SURRENDER AND TERMINATION AGREEMENT

Exhibit 10.60.2

SURRENDER AND TERMINATION AGREEMENT
(3977-3995 E. Bayshore Road - Building 2)

This Surrender and Termination Agreement ("Agreement"), is dated, for reference purposes only as February 19, 2004 (the "Effective Date"), and is entered into between Judd Properties, LLC, a California limited liability company (as assignee of Bay Laurel Investment Company, a California general partnership ("Bay Laurel")), as "Lessor", and Southwall Technologies, Inc., a Delaware corporation, as "Lessee", with respect to that certain Lease Agreement, executed by Bay Laurel and Lessee as of January 1, 1989, (the "Original Lease"), as amended, concerning the premises commonly known as Building 2, 3977-3995 E. Bayshore Road, Palo Alto, California (the "premises" or "Building 2"). Capitalized terms, not otherwise defined in this Agreement, shall have the meanings ascribed to such terms in the Lease.

RECITALS

1. 1. Lessor and Lessee acknowledge that a true and correct copy of the Original Lease and the First Amendment to Lease Dated January 1, 1989 (3977-3995 E. Bayshore Road - Building 2) entered into by Lessor and Lessee on or about January 1, 2000 (herein the "First Amendment" and collectively with the Original Lease and this Second Amendment, the "Lease") are attached hereto as Exhibit A and that there are no other amendments, agreements, or promises concerning the Original Lease, the First Amendment, the premises, or the rights and obligations of the parties thereto, other than as set forth in Exhibit A and below in this Agreement.
   2. The existing termination date of the Lease is December 31, 2004.
   3. Lessee has vacated the premises and has advised Lessor that it cannot or will not perform its obligations under the Lease in accordance with the existing terms of the Lease. The unpaid amount of the rent to be paid under the Lease is in excess of one million one hundred thirty-seven thousand dollars ($1,137,000).
   4. Lessee has requested that Lessor accept an early surrender of the premises and terminate Lessee's obligation to pay rent for the premises.
   5. Lessor is willing to accept surrender of the premises and termination of the Lease at the time specified below in consideration of the payment described below, if, but only if, the conditions set forth herein are satisfied by the times specified below.
   6. Lessee and Lessor are also parties to that certain Lease Agreement, dated as of January 1, 1989, as amended by that certain First Amendment to Lease Dated January 1, 1989 (3969-3975 E. Bayshore Road - Building 1) entered into on or about January 1, 2000 and that certain Second Amendment to Lease entered into concurrently herewith (collectively the "Building 1 Lease"), concerning other premises leased by Lessor to Lessee, commonly known as 3969-3975 E. Bayshore Road, Palo Alto, California (herein "Building 1").

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

1. 1. Termination of Lease Term . The parties acknowledge that the Lease is currently in full force and effect in accordance with its terms. The Lease will terminate on the earlier of the following (herein the "Termination Date"): (a) the date when Lessor has received each of the payments described in Section 2, below and Lessee has completed Lessee's "Building 2 Surrender Obligations" as described below, or (b) the date Lessor, at its election (but without any obligation to do so), selects as the termination date of the Lease so that Lessor may lease the premises to another tenant, or (c) the date the Lease otherwise terminates in accordance with its terms; provided, however, that no termination of the Lease or the Lessee's right to possession of the premises shall release Lessee from its Building 2 Surrender Obligations or its duty to pay the amounts payable hereunder, all of which shall be performed by Lessee in accordance with Sections 2 and 3 of this Agreement and the Lease, except to the extent otherwise agreed in writing by Lessor, in its discretion.
   2. Consideration for Termination . As consideration and an inducement for Lessor's agreement to accept an early surrender of the premises and for any early termination of the Lease, Lessee shall pay to Lessor the following sums, on or before the dates set forth below:

1. 1. 1. On or before February 25, 2004,Lessee shall pay to Lessor the sum of Four Hundred Four Thousand Dollars ($404,000.00) (herein the "Final Payment"); and
      2. On or before the date specified in paragraph 3(i), below, Lessee shall pay to Lessor the "Lessor's Work Amount", as defined below.

