EXHIBIT 10.88

                                BASIC AGREEMENT
                            REGARDING STOCK PURCHASE
                            BETWEEN SOUTHWALL/TEIJIN

     This Basic  Agreement (the  "Agreement") is made as of April 9, 1997 by and
between  Southwall  Technologies  Inc., a Delaware  corporation  whose principal
business  offices  are at 1029  Corporation  Way,  Palo Alto,  California  94303
(hereinafter called "Southwall" or the "Company")

                                      and

Teijin  Limited,  a  Japanese  corporation  whose  registered  office is at 6-7,
Minami-honmachi 1-chome,  Chuo-ku, Osaka 541, Japan (hereinafter called "Teijin"
or the "Purchaser").

                                  WlTNESSETH:

     WHEREAS,  Teijin is the  principal  supplier of PET film for  substrates of
Southwall's  products,  and Southwall  and Teijin have had a productive  working
relationship for almost ten (10) years;

     WHEREAS,  Southwall is in the process of building a new manufacturing plant
with two vacuum coaters and one solvent coater in Tempe,  Arizona and desires to
secure the necessary funds to complete the new plant;

     WHEREAS,  Teijin  has been  seeking  ways to expand its  relationship  with
Southwall  and is willing to make an equity  investment in Southwall and arrange
for a loan to Southwall for the completion of the new plant; and

     WHEREAS,  Southwall  and  Teijin  now  wish  to set  forth  the  terms  and
conditions  of the  above-mentioned  financing  and other  areas of  cooperation
between the parties hereto;

     NOW, THEREFORE, the parties hereto have agreed as follows:

                                    ARTICLE 1
                                   DEFINITIONS

     For  purposes of this  Agreement,  the  following  terms have the  meanings
specified or referred to in this Article 1:

         1.1.1 The term  "Closing"  shall mean the closing of the  purchase  and
sale of new shares of Southwall to Teijin as set forth in Article 3.

         1.1.2 The term  "Closing  Date" shall mean April 28, 1997, or any other
date  before May 30,  1997,  which may be agreed by the  parties  hereto for the
Closing.




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         1.1.3 The term "New  Plant"  shall  mean  Southwall's  new  electronics
products  manufacturing  plant with two vacuum coaters and one solvent coater in
Tempe, Arizona, which is under construction as of the date of this Agreement.

         1.1.4 The term  "GAAP"  shall mean  generally  accepted  United  States
accounting principles, applied on a consistent basis.

         1.1.5 The term  "Securities  Act" shall mean the Securities Act of 1933
or any successor law, and  regulations  and rules issued pursuant to that Act or
any successor law, all of which are effective in the United States of America.

         1.1.6 The term "Parties" or "Party" shall  collectively  mean Southwall
and Teijin or either of them individually.

                                   ARTICLE 2
                            PURPOSE OF THE AGREEMENT

     2.1 The purpose of this  Agreement is to set forth a general  framework for
mutually beneficial cooperation between Southwall and Teijin.

     2.2 The Parties will  faithfully  seek any and all  possible  collaboration
opportunities such as, but not limited to:

         o Joint development of new products in Article 8;

         o Jointly  establish a new  marketing  network in the agreed  territory
           referred in Article 9; and

         o Film  supply  from  Teijin  to  Southwall   under  the  most  favored
           conditions in Article 10.

                                   ARTICLE 3
                       ISSUANCE OF SOUTHWALL'S NEW SHARES

     3.1 It is agreed  among the parties  that Teijin may  purchase or partly or
wholly sell  Southwall  shares in the open market,  subject to  proceedings  and
regulations  of the Securities Act and subject to the condition that Teijin will
notify  Southwall in advance of any such  purchase or sale of  Southwall  shares
through such market.

     3.2 On the  basis of the  representations  and  warranties  and  agreements
contained herein, and subject to the terms and conditions of this Agreement,  at
the  Closing,  Southwall  will  issue and sell to Teijin,  and Teijin  agrees to
purchase  667,000  shares of authorized  but unissued  common  stock,  par value
US$0.001  (the  "Shares")  at a price of  US$7.50  per share  (for an  aggregate
purchase price of US$5,002,500.00).

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     3.3 The  Closing  provided  for in this  Agreement  will take  place at the
office of  Southwall at 10:00 a.m.  (California  time) on the Closing  Date.  In
consideration of the purchase of the Shares, Teijin shall pay the purchase price
of the Shares at the  Closing  by wire  transfer  to  Southwall's  bank  account
designated  by  Southwall.  Within  twenty (20) business days of receipt of such
payment,  Southwall shall deliver to Teijin a stock  certificate or certificates
evidencing  the Shares  issued in the name of Teijin.  As of the  Closing  Date,
Southwall shall issue and deliver to Teijin  documentation  evidencing ownership
of the Shares on the Closing Date.

     It is agreed by the Parties that the failure to  consummate  the Closing on
the date and time and at the place  determined  under  this  paragraph  will not
result in the immediate  termination  of this Agreement and will not relieve any
Party of any obligation  under this  Agreement.  In this case, the Parties shall
deliberate in good faith for finding the best solution based upon the purpose of
this Agreement as prescribed in Article 2 of this Agreement.

