AND COVENANT TO SURRENDER
24.	TENANT’S QUITCLAIM
25.	HOLDING OVER
26.	SUBORDINATION
27.	CERTIFICATE OF ESTOPPEL
28.	SALE BY LANDLORD
29.	ATTORNMENT TO LENDER OR THIRD PARTY
30.	DEFAULT BY LANDLORD
31.	CONSTRUCTION CHANGES
32.	MEASUREMENT OF PREMISES
33.	ATTORNEY FEES
34.	SURRENDER
35.	WAIVER
36.	EASEMENTS; AIRSPACE RIGHTS
37.	RULES AND REGULATIONS
38.	NOTICES
39.	NAME
40.	GOVERNING LAW; SEVERABILITY
41.	DEFINITIONS
42.	TIME
43.	EXAMINATION OF LEASE
44.	INTEREST ON PAST DUE OBLIGATIONS; LATE CHARGE
45.	ENTIRE AGREEMENT
46.	CORPORATE AUTHORITY
47.	RECORDING
48.	REAL ESTATE BROKERS
49.	EXHIBITS AND ATTACHMENTS
50.	ENVIRONMENTAL MATTERS
51.	SIGNAGE
52.	SUBMISSION OF LEASE
53.	ADDITIONAL RENT
54.	PREMISES TAKEN “AS IS”
55.	CAPITAL EXPENDITURES

LEASE

THIS LEASE is made this ____ day of October, 1999, by and between C&J Development Co., a California limited partnership, (“Landlord”) and Southwall Technologies, Inc. (formerly The Southwall Corporation), a Delaware corporation (“Tenant”).

W I T N E S S E T H:

Landlord leases to Tenant and Tenant leases from Landlord those certain premises outlined in red on Exhibit A (the “Premises”) commonly known as 1029 Corporation Way, Palo Alto, California, which Landlord and Tenant hereby agree consists of approximately nineteen thousand seven hundred and eighty-two (19,782) square feet in 1029 Corporation Way, Palo Alto, California (the “Project”). As used herein the term Project shall mean and include all of the land described in Exhibit B and all the buildings, improvements, fixtures and equipment new or hereafter situated on said land.

Tenant covenants, as a material part of the consideration of this lease, to perform and observe each and all of the terms, covenants and conditions set forth below, and this lease is made upon the condition of such performance and observance.

1. USE

Subject to the restrictions contained in paragraph 6 hereof, Tenant shall use the Premises for marketing, sales, research and development, general office and administrative uses and shall not use or permit the Premises to be used for any other purpose.

2. TERM

(a) The term shall be for three (3) years (unless sooner terminated or hereinafter provided) and, subject to paragraph 3, shall commence on January 1, 2000 and end on December 31, 2002.

3. POSSESSION

(a) If Landlord for any reason cannot deliver possession of the Premises to Tenant by the date of commencement set forth in paragraph 2, this lease shall not be void or voidable, Landlord shall not be liable to Tenant for any loss or damage on account thereof and Tenant shall not be liable for rent until Landlord delivers possession of the Premises. If the term commences on a date other than the date specified in paragraph 2 above, then the parties shall immediately execute an amendment to this lease stating the actual date of commencement and the revised expiration date. The expiration date of the term shall be extended by the same number of days that Tenant’s possession of the Premises was delayed from that set forth in paragraph 2.

(b) Tenant’s inability or failure to take possession of the Premises when delivery is tendered by Landlord shall not delay the commencement of the term of this lease or Tenant’s obligation to pay rent. Tenant acknowledges that Landlord shall incur significant expenses upon the execution of this lease, even if Tenant never takes possession of the Premises, including without limitation brokerage commissions and fees and legal and other professional fees. Tenant acknowledges that all of said expenses shall be included in measuring Landlord’s damages should Tenant breach the terms of this lease.

4. MONTHLY RENT

(a) Basic Rent. Tenant shall pay to Landlord as basic rent for the Premises, in advance and subject to adjustment as provided in paragraph b, the sum of Fifty Thousand and Four Hundred and Forty-Five and 10/100 Dollars ($50,444.10) on or before the first day of the first full calendar month of the term and on or before the first day of each and every successive calendar month. Basic rent for any partial month shall be payable in advance and shall be prorated at the rate of 1/30th of the monthly basic rent per day.

(b) Common Area Charges. In addition to the above basic rent, and as additional rent, Tenant shall pay to Landlord, subject to adjustments and reconciliation as provided in paragraph 16 of this lease, the sum of Three Thousand Seven Hundred and Five and 00/100 Dollars ($3,705.00) on or before the first day of the first full calendar month of the term and on the first day of each and every succeeding calendar month, said sum representing Tenant’s estimated payment of its percentage share of common area charges as provided for in paragraph 16 of this lease. Payment of common area charges for any partial month shall be payable in advance and shall be prorated at the rate of 1/30th of the monthly payment of common area charges per day.

(c) Manner and Place of Payment. All payments of basic rent and common area charges shall be paid to Landlord, without deduction or offset, in lawful money of the United States of

America, at the office of Landlord at 360 S. San Antonio Road, Suite 14, Los Altos, California, 94022 or to such other person or place as Landlord may from time to time designate in writing.

(d) Last Month’s Rent. Concurrently with Tenant’s execution of this lease, Tenant shall deposit with Landlord, the sum of Twenty-Two Thousand Seven Hundred and Forty-Nine and 30/100 Dollars ($22,749.30), to be applied against the basic rent and common area charges for the last lease month of the term.

(e) Security Deposit. Concurrently with Tenant’s execution of this lease, Tenant shall deposit with Landlord the sum of Twenty-Two Thousand Seven Hundred and Forty-Nine and 30/100 Dollars ($22,749.30), which sum shall be held by Landlord as a security deposit for the faithful performance by Tenant of all of the terms, covenants and conditions of this lease to be kept and performed by Tenant. If Tenant defaults with respect to any provision of this lease, including but not limited to, the provisions relating to the payment of basic rent and common area charges, Landlord may (but shall not required to) use, apply, or retain all or any part of this security deposit for the payment of any amount which Landlord may spend by reason of Tenant’s default or to compensate Landlord for any other loss or damage which Landlord may suffer by reason of default. If any portion of said deposit is so used, Tenant shall, within ten (10) days after written demand therefor, deposit cash with Landlord in the amount sufficient to restore the security deposit to its original amount; Tenant’s failure to do so shall be a material breach of this lease. Landlord shall not be required to keep this security deposit separate from its general funds and Tenant shall not be entitled to interest on such deposit. If Tenant is not in default at the expiration or termination of this lease, the security deposit or any balance thereof shall be returned to Tenant after Tenant has vacated the Premises. In the event of termination of Landlord’s interest in this lease, Landlord shall transfer said deposit to Landlord’s successor in interest, and Tenant agrees that Landlord shall thereupon be released from liability for the return of such deposit or any accounting therefor.

5. ADJUSTMENT OF BASIC RENT

The basic rent provided for in paragraph 4(a) shall be adjusted periodically and the monthly basic rent for each period shall be as set forth below:

Lease Months 1-12	(1/1/00-12/31/00)	$	50,444.10 per month

Lease Months 1-12	(1/1/01-12/31/01)	$	51,957.42 per month

Lease Months 1-12	(1/1/02-12/31/02)	$	53,516.15 per month

6. RESTRICTION ON USE

Tenant shall not do or permit to be done in or about the Premises or the Project, nor bring or keep or permit to be brought or kept in or about the Premises or Project, anything which is prohibited by or will in any way increase the existing rate of, otherwise affect, fire or any other insurance covering the Project or any part thereof, or any of its contents, or will cause a cancellation of any insurance covering the Project or any part thereof, or any of its contents. Tenant shall not do or permit to be done anything in or about the Premises or the Project which will constitute waste or which will in any way obstruct or interfere with the rights of other tenants, business invitees or occupants of the Project or injure or annoy them, or use or allow the Premises to be used for any unlawful purpose, nor shall Tenant cause, maintain or permit any nuisance in or about the Premises or the Project. No loudspeaker or other device, system or apparatus which can be heard outside the Premises shall be used in or at the Premises without the prior written consent of Landlord. Tenant shall not use the Premises for the preparation, or mixing of anything that might emit any objectionable odor, noise or light into the adjoining premises or Common Area. Tenant shall not do anything on the Premises that will cause damage to the Project and Tenant shall not overload the floor capacity of the Premises or the Project. No machinery, apparatus or other appliance shall be used or operated in or on the Premises that will in any manner injure, vibrate or shake the Premises. Landlord shall be the sole judge, of whether such odor, noise, light or vibration is such as to violate the provisions of this paragraph. No waste materials or refuse shall be dumped upon or permitted to remain upon any part of the Premises or the Project except in trash containers placed inside exterior enclosures designated for that purpose by Landlord, or where otherwise designated by Landlord; and no toxic or hazardous materials shall be disposed of through the plumbing or sewage system. No materials, supplies, equipment, finished products or semi finished products, raw materials or articles of any nature shall be stored or permitted to remain outside of the building proper. No retail sales shall be made on the Premises

7. COMPLIANCE WITH LAWS

Tenant shall, in connection with its use and occupation of the Premises, at its sole cost and expense, promptly observe and comply with (i) all laws, statutes, ordinances and governmental rules, regulations and requirements now or hereafter in effect, (ii) with the requirements of any board of fire underwriters or other similar body now or hereafter constituted and (iii) with any direction or occupancy certificate issued pursuant to law by any public authority; provided, however, that no such failure shall be deemed a breach of these provisions if Tenant, immediately upon notification,

commences to remedy or rectify said failure. The judgment of any court of competent jurisdiction or the admission of Tenant in any action against Tenant (whether or not Landlord is a party thereto) that Tenant has violated any such law, statute, ordinance or governmental rule, regulation, requirement, direction or provision, shall be conclusive of that fact as between Landlord and Tenant. This lease shall remain in full force and effect notwithstanding any loss of use or other effect on Tenant’s enjoyment of the Premises by reason of any governmental laws, statutes, ordinances, rules, regulations and requirements now or hereafter in effect.

Landlord represents that the project was constructed in accordance with applicable laws, statutes, ordinances and/or governmental rules, regulations or requirements in effect as of the date of construction of the Project, and that the improvements to be constructed in accordance with Exhibit C of the original lease between Landlord and Tenant dated October 21, 1983 were constructed in accordance with applicable laws, statutes, ordinances and/or governmental rules, regulations or requirements in effect as of the date of construction of such improvements.

Landlord and Tenant hereby acknowledge that the Americans with Disabilities Act and Title 24 of the Code of California Regulations may affect Tenant’s use and occupancy of the Premises and require Tenant to modify or alter the design, layout or other physical elements of the interior of the Premises or provide auxiliary aids and services in connection with its business operations. Tenant shall, at Tenant’s sole cost and expense, comply in all respects with the requirements of the Americans with Disabilities Act and Title 24 of the Code of California Regulations as it affects Tenant’s use and occupancy of the Premises throughout the term of the lease, as may be extended, and Tenant acknowledges and agrees that, notwithstanding any modifications to the Common Area which may be made by Landlord in order to conform such areas with the requirements of the Americans with Disabilities Act and Title 24 of the Code of California Regulations, Landlord makes no representations or warranties regarding the compliance of the Premises or the Project with the Americans with Disabilities Act and Title 24 of the Code of California Regulations, nor shall Landlord have any obligations or liabilities to Tenant to construct any modifications or alterations to the interior of the Premises in order to comply with the Americans with Disabilities Act and Title 24 of the Code of California Regulations.

8. ALTERATIONS

Tenant shall not make or suffer to be made any alteration, addition or improvement to or of the Premises or any part thereof (collectively referred to herein as “alterations”) without (i) the prior written consent of Landlord (which consent shall not be unreasonably withheld and Landlord further agrees that Landlord shall not raise the basic rent as of condition of such consent), (ii) a valid building permit issued by the appropriate governmental authority and (iii) otherwise complying with all applicable laws, regulations and requirements of governmental agencies having jurisdiction and with the rules, regulations and requirements of any board of fire underwriters or similar body. Any alteration made by Tenant (excluding moveable furniture and trade fixtures not attached to the Premises) shall at once become a part of the Premises and belong to Landlord. Without limiting the foregoing, all heating, lighting, electrical (including all wiring, conduit, outlets, drops, buss ducts, main and subpanels), air conditioning, partitioning, drapery and carpet installations made by Tenant, regardless of how attached to the Premises, together with all other alterations that have become an integral part of the Project in which the Premises are a part, shall be and become part of the Premises and belong to Landlord upon installation and shall not be deemed trade fixtures, and shall remain upon and be surrendered with the Premises at the termination of the lease.

If Landlord consents to the making of any alteration by Tenant, the same shall be made by Tenant at its sole risk, cost and expense and only after Landlord’s written approval of any contractor or person selected by Tenant for that purpose (provided that Landlord waives the right to approve such contractor or person if the same is a duly licensed contractor and a valid building permit is issued by the appropriate governmental authority), and the same shall be made at such time and in such manner as Landlord may from time to time designate. Tenant shall, if required by Landlord, secure at Tenant’s cost a completion and lien indemnity bond for such work. Upon the expiration or sooner termination of the term, Landlord may, at is sole option, require Tenant, at Tenant’s sole cost and expense, to promptly both remove any such alteration made by Tenant and designated by Landlord to be removed and repair any damage to the Premises caused by such removal. Any moveable furniture and equipment or trade fixtures remaining on the Premises at the expiration or other termination of the term shall become the property of the Landlord unless promptly removed by Tenant.

If during the term, and subject to paragraph 7 above, any alteration, addition or change of the Premises or the Project is required by law, regulation, ordinance or order of any public or quasi-public authority, Tenant, at its sole cost and expense, shall promptly make the same. If during the term any alterations, additions or changes to the Common Area or to the Project in which the Premises is located is required by law, regulation, ordinance or order of any public or quasi-public authority, and it is impractical in the Landlord’s judgment for the affected tenants to individually make such alterations, additions or changes, Landlord shall make such alterations, additions or changes and the cost thereof shall be a common area charge and Tenant shall pay its percentage share of such cost to Landlord as provided in paragraph 16.

9. REPAIR AND MAINTENANCE

By entry hereunder, Tenant accepts the Premises as being in good and sanitary order, condition and repair (excepting only “punchlist items”). Except as expressly provided below, Tenant shall at its sole cost keep and maintain the entire Premises and every part thereof including, without limitation, the windows, window frames, plate glass, glazing, elevators within the Premises, truck doors, doors and all door hardware, the interior walls and partitions, lighting and the electrical, mechanical, and plumbing systems. Tenant shall also repair and maintain the heating and air conditioning systems (unless Landlord has elected to keep and maintain the heating and air conditioning systems as provided below) which shall include, without limitation, a periodic maintenance agreement with a reputable and licensed heating and air conditioning service company. If Tenant’s use of the heating and air conditioning systems is limited to normal business hours (8:00 a.m. to 6:00 p.m.), such agreement shall provide for service at least as often as every 60 days, if Tenant’s use of the heating and air conditioning systems extends beyond such normal business hours this service shall be as often as may be required by landlord and in any event such service shall meet all warranty enforcement requirements of such equipment and comply with all manufacturer recommended maintenance. Landlord may elect, at its option, to keep and maintain the heating and air conditioning systems of the premises and in such event, Tenant shall pay to Landlord upon demand the full cost of such maintenance.

Subject to the provisions of paragraph 17, Landlord shall keep and reasonably maintain the roof, structural elements, and exterior walls of the buildings constituting the Project and Common Area in reasonably good order and repair. Tenant waives all rights under and benefits of California Civil Code Sections 1932(1), 1941, and 1942 and under any similar law, statute or ordinance now or hereafter in effect. The cost of the repairs and maintenance which are the obligation of Landlord hereunder, including without limitation, maintenance contracts and supplies, materials, equipment and tools used in such repairs and maintenance shall be obtained at competitive prices for major repairs and shall be a common area charge and Tenant shall pay its percentage of such costs to Landlord as provided in paragraph 16; provided, however, that if any repairs or maintenance is required because of an act or omission of Tenant, or its agents, employees or invitees, Tenant shall pay to Landlord upon demand the full cost of such repairs or maintenance.