1. 1. Surrender of Premises . On or before the dates specified below, Lessee shall perform each of the following "Building 2 Surrender Obligations": (i) on or before the earlier of February 25, Lessee shall pay to Lessor the sum of One Hundred One Thousand Three Hundred Dollars ($101,300) ("Lessor's Work Amount") , as reimbursement to Lessor for its release of Lessee from its duty to complete the surrender and decommissioning work for the premises to be performed by Landlord and identified on attached Exhibit B; (ii) on or before March 1, 2004, Lessee shall provide to Lessor, for Lessor's approval and comment, a plan ("Plan") for decommissioning and surrender of the premises which are not to be performed by Lessor pursuant to Exhibit B, including without limitation the Hazardous Material Closure Activities expressly excepted from Exhibit B on Attachment A thereto, which plan shall be approved by Lessor (which approval shall not be unreasonably withheld) and any applicable governmental authorities with jurisdiction over the plan and which shall include, without limitation the identity of any third party contractor(s) who will be retained to complete the work and the estimated total cost to complete such activities; (iii) when the Plan is approved by Lessor, Lessee shall undertake to complete on or before March 15, 2004 (the "Building 2 Surrender Date"), all of the decommissioning and surrender activities for the premises contained in the Plan or otherwise required of Lessee under the Lease or applicable law, and (iv) on or before April 1, 2004, Lessee shall deliver to Lessor unconditional releases of mechanics' lien executed by the contractors identified in the approved Plan and each other contractor engaged in the surrender and decommissioning work performed by or at the request of Lessee.
   2. Environmental . All provisions of the Lease concerning the environment or Hazardous Materials on or about the premises, including without limitation, the obligation of Lessee to remove all Hazardous Materials introduced to the premises during occupancy of the premises by Lessee or its successors, subtenants or assigns, are enforceable, and will continue to be enforceable, against Lessee, notwithstanding the execution and delivery of this Agreement by Lessor or the termination of the Lease. Lessor shall have the right to retain an environmental consultant to inspect the premises to confirm that Hazardous Materials introduced to the premises during occupancy of the premises by Lessee or its successors, subtenants or assigns are removed from the premises and that the applicable governmental authorities having jurisdiction over closure of the Lessee's Hazardous Materials use at the premises have inspected the premises, determined that all Hazardous Materials closure activities required for the premises have been completed, and have released the premises for reletting to another Lessee who might use Hazardous Materials. If the consultant determines that any such Hazardous Materials remain on the premises or that any additional closure activities have not been completed, Lessee shall perform, as part of its "Building 2 Surrender Obligations" hereunder, the work recommended by the consultant to remove such Hazardous Materials and/or complete such closure activities to the reasonable satisfaction of such consultant and shall reimburse Lessor for the fees charged by said consultant.
   3. Destruction and Condemnation of the Premises . Sections 19 and 35 of the Original Lease are deleted in their entirety. Lessee hereby waives any right to terminate this Lease on account of the condition of the premises or any destruction of the premises by any casualty or condemnation, waives the benefits of California Civil Code Sections 1265.130, and each subpart of California Civil Code Sections 1932, 1933, 1941 and 1942, or any similar statute or common law, as the same may be amended or supplemented from time to time, to the extent such sections would entitle Lessee to terminate this Lease on account of the condition of the premises or any casualty or condemnation, and agrees that, notwithstanding any termination of Lessee's right to possession of the premises from any cause, its obligations to pay the sums owing to Lessor pursuant to Section 2 and to complete its Surrender Obligations shall continue as separate, independent and personal covenants of Lessee to Lessor.
   4. Letter of Credit or Warrant .

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

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

Lessee hereby acknowledges and represents to Lessor that the outstanding capital stock of Southwall Technologies, Inc. on a Diluted Basis is as depicted on Exhibit G to the Building 1 Lease and that the Warrant Shares issuable upon full exercise of the Warrant represents the equivalent of 4% of the outstanding capital stock of Southwall on a Diluted Basis. If, at any time prior to the later of (i) the delivery of the Warrant Shares to Lessor free of any interest of the Lessee and the escrow holder and (ii) the date that the Warrant Shares first become tradable by Lessor without legend (either through registration or an exemption therefrom) on a public exchange or NASDAQ National Market, the number of outstanding shares of Southwall's outstanding capital stock on a Diluted Basis is increased above the amounts depicted on Exhibit G to the Building 1 Lease, then the number of shares of Warrant Shares issuable upon exercise of the Warrant shall be adjusted so that the total Warrant Shares issued or issuable pursuant to the Warrant will represent 4% of such increased amount of the outstanding capital stock of Southwall on a Diluted Basis (as appropriately adjusted to give effect to any Letter of Credit posted hereunder).

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

1. 1. 1. Investment Experience . Lessor is an "accredited investor" as defined in Rule 501 of the Securities Act. Lessor is experienced in investing and acknowledges that an investment in the Warrant and the Warrant Shares involves a high degree of risk. Lessor is able to protect Lessor's own interest in connection with such investment, can bear the economic risk of its investment (including the possible complete loss of such investment) for an indefinite period of time, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Warrant and Warrant Shares. Lessor understands that the Warrant and the Warrant Shares have not been registered under the Securities Act or under the securities laws of any jurisdiction, by reason of reliance upon certain exemptions, and that the reliance of Lessee on such exemptions is predicated upon the accuracy of Lessor's representations and warranties in this Agreement.
      2. Access to Information . Lessor has had the opportunity to ask questions of and receive answers from representatives of Lessee and to obtain additional information, documents and records relating to Lessee, its business and the investment contemplated by the receipt of the Warrant and the Warrant Shares. Lessor has had the opportunity to review all of Lessee's filings under the Securities Act (including its most recently filed Forms 10-K, Forms 10-Q and Forms 8-K).
      3. Restricted Securities . Lessor understands that the Warrant and the Warrant Shares are currently characterized as "restricted securities" under the federal securities laws inasmuch as they were issued in a transaction not involving a public offering and that, under such laws and applicable regulations, such Warrants and Shares may be transferred or resold without registration under the 1933 Act only in certain limited circumstances and in accordance with the terms and conditions set forth in the legend described in paragraph 4 below. Lessor is familiar with Securities and Exchange Commission Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act.
      4. Legends . Until such time as the Warrant Shares are registered pursuant to the Warrant or the Registration Rights Agreement, each certificate representing Warrant Shares shall bear a legend substantially in the following form:

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

Each Warrant shall bear a legend substantially in the following form:

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

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

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

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