     3.4 It is  further  agreed  by the  Parties  that in  consideration  of the
purchase of the Shares at a premium to the current  market  price for  Southwall
Common  Stock,  Southwall  shall  issue to  Teijin at the  Closing a warrant  to
purchase an additional  158,000 shares of Common Stock at a price of US$9.00 per
share,  which may be  exercised  within a three (3) year period from the Closing
Date, which warrant shall be in the form attached hereto as Exhibit A.

                                   ARTICLE 4
                  REPRESENTATIONS AND WARRANTIES AND COVENANTS
                                  BY SOUTHWALL

     Southwall  agrees to make the  representations  and warranties set forth on
Exhibit B hereto  except as set forth on the  Schedule  of  Exceptions  attached
thereto as of the Closing Date.

                                   ARTICLE 5
                    REPRSENTATIONS AND WARRANTIES BY TEIJIN

     Teijin represents and warrants to Southwall as follows:

         5.1.1 Teijin is a corporation duly organized,  validly existing, and in
good standing under the laws of Japan.

         5.1.2  This  Agreement   constitutes  the  legal,  valid,  and  binding
obligation of Teijin,  enforceable  against Teijin in accordance with its terms.
Teijin has the absolute and unrestricted  right, power, and authority to execute
and deliver this Agreement.

         5.1.3 Teijin is acquiring the 667,000  shares as mentioned in Article 3
hereinabove for its own account and not with a view to their distribution within
the meaning of Section 2(11) of the Securities Act.

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     Teijin agrees not to sell or transfer the above-mentioned 667,000 shares of
Southwall  Common  Stock for at least two (2) years  after  Closing  without the
prior written  consent of Southwall.  In accordance  with  Securities  Act these
shares shall be governed by Rule 144 and other  applicable SEC  regulations  and
shall contain the appropriate legends.

     After the said two (2) years, Teijin may sell such shares without the prior
written consent of Southwall.

                                   ARTICLE 6
                              REGISTRATION RIGHTS

     Each of the parties  covenants and agrees as to the provisions as set forth
in Exhibit C hereto.

                                   ARTICLE 7
                                      LOAN

     7.1 As soon as  practicable  after the  effective  date of this  Agreement,
Teijin  will  make  financing   arrangement   for  Southwall  in  the  mount  of
US$10,000,000.00  as a part of investment fund of the New Plant of Southwall.  A
binding loan agreement,  letter of guarantee and related formal instruments,  if
any,  shall be negotiated  as soon as possible and shall be executed  subject to
the completion of the Closing.

     7.2 Major financing conditions are as follows:

         (1)  Date of Execution: On or before May 6, 1997

         (2)  First Draw Down Date: May 6, 1997

         (3)  Expected First Draw Down Amount: US$5,000,000

         (4)  Second  Draw Down  Date:  Within six (6) months of First Draw Down
              Date

         (5)  Expected Second Draw Down Amount: Balance of Total Loan Amount

         (6)  Total Loan Amount: US$10,000,000.

         (7)  Financing  Purpose:  Investment fund required for building the New
              Plant.

         (8)  Expected  Lender:  First class  Japanese Bank or its United States
              financing company designated by Teijin.

         (9)  Borrower: Southwall.

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         (10) Grace  Period:  Four (4) years  after the  First  Draw Down  Date.
              During this period, semi-annual, interest-only payments, including
              guarantee fee.

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

         (12) Interest rate,  including  guarantee fee: In total one (1) percent
              per annum above six (6) months LIBOR rate by BBA.

     (For the purpose of this Agreement, the six (6) months LIBOR rate means the
semi-annual floating rate, which shall first be the effective rate as of (2) two
business  days  before  the date of draw  down and  thereafter  each  time to be
decided by the  effective  rate as of two (2) business  days before the next six
(6) month period.)

         (13) Security:   Southwall   shall   secure   this  loan  in  a  manner
              satisfactory  to Teijin based on mutually agreed upon valuation of
              manufacturing  equipment and other tangible and intangible  assets
              of the New Plant.

         (14) Prepayment:  Southwall  may have the right to prepay  this loan in
              full or in part  without  any penalty at any time,  provided  that
              Southwall shall notify Teijin and the lender bank at least six (6)
              months  prior  to  intended   prepayment   and  will  comply  with
              prepayment terms of the loan agreement and letter of guarantee.

                                   ARTICLE 8
                          COLLABORATION IN TECHNOLOGY.

     Southwall  and  Teijin  will  negotiate  in  good  faith  with  respect  to
collaboration  on the  development  of polyester or any other new film substrate
products  and/or  processes  at adequate  facilities  of Southwall in the United
States of  America  and/or  Teijin in Japan as the case may be, or in such other
appropriate places as the parties may mutually agree.

     Both Parties will  commence  collaboration  discussions  under this Article
within two (2) months after the Closing Date.

                                   ARTICLE 9
                  SALE AND DISTRIBUTION OF SOUTHWALL PRODUCTS

     Teijin may request  Southwall to grant  distribution  rights for  Southwall
products  within  certain  territories,  including  Japan,  subject to  existing
contractual  relationships.  By  deliberation  Southwall may grant  distribution
rights of agreed Southwall products to Teijin in the

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agreed  territories.  The terms and specific nature of such distribution  rights
shall also be separately agreed upon by the Parties.