As used herein, “punchlist items” shall mean minor repairs to painting, carpets, walls and other interior improvements to the Premises as reasonably determined by Tenant and disclosed to Landlord within thirty (30) days of the date Tenant takes possession of the Premises. Landlord shall repair all punchlist items subject to the terms of paragraph 16, below. Landlord shall have no obligation to repair items that are not disclosed to Landlord by Tenant in writing within thirty (30) days of the date possession of the Premises is delivered to Tenant.

10. LIENS

Tenant shall keep the Premises and the Project free from any liens arising out of any work performed, materials furnished or obligations incurred by Tenant, its agents, employees or contractors. Upon Tenant’s receipt of a preliminary twenty (20) day notice filed by a claimant pursuant to California Civil Code Section 3097, Tenant shall immediately provide Landlord with a copy of such notice. Should any such lien be filed against the Project, Tenant shall give immediate notice of such lien to Landlord. In the event that Tenant shall not, within ten (10) days following the imposition of such lien, cause the same to be released of record, Landlord shall have, in addition to all other remedies provided herein and by law, the right, but no obligation, to cause the same to be released by such means as it shall deem proper, including payment of the claim giving rise to such lien. All sums paid by Landlord for such purpose, and all expenses (including attorneys’ fees) incurred by it in connection therewith, shall be payable to Landlord by Tenant on demand with interest at the rate of ten percent (10%) per annum or the maximum rate permitted by law, whichever is less. Landlord shall have the right at all times to post and, keep posted on the Premises any notices permitted or required by law, or which Landlord shall deem proper for the protection of Landlord, the Premises and the Project and any other party having an interest therein, from mechanics’ and material men’s liens and like liens. Tenant shall give Landlord at least fifteen (15) days prior notice of the date of the commencement of any construction on the Premises in order to permit the posting of such notices. In the event Tenant is required to post an improvement bond with a public agency in connection with any work performed by Tenant on or to the Premises, Tenant shall include Landlord as an additional obligee.

11. INSURANCE

Tenant, at its sole cost and expense, shall keep in force during the term (i) commercial general liability and property damage insurance with a combined single limit of at least $5,000,000 per occurrence insuring against personal or bodily injury to or death of persons occurring in, on or about the Premises or Project and any and all liability of the insured with respect to, the Premises or arising out of Tenant’s maintenance, use or occupancy of the Premises and all areas appurtenant thereto, (ii) direct physical loss special insurance covering the leasehold improvements in the Premises and all of Tenant’s equipment, trade fixtures, appliances, furniture, furnishings, and personal property from time to time located in, on or about the Premises, with coverage in the amount of the full replacement cost thereof, (iii) Worker’s Compensation Insurance as required by law, together with employer’s liability coverage with a limit of not less than $1,000,000 for bodily injury for each accident and for bodily injury by disease for each employee. Tenant’s commercial general liability and property damage insurance

and Tenant’s Workers Compensation Insurance shall be endorsed to provide that said insurance shall not be canceled or reduced except upon at least thirty (30) days prior written notice to Landlord and (iv) full replacement cost plate glass insurance. Further, Tenant’s commercial general liability and property damage insurance shall be primary and shall name Landlord and McCandless Simons Company, Inc., and their respective partners, officers, directors and employees and such other persons or entities as directed from time to time by Landlord as additional insured for all liability using ISO Bureau Form CG20111185 (or a successor form); shall contain a severability of interest clause and cross-liability endorsement; shall be endorsed to provide that the limits and aggregates apply per location using ISO Bureau Form CG25041185; and shall be issued by an insurance company admitted to transact business in the State of California and rated A+VIII or better in Best’s Insurance Reports (or successor report). The deductibles for all insurance required to be maintained by Tenant hereunder shall be no more than $5,000 per occurrence. The commercial general liability insurance carried by Tenant shall specifically insure the performance by Tenant of the indemnification provisions set forth in paragraph 18 of this lease provided, however, nothing contained in this paragraph 11 shall be construed to limit the liability of Tenant under the indemnification provisions set forth in said paragraph 18. If Landlord or any of the additional insured named on any of Tenant’s insurance have other insurance which is applicable to the covered loss on a contributing, excess or contingent basis, the amount of the Tenant’s insurance company’s liability under the policy of insurance maintained by Tenant shall not be reduced by the existence of such other insurance. Any insurance carried by Landlord or any of the additional insured named on Tenant’s insurance policies shall be excess and non-contributing with the insurance so provided by Tenant.

Tenant shall, prior to the commencement of the term, provide Landlord with a completed Certificate of Insurance using a form acceptable in Landlord’s reasonable judgment, attaching thereto copies of all endorsements required to be provided by Tenant under this lease. Tenant agrees to increase the coverage or otherwise comply with changes in connection with said commercial general liability, property damage, direct physical loss and Worker’s Compensation Insurance as Landlord or Landlord’s lender may from time to time require.

Landlord shall obtain and keep in force a policy or policies of insurance covering loss or damage to the Premises and Project in the amount of the full replacement value thereof, providing protection against those perils included within the classification of “all risk” insurance, with increased cost of reconstruction and contingent liability (including demolition), plus a policy of rental income insurance in the amount of one hundred percent (100%) of twelve (12) months’ rent (including sums paid as additional rent) and such other insurance as Landlord or Landlord’s lender may from time to time require. Landlord may, but shall not be obligated to, also obtain flood and/or earthquake insurance. Landlord shall have no liability to Tenant if Landlord elects not to obtain flood and/or earthquake insurance. The cost of all such insurance purchased by Landlord, plus any charges for deferred payment of premiums and the amount of any deductible incurred upon any covered loss within the Project, shall be common area charges and Tenant shall pay to Landlord its percentage share of such costs as provided in paragraph 16.

Landlord and Tenant hereby mutually waive any and all rights of recovery against one another for real or personal property loss or damage occurring to the Premises or the Project, or any part thereof, or to any personal property therein, from perils insured against under fire and extended insurance and any other property insurance policies existing for the benefit of the respective parties so long as such insurance permits waiver of liability and contains a waiver of subrogation without additional premiums.

If Tenant does not take out and maintain insurance as required pursuant to this paragraph 11, Landlord may, but shall not be obligated to, take out the necessary insurance and pay the premium therefore, and Tenant shall repay to Landlord promptly on demand, as additional rent, the amount so paid. In addition, Landlord may recover from Tenant and Tenant agrees to pay, as additional rent, any and all reasonable expenses (including attorney fees) and damages which Landlord may sustain by reason of the failure of Tenant to obtain and maintain such insurance, it being expressly declared that the expenses and damages of Landlord shall not be limited to the amount of the premiums thereon.

12. UTILITIES AND SERVICE

Tenant shall pay for all water, gas, light, heat power, electricity, telephone, trash pickup, sewer charges and all other services supplied to or consumed on the Premises. In the event that any service is not separately metered or billed to the Premises, the cost of such utility service or other service shall be a common area charge and Tenant shall pay its percentage share of such cost to Landlord as provided in paragraph 16. In addition, the cost of all utilities and services furnished by Landlord to the Common Area shall be a common area charge and Tenant shall pay its percentage share of such cost to Landlord as provided in paragraph 16.

If Tenant’s use of any such utility or service is materially in excess of the average furnished to the other tenants of the Project, and such utility or service is not separately metered, then Tenant shall pay to Landlord upon demand, as additional rent, the full cost of such excess use, or Landlord may cause such utility or service to be separately metered, in which case Tenant shall pay the full cost of such utility or service and reimburse Landlord upon demand for the cost of installing the separate meter.

Landlord shall not be liable for, and Tenant shall not be entitled to any abatement or reduction of rent by reason of, the failure of any person or entity to furnish any of the foregoing services when such failure is caused by accident, breakage, repairs, strikes, lockouts or other labor disturbances or labor disputes of any character, governmental moratoriums, regulations or other governmental actions, or by any other cause, similar to dissimilar, beyond the reasonable control of Landlord. In addition, Tenant shall not be relieved from the performance of any covenant or agreement in this lease because of any such failure, and no eviction of Tenant shall result from such failure.

13. TAXES AND OTHER CHARGES

All real estate taxes and assessments and other taxes, fees and charges of every kind or nature, foreseen or unforeseen, which are levied, assessed or imposed upon Landlord and/or against the Premises, building, Common Area or Project, or any part thereof by any federal, state, county, regional, municipal or other governmental or quasi-public authority, together with any increase therein for any reason, shall be a common area charge and Tenant shall pay its percentage share of such costs to Landlord as provided in paragraph 16. By way of illustration and not limitation, “other taxes, fees and charges” as used herein include any and all taxes payable by Landlord (other than state and federal personal or corporate income taxes measured by the net income of Landlord from all sources, and premium taxes), whether or not now customary or within the contemplation of the parties hereto, (i) upon, allocable to, or measured by the rent payable hereunder, including, without limitation, any gross income or excise tax levied by the local, state or federal government with respect to the receipt of such rent, (ii) upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by tenant of the Premises or any part thereof, (iii) upon or measured by the value of Tenant’s personal property or leasehold improvements located in the Premises, (iv) upon this transaction or any document to which Tenant is a party creating or transferring an interest or estate in the Premises, (v) upon or with respect to vehicles, parking or the number of persons employed in or about the Project, and (vi) and tax, license, franchise fee or other imposition upon Landlord which is otherwise measured by or based in whole or in part upon the Project or any portion thereof. If Landlord contests any such tax, fee or charge, the cost and expense incurred by Landlord thereby (including, but not limited to, costs of attorneys and experts) shall also be common area charges and Tenant shall pay its percentage share of such costs to Landlord as provided in paragraph 16. In the event the Premises and any improvements installed therein by Tenant or Landlord are valued by the assessor disproportionately higher than those of other tenants on the building or Project or in the event alterations or improvements are made to the Premises, Tenant’s percentage share of such taxes, assessments, fees and/or charges shall be readjusted upward accordingly and Tenant agrees to pay such readjusted share. Such determination shall be made by Landlord from the respective valuations assigned in the assessor’s work sheet or such other information as may be reasonably available and Landlord’s determination thereof shall be conclusive.

Tenant agrees to pay, before delinquency, any and all taxes levied or assessed during the term hereof upon Tenant’s equipment, furniture, fixtures and other personal property located in the Premises, including carpeting and other property installed by Tenant notwithstanding that such carpeting or other property has become a part of the Premises. If any of Tenant’s personal property shall be assessed with the Project, Tenant shall pay to Landlord, as additional rent, the amount attributable to Tenant’s personal property within ten (10) days after receipt of a written statement from Landlord setting forth the amount of such taxes, assessments and public charges attributable to Tennant’s personal property.

14. ENTRY BY LANDLORD

Landlord reserves, and shall at all reasonable times have, the right to enter the Premise (i) to inspect the Premises, (ii) to supply services to be provided by Landlord hereunder, (iii) to show the Premises to prospective purchasers, lenders or tenants and to put ‘for sale’ or ‘for lease’ signs thereon, (iv) to post notices required or allowed by this lease or by law, (v) to alter, improve or repair the Premises and any portion of the Project, and (vi) to erect scaffolding and other necessary structures in or through the Premises or the Project where reasonably required by the character of the work to be performed. Landlord shall not be liable in any manner for any inconvenience, disturbance, loss of business, nuisance or other damage arising from Landlord’s entry and acts pursuant to this paragraph and Tenant shall not be entitled to an abatement or reduction of rent if Landlord exercises any rights presented in this paragraph. For each of the foregoing purposes, Landlord shall at all times have and retain a key with which to unlock all of the doors in, on and about the Premises (excluding Tenant’s vaults, safes and similar areas designated in writing by Tenant in advance), and Landlord shall have the right to use any and all means which Landlord may deem proper to open said doors in an emergency in order to obtain entry to the Premises. Any entry by Landlord to the Premises pursuant to this paragraph shall not under any circumstances by construed or deemed to be a forcible or unlawful entry into or a detainer of the Premises or an eviction, actual or constructive, of Tenant from the premises or any portion thereof. Notwithstanding the foregoing, and except in the case of emergency, Landlord shall give Tenant at least twenty-four (24) hours prior notice of its intent to enter the Premises.

15. COMMON AREA PARKING

Subject to the terms and conditions of this lease and such rules and regulations as Landlord may from time to time prescribe and so long as such rules and regulations do not conflict with the terms and conditions of this lease, Tenant and Tenant’s employees and invitees shall, in common with other occupants of the Project, and their respective employees and invitees shall, in common with other occupants of the Project, and their respective employees and invitees and others entitled to the use thereof, have the non-exclusive right to use the access roads, parking areas and facilities within the Project provided and designated by Landlord for the general use and convenience of the occupants of the Project which areas and facilities shall include, but not be limited to, sidewalks, parking, refuse, landscape and plaza areas, roofs and building exteriors, which areas and facilities are referred to herein as “Common area”. This right shall terminate upon the termination of this lease.

Landlord reserves the right from time to time to make changes in the shape, size, location, amount and extent of the Common Area. Landlord shall also have the right at any time to change the name, number or designation by which the Project is commonly known. Landlord further reserves the right to promulgate such rules and regulations relating to the use of the Common Area, and any part thereof, as Landlord may deem appropriate for the best interests of the occupants of the Project. The rules and regulations shall be binding upon Tenant upon delivery of a copy of them to Tenant and Tenant shall abide by them and cooperate in their observance. Such rules and regulations may be amended by Landlord from time to time, with or without advance notice.

Tenant shall have the non-exclusive use of seventy five (75) parking spaces in the Common Area as designated from time to time by Landlord. Landlord reserves the right at its sole option to assign and label parking spaces, but it is specifically agreed that Landlord is not responsible for policing any such parking spaces. Tenant shall not at any time park or permit the parking of Tenant’s trucks or other vehicles, or the trucks or other vehicles of others; adjacent to loading areas so as to interfere in any way with the use of such areas; nor shall Tenant at any time park or permit the parking of Tenant’s vehicles or trucks, or other vehicles or trucks of Tenant’s suppliers or others, in any portion of the Common Area not designated by Landlord for such use by Tenant. Tenant shall not park or permit any inoperative vehicle or equipment to be parked on any portion of the Common Area. Tenant shall not permit, allow or place any type of circulars or advertisements on vehicles parking in the Common Area. Tenant shall not use any Common Area, including the space directly adjacent to the Premises for sales or displays.

Landlord shall operate, manage and maintain the Common Area. The manner in which the Common Area shall be operated, managed and maintained and the expenditures for such operation, management and maintenance shall be at the sole discretion of Landlord. The cost of such maintenance, operation and management of the Common Area, including, but not limited to landscaping, repair of paving, parking lots and sidewalks, repaving, resurfacing, repairs, replacements, painting, lighting, cleaning, trash removal, roof replacement and repair, heating, ventilating and air-conditioning repair and replacement, fire protection and similar items; non-refundable contributions toward one or more reserves for replacements other than equipment; rental on equipment; security and exterminator services and salaries and employee benefits (including union benefits) of on-site and accounting personnel engaged in such maintenance and operations management, shall be a common area change and Tenant shall pay to Landlord its percentage share of such costs as provided in paragraph 16.

16. COMMON AREA CHARGES

Tenant shall pay to Landlord, as additional rent, an amount equal to One Hundred percent (100.00%) of the total common area charges as defined below. Tenant’s percentage share of common area charges shall be paid as follows.