                                   ARTICLE 10
                                MATERIAL SUPPLY

     It is  acknowledged  that  Teijin  is the  major  supplier  of PET  film to
Southwall. In recognition of this status Southwall hereby acknowledges Teijin as
a Most Favored Supplier and, during the term of this Agreement,  Southwall shall
grant Teijin the most preferential  position in respect to Southwall's purchases
of PET film  and/or  other new  films so long as the  price,  quality  and other
supply conditions are competitive with those of other supplier(s).

                                   ARTICLE 11
                               FAIR RELATIONSHIP

     Nothing in this Agreement  prohibits or restricts any fair and arm's length
competition between the Parties; provided,  however, that if, at any time during
the  term of this  Agreement,  either  Party  becomes  aware  of any  additional
collaboration  opportunity  with regard to film substrate  products,  such Party
shall,  to the extent possible and in accordance with the provision of paragraph
2.1 of this Agreement,  offer to meet and confer with the other Party concerning
such an additional opportunity.

                                   ARTICLE 12
                              TERM AND TERMINATION

     12.1 This  Agreement  shall  become  effective  as of the date first  above
written  subject  to the  approval  of the  respective  Boards of  Directors  of
Southwall and Teijin and approval of  governmental  authorities of Japan and the
United States of America, if such governmental approval is necessary.

     12.2 This  Agreement  may,  with sixty (60) days prior written  notice,  be
terminated:

               (a) by either  Southwall  or Teijin if a  material  breach of any
provisions  of this  Agreement  has been  committed  by the other Party and such
breach has not been waived or cured  within sixty (60) days after notice of such
breach;

               (b) by mutual consent of Southwall and Teijin; or

               (c) by either Southwall or Teijin if the Closing has not occurred
(other than through the failure of any Party) on or before May 30, 1997.

     12.3  Unless  earlier  terminated  under  the  preceding  paragraph,   this
Agreement  shall be  effective  until  the  termination  of the  Loan  Agreement
stipulated in Article 7 hereinabove  or seven (7) years after the effective date
of this Agreement whichever occurs later. If Teijin

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owns 5% of the outstanding  Common Stock of Southwall at the time of termination
of this Agreement,  the Parties will enter into good faith negotiation regarding
further collaboration to benefit both Parties.

     The  provisions  of  paragraphs  13.1,  13.3 and  13.6  shall  survive  the
termination hereunder.

                                   ARTICLE 13
                               GENERAL PROVISIONS

     13.1 Except as otherwise  expressly provided in this Agreement,  each Party
will bear its respective  expenses  incurred in connection with the preparation,
execution and performance of this Agreement and the  contemplated  transactions,
including  all fees and expenses of agents,  representatives,  legal counsel and
accountants.

     In the event of early  termination of this Agreement  under paragraph 12.2,
the  obligation  of each  Party to pay its own  expenses  will be subject to any
rights of such Party arising from a breach of this Agreement by the other Party.

     13.2 Any public  announcement  or similar  publicity  with  respect to this
Agreement or the contemplated  transactions will not be issued without the prior
written consent of the other Party hereto, except as required by law.

     13.3 Each Party will hold in confidence  and not disclose to any of its own
personnel  who do not have a need to know or to any third party any  information
specifically marked as confidential which is received by it from the other Party
in  connection  with the  transactions  contemplated  hereby,  without the prior
written consent of the other Party.

     The foregoing  obligation  of confidence  shall extend for the term of this
Agreement  and  any  extensions  hereof  and for a  period  of  five  (5)  years
thereafter,  provided;  however, that the above confidentiality obligation shall
not apply to any information:

               (a) which is or  becomes  part of the  public  domain  other than
through breach of this Agreement or through the fault of the receiving Party;

               (b) which is or becomes  available to the receiving  Party from a
source other than the  disclosing  Party,  which source has no obligation to the
disclosing Party in respect thereof;

               (c) which is made  available by the  disclosing  Party in written
form to a third party which is not a subsidiary of the disclosing  Party without
any confidentiality restrictions;

               (d) which is  required  to be  disclosed  by law or  governmental
order; or

               (e) disclosure of which is mutually agreed to by the Parties.

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     13.4 All  notices,  consents,  requests,  demands and other  communications
authorized or required to be given pursuant to this Agreement  shall be given in
writing:

               If to Southwall:    President
                                   Southwall Technologies Inc.
                                   1029 Corporation Way
                                   Palo Alto, CA 94303

               If to Teijin:       General Manager
                                   Films Planning & Administration Dept.
                                   Teijin Limited
                                   Iino Bldg.,
                                   1-1, Uchisaiwaicho 2-Chome
                                   Chiyoda-Ku, Tokyo 100
                                   JAPAN

     Notices under this Agreement  shall be deemed  effective on the earlier of:
actual receipt;  one working day after dispatch when sent by telex,  cable or by
telefax to the recipient's  proper telex or telefax number, or when delivered by
hand,  or ten (10)  working  days  after  being sent by air mail,  certified  or
registered mail, postage pre-paid,  return receipt  requested,  addressed as set
out above (or as otherwise designated by any Party in writing by notice given in
accordance with this paragraph).

     13.5 The  provisions  in this  Agreement  relating  to the  Shares  will be
governed  by  California   law;   provisions   concerning   the  loan  documents
contemplated  hereby will be governed by Japanese law unless  Teijin agrees that
such  provisions  shall be  governed by  California  law.  All other  agreements
contemplated  hereby shall be governed  according to the mutual agreement of the
parties.

     13.6 Any disputes,  controversy or claim arising out of or relating to this
Agreement, or breach, termination,  invalidity thereof, shall be finally settled
by arbitration in accordance with the UNCITRAL Arbitration Rules as presently in
force. The number of arbitrators  shall be three (3). The language to be used in
the  arbitration  shall be English.  If Teijin  initiates  the  arbitration  the
location of the  arbitration  shall be San Francisco,  California.  If Southwall
initiates the arbitration the location of the arbitration shall be Tokyo, Japan.

     13.7 Any failure of  Southwall,  on the one hand,  or Teijin,  on the other
hand, to comply with any obligation, covenant, agreement or condition herein may
be waived in writing by the other  Party,  but such  waiver or failure to insist
upon strict  compliance with such obligation,  covenant,  agreement or condition
shall not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure.  Whenever this Agreement  requires or permits waivers or consents
by or on behalf of  either  Party,  such  waiver  or  consent  shall be given in
writing.

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     13.8 This  Agreement  supersedes all prior  agreements  between the Parties
with  respect to its  subject  matter  (including  the Letter of Intent  between
Southwall  and Teijin  dated March 7, 1997) and  constitutes  the  complete  and
exclusive  statement  of the  agreement  between the Parties with respect to its
subject matter. This Agreement may not be amended,  waived or modified except by
an instrument in writing executed by the Parties.

     13.9 This Agreement shall be binding upon and shall inure to the benefit of
the Parties and their successors and assigns;  provided,  however,  that neither
Party may assign  any of its  rights  under  this  Agreement  without  the prior
written consent of the other Party.

     13.10 If any term, covenant,  restriction or provision of this Agreement is
held  invalid  or  unenforceable  by any court of  competent  jurisdiction,  the
remaining terms,  covenants,  restrictions and provisions of this Agreement will
remain in full force and effect,  and shall in no way be  affected,  impaired or
invalidated;  it being the intent of the Parties  that they would have  executed
the remaining terms,  covenants,  restrictions and provisions  without including
any of such which may be hereafter declared invalid, void or unenforceable.

     13.11 Any  failure or omission  by the  Parties in the  performance  of any
obligation  under this Agreement  shall not be deemed a breach of this Agreement
and shall not create any liability,  if the same arises from any cause or causes
beyond the  control of any of the  Parties,  including,  but not limited to, the
following, which, for the purpose of this Agreement, shall be regarded as beyond
the control of each of the Parties: Act of God, fire, storm, flood,  earthquake,
governmental regulation or direction,  acts of the public enemy, war, rebellion,
insurrection,  riot, invasion, strike or lockout;  provided,  however, that each
Party shall resume the performance whenever such causes are removed.

     13.12  The  headings  of  Articles  in  this  Agreement  are  provided  for
convenience only and will not affect its construction or interpretation.

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     IN WITNESS  WHEREOF,  the Parties  hereto have caused this  Agreement to be
executed  by their duly  authorized  representatives  as of the day first  above
written.

                                        FOR SOUTHWALL TECHNOLOGIES INC.

                                        /s/ Martin M. Schwartz
                                        ----------------------------------------
                                        Martin M. Schwartz
                                        President and Chief Executive Officer

                                        FOR TEIJIN LIMITED

                                        /s/ H. Itagaki
                                        ----------------------------------------
                                        Hiroshi Itagaki
                                        President and Chief Executive Officer




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                                    EXHIBIT A

     THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE
     NOT BEEN REGISTERED  UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE
     SOLD,   OFFERED  FOR  SALE,   PLEDGED,   HYPOTHECATED,   OR  OTHERWISE
     TRANSFERRED  EXCEPT  PURSUANT TO AN EFFECTIVE  REGISTRATION  STATEMENT
     UNDER  THE   SECURITIES   ACT  OF  1933,  OR  AN  OPINION  OF  COUNSEL
     SATISFACTORY  TO THE COMPANY THAT  REGISTRATION  IS NOT REQUIRED UNDER
     SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.

                                                                      Void after
                                                                    May 30, 2000

                          SOUTHWALL TECHNOLOGIES, INC.
                   WARRANT TO PURCHASE SHARES OF COMMON STOCK

     This Warrant is issued to Teijin Limited by Southwall Technologies, Inc., a
Delaware  corporation  (the  "Company"),  pursuant to the terms of that  certain
Basic  Agreement  Regarding  Stock  Purchase  Between  Southwall and Teijin (the
"Stock Purchase  Agreement")  dated as of April 9, 1997 by and among the Company
and Teijin Limited, a Japanese corporation.

     1. Purchase of Shares.  Subject to the terms and conditions hereinafter set
forth, the holder of this Warrant is entitled, upon surrender of this Warrant at
the principal office of the Company (or at such other place as the Company shall
notify the holder hereof in writing), to purchase from the Company up to 158,000
fully paid and  nonassessable  shares of Common  Stock of the  Company,  as more
fully  described  below.  The shares of Common Stock  issuable  pursuant to this
Section 1 (the "Shares") shall also be subject to adjustment pursuant to Section
8 hereof.

     2.  Purchase  Price.  The purchase  price for the Shares shall be $9.00 per
share.  Such price shall be subject to  adjustment  pursuant to Section 8 hereof
(such  price,  as  adjusted  from  time to time,  is herein  referred  to as the
"Exercise Price").