Tenant’s estimated monthly payment of common area charges payable by Tenant during the calendar year in which the term commences is set forth in paragraph 4(b) of this lease. Prior to the commencement of each succeeding calendar year of the term (or as soon as practicable thereafter, Landlord shall deliver to Tenant a written estimate of Tenant’s monthly payment of common area charges. Tenant shall pay, as additional rent, on the first day of each month during the term in accordance with paragraph 4(b) of the lease, its monthly share of common area charges as estimated by Landlord. Within one hundred twenty (120) days of the end of each calendar year and of the termination of this lease (or as soon as practicable thereafter), Landlord shall deliver to Tenant a statement of actual common area charges incurred for the preceding year. If such statement shows that Tenant has paid for less than its actual percentage, then Tenant shall on demand pay to Landlord the amount of such deficiency. If Tenant fails to pay such deficiency due within ten (10) days after demand, Tenant shall pay an additional ten percent (10%) of the amount due as a penalty. If such statement shows that Tenant has paid more than its actual percentage share then Landlord shall, at its option, promptly refund such excess to Tenant or credit the amount thereof to the common area charge next becoming due from Tenant. Landlord reserves the right to revise any estimate of common area charges if actual or projected common area charges show an increase or decrease in excess of 10% from any earlier estimate for the same period. In such event, Landlord shall deliver the revised estimate to Tenant, together with an explanation of the reasons therefore, and Tenant shall revise its payments accordingly. Landlord’s and Tenant’s obligation with respect to adjustments at the end of the term or earlier expiration of this lease shall survive such termination or expiration.

“Common area charges,” as used in this lease, shall include, but not be limited to, (i) all items identified in paragraphs 8, 9, 11, 12, 13 and 16 as being common area charges; (ii) amortization of such capital improvements having a useful life greater than one year as Landlord may have installed for the purpose of reducing operating costs and/or to comply with governmental rules and regulations promulgated after completion of the building (Tenant’s share of any such capital improvement shall equal Tenant’s proportionate share of the fraction of the cost of such capital improvement equal to the remaining term of the lease over the useful life of such capital improvement); (iii) salaries and employee benefits (including union benefits) of personnel engaged in the operation and maintenance of the Project (or the building in which the Premises are located) and payroll taxes applicable thereto; (iv) supplies, materials, equipment and tools used or required in connection with the operation and maintenance of the Project; (v) licenses, permits and inspection fees; (vi) a reasonable reserve for repairs and replacement of equipment used in the maintenance and operation of the Project; (vii) all other operating costs incurred by Landlord in maintaining and operating the Project; and (viii) an amount equal to five percent (5%) of the actual expenditures for the aggregate of all other common area charges as compensation for Landlord’s accounting and processing services.

17. DAMAGE BY FIRE; CASUALTY

In the event the Premises are damaged by any casualty which is fully covered under an insurance policy required to be maintained by Landlord pursuant to paragraph 11, Landlord shall be entitled to the use of all insurance proceeds and shall repair such damage as soon as reasonably possible and this lease shall continue in full force and effect.

In the event the Premises are damaged by any casualty not fully covered under an insurance policy required to be maintained pursuant to paragraph 11, Landlord may, at Landlord’s option, either (i) repair such damage, at Landlord’s expense, as soon as reasonably possible, in which event this lease shall continue in full force and effect, or (ii) give written notice to Tenant within thirty (30) days after the date of the occurrence of such damages of Landlord’s intention to cancel and terminate this lease as of the date of the occurrence of the damages; provided, however, that if such damage is caused by an act or omission of Tenant or its agent, servants or employees, then Tenant shall repair such damage promptly at its sole cost and expense. In the event Landlord elects to terminate this lease pursuant hereto, Tenant shall have the right within ten (10) days after receipt of the required notice to notify Landlord in writing of Tenant’s intention to repair such damage at Tenant’s expense, without reimbursement from Landlord, in which event this lease shall continue in full force and effect and Tenant shall proceed to make such repairs as soon as reasonably possible. If Tenant does not give such notice within the ten (10) day period, this lease shall be canceled and terminated as of the date of the occurrence of such damage. Under no circumstances shall Landlord be required to repair any injury or damage to (by fire or other cause), or to make any restoration or replacement of, any of Tenant’s personal property, trade fixtures or property leased from third parties, whether or not the same is attached to the Premises.

If the Premises are totally destroyed during the term from any cause (including any destruction required by any authorized public authority), whether or not covered by the insurance required under paragraph 11, this lease shall automatically terminate as of the date of such total destruction; provided, however, that if the Premises can reasonably and lawfully be repaired or restored within twelve (12) months of the date of destruction to substantially the condition existing prior to such destruction and if the proceeds of the insurance payable to the Landlord by reason of such destruction are sufficient to pay the cost of such repair or restoration, then the insurance proceeds shall be so applied, Landlord shall promptly repair and restore the Premises and this lease shall continue, without interruption, in full force and effect. If the Premises are totally destroyed during the last twelve (12) months of the term, either Landlord or Tenant may at either parties’ option cancel and terminate this lease as of the date of occurrence of such damage by giving written notice to the other of its’ election to do so within thirty (30) days after the occurrence of such damage.

If the Premises are partially or totally destroyed or damaged and Landlord or Tenant repair them pursuant to this lease, the rent payable hereunder for the period during which such damage and repair continues shall be abated only in proportion to the square footage of the Premises rendered untenantable to Tenant by such damage or destruction. Tenant shall have no claim against Landlord for any damage, loss or expense suffered by reason of any such damage, destruction, repair or restoration or Landlord’s election under this paragraph 17 not to repair or restore such damage or destruction. The parties waive the provisions of California Civil Code sections 1932(2) and 1933(4) (which provisions permit the termination of a lease upon destruction of the leased premises), and hereby agree that the provisions of this paragraph 17 shall govern in the event of such destruction.

18. INDEMNIFICATION

Landlord shall not be liable to Tenant and Tenant hereby waives all claims against Landlord for any injury to or death of any person or damage to or destruction of property in or about the Premises or the Project (including but not limited to damage to person or property caused by water leakage of any character from the roof, walls, ceiling, basement or other portions of the Project or caused by gas, fire, oil, fumes, electricity, steam or land or structural movement) by or from any cause whatsoever except the material failure of Landlord to perform its obligations under this lease where such failure has persisted for an unreasonable period of time after written notice of such failure.

Without limiting the foregoing, Landlord shall not be liable to Tenant for any injury to or death of any person or damages to or destruction of property by reason of, or arising from, any latent defect in the Premises or Project or the act or negligence of any other tenant of the Project. Tenant shall immediately notify Landlord of any defect in the Premises or Project.

Except as to injury to persons or damage to property the principal cause of which is the material failure by Landlord to observe any of the terms and conditions of this lease where such failure has persisted for an unreasonable period of time after written notice of such failure, Tenant shall hold Landlord harmless from and defend Landlord against any claim, liability, loss, damage or expense (including attorney fees) arising out of any injury to or death of any person or damage to or destruction of property occurring in, on or about the Premises from any cause whatsoever or on account of the use, condition, occupational safety or occupancy of the Premises. Tenant shall further hold Landlord harmless from and defend Landlord against any claim, liability, loss, damage or expense (including reasonable attorney fees) arising (i) from Tenant’s use of the Premises or from the conduct of its business or from any activity or work done, permitted or suffered by Tenant or its agents or employees in or about the Premises or Project, (ii) out of the failure of Tenant to observe or comply with Tenant’s obligation to observe and comply with laws or other requirements as set forth in paragraph 7, (iii) by reason of Tenant’s use, handling, storage, or disposal of toxic or hazardous materials or waste, (iv) by reason of any labor or service performed for, or materials used by or furnished to, Tenant or any contractor engaged by Tenant with respect to the Premises, or (v) from any other act, neglect, fault or omission of Tenant or its agents, employees or invitees. The provisions of this paragraph 18 shall survive the expiration or earlier termination of this lease.

19. ASSIGNMENT AND SUBLETTING

Tenant shall not voluntarily assign, encumber or otherwise transfer its interest in this lease or in the Premises, or sublease all of any part of the Premises, or allow any other person, concessionaire or entity to occupy or use all or any part of the Premises, without first obtaining Landlord’s written consent (which consent shall not be unreasonably withheld) and otherwise complying with the requirements of this paragraph 19. Any assignment, encumbrance or sublease without Landlord’s consent, shall constitute a default.

If Tenant desires to sublet or assign all or any portion of the Premises, Tenant shall give Landlord written notice thereof, specifying the projected commencement date of the proposed sublet or assignment (which date shall be not less than thirty (30) days or more than ninety (90) days after the date of such notice), the portions of the Premises proposed to be sublet or assigned, and the identity of the proposed assignee or subtenant. Tenant shall further provide Landlord with such other information concerning the proposed assignee or subtenant as requested by Landlord. Any proposed assignee or sublessee must agree to assume and agree to perform all the covenants and conditions of Tenant under this lease. In the case of any proposed assignment, or in the case of a proposed sublet of fifty percent (50%) or more of the Premises at a time when Tenant has not occupied the Premises, or if the proposed sublet is for fifty percent (50%) or more of the Premises for a sublet term ending within the last twelve (12) months of the term of this lease, Landlord shall have the right, exercisable by written notice to be delivered to Tenant within thirty (30) days of receipt of Tenant’s notice, to terminate this lease effective as of the date specified in Tenant’s notice as the proposed commencement date of the assignment or sublease. If Landlord does not elect to terminate this lease and if Landlord consents in writing to the proposed assignment or sublet (regardless of whether Landlord had a termination right), Tenant shall be free to assign or sublet all or a portion of the Premises subject to the following conditions: (i) any sublease shall be on the same terms set forth in the notice given to Landlord; (ii) no sublease shall be valid and no subtenant shall take possession of the sublet premises until an executed counterpart of such sublease has been delivered to Landlord; (iii) no subtenant shall have a further right to sublet; (iv) any sums or other economic consideration received by Tenant as a result of such assignment or sublet (except rental or other payments received which are attributable to the amortization over the term of this lease of the cost of leasehold improvements constructed for such assignees or subtenant, and brokerage fees) whether denominated rentals or otherwise, which exceed, in the aggregate, the total sums which Tenant is obligated to pay Landlord under this lease (prorated to reflect obligations allocable to that portion of the Premises subject to such sublease), shall be shared equally between Landlord and Tenant (50%/50%); and (v) no sublet or assignment shall release Tenant of Tenant’s obligation or alter the primary liability of Tenant to pay the rent and to perform all other obligations to be performed by Tenant hereunder. Tenant shall pay to Landlord promptly upon demand as additional rent, Landlord’s actual attorneys’ fees and other costs incurred for reviewing, processing or documenting any requested assignment or sublease, whether or not Landlord’s consent is granted.

If Tenant is a partnership, a withdrawal or change, voluntary or involuntary or by operation of law, of any general partner or the dissolution of the partnership shall be deemed an assignment of this lease subject to all conditions of this paragraph 19. If Tenant is a corporation any dissolution, merger, consolidation or other reorganization of Tenant or the sale or other transfer of a controlling percentage of the capital stock of Tenant or the sale of more than fifty percent (50%) of the value of Tenant’s assets shall be an assignment of this lease subject to all the conditions of this paragraph 19. The term “controlling percentage” means the ownership of, and the right to vote, stock possessing more than 50% of the total combined voting power of all classes of Tenant’s capital stock issued, outstanding and entitled to vote. This paragraph shall not apply if Tenant is a corporation the

stock of which is traded through an exchange.

The acceptance of rent by Landlord from any other person shall not be deemed to be a waiver by Landlord of any provision hereof. Consent to one assignment or sublet shall not be deemed consent to any subsequent assignment or sublet. In the event of default by any assignee of Tenant or any successor of Tenant in the performance of any of the terms hereof, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against such assignee or successor. Landlord may consent to subsequent assignments or sublets of this lease or amendments or modifications to this lease with assignees of Tenant, without notifying Tenant, or any successor of Tenant, and without obtaining its or their consent thereto and such action shall not relieve Tenant of liability under this lease.

No interest of Tenant in this lease shall be assignable by operation of law (including, without limitation, the transfer of this lease by testacy or intestacy). Each of the following acts shall be considered an involuntary assignment: (i) if Tenant is or becomes bankrupt or insolvent, makes an assignment for the benefit of creditors or institutes a proceeding under the Bankruptcy Act in which Tenant is the bankrupt; or, if Tenant is a partnership or consists of more than one person or entity, if any partner of the partnership or other person or entity is or becomes bankrupt or insolvent, or makes an assignment for the benefit of creditors; (ii) if a writ of attachment or execution is levied on this lease; or (iii) if, in any proceeding or action in which Tenant is a party, a receiver is appointed with authority to take possession of the Premises. An involuntary assignment shall constitute a default by Tenant and Landlord shall have the right to elect to terminate this lease, in which case this lease shall not be treated as an asset of Tenant.

Tenant immediately and irrevocably assigns to Landlord, as security for Tenant’s obligations under this lease, all rent from any subletting of all or a part of the Premises as permitted by this lease, and Landlord, as assignee and as attorney-in-fact for Tenant, or a receiver of Tenant appointed on Landlord’s application, may collect such rent and apply it toward Tenant’s obligations under this lease; except that, until the occurrence of an act or default by Tenant, Tenant shall have the right to collect such rent, subject to promptly forwarding to Landlord any portion thereof to which Landlord is entitled pursuant to this paragraph 19.

Notwithstanding the above requirement that Tenant obtain the consent of Landlord prior to any assignment or sublet, Tenant may, without obtaining the prior consent of Landlord, assign or sublease the whole or any part of the Premises to any corporation or other entity which is wholly owned by Tenant or of which Tenant is a wholly owned subsidiary, or which is wholly owned by either of the foregoing or which merges with Tenant provided that (i) Tenant shall give written notice thereof to Landlord in the manner required for other assignments or subleases by this paragraph 19; (ii) Tenant shall continue to be fully obligated under this lease; (iii) any such assignee or sublessee shall expressly assume and agree to perform all of the terms and conditions of this lease to be performed by Tenant; and (iv) any such assignment of sublet shall be subject to all other terms and conditions of this paragraph 19 pertaining to assignments and/or sublets (excepting only the requirement concerning prior written consent of Landlord).

20. DEFAULT

The occurrence of any of the following shall constitute a default by Tenant: (i) failure of Tenant to pay any rent or other sum payable hereunder within five (5) days of when due; (ii) abandonment of the Premises (Tenant’s failure to occupy and conduct business in the Premises for fourteen (14) consecutive days shall be deemed an abandonment); or (iii) failure of Tenant to perform any other term, covenant or condition of this lease if the failure to perform is not cured within thirty (30) days after notice thereof has been given to Tenant (provided that if such default cannot reasonably be cured within thirty (30) days, Tenant shall not be in default if Tenant commences to cure such failure to perform within the thirty (30) days, period and diligently and in good faith continues to cure the failure to perform). The notice referred to in clause (iii) above shall specify the failure to perform and the applicable lease provision and shall demand that Tenant perform the provisions of this lease within the applicable period of time. No notice shall be deemed a forfeiture or termination of this lease unless Landlord so elects in the notice. No notice shall be required in the event of abandonment or vacation of the Premises.

In addition to the above, the occurrence of any of the following events shall also constitute a default by Tenant: (i) Tenant fails to pay its debts as they become due or admits in writing its inability to pay its debts, or makes a general assignment for the benefit of creditors (for purposes of determining whether Tenant is not paying its debts as they become due, a debt shall be deemed overdue upon the earliest to occur of the following: thirty (30) days from the date a statement therefor has been rendered; the date on which any action or proceeding therefor is commenced; or the date on which a formal notice of default or demand has been sent); (ii) Tenant fails to furnish Landlord a schedule of Tenant’s aged accounts payable within ten (10) days after Landlord’s written request, (iii) any financial statements given to Landlord by Tenant, any assignee of Tenant, subtenant of Tenant, any guarantor of Tenant, or successor in interest of Tenant (including, without limitation, any schedule of Tenant’s aged accounts payable) are materially false. At any time during the term of this lease Landlord, at Landlord’s option, shall have the right to receive from Tenant upon Landlord’s request, a current annual balance sheet for Landlord’s review. If the balance sheet shows a negative net worth,

Landlord may terminate this lease by giving Tenant sixty (60) days prior notice.