     3. Exercise  Period.  This Warrant is immediately  exercisable and it shall
remain exercisable until and including May 30, 2000; provided,  however, that in
the event of (a) the sale of all or substantially all the assets of the Company,
or (b) the merger of the Company into or  consolidation  with any other  entity,
this Warrant  shall,  on the date of such event,  no longer be  exercisable  and
become  null and  void.  In the  event  of a  proposed  transaction  of the kind
described  above,  the Company  shall  notify the holder of the Warrant at least
fifteen (15) days prior to the consummation of such event or transaction.




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     4.  Method  of  Exercise.   While  this  Warrant  remains  outstanding  and
exercisable  in accordance  with Section 3 above,  the holder may  exercise,  in
whole or in part, the purchase rights evidenced  hereby.  Such exercise shall be
effected by:

               (i) the  surrender of the Warrant,  together with a duly executed
copy of the  form of  subscription  attached  hereto,  to the  Secretary  of the
Company at its principal offices; and

               (ii)  the  payment  to the  Company  of an  amount  equal  to the
aggregate Exercise Price for the number of Shares being purchased.

     5. Net Exercise.  In lieu of exercising this Warrant by paying the exercise
price in cash,  the holder of this Warrant may elect to receive  shares equal to
the value of this Warrant (or the portion  thereof being  canceled) by surrender
of this Warrant at the principal  office of the Company  together with notice of
such  election,  in which event the Company  shall issue to the holder  hereof a
number of shares of Common Stock computed using the following formula:

                                     Y (A-B)
                                     -------
                             X=         A

          Where

               X--  The  number of  shares  of Common  Stock to be issued to the
                    holder of this Warrant.

               Y--  The number of shares of Common Stock  purchasable under this
                    Warrant.

               A--  The fair market value of one share of the  Company's  Common
                    Stock.

               B--  The  Exercise  Price  (as  adjusted  to  the  date  of  such
                    calculations).

     For  purposes of this  Paragraph  5, the fair market  value of Common Stock
shall mean the average of the closing bid and asked  prices of the Common  Stock
quoted in the over-the-counter market in which the Common Stock is traded or the
closing  price quoted on the Nasdaq Stock Market or on any exchange on which the
Common  Stock is listed,  whichever is  applicable,  as published in the Western
Edition of The Wall Street Journal for the ten trading days prior to the date of
determination  of fair market value (or such shorter period of time during which
such stock was traded over-the-counter or on such exchange). If the Common Stock
is not traded on the over-the-counter  market or on an exchange, the fair market
value shall be the price per share that the Company  could obtain from a willing
buyer  for  shares of Common  Stock  sold by the  Company  from  authorized  but
unissued  shares,  as such  price  shall  be  determined  in good  faith  by the
Company's Board of Directors.

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     6.  Certificates  for  Shares.  Upon the  exercise of the  purchase  rights
evidenced by this Warrant,  one or more certificates for the number of Shares so
purchased  shall be issued as soon as practicable  thereafter,  and in any event
within thirty (30) days of the delivery of the subscription notice.

     7. Issuance of Shares.  The Company covenants that the Shares,  when issued
pursuant to the exercise of this Warrant, will be duly and validly issued, fully
paid and nonassessable and free from all taxes,  liens, and charges with respect
to the issuance thereof.

     8.  Adjustment  of Exercise  Price and Number of Shares.  The number of and
kind of  securities  purchasable  upon exercise of this Warrant and the Exercise
Price shall be subject to adjustment from time to time as follows:

         (a)  Subdivisions,  Combinations  and Other  Issuances.  If the Company
shall at any time prior to the  expiration of this Warrant  subdivide its Common
Stock,  by  split-up  or  otherwise,  or  combine  its  Common  Stock,  or issue
additional  shares of its Common Stock as a dividend  with respect to any shares
of its Common  Stock,  the number of Shares  issuable  on the  exercise  of this
Warrant  shall  forthwith  be  proportionately   increased  in  the  case  of  a
subdivision or stock  dividend,  or  proportionately  decreased in the case of a
combination.  Appropriate  adjustments  shall also be made to the purchase price
payable per share, but the aggregate purchase price payable for the total number
of Shares  purchasable  under this Warrant (as adjusted)  shall remain the same.
Any  adjustment  under this Section 8(a) shall become  effective at the close of
business on the date the subdivision or combination becomes effective,  or as of
the record date of such dividend,  or in the event that no record date is fixed,
upon the making of such dividend.

         (b) Reclassification,  Reorganization and Consolidation. In case of any
reclassification,  capital reorganization,  or change in the Common Stock of the
Company (other than as a result of a subdivision, combination, or stock dividend
provided   for  in  Section  8(a)   above),   then,   as  a  condition  of  such
reclassification, reorganization, or change, lawful provision shall be made, and
duly executed  documents  evidencing  the same from the Company or its successor
shall be  delivered  to the holder of this  Warrant,  so that the holder of this
Warrant shall have the right at any time prior to the expiration of this Warrant
to  purchase,  at a total price equal to that  payable upon the exercise of this
Warrant,  the kind and  amount  of shares  of stock  and  other  securities  and
property receivable in connection with such reclassification, reorganization, or
change  by a  holder  of the same  number  of  shares  of  Common  Stock as were
purchasable   by  the  holder  of  this  Warrant   immediately   prior  to  such
reclassification,  reorganization,  or  change.  In any  such  case  appropriate
provisions  shall be made with  respect to the rights and interest of the holder
of this Warrant so that the  provisions  hereof shall  thereafter  be applicable
with respect to any shares of stock or other securities and property deliverable
upon exercise hereof, and appropriate  adjustments shall be made to the purchase
price per share payable  hereunder,  provided the aggregate purchase price shall
remain the same.

         (c) Notice of Adjustment. When any adjustment is required to be made in
the number or kind of shares purchasable upon exercise of the Warrant, or in the

                                       3




<PAGE>


Exercise  Price,  the Company shall promptly notify the holder of such event and
of the  number  of  shares  of  Common  Stock or other  securities  or  property
thereafter purchasable upon exercise of this Warrant.

     9.  No  Fractional   Shares  or  Scrip.  No  fractional   shares  or  scrip
representing  fractional  shares  shall  be  issued  upon the  exercise  of this
Warrant,  but in lieu of such  fractional  shares the Company  shall make a cash
payment therefor on the basis of the Exercise Price then in effect.

     10. No Stockholder  Rights.  Prior to exercise of this Warrant,  the holder
shall not be entitled to any rights of a stockholder with respect to the Shares,
including (without limitation) the right to vote such Shares,  receive dividends
or other  distributions  thereon,  exercise  preemptive rights or be notified of
shareholder  meetings,  and such  holder  shall not be entitled to any notice or
other communication concerning the business or affairs of the Company.

     11.  Successors  and Assigns.  The terms and provisions of this Warrant and
the Stock Purchase Agreement shall inure to the benefit of, and be binding upon,
the Company and the holders hereof and their respective successors and assigns.

     12. Amendments and Waivers. Any term of this Warrant may be amended and the
observance of any term of this Warrant may be waived  (either  generally or in a
particular instance and either retroactively or prospectively), with the written
consent of the Company and the holders of the shares of Common  Stock  issued or
issuable  upon  exercise of this  Warrant.  Any waiver or amendment  effected in
accordance  with this  Section  shall be binding  upon each holder of any Shares
purchased under this Warrant at the time outstanding  (including securities into
which such Shares have been  converted),  each future holder of all such Shares,
and the Company.

                                       4




<PAGE>


     13. Transfer Procedure.  Subject to the provisions of applicable securities
laws, and the written consent of the Company, the holder hereof may transfer all
or part of this Warrant or the Shares  issuable upon exercise of this Warrant by
setting  forth the  name,  address  and  taxpayer  identification  number of the
transferee  and  surrendering  this Warrant to the Company for reissuance to the
transferee(s) (and the holder if applicable).

     14.  Governing Law. This Warrant shall be governed by the laws of the State
of California as applied to agreements among California residents made and to be
performed entirely within the State of California.

                                   SOUTHWALL TECHNOLOGIES, INC.

                                   By: /s/ Martin M. Schwartz
                                      ------------------------------------------
                                      Martin M. Schwartz, President and Chief
                                      Executive Officer

                                   Address: Southwall Technologies, Inc.
                                            1029 Corporation Way
                                            Palo Alto, CA 94303

                                       5




<PAGE>


                                   EXHIBIT B

                                   ARTICLE 1

                         REPRESENATIONS AND WARRANTS OF
                                  THE COMPANY

     The Company hereby  represents and warrants that,  except as set forth on a
Schedule of Exceptions (the "Schedule of Exceptions"), which exceptions shall be
deemed to be representations and warranties as if made hereunder:

     1.1  Organization.  The Company is a duly  organized  and validly  existing
corporation in good standing under the laws of the state of Delaware and is duly
qualified or registered to do business as a foreign  corporation  and is in good
standing in each jurisdiction  which requires such qualification or registration
wherein it owns or leases any  material  properties  or  conducts  any  material
business,  except where the failure so to qualify or register  would not, in the
aggregate,  have a material  adverse effect on the Company.  The Company has the
corporate  power and authority to own its properties and conduct its business as
currently conducted.

     1.2 Capitalization.

         (a) The Company has duly  authorized  capital  stock  consisting of (i)
20,000,000  shares of Common Stock,  $0.001 par value, of which 6,538,589 shares
were issued and outstanding on February 28, 1997 and 378,472 shares were held in
treasury, and (ii) 5,000,000 shares of Preferred Stock, none of which are issued
and  outstanding  on the date hereof or held in treasury.  All such  outstanding
shares of Common  Stock are duly  authorized,  validly  issued,  fully  paid and
nonassessable.

         (b) The  Company has the  following  outstanding  securities  which are
convertible into Common Stock as of March 31, 1997: the Convertible Subordinated
Note due May 31, 1999 to Monsanto  Company,  or its  successors  or assigns (the
"Monsanto  Note").  The  Monsanto  Note is in the  amount  of  US$2,650,000  and
convertible,  prior to  repayment,  into shares of  Southwall  common stock at a
conversion  price of  US$10.00  per  share,  subject  to  certain  anti-dilution
adjustments.