In the event of a default by Tenant, then Landlord, in addition to any other rights and remedies of Landlord at law or in equity, shall have the right either to terminate Tenant’s right to possession of the Premises (and thereby terminate this lease) or, from time to time and without termination of this lease, to relet the premises or any part thereof for the account and in the name of Tenant for such term and on such terms and conditions as Landlord in its sole discretion may deem advisable, with the right to make alterations and repairs to the Premises.

Should Landlord elect to keep this lease in full force and effect, Landlord shall have the right to enforce all of Landlord’s rights and remedies under this lease, including but not limited to the right to recover and to relet the Premises. If Landlord relets the Premises, then Tenant shall pay to Landlord, as soon as ascertained, the costs and expenses incurred by Landlord in such reletting and in making alterations and repairs. Rentals received by Landlord from such reletting shall be applied (i) to the payment of any indebtedness due hereunder, other than basic rent and common area charges, from Tenant to Landlord; (ii) to the payment of the cost of any repairs necessary to return the Premises to good condition normal wear and tear excepted, including the cost of alterations and the cost of storing any of Tenant’s property left on the Premises at the time of reletting; and (iii) to the payment of basic rent or common area charges due and unpaid hereunder. The residue, if any, shall be held by Landlord and applied in payment of future rent or damages in the event of termination as the same may become due and payable hereunder and the balance, if any at the end of the term of this lease, shall be paid to Tenant. Should the basic rent and common area charges received from time to time from such reletting during any month be less than that agreed to be paid during that month by Tenant hereunder, Tenant shall pay such deficiency to Landlord. Such deficiency shall be calculated and paid monthly. No such reletting of the Premises by Landlord shall be construed as an election on its part to terminate this lease unless a notice of such intention is given to Tenant or unless the termination hereof is decreed by a court of competent jurisdiction. Notwithstanding any such reletting without termination, Landlord may at any time thereafter elect to terminate this lease for such previous breach, provided it has not been cured. Landlord shall have the remedy described in California Civil Code section 1951.4 (Landlord may continue the lease in effect after Tenant’s breach and abandonment and recover as rent as it becomes due, if Tenant has the right to sublet or assign, subject only to reasonable limitations).

Should Landlord at any time terminate this lease for any breach, in addition to any other remedy it may have, it shall have the immediate right of entry and may remove all persons and property from the Premises and shall have all the rights and remedies of a landlord provided by California Civil Code Section 1951.2 or any successor code section. Upon such termination, in addition to all its other rights and remedies, Landlord shall be entitled to recover from Tenant all damages it may incur by reason of such breach, including the cost of recovering the Premises and including (i) the worth at the time of award of the unpaid rent which had been earned by the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; (iii) the worth at the time of the award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; and (iv) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant’s failure to perform its obligations under this lease or which in the ordinary course of events would be likely to result therefrom. The “worth at the time of award of the amounts referred to in (i) and (ii) above is computed by allowing interest at the rate of twelve percent (12%) per annum or the maximum rate permitted by law, whichever is less. The “worth at the time of award of the amount referred to in (iii) above shall be computed by discounting such amount at the discount rate of the federal reserve bank of San Francisco at the time of award plus one percent (1%). Property removed from the Premises may be stored in a public or private warehouse or elsewhere at the sole cost and expense of Tenant. In the event that Tenant shall not immediately pay the cost of storage of such property after the same has been stored for a period of thirty (30) days or more, Landlord may sell any or all thereof at a public or private sale in such manner and at such times and places that Landlord, in its sole discretion, may deem proper, without notice to or demand upon Tenant.

21. LANDLORD’S RIGHT TO CURE TENANT’S DEFAULT

Landlord, at any time after Tenant commits a default, may, but shall not be obligated to, cure the default at Tenant’s cost. If Landlord at any time, by reason of Tenant’s default, pays any sum or does any act that requires the payment of any sum, the sum paid by Landlord shall be due immediately from Tenant to Landlord and shall bear interest at the rate of twelve percent (12%) per annum or the maximum rate permitted by law, whichever is less, from the date the sum is paid by Landlord until Landlord is reimbursed by Tenant. Amounts due Landlord hereunder shall be additional rent.

22. EMINENT DOMAIN

If all or any part of the Premises shall be taken by any public or quasi-public authority under the power of eminent domain or conveyance in lieu thereof, this lease shall terminate as to any portion of the Premises so taken or conveyed on the date when title vests in the condemner, and Landlord shall be entitled to any and all payments, income, rent, award or any interest therein whatsoever which may be paid or made in connection with such taking or conveyance Tenant shall

have no claim against Landlord or otherwise for the value of any unexpired term of this lease. Notwithstanding the foregoing, Tenant shall be entitled to any compensation for depreciation to and cost of removal of Tenant’s equipment and fixtures and any compensation for its relocation expenses necessitated by such taking, but in each case only to the extent the condemning authority makes a separate award therefor or specifically identifies a portion of the award as being therefor. Each party waives the provisions of Section 1265.130 of the California Code of Civil Procedure (which section allows either party to petition the Superior Court to terminate this lease in the event of a partial taking of the Premises).

If any action or proceeding is commenced for such taking of the Premises or any portion thereof or of any other space in the Project, or if Landlord is advised in writing by any entity or body having the right or power of condemnation of its intention to condemn the Premises or any portion thereof or of any other space in the Project, and Landlord shall decide to discontinue the use and operation of the Project or decide to demolish, alter or rebuild the Project, then Landlord shall have the right to terminate this lease by giving Tenant written notice thereof within sixty (60) days of the earlier of the date of Landlord’s receipt of such notice of intention to condemn or the commencement of said action or proceeding. Such termination shall be effective as of the last day of the calendar month next following the month in which such notice is given or the date on which title shall vest in the condemnor, whichever occurs first. In the event of a partial taking, or conveyance in lieu thereof, of the Premises and fifty percent (50%) or more of the number of square feet in the Premises are taken then Tenant may terminate this lease. Any election by Tenant to so terminate shall be by written notice given to Landlord within sixty (60) days from the date of such taking or conveyance and shall be effective on the last day of the calendar month next following the month in which such notice is given or the date on which title shall vest in the condemnor, whichever occurs first.

If a portion of the Premises is taken by power of eminent domain or conveyance in lieu thereof and neither Landlord nor Tenant terminates this lease as provided above, then this lease shall continue in full force and effect as to the part of the Premises not so taken or conveyed and all payments of rent shall be apportioned as of the date of such taking or conveyance so that thereafter the amounts to be paid by Tenant shall be in the ratio that the area of the portion of the Premises not so taken bears to the total area of the Premises prior to such taking.

23. NOTICE AND COVENANT TO SURRENDER

On the last day of the term or on the effective date of any earlier termination, Tenant shall surrender to Landlord the Premises and all of Tenant’s improvements and alterations in their condition existing as of the commencement of the term (normal wear and tear excepted), with all originally painted interior walls washed or repainted if marked or damaged, interior vinyl covered walls cleaned and repaired or replaced if marked or damaged, all carpets shampooed and cleaned, the air conditioning and heating system serviced and repaired by a reputable and licensed service firm (unless Landlord has elected to maintain such system pursuant to paragraph 8; and all floors cleaned and waxed; all to the reasonable satisfaction of Landlord, Tenant shall remove all of Tenant’s personal property and trade fixtures, together with improvements or alterations that Tenant is obligated to remove pursuant to the provisions of paragraph 8, from the Premises, and all such property not removed shall be deemed abandoned.

If the Premises are not surrendered as required in this paragraph, Tenant shall indemnify Landlord against all loss, liability and expense (including but not limited to, attorney fees) resulting from the failure by Tenant in so surrendering the Premises, including, without limitation, any claims made by any succeeding tenants. It is agreed between Landlord and Tenant that the provisions of this paragraph shall survive termination of this lease.

24. TENANT’S QUITCLAIM

At the expiration or earlier termination of this lease, Tenant shall execute, acknowledge and deliver to Landlord, within ten (10) days after written demand from Landlord to Tenant, any quitclaim deed or other document required to remove the cloud or encumbrance created by this lease from the real property of which the Premises are a part. This obligation shall survive said expiration or termination.

25. HOLDING OVER

Any holding over after the expiration or termination of this lease with the written consent of Landlord shall be construed to be a tenancy from month to month at double the monthly rent as adjusted, in effect on the date of such expiration or termination. All provisions of this lease, except those pertaining to the term and any option to extend, shall apply to the month to month tenancy. The provisions of this paragraph are in addition to, and do not affect, Landlord’s right of reentry or other rights hereunder or provided by law.

If Tenant shall retain possession of the Premises or any part thereof without Landlord’s consent following the expiration or sooner termination of this lease for any reason, then Tenant shall pay to Landlord for each day of such retention double the amount of the daily rental an effect during the last month prior to the date of such expiration or termination. Tenant shall also indemnify and hold

Landlord harmless from any loss, liability and expense (including, but not limited to, attorneys fees) resulting from delay by Tenant in surrendering the Premises, including without limitation any claims made by any succeeding tenant founded on such delay. Acceptance of rent by Landlord following expiration or termination shall not constitute a renewal of this lease, and nothing contained in this paragraph shall waive Landlord’s right to re entry or any other right. Tenant shall be only a Tenant at sufferance, whether or not Landlord accepts any rent from Tenant, while Tenant is holding over without Landlord’s written consent.

26. SUBORDINATION

In the event Landlord’s title or leasehold interest is now or hereafter encumbered in order to secure a loan to Landlord, Tenant shall, at the request of Landlord or the lender, execute in writing an agreement subordinating its rights under this lease to the lien of such encumbrance, or, if so requested, agreeing that the lien of lender’s encumbrance shall be or remain subject and subordinate to the rights of Tenant under this lease. Tenant hereby irrevocably appoints Landlord the attorney-in-fact of Tenant to execute, deliver and record any such instrument or instruments for and in the name and on behalf of Tenant. Notwithstanding any such subordination, Tenant’s possession under this lease shall not be disturbed if Tenant is not in default and so long as Tenant shall pay all amounts due hereunder and otherwise observe and perform all provisions of this lease. In addition, if in connection with any such loan the lender shall request reasonable modifications of this lease as a condition to such financing, Tenant will not unreasonably withhold, delay or defer its consent thereof, provided that such modifications do not increase the obligations of Tenant hereunder or materially adversely affect the leasehold interest hereby created or Tenant’s rights hereunder.

Within ten (10) days after written request from Landlord, Tenant shall deliver to Landlord such financial statements as are reasonably required by Landlord or Landlord’s lender to verify the net worth of Tenant. In addition, Tenant shall deliver to Landlord’s lender any financial statements required by such holder to facilitate the financing or refinancing of Landlord’s interest in the Project. Tenant represents and warrants to Landlord that each such financial statement is a true and accurate statement as of the date of such statement. All financial statements shall be confidential and shall be used only for the purposes set forth herein.

27. CERTIFICATE OF ESTOPPEL

Each party shall, within five (5) calendar days after request therefor, execute and deliver to the other party, in recordable form, a certificate stating that the lease is unmodified and in full force and effect, or in full force and effect as modified and stating the modifications. The certificate shall also state the amount of the monthly rent, the date to which monthly rent has been paid in advance, the amount of the security deposit and/or prepaid monthly rent, and, if the request is made by Landlord, shall include such other items as Landlord or Landlord’s lender may reasonably request. Failure to deliver such certificate within such time shall constitute a conclusive acknowledgment by the party failing to deliver the certificate that the lease is in full force and effect and has not been modified except as may be represented by the party requesting the Certificate. Any such Certificate requested by Landlord may be conclusively relied upon by any prospective purchaser or encumbrance of the Premises or Project. Further, within five (5) calendar days following written request made from time to time by Landlord, Tenant shall furnish to Landlord current financial statements of Tenant.

28. SALE BY LANDLORD

In the event the original Landlord hereunder, or any successor owner of the Project or Premises, shall sell or convey the Project or Premises, all liabilities and obligations on the part of the original Landlord, or such successor owner, under this lease accruing thereafter shall terminate, and thereupon all such liabilities and obligations shall be binding upon the new owner. Tenant agrees to attorn to such new owner and to look solely to such new owner for performance of any and all such liabilities and obligations.

29. ATTORNMENT TO LENDER OR THIRD PARTY

In the event the interest of Landlord in the land and buildings in which the Premises are located (whether such interest of Landlord is a fee title interest or a leasehold interest) is encumbered by deed of trust, and such interest is acquired by a lender or any other third party through judicial foreclosure or by exercise of a power of sale at private trustee’s foreclosure sale, Tenant hereby agrees to release Landlord of any obligation arising on or after any such foreclosure sale and to attorn to the purchaser at any such foreclosure sale and to recognize such purchaser as the Landlord under this lease.

30. DEFAULT BY LANDLORD

Landlord shall not be in default unless Landlord fails to perform obligations required of Landlord within a reasonable time but in no event earlier than thirty (30) days after written notice by Tenant to Landlord and to the holder of any first mortgage or deed of trust covering the Premises specifying wherein Landlord has failed to perform such obligations, provided, however, that if the nature of Landlord’s obligations is such that more than thirty (30) days are required by performance, then Landlord shall not be in default if Landlord commences performance within such thirty (30) day

period and thereafter diligently prosecutes the same to completion.

If Landlord is in default of this lease, Tenant’s sole remedy shall be to institute suit against Landlord in a court of competent jurisdiction, and Tenant shall have no right to offset any sums expended by Tenant as a result of Landlord’s default against future rent and other sums due and payable pursuant to this lease. If Landlord is in default of this lease, and as a consequence Tenant recovers a money judgment against Landlord, the judgment shall be satisfied only out of the proceeds of sale received on execution of the judgment and levy against the right, title and interest of Landlord in the Project of which the Premises are a part, and out of rent or other income from such real property receivable by Landlord or out of the consideration received by Landlord from the sale or other disposition of all or any part of Landlord’s right, title and interest in the Project of which the Premises are a part. Neither Landlord nor any of the partners comprising the partnership designated as Landlord shall be personally liable for any deficiency.

31. CONSTRUCTION CHANGES

It is understood that the description of the Premises and the location of ductwork, plumbing and other facilities therein are subject to such changes as Landlord or Landlord’s architect determines to be desirable in the course of construction of the Premises and/or the improvements constructed or being constructed therein and no such changes or any changes in plans for any other portions of the Project, shall affect this lease or entitle Tenant to any reduction of rent hereunder or result in any liability of Landlord to Tenant.

32. MEASUREMENT OF PREMISES

Tenant understands and agrees that any reference to square footage of the Premises is approximate only and includes all interior partitions, columns and exterior walls, and one-half of the partitions separating the Premises from the rest of the Project, Tenant’s proportionate share of the Common Area and, if applicable, covered areas immediately outside the entry doors or loading docks. Tenant waives any claim against Landlord regarding the accuracy of any such measurement and agrees that there shall not be any adjustment in basic rent or common area charges or other amounts payable hereunder by reason of inaccuracies in such measurement.

33. ATTORNEY FEES

If either party commences an action against the other party arising out of or in connection with this lease, the prevailing party shall be entitled to have and recover from the losing party all expenses of litigation, including, without limitation, travel expenses, reasonable attorney fees, expert witness fees, trial and appellate court costs, and deposition and transcript expenses. If either party becomes a party to any litigation concerning this lease, or concerning the Premises of the Project, by reason of any act or omission of the other party or its authorized representatives, the party that causes the other party to become involved in the litigation shall be liable to the other party for all expenses of litigation reasonably incurred, including, without limitation, travel expenses, attorney fees, expert witness fees, trial and appellate court costs, and deposition and transcript expenses.

34. SURRENDER

The voluntary or other surrender of this lease or the Premises by Tenant, or a mutual cancellation of this lease, shall not work a merger, and at the option of Landlord shall either terminate all or any existing subleases or subtenancies or operate as an assignment to Landlord of all or any such subleases or subtenancies.

35. WAIVER

No delay or omission in the exercise of any right or remedy of either party on any default by the other party shall impair such right or remedy or be construed as a waiver. The receipt and acceptance by Landlord of delinquent rent or other payments shall not constitute a waiver of any other default and acceptance of partial payments shall not be construed as a waiver of the balance of such payment due. No act or conduct of Landlord, including, without limitation, the acceptance of keys to the Premises, shall constitute an acceptance of the surrender of the Premises by Tenant before the expiration of the term. Only a written notice from Landlord to Tenant shall constitute acceptance of the surrender of the Premises and accomplish a termination of this lease. Landlord’s consent to or approval of any act by Tenant requiring Landlord’s consent or approval shall not be deemed to waive or render unnecessary Landlord’s consent to or approval of any subsequent act by Tenant. Any waiver by Landlord of any default must be in writing and shall not be a waiver of any other default concerning the same or any other provision of this lease.

36. EASEMENTS; AIRSPACE RIGHTS

Landlord reserves the right to alter the boundaries of the Project and grant easements and dedicate for public use portions of the Project without Tenant’s consent, provided that no such grant or dedication shall interfere with Tenant’s use of the Premises or otherwise cause Tenant to incur cost or expense. From time to time, and upon Landlord’s demand, Tenant shall execute, acknowledge and

deliver to Landlord, in accordance with Landlord’s instructions, any and all documents, instruments, maps or plats necessary to effectuate Tenant’s covenants hereunder.

This lease confers no rights either with regard to the subsurface of or airspace above the land on which the Project is located or with regard to airspace above the building of which the Premises are a part. Tenant agrees that no diminution or shutting off of light or view by a structure which is or may be erected (whether or not by Landlord) on property adjacent to the building of which the Premises are a part or to property adjacent thereto, shall in any way affect this lease, or entitle Tenant to any reduction of rent, or result in any liability of Landlord to Tenant.

37. RULES AND REGULATIONS

Landlord shall have the right from time to time to promulgate reasonable rules and regulations for the safety, care and cleanliness of the Premises, the Project and the Common Area, or for the preservation of good order. On delivery of a copy of such rules and regulations to Tenant, Tenant shall comply with the rules and regulations, and a violation of any of them shall constitute a default by Tenant under this lease. If there is a conflict between the rules and regulations and any of the provisions of this lease, the provisions of this lease shall prevail. Such rules and regulations may be amended by Landlord from time to time with or without advance notice. No such rules and regulations shall require Tenant to pay additional rent under this lease.

38. NOTICES

All notices, demands, requests, consents and other communications which may be given or are required to be given by either party to the other shall be in writing and shall be sufficiently made and delivered if personally served or if sent by United States first class mail, postage prepaid. All such communications from Landlord to Tenant shall be addressed to Tenant at the Premises. All such communications by Tenant to Landlord shall be sent to Landlord at its offices at 360 S. San Antonio Road, Suite 14, Los Altos, California 94022. Either party may change its address by notifying the other of such change. Each such communication shall be deemed received on the date of the personal service or mailing thereof in the manner herein provided, as the case may be.

39. NAME

Tenant shall not use the name of the Project for any purpose, other than as the address of the business conducted by Tenant in the Premises, without the prior written consent of Landlord.

40. GOVERNING LAW; SEVERABILITY

This lease shall in all respects be governed by and construed in accordance with the laws of the State of California. If any provision of this lease shall be held or rendered invalid, unenforceable or ineffective for any reason whatsoever, all other provisions hereof shall be and remain in full force and effect.

41. DEFINITIONS

As used in this lease, the following words and phrases shall have the following meanings:

Additional Rent any amount described in paragraph 53, below.

Authorized representatives any of officer, agent, employee or independent contractor retained or employed by either party, acting within authority given him by that party.

Encumbrance: any deed of trust, mortgage or other written security device or agreement affecting the Premises or the Project that constitutes security for the payment of a debt or performance of an obligation, and the note or obligation secured by such deed of trust, mortgage or other written security device or agreement.

Lease month: the period of time determined by reference to the day of the month in which the term commences and continuing to one day short of the same numbered day of the next succeeding month; e.g., the tenth day of one month to and including the ninth day in the next succeeding month.

Lender: the beneficiary, mortgagee or other holder of an encumbrance, as defined above.

Lien: a charge imposed on the Premises by someone other than Landlord, by which the Premises are made security for the performance of an act. Most of the liens referred to in this lease are mechanic’s liens.

Maintenance: repairs, replacement, repainting and cleaning

Monthly Rent: the sum of the monthly payments of basic rent and common area charges.

Person: one or more human beings, or legal entities or other artificial persons, including,

without limitation, partnerships, corporations, trusts, estates, associations and any combination of human being and legal entities.

Provision: any term, agreement, covenant, condition, clause, qualification, restriction, reservation or other stipulation in the lease that defines or otherwise controls, establishes or limits the performance required or permitted by either party

Punchlist items: minor repairs to painting, carpets, walls and other interior improvements as described in paragraph 9, above.

Rent: basic rent, common area charges, additional rent, and all other amounts payable by Tenant to Landlord required by this lease or arising by subsequent actions of the parties made pursuant to this lease.

Words used in any gender include other genders. If there be more than one Tenant, the obligations of Tenant hereunder are joint and several. All provisions whether covenants or conditions, on the part of Tenant shall be deemed to be both covenants and conditions. The paragraph headings are for convenience of reference only and shall have no effect upon the construction or interpretation of any provision hereof.

42. TIME

Time is of the essence of this lease and of each and all of its provisions.

43. EXAMINATION OF LEASE

Submission of this lease for examination or signature by Tenant does not constitute a reservation or option for a lease, and this lease is not effective until its execution and delivery by both Landlord and Tenant.

44. INTEREST ON PAST DUE OBLIGATIONS; LATE CHARGE

Any amount due from Tenant to Landlord hereunder which is not paid within thirty (30) days of the date due shall bear interest at the rate of ten percent (10%) per annum from when due until paid, unless otherwise specifically provided herein, but the payment of such interest shall not excuse or cure any default by Tenant under this lease. In addition, Tenant acknowledges that late payment by Tenant to Landlord of basic rent or common area charges or of any other amount due Landlord from Tenant, will cause Landlord to incur costs not contemplated by this lease, the exact amount of such costs being extremely difficult and impractical to fix. Such costs include, without limitation, processing and accounting charges, and late charges that may be imposed on Landlord, e.g., by the terms of any encumbrance and note secured by any encumbrance covering the Premises. Therefore, if any such payment due from Tenant is not received by Landlord within five (5) days of the date due (without the requirement of providing Tenant notice), Tenant shall pay to Landlord an additional sum of five percent (5%) of the overdue payment as a late charge. The parties agree that this late charge represents a fair and reasonable estimate of the costs that Landlord will incur by reason of late payment by Tenant. Acceptance of any late charge shall not constitute a waiver of Tenant’s default with respect to the overdue amount, nor prevent Landlord from exercising, any of the other rights and remedies available to Landlord. No notice to Tenant of failure to pay shall be required prior to the imposition of such interest and/or late charge, and any notice period provided for in paragraph 20 shall not affect the imposition of such interest and/or late charge.

45. ENTIRE AGREEMENT

This lease, including any exhibits and attachments, constitutes the entire agreement between Landlord and Tenant relative to the Premises and this lease and the exhibits and attachments may be altered, amended or revoked only by an instrument in writing signed by both Landlord and Tenant, Landlord and Tenant agree hereby that all prior or contemporaneous oral agreements between and among themselves or their agents or representatives relative to the leasing of the Premises are merged in or revoked by this lease.

46. CORPORATE AUTHORITY

If Tenant is a corporation, each individual executing this lease on behalf of the corporation represents and warrants that he is duly authorized to execute and deliver this lease on behalf of the corporation in accordance with a duly adopted resolution of the Board of Directors of said corporation and that this lease is binding upon said corporation in accordance with its terms. If Tenant is a corporation, Tenant shall deliver to Landlord, within ten (10) days of the execution of this lease, a copy of the resolution of the Board of Directors of Tenant authorizing the execution of this lease and naming the officers that are authorized to execute this lease on behalf of Tenant, which copy shall be certified by Tenant’s president or secretary as correct and in full force and effect.

47. RECORDING

Neither Landlord nor Tenant shall record this lease or any short form memorandum heretofore without the consent of the other.

48. REAL ESTATE BROKERS

Each party represents that it has nor had dealings with any real estate broker finder or other person with respect to this lease in any manner Each party shall hold harmless the other party from all damages resulting from any claims that may be asserted against the other party by any broker, finder or other person with whom the other party has or purportedly has dealt.

49. EXHIBITS AND ATTACHMENTS

All exhibits and attachments to this lease are a part hereof.

50. ENVIRONMENTAL MATTERS

A. Tenant’s Covenants Regarding Hazardous Materials.

(1) Without limiting Tenant’s obligations under paragraph 7 hereof, Tenant shall comply with and shall cause the Project to comply with, all federal, state, and local laws, statutes, rules, regulations, codes, ordinances, and other governmental requirements (including, without limitation, permits, licenses, consent decrees and administrative orders) now or hereafter in effect relating or pertaining in any way to (i) human health, safety or protection, (ii) workplace safety, (iii) industrial hygiene, (iv) the use, generation, handling, maintenance, treatment, removal, transportation, storage, release, discharge, disposal, or disclosure of Hazardous Materials, or (v) the protection or regulation of the environment, all as amended and modified from time to time (collectively, “Environmental Requirements”) Tenant shall cause all governmental permits and other approvals relating in the use or operation of the Project required by applicable Environmental Requirements or any other applicable laws to all times remain in effect, and Tenant shall at all times comply with such permits and other approvals.

(2) Tenant shall not cause, or permit to occur, any release, discharge, use, generation, manufacture, storage, treatment, transportation, or disposal by Tenant or any of its employees, agents, contractors, visitors, clients, customers, sublessees, assignees, successors licensees or invitees, of any Hazardous Materials on, in, under, about, or from the Premises or any other part of the Project. However, notwithstanding the foregoing, Tenant may use on the Premises, without Landlord’s prior written consent, but only upon written notice to Landlord and in compliance with all Environmental Requirements and other applicable laws, any ordinary and customary materials reasonably required for use by Tenant in the normal course of the permitted use described in paragraph 7 hereof and further, but only so long as such use is not a Reportable Use (defined below) and does not expose the Premises or any other part of the Project or neighboring properties to any meaningful risk of contamination or damage or expose Landlord to any liability whatsoever therefor ... In addition, Landlord may (but without any obligation to do so) condition its consent to any Reportable Use of any Hazardous Materials by Tenant upon Tenant’s giving Landlord such additional assurances as Landlord in its sole discretion, deems necessary to protect itself, the public, the Premises, the Project, and the environment against damage, contamination or injury and/or liability therefor, including but not limited to the installation (and, at Landlord’s option, removal on or before the expiration or earlier termination of this lease) of reasonably necessary protective modifications to the Premises (such as concrete encasement) and/or the deposit of an additional security deposit. As used herein, “Reportable Use” shall mean (i) the installation or use of any above or below ground storage tank, (ii) the release, generation, possession, storage, use, transportation, discharge or disposal of any Hazardous Materials that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental agency or authority, and (iii) the presence in, on or about the Premises, the Project of any Hazardous Materials with respect to which any Environmental Requirements or other applicable laws require that a notice be given to persons entering or occupying the Premises, the Project or neighboring properties.

(3) If Tenant knows, or has reasonable cause to believe, that any Hazardous Materials have come to be located in, on, under or about the Premises or the Project (other than those Hazardous Materials that have come to be located beneath and/or in the vicinity of the Project prior to the date of this lease and other than those Hazardous Materials as previously consented to by Landlord in writing, if any), to by Landlord, Tenant shall immediately give Landlord written notice thereof, together with a copy of any statement, report, notice, registration, application, permit, business plan, license, claim, action, or proceeding, given to, or received from, any governmental authority or private party concerning the presence, spill, release, discharge of, or exposure to, such Hazardous Materials including but not limited to all such documents as may be involved in any Reportable Use involving the Premises or the Project. Landlord’s receipt of any notice, documents or other information from Tenant as provided above in this paragraph shall not create any obligation on the part of Landlord to respond in any way to such notice, documents or information or the conditions described therein.

(4) Tenant shall immediately notify Landlord and provide copies upon receipt of all written complaints, claims, citations, demands, inquiries, reports, or notices relating to the condition of the Premises or compliance with Environmental Requirements (provided, however, that Landlord’s receipt of any of the foregoing shall in no way create or impose any duty or obligation upon Landlord to respond thereto. Tenant shall promptly cure and have dismissed with prejudice any of those actions and proceedings to the satisfaction of Landlord.

(5) Landlord, its agents, employees, contractors and designated representatives, and the holders of any mortgages, deeds of trust or ground leases on the Premises or Project shall have the right, but not the obligation, to enter the Premises at any time in the case of an emergency, and otherwise at reasonable times, for the purpose of inspecting the condition of the Premises and for verifying compliance by Tenant with this lease (including compliance with Environmental Requirements) and Landlord shall be entitled to employ experts and/or consultants in connection therewith to advise Landlord with respect to Tenant’s activities, including but not limited to Tenant’s use, storage, handling, transportation, maintenance, or removal of any Hazardous Materials on or from the Premises. The costs and expenses of any such inspections shall be paid by the party requesting same, unless a default or breach of this lease by Tenant or a violation of any Environmental Requirement or a contamination caused or materially contributed to by the Tenant as found to exist or to be imminent, or unless the inspection is requested or ordered by a governmental agency or authority as the result of any such existing or imminent violation or contamination, in such case, Tenant shall upon request reimburse Landlord, for the costs and expenses of such inspections.

(6) If Tenant breaches any of its warranties, representations, or covenants under this paragraph 50, Landlord may, without obligation, cause the removal (or other cleanup or other response acceptable to Landlord) of any Hazardous Materials from the Project, and the costs of any Hazardous Materials removal, remediation, detoxification, or other response (including, without limitation, disposal, transportation and storage costs and all costs of refitting or otherwise altering the Premises or any other part of the Project shall be covered by the indemnity in paragraph 50B, below, whether or not a court or other governmental authority has ordered such removal, remediation, detoxification or other response and those costs shall become due and payable on demand by Landlord. Tenant shall give Landlord, its agents, contractors, and employees access to the Premises to remove, remediate, detoxify, clean up or otherwise respond to any Hazardous Materials, and this lease shall not be construed as creating any such obligation.

B. Indemnification of Landlord. Tenant agrees to indemnify, defend (with counsel acceptable to Landlord and at Tenant’s sole cost), and hold Landlord and Landlord’s partners, employees, agents, attorneys, successors and assigns free and harmless from and against any and all losses, liabilities, obligations, penalties, claims, litigation, orders, demands, defenses, costs, judgments, suits, penalties, proceedings, damages (including, without limitation, consequential damages, diminution of the value of the Premises or Project, disbursements, losses, or expenses of any kind (including, without limitation, attorneys’ and experts’ fees and expenses incurred in investigating, defending, or prosecuting any litigation, claim, or proceeding) that may at any time be imposed upon, suffered by, incurred by, or asserted or awarded against Landlord or any of its partners, employees, agents, attorneys, successors or assigns in connection with or arising directly or indirectly out of:

(1) Any release, threatened release, discharge, handling, use, storage, presence, transportation, or disposal of any Hazardous Materials (whether or not the use thereof is a Reportable Use or has been consented to by Landlord on, in, under, or affecting all or any part of the Premises or Project which is (or are) attributable, in whole or in part, directly or indirectly, to any act or omission of Tenant or any employee, agent, contractor, visitor, client, customer, sublessee, assignee, successor, licensee or invitee of Tenant;

(2) Any misrepresentation, inaccuracy, or breach of any warranty, covenant, or agreement contained or referred to in this paragraph 50;

(3) Any failure by Tenant or any employee, agent, contractor, visitor, customer, sublessee, assignee, successor, client, licensee or invitee of Tenant to comply with any Environmental Requirement or other applicable law, whether such failure was made knowingly or unknowingly or intentionally or unintentionally.