         (c) The Company has adopted the following  plans: (i) the Restated 1987
Stock Option Plan;  (ii) the 1987 Employee Stock  Purchase Plan;  (iii) the 1997
Stock  Incentive  Plan;  and (iv) the 1997 Employee  Stock  Purchase  Plan.  The
following  information  is provided as of March 31,  1997.  With  respect to the
Restated 1987 Stock Option Plan, a total of 2,275,000  shares have been reserved
for  issuance,  563,050  shares have been  issued and  1,659,237  shares  remain
subject to outstanding options. With respect to the 1987 Employee Stock Purchase
Plan,  150,000 shares have been reserved for issuance,  125,213 shares have been
issued and no shares remain  available for issuance because such plan terminated
in accordance  with its terms,  as of March 18, 1997.  The 1997 Stock  Incentive
Plan which  supersedes  the  Restated  1987 Stock Option Plan was adopted by the
Board on March 20, 1997 and remains




<PAGE>


subject to stockholder approval and the 1997 Annual Meeting; 400,000 shares have
been reserved for issuance,  and no options have been granted and no shares have
been issued.  With respect to the 1997 Employee Stock  Purchase Plan,  which the
Board  adopted on March 20,  1997 and which  remaining  subject  to  stockholder
approval at the 1997 Annual  Meeting,  100,000  shares  have been  reserved  for
issuance,  and no shares have been issued. All such plans have been described in
a list previously delivered to Teijin (the "Stock Plans").

         (d) All of the issued and  outstanding  securities  of the Company have
been duly  authorized and validly  issued and are fully paid and  nonassessable.
Except  as  described  in this  Section  1.2 or set  forth in a list  previously
delivered  to  Teijin,  there  is no  other  outstanding  voting  stock or other
outstanding rights to acquire voting stock. Except as set forth herein there are
no existing voting trusts,  voting agreements or similar  agreements between the
Company and any of its shareholders.

         (e)  Copies  of the  Company's  Certificate  of  Incorporation  and the
Company's  Bylaws have been  delivered by the Company to Teijin and are complete
and  correct.  The  Company  will  furnish  upon the  request of Teijin true and
correct  copies  of any  amendments  to the  foregoing  instruments  until  this
Agreement is terminated.

     1.3 Subsidiaries.  The only direct or indirect  subsidiaries of the Company
are those named in Exhibit 21 to the  Company's  Annual  Report on Form 10-K for
the fiscal  year ended  December  31,  1996 or a list  previously  furnished  to
Teijin,  and the information  relating to the organization of such subsidiaries,
set  forth in such  list is true and  correct.  Except  as set  forth in the SEC
Documents or a list furnished to Teijin, the Company is, directly or indirectly,
the  record  and  beneficial  owner  of  all of the  outstanding  shares  of the
subsidiaries,  free and clear of any claim, lien,  encumbrance or agreement with
respect thereto,  and no equity  securities of such subsidiaries are required to
be issued by reason of any warrants,  rights,  options,  calls,  commitments  or
other agreements.

     1.4  Authorization  and Approval.  The Company has full corporate power and
authority  to enter  into and  deliver  this  Agreement  and to  consummate  the
transactions  contemplated hereby. The execution,  delivery,  and performance of
this  Agreement  by the  Company  have been  duly  authorized  by all  requisite
corporate action.  This Agreement  constitutes a valid and binding obligation of
the  Company,  enforceable  against  the Company in  accordance  with its terms,
subject to laws of general  application  relating to bankruptcy,  insolveney and
the  relief  of  debtors  and  rules  of  law  governing  specific  performance,
injunctive  relief or other  equitable  remedies,  and to  limitations of public
policy as they may apply to  Section  1.4 of  Exhibit C to this  Agreement.  The
Company  is not a party  to,  subject  to,  or  bound  by any  agreement  or any
judgment, order, writ, injunction, or decree of any court, governmental body, or
arbitrator  which would conflict with or be breached by the execution,  delivery
or  performance  by the Company of this  Agreement  or which  would  prevent the
carrying out of this  Agreement.  The execution  and delivery of this  Agreement
does not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default (with or without notice
or lapse of time, or both), or give rise to a right of termination, cancellation
or acceleration of any obligation or to a loss of a material benefit, under any

                                       2


<PAGE>


provision of the  Certificate of  Incorporation  or Bylaws of the Company or any
mortgage, indenture, lease or other agreement or instrument,  permit, franchise,
license,  judgment,  order, decree, statute, law, ordinance,  rule or regulation
applicable to the Company or its properties or assets, the effect of which would
have a material  adverse  effect on the  Company as a whole or would  materially
impair  or  restrict  the  Company's   power  to  perform  its   obligations  as
contemplated hereby. The Shares, when sold and delivered by the Company and paid
for by Teijin  pursuant  to this  Agreement,  will  have  been duly and  validly
issued,  will be  fully  paid and  nonassessable,  and  will  have  the  rights,
preferences,  privileges  and  restrictions  described  in  the  Certificate  of
Incorporation. The Common Stock issuable upon exercise, of the Warrants has been
duly and validly reserved, and, when issued in compliance with the provisions of
this  Agreement and the Warrant,  will be validly  issued and will be fully paid
and nonassessable.  The issuance and sale of shares of the Shares and Warrant to
Teijin  under  Article  III of the  Agreement  hereof  will not give rise to any
preemptive rights or rights of first refusal on behalf of any person or group.