This indemnification is the personal obligation of Tenant and shall survive the expiration or sooner termination of this lease. Tenant, its successors, and assigns waive, release, and agree not to make any claim or bring any cost recovery action against Landlord under the Comprehensive Environmental Response, Compensation and Liability Act, as amended and reauthorized to date (42 U.S.C. § § 9601 et seq.) (“CERCLA”), or any state equivalent or any similar law now existing or enacted after this date. To the extent that Landlord is strictly liable under any such law, regulation, ordinance, or requirement, Tenant’s obligation to Landlord under this indemnity shall also be without regard to fault on the part of Tenant with respect to the violation or condition that results in liability to Landlord.

C. Definition of Hazardous Materials. “Hazardous Materials” means any product substance, chemical, material or waste whose presence, nature, quantity and/or intensity or existence, use, manufacture, disposal, transportation, spill, release, or effect, either by itself or in combination with any other materials, substances or chemicals is either (i) potentially injurious or harmful to the

(4) Tenant shall immediately notify Landlord and provide copies upon receipt of all written complaints, claims, citations, demands, inquiries, reports or notices relating to the condition of the Premises or compliance with Environmental Requirements (provided, however, that Landlord’s receipt of any of the foregoing shall in no way create or impose any duty or obligation upon Landlord to respond thereto. Tenant shall promptly cure and have dismissed with prejudice any of those actions and proceedings to the satisfaction of Landlord.

(5) Landlord, its agents, employees, contractors and designated representatives, and the holders of any mortgages, deeds of trust or ground leases on the Premises or Project shall have the right, but not the obligation, to enter the Premises at any time in the case of an emergency, and otherwise at reasonable times, for the purpose of inspecting the condition of the Premises and for verifying compliance by Tenant with this lease (including compliance with Environmental Requirements) and Landlord shall be entitled to employ experts and/or consultants in connection therewith to advise Landlord with respect to Tenant’s activities, including but not limited to Tenant’s use, storage, handling, transportation, maintenance, or removal of any Hazardous Materials on or from the Premises. The costs and expenses of any such inspections shall be paid by the party requesting same, unless a default or breach of this lease by Tenant or a violation of any Environmental Requirement or a contamination caused or materially contributed to by the Tenant is found to exist or to be imminent, or unless the inspection is requested or ordered by a governmental agency or authority as the result of any such existing or imminent violation or contamination, in such case, Tenant shall upon request reimburse Landlord, for the costs and expenses of such inspections.

(6) If Tenant breaches any of its warranties, representations, or covenants under this paragraph 50, Landlord may, without obligation, cause the removal (or other cleanup or other response acceptable to Landlord) of any Hazardous Materials from the Project, and the costs of any Hazardous Materials removal, remediation, detoxification, or other response (including, without limitation, disposal, transportation and storage costs and all costs of refitting or otherwise altering the Premises or any other part of the Project shall be covered by the indemnity in paragraph 50B, below, whether or not a court or other governmental authority has ordered such removal, remediation, detoxification or other response and those costs shall become due and payable on demand by Landlord. Tenant shall give Landlord, its agents, contractors, and employees access to the Premises to remove, terminate, detoxify, clean up or otherwise respond to any Hazardous Materials, and this lease shall not be construed as creating any such obligation

8. Indemnification of Landlord. Tenant agrees to indemnify, defend (with counsel acceptable to Landlord and at Tenant’s sole cost), and hold Landlord and Landlord’s partners, employees, agents, attorneys, successors and assigns free and harmless from and against any and all losses, liabilities, obligations, penalties, claims, litigation, orders, demands, defenses, costs, judgments, suits, penalties, proceedings, damages (including, without limitation, consequential damages, diminution of the value of the Premises or Project, disbursements, losses, or expenses of any kind (including, without limitation, attorney’s and experts’ fees and expenses incurred in investigating, defending, or prosecuting any litigation, claim, or proceeding) that may at any time be imposed upon, suffered by, incurred by, or asserted or awarded against Landlord or any of its partners, employees, agents, attorneys, successors or assigns in connection with or arising directly or indirectly out of:

(2) Any misrepresentation, inaccuracy, or breach of any warranty, covenant, or agreement contained or referred to in this paragraph 50;

Public health, safety or welfare, the Premises, or the environment (including, without limitation, any soil, air, groundwater, and subsurface media on, in, under, above or about the Project); (ii) regulated or monitored by any federal, state or local governmental authority; or (iii) a basis for potential liability of Landlord to any governmental agency, private party, or other third party under any Environmental Requirement or any other applicable statute, regulation, code, ordinance or common law theory. Without limiting the scope or generality of the foregoing, Hazardous Material shall include, but not be limited to any petroleum or petroleum byproducts or petroleum hydrocarbons, flammable explosives, asbestos, urea formaldehyde, radioactive materials or waste and any “hazardous substance” or “toxic waste” as those terms are defined under the provision of the California Health and Safety Code and/or CERCLA.

D. Survival. The provisions of this paragraph 50 shall survive the expiration or earlier termination of the term of this lease.

E. Limitation on Tenant Liability. Notwithstanding the provisions in this lease to the contrary, Tenant shall have no obligation to clean up or to reimburse, release, indemnify, or defend Landlord with respect to removal or liability respecting Hazardous Materials unless the Hazardous Materials in question were stored, used, generated, manufactured, treated, analyzed, released, threaten to be released, discharged, disposed, transported or otherwise caused to be present in, on or about the Premises or the Project by Tenant or its agent’s, employees, contractors, visitors, clients; customers, sublessees, assignees, successors, licensees, invitees or others acting for or on behalf of Tenant (whether or not they are negligent, intentional, willful or unlawful).

51. SIGNAGE

Tenant shall not, without obtaining the prior written consent of Landlord, install or attach any sign or advertising material on any part of the outside of the Premises, or on any part of the inside of the Premises which is visible from the outside of the Premises, or in the halls, lobbies, windows or elevators of the building in which the Premises are located or on or about any other portion of the Common Area or Project. If Landlord consents to the installation of any sign or other advertising material, the location, size, design, color and other physical aspects thereof shall be subject to Landlord’s prior written approval and shall be in accordance with any sign program applicable to the Project. In addition to any other requirements of this paragraph 51, the installation of any sign or other advertising material by or for Tenant must comply with all applicable laws, statutes, requirements, rules, ordinances and any C.C.&R.’s or other similar requirements. With respect to any permitted sign installed by or for Tenant, Tenant shall maintain such sign or other advertising material in good condition and repair and shall remove such sign or other advertising material on the expiration or earlier termination of the term of this lease. The cost of any permitted sign or advertising material and all costs associated with the installation, maintenance and removal thereof shall be paid for solely by Tenant. If Tenant fails to properly maintain or remove any permitted sign or other advertising material, Landlord may do so at Tenant’s expense. Any cost incurred by Landlord in connection with such maintenance or removal shall be deemed additional rent and shall be paid by Tenant to Landlord within ten (10) days following notice from Landlord. Landlord may remove any unpermitted sign or advertising material without notice to Tenant and the cost of such removal shall be additional rent and shall be paid by Tenant within ten (10) days following notice from Landlord. Landlord shall not be liable to Tenant for any damage, loss or expense resulting from Landlord’s removal of any sign or advertising material in accordance with this paragraph 51. The provisions of this paragraph 51 shall survive the expiration or earlier termination of this lease.

52. SUBMISSION OF LEASE

The submission of this lease to Tenant is not an offer to lease the Premises, or an agreement by Landlord to reserve the Premises for Tenant. Landlord will not be bound to Tenant until Tenant has duly executed and delivered duplicate original leases to Landlord and Landlord has duly executed and delivered one of those duplicate original leases to Tenant.

53. ADDITIONAL RENT

All costs, charges, fees, penalties, interest and any other payments (including Tenant’s reimbursement to Landlord of costs incurred by Landlord) which Tenant is required to make to Landlord pursuant to the terms and conditions of this lease and any amendments to this lease shall be and constitute additional rent payable by Tenant to Landlord when due as specified in this lease and any amendments to this lease.

54. PREMISES TAKEN “AS IS”

Tenant is leasing the Premises from Landlord “as is” in its existing condition as of the date hereof. Landlord shall have no obligation to alter or improve the Premises except only to paint the exterior of the building in which the Premises are located. The cost of such exterior painting shall be deemed a common area charge as provided in paragraph 16 and shall be amortized over the remaining term of the lease.

Tenant acknowledges that, except as expressly contained in this lease, neither Landlord nor anyone acting for or on behalf of Landlord has made any representation, warranty or promise to Tenant concerning the physical aspects or condition of any of the Project; the feasibility, desirability or convertibility of any of the Project into any particular use; the zoning, building or land use restrictions applicable to the zoning, building or land use restrictions applicable to the Project; the projected income or expenses for any of the Project or any business conducted thereon; the suitability of the Project for any particular use; or the presence or absence of any Hazardous Materials; and that in entering into this lease, Tenant has not relied upon any representation, statement or warranty of Landlord or anyone acting for or on behalf of Landlord, other than as expressly contained in this lease, and that all matters concerning the Premises shall be independently verified by Tenant and that Tenant shall enter into this lease on Tenant’s own examination thereof (or Tenant’s election not to do so). Tenant does hereby waive, and Landlord does hereby disclaim, all warranties of any type or kind whatsoever with respect to the Project, express or implied, including by way of description, but not limitation, those of fitness for a particular purpose, tenantability, habitability and use. Tenant hereby expressly assumes the risk that adverse physical conditions and the full extend thereof (including, without limitation, soil, groundwater and surface water contamination and air pollution from Hazardous Materials), may not be revealed by Tenant’s inspections, reviews and studies of the Project prior to the date of possession.

No person acting on behalf of Landlord is authorized to make, and by execution hereof Tenant acknowledges that no such person has made, any representation, warranty, guaranty or promise except as may be expressly set forth herein; and no agreement, statement, representation, guaranty or promise made by any such person which is not expressly contained herein shall be valid or binding on Landlord and Landlord’s agents, heirs, successors or assigns. The only representations or warranties outstanding with respect to the Project, or Landlord, either express or implied by law, are expressly set forth herein.

Tenant acknowledges that any and all documentary information, soil reports, environmental audits, site assessments, analyses or reports, insurance policies or other information of whatever type which Tenant has received or may receive from Landlord or Landlord’s agents is furnished on the express condition that Tenant shall make Tenant’s own independent verification of the accuracy and completeness of such information. Tenant agrees that Tenant shall not attempt to assert any liability upon Landlord or Landlord’s agents for furnishing such information and Tenant does hereby release Landlord and Landlord’s agents, heirs, successors and assigns free and harmless from and against, any and all such claims or liability.

55. CAPITAL EXPENDITURES

Notwithstanding anything to the contrary in paragraphs 7, 8 and 9, (i) as to any required capital improvement to the Premises of a structural nature (and including, when necessary in Landlord’s sole judgment, replacement of the roof and individual heating, ventilating and air-conditioning units but excluding capital improvements required for ADA compliance except where such ADA compliance is the responsibility of Landlord as described in this lease) having a useful life of more than one year and which is not required by reason of Tenant’s specific use of or activities on the Premises, Landlord shall make such capital improvement and Tenant shall pay to Landlord, as additional rent and in equal monthly installments over the remaining term of this lease, the fraction of the cost of such capital improvements equal to the remaining term of this lease over the useful life of such capital improvement; (ii) as to any required capital improvement to the common area having a useful life of more than one year and which is not required by Tenant’s specific use of or activities on the Premises, the cost thereof shall be included within common area charges ratably over the useful life of such capital improvement. Any determination of useful life, as such term is used in this paragraph 55, shall be reasonably made by Landlord.

IN WITNESS WHEREOF, Landlord and Tenant have executed and delivered this lease on the date first above written.

Landlord:			Tenant:
C&J Development Co., a California Limited Partnership			Southwall Technologies, Inc., a Delaware corporation

By:	/s/ Sandra M. Simons	By:	/s/ Bill R. Finley
Sandra M. Simons, as Trustee under the Charles S. and Jean A. McCandless Inter Vivos Trust Agreement dated January 25, 1977, a General Partner			(Signature)
			Bill R. Finley
			(Name)
			Vice President and CFO
			(Title)
Date:	Oct-14, 1999	Date:	13 October 1999


Title of each class of securities to be registered	Proposed maximum aggregate offering price(1)	Amount of registration fee(2)

Common Stock, $.001 par value	$33,971,000	$446.48

Common stock offered by us		3,500,000 shares
Common stock to be outstanding after this offering		12,086,278 shares
Over-allotment option:
	Common stock offered by us	340,549 shares
	Common stock offered by selling stockholders	184,451 shares
Use of proceeds		To pay down existing indebtedness, capital expenditures including purchasing a new production machine, replacing our enterprise resource planning system and updating our Palo Alto and Tempe facilities, and for working capital and general corporate purposes, including possible acquisitions.
Nasdaq National Market symbol		SWTX

															Three Months Ended
		Year Ended December 31,													Three Months Ended
		Year Ended December 31,													April 1, 2001			March 31, 2002
		1997		1998			1999			2000			2001		April 1, 2001			March 31, 2002
		(In thousands, except per share data)
Consolidated Statements of Operations Data:
Net revenues by product:
Automotive glass		$	6,629	$	12,845		$	19,477		$	20,198		$	37,385	$	8,007		$	7,003
Electronic display			21,957		16,954			16,014			47,734			29,691		6,724			7,925
Architectural			21,503		20,234			19,107			17,416			15,900		2,982			4,341

Net revenues			50,089		50,033			54,598			85,348			82,976		17,713			19,269
Gross profit			14,779		5,780			13,892			16,288			22,828		2,864			6,844
Income (loss) from operations			2,446		(7,130	)		(527	)		(3,594	)		6,336		(1,217	)		1,322
Net income (loss)		$	2,281	$	(7,869	)	$	(1,865	)	$	(6,180	)	$	4,635	$	(1,131	)	$	1,181
Net income (loss) per share:
	Basic	$	0.32	$	(1.03	)	$	(0.25	)	$	(0.81	)	$	0.58	$	(0.15	)	$	0.14
	Diluted	$	0.29	$	(1.03	)	$	(0.25	)	$	(0.81	)	$	0.57	$	(0.15	)	$	0.13
Weighted average number of common stock and dilutive common stock equivalents:
	Basic		7,107		7,608			7,421			7,642			8,032		7,743			8,417
	Diluted		7,799		7,608			7,421			7,642			8,186		7,743			9,277

	March 31, 2002
	Actual			Pro Forma As Adjusted
	(In thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	2,713
Working capital (deficit)		(4,987	)
Property, plant and equipment, net		47,326
Total assets		73,067
Term debt		13,800
Total liabilities		44,781
Total stockholders' equity		28,286

				March 31, 2002
				Actual			Pro Forma as Adjusted
				(in thousands)
Line of credit				$	4,606		$

Current portion of long-term debt				$	7,579
Term debt, less current portion					13,800		$

	Total long-term debt			$	21,379

Stockholders' equity:
	Common Stock, $0.001 par value: 20,000 shares authorized; 8,562 shares issued and outstanding (actual); 12,062 shares issued and outstanding (pro forma as adjusted)				9
	Capital in excess of par value				53,467
	Notes receivable				(103	)
	Translation loss on subsidiary				(356	)
	Accumulated deficit				(24,731	)

		Total stockholders' equity			28,286

			Total capitalization	$	49,665		$

1. Agreement to Sell and Purchase.

(b) Subject to all the terms and conditions of this Agreement, the Company grants the Company Option and the Selling Stockholders grant the Selling Stockholders Option to the several Underwriters to purchase,

2. Delivery and Payment.

3. Representations and Warranties of the Company.

(n) No statement, representation, warranty or covenant made by the Company in this Agreement or made in any certificate or document required by Section 6 of this Agreement to be delivered to the Representatives was or will be, when made, inaccurate, untrue or incorrect in any material respect.

(p) No holder of securities of the Company has rights to the registration of any securities of the Company because of the filing of the Registration Statement, which rights have not been waived by the holder thereof as of the date hereof.

(t) The pro forma financial information set forth in the Registration Statement reflects, subject to the limitations and assumptions set forth in the Registration Statement as to such pro forma financial information, the

4. Representations, Warranties and Covenants of the Selling Stockholders.

(l) Such Selling Stockholder has no reason to believe that the representations and warranties of the Company contained in Section 3 hereof are not true and correct in all material respects.

5. Agreements of the Company and the Selling Stockholders.

(d) The Company will comply with all the provisions of any undertakings contained in the Registration Statement.

Statement), consolidated summary financial information of the Company and its Subsidiaries, if any, for such quarter in reasonable detail.

(l) The Company will apply the net proceeds from the offering and sale of the Shares to be sold by the Company in the manner set forth in the Prospectus under “Use of Proceeds.”

Common Stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Common Stock or other securities, in cash or otherwise.

6. Conditions of the Obligations of the Underwriters.

(k) On or prior to the Closing Date, the Representatives shall have received the executed agreements referred to in Section 5(o).

(l) The Shares shall be qualified for sale in such jurisdictions as the Representatives may reasonably request and each such qualification shall be in effect and not subject to any stop order or other proceeding on the Closing Date or the Option Closing Date.

(m) Prior to the Closing Date, the Firm Shares and the Company Option Shares shall have been duly authorized for listing on the NNM upon official notice of issuance.

7. Indemnification.

8. Reimbursement of Certain Expenses.

9. Termination.

10. Substitution of Underwriters.

11. Miscellaneous.

1. Amendment to Definition of Applicable Spread. Effective as of November 8, 1999, the definition of Applicable Spread set forth in Section 1.01 of the Credit Agreement is hereby amended in its entirety to read as follows:

2. Representations and Warranties. Company hereby represents and warrants to Bank that;

(i) as of the date of this Amendment, the outstanding principal balance of the Loan is Ten Million Dollars ($10,000,000);

(ii) all of the representations and warranties of Company contained in the Credit Agreement and the Note are true and correct as of the date of this Amendment as if made on such date;

(iii) no Default or Event of Default has occurred and is continuing; and

(iv) the execution, delivery and performance by Company of all its obligations under this Amendment has been duly authorized by all necessary action. This

Amendment constitutes the legal, valid and binding obligations of Company enforceable against Company in accordance with its terms.

3. Conflict between this Amendment and the Loan Documents. If there is a conflict between any of the provisions of this Amendment and any of the provisions of the Loan Documents, the provisions of this Amendment shall control.

4. No Other Amendments or Changes. Except as expressly amended or modified by this Amendment, all of the terms and conditions of the Loan Documents shall remain unchanged and in full force and effect.

5. Governing Law. This Amendment shall be governed by and construed in accordance with California law.

2. For the term from July 5, 1999 to December 31, 2000, the figure of quarterly basis financial covenants shall be replaced by the following figure.

3. Financial covenants mentioned in Article 4 (2) “Southwall shall remain Profitable in each fiscal year” shall keep its effect all through the year 1999 and 2000 and it was not the subject of Teijin’s waiver mentioned in 1) of this Memorandum.

Adams, Harkness & Hill, Inc.
		Wells Fargo Securities, LLC

		High		Low
2000
	First quarter	$	11.87	$	4.68
	Second quarter		11.25		7.37
	Third quarter		14.00		6.12
	Fourth quarter		4.17		2.62
2001
	First quarter		3.63		2.00
	Second quarter		3.47		2.03
	Third quarter		5.41		2.97
	Fourth quarter		7.26		4.55
2002
	First quarter		12.99		7.19
	Second quarter (through May 29, 2002)		15.45		8.44

															As of
	As of December 31,														As of
	As of December 31,														April 1, 2001			March 31, 2002
	1997		1998			1999			2000			2001			April 1, 2001			March 31, 2002
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	10,524	$	4,136		$	1,772		$	61		$	3,362		$	218		$	2,713
Working capital (deficit)		23,999		(4,256	)		(11,699	)		(32,148	)		(6,471	)		(32,593	)		(4,987	)
Property, plant and equipment, net		26,272		29,068			43,533			49,884			47,841			48,876			47,326
Total assets		61,469		54,019			70,142			80,462			73,158			74,049			73,067
Term debt		15,539		141			10,000			—			14,513			—			13,800
Total liabilities		25,729		28,202			45,562			60,324			46,706			55,347			44,781
Total stockholders' equity		35,740		25,817			24,580			20,138			26,452			18,702			28,286

		Quarters Ended
		April 2, 2000			July 2, 2000			Oct. 1, 2000			Dec. 31, 2000			April 1, 2001			July 1, 2001		Sep. 30, 2001		Dec. 31, 2001		March 31, 2002
Net revenues		$	17,109		$	20,928		$	26,361		$	20,950		$	17,713		$	21,946	$	22,777	$	20,540	$	19,269
Cost of sales			14,783			16,922			19,399			17,956			14,849			16,320		15,629		13,350		12,425

Gross profit			2,326			4,006			6,962			2,994			2,864			5,626		7,148		7,190		6,844
Income (loss) before provision for income taxes			(1,647	)		(1,606	)		(1,530	)		(1,269	)		(1,110	)		1,104		2,420		2,435		1,234
Net income (loss)			(1,683	)		(1,647	)		(1,548	)		(1,302	)		(1,131	)		1,184		2,409		2,172		1,181
Net income (loss) per share—
	Basic	$	(0.22	)	$	(0.22	)	$	(0.20	)	$	(0.17	)	$	(0.15	)	$	0.15	$	0.29	$	0.26	$	0.14
	Diluted	$	(0.22	)	$	(0.22	)	$	(0.20	)	$	(0.17	)	$	(0.15	)	$	0.15	$	0.28	$	0.25	$	0.13

Description				Rate		Balance at March 31, 2002		Remaining Due in 2002
Line of credit				(1)		$	4,606		(1	)

Term debt:
	Japanese bank loan, guaranteed by Teijin			LIBOR+1.0	%(2)		7,500	$	2,500
	German bank loan dated May 12, 1999			6.13	%(3)		2,321		225
	German bank loan dated May 28, 1999			7.10	%(4)		2,196		—
	German bank loan dated May 28, 1999			3.75	%		1,129		188
	German bank loan dated December 1, 1999			7.15	%		1,761		155
	German bank loan due June 30, 2009			5.75	%		1,482		—
	German bank loan dated June 29, 2000			5.75	%		299		113
	German bank loan dated July 10, 2000			7.10	%		299		112
	German bank loan dated December 19, 2000			7.50	%		190		52
	German bank loan dated December 18, 2000			7.50	%		208		57
	Note payable dated September 21, 2001			8.00	%		520		450
	Other equipment financings			—			207		68

		Total term debt					18,112		3,920
Capital leases:
		Sale-leaseback dated July 19, 1999		13.00	%		2,321		2,321
		Sale-leaseback dated October 19, 1999		13.00	%		946		946

		Total capital leases					3,267		3,267

Total term debt and capital leases							21,379	$	7,187

			Less current portion				7,579

			Term debt, non-current			$	13,800

	Payments Due by Period
Contractual obligations	Total		Less than 1 year		1-3 years		4-5 years		After 5 years
Term debt	$	19,061	$	4,548	$	7,446	$	1,558	$	5,509
Financing lease obligations		3,767		3,767		—		—		—
Line of credit		2,974		2,974		—		—		—
Operating leases		10,229		3,601		5,678		950		—
Other long-term obligations		—		—		—		—		—

Total contractual cash obligations	$	36,031	$	14,890	$	13,124	$	2,508	$	5,509

MARKET	APPLICATION	FILM PRODUCTS	KEY FEATURES	REPRESENTATIVE CUSTOMERS
Automotive glass	Windscreens, side windows, and back windows	Infrared reflective (XIR 70 and XIR 75)	• Transmits 70% or 75% visible light • Reflects 85% of infrared heat energy	• Saint Gobain • Pilkington PLC
	After-market installation	Solis/V-KOOL	• Transmits 70% or 75% visible light • Reflects 85% of infrared heat energy	• Globamatrix
Electronic display	Flat screen monitors and TVs	Anti-reflective absorbing (ARA)	•Pigmented film • 8X reduction in light reflection • High picture quality	• Mitsubishi • Polar Vision
	Liquid crystal display (LCD) screens	Anti-reflective clear (ARC)	• Clear anti-reflective product	• Sumitomo Chemicals • Polar Vision
	LCD reflector for lighting sources	Silver reflecting	• 95% Reflecting • Light-weight mirror	• Mitsui Chemicals • Marubeni
	Plasma display panels (PDP)	Infrared reflective (XIR 70) Anti-reflective clear (ARC)	• Clear and Conductive • Clear infrared blocking	• Mitsui Chemicals
Architectural	New and retrofit residential and commercial windows and doors	Suspended Heat Mirror	• Cool in summer • Warm in winter • UV blocking • Noise reducing	• Kensington • Hankuk • Hurd • Edge Seal
	Commercial buildings	Laminated (XIR70 HT)	• Infrared reflecting • UV blocking • Cool in summer • Noise reducing	• Gulf Glass Industries • Cristales Curvados
	After-market installation	Solis/V-KOOL	• Infrared reflecting • UV blocking • Cool in summer • Noise reducing	• Globamatrix

Status	Machine Number	Location	Primary Markets For Current Production	Year Commercial Production Initiated/ Expected	Estimated Annual Capacity (Millions of Sq. Ft.)⁽¹⁾
Existing	PM 1⁽²⁾	Palo Alto	Research and development	1980	—
	PM 2	Palo Alto	Architectural and electronic display	1982	6.0
	PM 3⁽³⁾
	PM 4A	Palo Alto	Automotive and architectural	1991	12.0
	PM 4B	Palo Alto	Automotive and architectural	1991	12.0
	PM 5	Tempe	Electronic display	1997	6.5
	PM 6	Tempe	Automotive and electronic display	2000	13.0
	PM 7⁽⁴⁾	Tempe	Electronic display	2002	3.0
	PM 8	Dresden	Automotive	2000	16.0
	PM 9	Dresden	Automotive	2001	16.0
Future	PM 10⁽⁵⁾	Dresden	Automotive	2003	16.0

	Annual Compensation					Long-Term Compensation Awards
Name and Principal Position	Year	Salary(1)		Bonus(1)		Stock Underlying Options(#)	All Other Compensation(2)
Thomas G. Hood President and Chief Executive Officer	2001 2000 1999	$	270,000 265,192 257,288	$	123,571 19,120 —	50,000 28,550 125,000	$	1,000 1,000 1,000
Robert R. Freeman(3) Senior Vice President, Chief Financial Officer and Secretary	2001 2000 1999		200,000 58,462 —		62,071 — —	35,000 50,000 —		1,000 1,000 —
Sicco W. T. Westra Senior Vice President, Sales and Marketing	2001 2000 1999		195,000 176,144 177,817		50,821 12,620 —	30,000 17,300 12,000		1,000 1,000 1,000
Wolfgang Heinze(4) Vice President, Dresden Operations	2001 2000 1999		175,910 133,874 45,257		70,545 86,659 5,570	— 5,000 20,000		— — —
Ted L. Larsen(5) Vice President, Sales and Marketing Electronic Display Products	2001 2000 1999		176,110 174,446 138,280		41,474 920 296	20,000 6,500 5,000		1,000 1,000 1,000

							Potential Realizable Values at Assumed Annual Rate of Stock Price Appreciation for Option Term(3)
	Number of Shares Underlying Options Granted(1)	Percent of Total Options Granted to Employees in 2001
Name				Exercise Price Per Share(2)		Expiration Date
Name				Exercise Price Per Share(2)		Expiration Date	5%		10%
Thomas G. Hood	50,000	9.2	%	$	3.71	1/24/2011	$	116,660	$	295,639
Robert R. Freeman	35,000	6.5			2.81	1/24/2011		61,907		156,884
Sicco W. T. Westra	30,000	5.5			2.81	1/24/2011		53,055		134,453
Wolfgang Heinze	—	—			—	—		—		—
Ted L. Larsen	20,000	3.7			2.81	1/24/2011		35,375		89,648

												Quarter Ended
		Year Ended December 31,										Quarter Ended
		Year Ended December 31,										April 1, 2001		March 31, 2002
		1997		1998		1999		2000		2001		April 1, 2001		March 31, 2002
Net Revenues
	Automotive glass	13.2	%	25.7	%	35.7	%	23.7	%	45.0	%	45.2	%	36.2	%
	Electronic display	43.9		33.9		29.3		55.9		35.8		38.0		41.4
	Architectural	42.9		40.4		35.0		20.4		19.2		16.8		22.4

Total net revenues		100.0		100.0		100.0		100.0		100.0		100.0		100.0
Cost of sales		70.5		88.4		74.6		80.9		72.5		83.8		64.2

Gross profit		29.5		11.6		25.4		19.1		27.5		16.2		35.8
Research and development		6.2		7.7		9.6		7.9		6.6		8.1		9.2
Selling, general and administrative		18.4		18.1		15.9		14.8		13.3		15.0		19.4
Legal settlement		—		—		0.9		0.6		—		—		—

Total operating expenses		24.6		25.8		26.4		23.3		19.9		23.1		28.6

Income (loss) from operations		4.9		(14.2	)	(1.0	)	(4.2	)	7.6		(6.9	)	7.2
Interest expense, net		(0.9	)	(2.3	)	(2.5	)	(3.3	)	(3.5	)	(4.3	)	(2.3	)
Other income, net		0.8		0.9		0.1		0.4		1.7		4.9		1.9

Income (loss) before provision for income taxes		4.8		(15.6	)	(3.3	)	(7.1	)	5.8		(6.3	)	6.8
Provision for income taxes		(0.3	)	(0.1	)	(0.1	)	(0.1	)	(0.3	)	(0.1	)	(0.3	)

Net income (loss)		4.6	%	(15.7	)%	(3.4	)%	(7.2	)%	5.6	%	(6.4	)%	6.5	%

				Number of Securities Underlying Unexercised Options at December 31, 2001
						Value of Unexercised In-the-Money Options at December 31, 2001
Name	Shares Acquired On Exercise	Value Realized
Name	Shares Acquired On Exercise	Value Realized		Exercisable	Unexercisable	Exercisable		Unexercisable
Thomas G. Hood	7,500	$	1,875	137,266	168,750	$	259,253	$	377,381
Robert R. Freeman	—		—	12,500	72,500		24,300		224,713
Sicco W. T. Westra	—		—	49,550	59,750		123,676		188,004
Wolfgang Heinze	—		—	11,250	13,750		36,430		41,290
Ted L. Larsen	5,625		1,406	47,150	28,750		107,480		102,358

Year	Amount
2002	$	8,315
2003		3,949
2004		3,497
2005		779
2006		779
Thereafter		5,509

Total	$	22,828

	December 31,
	2000			2001
Depreciation	$	(3,679	)	$	(4,388	)
Other		(44	)		(277	)

Gross deferred tax liabilities		(3,723	)		(4,665	)

Inventory reserves		552			540
Other		2,952			4,354
Loss carryforwards		12,396			9,377
Credit carryforwards		952			1,364

Gross deferred tax assets		16,852			15,635

Deferred tax assets valuation allowance		(13,129	)		(10,970	)

Net deferred taxes	$	—		$	—

Underwriter			Number of Shares
Needham & Company, Inc.
Adams, Harkness & Hill, Inc.
Wells Fargo Securities, LLC
	Total

	Total
	Per Share	No Exercise	Full Exercise
Paid by Southwall	$	$	$
Paid by the selling stockholders

Report of Independent Accountants		F-2
Consolidated Balance Sheets as of December 31, 2000, 2001 and March 31, 2002 (unaudited)		F-3
Consolidated Statements of Operations for the Years Ended December 31, 1999, 2000, 2001 and the three months ended April 1, 2001 (unaudited) and March 31, 2002 (unaudited)		F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1999, 2000, 2001 and the three months ended March 31, 2002 (unaudited)		F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 2000, 2001 and the three months ended April 1, 2001 (unaudited) and March 31, 2002 (unaudited)		F-6
Notes to Consolidated Financial Statements		F-7
Report of Independent Accountants on Financial Statement Schedules		F-29
Financial Statement Schedule—Valuation and Qualifying Accounts and Reserves		F-30

		Common Stock																					Accumulated Comprehensive Income (Loss)
		Common Stock			Capital in Excess of Par Value			Treasury Stock			Notes Receivable			Other Comprehensive Loss			Accumulated Deficit			Total Stockholders' Equity
		Shares	Amount		Capital in Excess of Par Value			Treasury Stock			Notes Receivable			Other Comprehensive Loss			Accumulated Deficit			Total Stockholders' Equity
Balance at December 31, 1998		7,889	$	8	$	52,181		$	(2,852	)	$	(1,020	)	$	0		$	(22,500	)	$	25,817		$	(7,869	)
	Interest paid with stock					(55	)		148												93
	Exercise of options					(264	)		607												343
	Sales to employees under stock purchase plan					(81	)		181												100
	Issuance of stock for bonuses					(10	)		28												18
	Stock option loans, net											114									114
	Translation loss on foreign subsidiary														(40	)					(40	)		(40	)
	Net loss																	(1,865	)		(1,865	)		(1,865	)

Balance at December 31, 1999		7,889		8		51,771			(1,888	)		(906	)		(40	)		(24,365	)		24,580			(1,905	)
	Exercise of options					(175	)		640												465
	Sales to employees under stock purchase plan					(69	)		209												140
	Issuance of stock for bonuses					(23	)		149												126
	Repayments of notes receivable											807									807
	Translation loss on foreign subsidiary														(111	)					(111	)		(111	)
	Issuance of stock for legal settlement					260			51												311
	Net loss																	(6,180	)		(6,180	)		(6,180	)

Balance at December 31, 2000		7,889		8		51,764			(839	)		(99	)		(151	)		(30,545	)		20,138			(6,291	)
	Exercise of options	22				(107	)		644												537
	Sale of stock, net	422				970															970
	Sales to employees under stock purchase plan					(107	)		192												85
	Issuance of stock for bonuses					(1	)		3												2
	Accelerated vesting on exercise of stock option					94															94
	Repayments of notes receivable											11									11
	Translation loss on foreign subsidiary														(21	)					(21	)		(21	)
	Net income																	4,635			4,635			4,635

Balance at December 31, 2001		8,333		8		52,614			0			(88	)		(172	)		(25,910	)		26,452			4,614
	Exercise of options	230		1		853			—			—			—			—			854
	Stock option loans											(15	)								(15	)
	Translation loss on foreign subsidiary														(184	)					(184	)		(184	)
	Net income																	1,179			1,179			1,179

Balance at March 31, 2002		8,563	$	9	$	53,467		$	—		$	(103	)	$	(356	)	$	(24,731	)	$	28,286		$	5,610

	Options		Range of Exercise Price	Weighted Average Exercise Price
Options outstanding at January 1, 1999	1,413		—		—
Granted	637		$2.75 - $4.50		3.77
Exercised	(127	)	$2.50 - $4.38		2.89
Cancelled or expired	(262	)	$2.50 - $8.63		5.15

December 31, 1999	1,661		$2.50 - $8.63	$	4.59
Granted	752		$1.56 - $11.50		5.35
Exercised	(128	)	$2.50 - $9.87		3.82
Cancelled or expired	(317	)	$1.56 - $11.50		4.66

December 31, 2000	1,968		$1.56 - $11.50	$	4.92

Granted	541		$2.13 - $6.06		3.19
Exercised	(150	)	$1.56 - $6.88		3.59
Cancelled or expired	(448	)	$2.13 - $11.50		4.80

December 31, 2001	1,911		$1.56 - $11.50	$	4.81

Granted (unaudited)	320		2.67 - 8.00		7.93
Exercised (unaudited)	(230	)	2.13 - 11.50		5.20
Cancelled or expired (unaudited)	(22	)	2.13 - 11.50		5.82

March 31, 2002	1,979		$2.13 - $11.50	$	6.75

	Options Outstanding				Options Exercisable
Range of Exercise Price	Number Outstanding at 12/31/01	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number Exercisable at 12/31/01	Weighted Average Exercise Price
$1.56 - $2.75	137	5.96	$	2.39	12	$	2.20
$2.81 - $2.81	230	6.07		2.81	—		0.00
$2.94 - $3.71	221	4.44		3.38	106		3.14
$3.75 - $4.50	275	4.65		4.16	161		4.18
$4.63 - $5.00	307	2.81		4.91	239		4.89
$5.07 - $5.07	70	6.72		5.07	—		0.00
$5.20 - $5.20	209	5.74		5.20	53		5.21
$5.75 - $6.88	216	3.51		6.59	175		6.58
$7.00 - $8.13	193	4.87		7.30	79		7.23
$8.25 - $11.50	53	5.60		10.24	25		9.82

$1.56 - $11.50	1,911	4.71	$	4.81	850	$	5.23

		As of December 31,
		2000		2001
United States		$	64,145	$	54,813
Germany			16,317		18,345

	Consolidated	$	80,462	$	73,158

	December 31,
Accounts receivable, net:	December 31,
Accounts receivable, net:	2000			2001
Accounts receivable	$	13,957		$	9,409
Allowance for doubtful accounts		(640	)		(389	)

Accounts receivable, net	$	13,317		$	9,020

		December 31,
Inventories, net:		December 31,				March 31, 2002
Inventories, net:		2000		2001		March 31, 2002
						(unaudited)
Raw materials		$	4,394	$	3,545	$	3,033
Work-in-process			4,799		2,430		3,279
Finished goods			981		176		741

	Total Inventories	$	10,174	$	6,151	$	7,053

		December 31,
Property, plant and equipment, net:		December 31,
Property, plant and equipment, net:		2000			2001
Land, buildings and leasehold improvements		$	11,179		$	8,968
Machinery and equipment			63,717			70,986
Furniture and fixtures			4,075			4,730
Construction-in-process			6,999			5,179

		$	85,970		$	89,863
Less—Accumulated depreciation			(36,086	)		(42,022	)

	Total property, plant and equipment	$	49,884		$	47,841

		December 31,
Other accrued liabilities:		December 31,
Other accrued liabilities:		2000		2001
Reserve for warranties and sales returns		$	1,903	$	2,642
Legal settlement			550		475
Accrued sales commission			441		405
Insurance premium financing			314		967
Accrued taxes			120		383
Accrued professional fees			393		187
Other			830		597

	Total other accrued liabilities	$	4,551	$	5,656

Description		Balance at Beginning of Year		Additions			Deductions			Balance at End of Year
		(in thousands)
December 31, 2001
	Inventory reserves	$	1,418	$	876		$	1,293	(2)	$	1,001
	Allowance for doubtful accounts		640		460			712	(2)		388
	Reserve for warranty and sales returns		1,903		3,945	(1)		3,206	(2)		2,642
December 31, 2000
	Inventory reserves		1,182		2,098			1,862	(2)		1,418
	Allowance for doubtful accounts		875		737			972	(2)		640
	Reserve for warranty and sales returns		1,174		3,008	(1)		2,279	(2)		1,903

SEC registration fee		$	5,000
NASD filing fee			5,000
Printing and engraving expenses			100,000
Legal fees and expenses			200,000
Accounting fees and expenses			125,000
Blue Sky fees and expenses (including legal fees)			15,000
Transfer agent and registrar fees and expenses			1,000
Miscellaneous			10,000

	Total	$	461,000

Exhibit No.		Exhibit
1.1		Form of Underwriting Agreement
3.1⁽¹⁾		Restated Certificate of Incorporation of the Company.
3.2⁽¹⁾		By-laws of the Company.
5.1		Opinion of Choate, Hall & Stewart.
10.35.1⁽¹⁷⁾		Lease Agreement for the facilities at 3941 East Bayshore Road, dated October 7, 1999, between the Company and Straube Associates, Inc.
10.36⁽¹⁾		Lease Agreement for the facilities at 3961 East Bayshore Road, dated March 20, 1979, between the Company and Allan F. Brown and Robert V. Brown.
10.36.1⁽¹⁷⁾		Amendment, dated October 12, 1999, between the Company and Brown Investment Company to the Lease Agreement for the facilities at 3961 East Bayshore Road, dated March 20, 1979, between the Company and Allan F. Brown and Robert V. Brown.
10.52⁽²⁾		Marketing and Distribution Agreement dated as of May 20, 1988, among Mitsui, Marubeni Corporation and the Company, as amended.
10.59⁽³⁾		Lease Agreement for the facilities at 3969-3975 East Bayshore Road Palo Alto, California, dated January 1, 1989, between the Company and Bay Laurel Investment Company.
10.59.1⁽¹⁷⁾		Amendment, effective January 1, 2000, between the Company and Judd Properties, LLC to the Lease Agreement for the facilities at 3969-3975 East Bayshore Road Palo Alto, California, dated January 1, 1989, between the Company and Bay Laurel Investment Company.
10.60⁽³⁾		Lease Agreements for the facilities at 3977-3995 East Bayshore Road Palo Alto, California, dated January 1, 1989, between the Company and Bay Laurel Investment Company.
10.60.1⁽¹⁷⁾		Amendment, effective January 1, 2000, between the Company and Judd Properties, LLC to the Lease Agreements for the facilities at 3977-3995 East Bayshore Road Palo Alto, California, dated January 1, 1989, between the Company and Bay Laurel Investment Company.
10.71⁽⁵⁾		Lease Agreement for the facilities at 3780 Fabian Way, Palo Alto, California, dated June 11, 1990, between the Company and The Fabian Building.
10.72⁽⁵⁾		License Agreement between Mitsui and the Company, dated January 30, 1991.
10.78⁽⁶⁾		Amendment to property lease dated February 2, 1994 to extend lease period on building at 3961 E. Bayshore Road, Palo Alto, California. Original lease filed as Exhibit No. 10.36 above.
10.80⁽⁷⁾		Lease Agreement between Frank Gant, as Lessor, and the Company, as Lessee, effective September 1, 1994.
10.84⁽¹²⁾		Lease Agreement between Chamberlain Development, L.L.C., as Lessor and the Company, as Lessee, effective August 22, 1996.
10.88⁽¹³⁾		Basic Agreement dated April 9, 1997, for the sale of 667,000 shares of the Company's common stock to Teijin Limited, a Japanese corporation, and for mutually beneficial cooperation and collaboration between Teijin and the Company.
10.89⁽¹³⁾		Credit Agreement dated May 6, 1997, between Sanwa Bank, Limited and the Company.
10.89.1		First Amendment to Credit Agreement dated November 8, 1999 between Sanwa Bank, Limited and the Company.
10.90⁽¹³⁾		Reimbursement and Security Agreement dated May 6, 1997, between Teijin Limited, a Japanese corporation, and the Company.

10.91⁽¹³⁾		Promissory Note, dated May 6, 1997, obligating the Company to Sanwa Bank, Limited, in the amount of $10 million.
10.92⁽¹⁴⁾		The Company's 1997 Stock Incentive Plan.
10.93⁽¹⁵⁾		The Company's 1997 Employee Stock Purchase Plan, as amended.
10.94⁽¹⁸⁾		The Company's October 22, 1999 Severance Policy in the Event of a Merger.
10.95⁽¹⁸⁾		Amendment to property lease dated August 22, 1996, to increase rent on building located at 8175 South Hardy Drive, Tempe, Arizona effective December 1, 2000. Original lease was filed as Exhibit 10.84⁽¹²⁾ above.
10.96⁽¹⁹⁾		Digeo, Inc. sublease agreement.
10.97⁽¹⁹⁾		Energy Conversion Devices note payable.
10.98⁽²⁰⁾		Globamatrix Purchase Agreement.
10.99⁽²¹⁾		1998 Stock Plan for Employees and Consultants.
10.100⁽²¹⁾		Receivables Financing Agreement between Pacific Business Funding and the Company, dated June 30, 1999.
10.101⁽²¹⁾		Supply Agreement between Saint Gobain Sekurit France and the Company, dated December 19, 2001.
10.103⁽²¹⁾		German bank loan dated May 12, 1999.
10.104⁽²¹⁾		German bank loan dated May 28, 1999.
10.105⁽²¹⁾		German bank loans dated May 28, 1999 and December 1, 1999.
10.106⁽²¹⁾		German bank loan due June 30, 2009.
10.107⁽²¹⁾		German bank loan dated June 29, 2000.
10.108⁽²¹⁾		German bank loan dated July 10, 2000.
10.109⁽²¹⁾		German bank loans dated December 18, 2000 and December 19, 2000.
10.111⁽²¹⁾		Master Lease Agreement between Matrix Funding Corporation and the Company, dated July 19, 1999.
10.112⁽²¹⁾		Development and Technology Agreement between Energy Conversion Devices, Inc. dated April 11, 1997.
10.113⁽²¹⁾		Equipment Purchase Contract between Energy Conversion Devices, Inc. and the Company, dated February 1999.
10.114*		Promissory Notes issued by Thomas G. Hood to the Company.
10.115*		Teijin Waiver Letter dated March 28, 2002.
10.116⁽²²⁾		Distribution Agreement between Globamatrix Holdings Pte. Ltd. and the Company, dated as of January 1, 2002.
10.117⁽²²⁾		Teijin Waiver Letter dated May 9, 2002.
10.118⁽²²⁾		Sanwa Bank Waiver Letter dated May 15, 2002.
10.119		Standard Industrial Lease dated October 1999 for the facilities at 1029 Corporation Way, Palo Alto, California between the Company and C&J Development.
10.120		Guarantee Agreement Regarding 10 million US$ Credit Facility between Teijin Limited and the Company, dated May 6, 1997.
10.120.1		Memorandum Amendment to the Guarantee Agreement between Teijin Limited and the Company, dated August 1999.
21⁽²¹⁾		List of Subsidiaries of the Company.
23.1		Consent of Independent Accountants.
23.2		Opinion of Choate, Hall & Stewart (See Exhibit No. 5.1 above).
24.1*		Power of Attorney.

		SOUTHWALL TECHNOLOGIES INC.
		By:		/s/ THOMAS G. HOOD Thomas G. Hood President and Chief Executive Officer

Signature	Title(s)	Date

* Joseph B. Reagan	Chairman, Board of Directors	May 31, 2002
/s/ THOMAS G. HOOD Thomas G. Hood	President, Chief Executive Officer and Director (Principal Executive Officer)	May 31, 2002
/s/ ROBERT R. FREEMAN Robert R. Freeman	Chief Financial Officer, Vice President and Secretary (Principal Financial and Accounting Officer)	May 31, 2002
* Robert C. Stempel	Director	May 31, 2002
* Bruce J. Alexander	Director	May 31, 2002
Walter C. Sedgwick	Director
* Tadahiro Murakami	Director	May 31, 2002


		Very truly yours,
		/s/ CHOATE, HALL & STEWART
		CHOATE, HALL & STEWART

	COMPANY:

	SOUTHWALL TECHNOLOGIES, INC.,
	a Delaware corporation.


	By:
	Name:
	Title:

	BANK:

	THE SANWA BANK, LIMITED


	By:
	Name:
	Title:

	(1)		Date of Credit Agreement by and between Southwall and LENDER:

			May 6, 1997

	(2)		Principal amount: US$10,000,000.00

	(3)		First Draw-Down Date: May 6, 1997, for US$5,000,000.00

			Second Draw-Down Date: November 6, 1997, for the balance of the principal amount

	(4)		Grace period: Four (4) years after the First Draw-Down Date. During this period, Southwall shall make semi-annual, interest-only payments.

	(5)		Repayments: Eight (8) semi-annual equivalent principal repayments, plus accrued interest starting forty-eight (48) months after the First Draw-Down Date.

	(6)		Interest rate: The LIBOR Rate, as defined in the Credit Agreement between LENDER and Southwall, plus 0.4375%.

	(7)		Prepayment: Southwall may have the right to prepay this LOAN in full or in part, subject to the terms of the Credit Agreement.

	(8)		Kind of assurance: L/G issued by Teijin