     1.5 SEC  Filings and  Financial  Statements.  The  Company  has  heretofore
furnished to Teijin copies of its Annual Report on Form 10-K for the fiscal year
ended  December 31, 1996,  and all other  registration  statements,  reports and
proxy  statements  filed  by  the  Company  with  the  Securities  and  Exchange
Commission  ("SEC") on or after January 1, 1996 ("SEC  Documents").  Each of the
SEC  Documents  was  prepared  and  filed  in  substantial  compliance  with the
provisions of the Securities Act, the Exchange Act and the rules and regulations
thereunder.  Each of the SEC  Documents was complete and correct in all material
respects  as of its  date,  and,  as of its date,  did not  contain  any  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  in which made, not misleading.  The  consolidated  financial
statements and the notes thereto  contained in the SEC Documents are correct and
complete and fairly present the consolidated  financial  position of the Company
and  its  subsidiaries  on the  respective  dates  thereof  and the  results  of
operations for the periods then ended,  and the balance sheets and notes thereto
contained  therein show and properly  reflect all  material  liabilities  of the
Company and its  consolidated  subsidiaries  on the  respective  dates  thereof,
except for various  claims and  lawsuits  against the Company now  pending,  the
total liability from which would not, in the judgment of the Company, materially
adversely affect the business, properties, or financial condition of the Company
and its subsidiaries,  taken as a whole. Each such financial  statement complies
as to form in all material respects with applicable accounting  requirements and
with the published  rules and regulations of the SEC with respect  thereto,  and
was  prepared  in  conformity  with  generally  accepted  accounting  principles
consistently applied (except, in the case of unaudited statements,  as permitted
by the SEC for its Quarterly Reports on Form 10-Q).

     1.6  Litigation.  There is no action,  suit,  proceeding  or  investigation
pending  or  to  Southwall's  knowledge  threatened  against  the  Company  that
questions the validity of this  Agreement,  or the right of the Company to enter
into such agreement,  or to consummate the transactions  contemplated  hereby or
thereby, or that might result,  either individually or in the aggregate,  in any
material adverse changes in the assets, condition, affairs or prospects of the

                                       3


<PAGE>


Company, financially or otherwise, or any change in the current equity ownership
of the Company,

     1.7 No Pending Transactions.  The Company is not a party to or bound by any
agreement (i) to merge or consolidate  with, or acquire all or substantially all
of the  property  and assets  of,  any other  person,  (ii) to sell,  lease,  or
exchange  all or any  substantial  part of its  property and assets to any other
person,  or (iii) except as otherwise  disclosed to Teijin or as contemplated by
this  Agreement,  to issue,  grant or sell any voting stock or rights to acquire
voting stock in any  transaction  where Teijin  would,  upon  completion  of the
transaction, own five percent (5%) or more of all outstanding Voting Stock.

     1.8 No Material Adverse Changes. Except as otherwise disclosed herein or in
the SEC  Documents,  since  December 31,  1996,  there has not been any material
adverse  change in the  financial  condition or in the  operations,  properties,
assets or  liabilities  of the Company and its  subsidiaries,  taken as a whole,
whether or not arising in the ordinary course of business.

     1.9  Dividends.  Since  December  31,  1996,  the  Company has not made any
declaration,  setting aside or payment to the holders of its Common Stock of any
dividends  or other  distributions  in respect of the Common  Stock or agreed to
take any such action (other than repurchases under employee stock plans).

     1.10 Intellectual Property Rights. Except as disclosed in the SEC Documents
filed prior to the execution of this Agreement, to its knowledge the Company and
its  subsidiaries  own or possess  adequate rights to use all material  patents,
trademarks,  trade names,  service marks,  trade  secrets,  copyrights and other
proprietary  industrial  property rights as are necessary in connection with the
business of the Company,  the lack of which would have a material adverse effect
on the Company and its  subsidiaries  taken as a whole, and the Company does not
have any  knowledge  of any  conflict  with the  rights of the  Company  and its
subsidiaries therein or any knowledge of any conflict by them with the rights of
others therein which would have a material adverse effect on the Company and its
subsidiaries taken as a whole.

     1.11 Compliance with Laws. To the Company's best knowledge, the business of
the Company and its subsidiaries is not being conducted in material violation of
any applicable law, rule or regulation  (including  environmental  regulations),
judgment,  decree or order of any  governmental  entity which is material to the
conduct of the Company's business, except for any violations which, individually
or in the  aggregate,  will not have a material  adverse  effect on the business
condition  of the Company and its  subsidiaries  taken as a whole.  There are no
judgments or outstanding orders,  injunctions,  decrees,  stipulations or awards
(whether rendered by a court or administrative agency or by arbitration) against
the Company or any  subsidiary  or against any of the  respective  properties or
business which will,  individually or in the aggregate,  have a material adverse
effect on the business  condition of the Company and its subsidiaries taken as a
whole.

                                       4


<PAGE>


     1.12 Disclosure.

         (a)  No  representation  or  warranty  made  by  the  Company  in  this
Agreement,  and  no  statement  contained  in any  certificate,  list  or  other
instrument  specified  in this  Agreement  (when  read  together  and taken as a
whole),  contains any untrue  statement  of a material  fact or omits to state a
material fact necessary to make the statements  contained herein or therein,  in
light of the circumstances under which they are made, not misleading.

         (b)  Notwithstanding  the  foregoing,  Teijin  shall be  deemed to have
knowledge of all information set forth in the SEC Documents. Any facts disclosed
in the SEC Documents or in response to any particular  representation  contained
herein shall be deemed to have been  disclosed to Teijin in connection  with all
other applicable representations contained herein.

                                   ARTICLE II

                            COVENANTS OF THE COMPANY

     Until the  termination  of this  Agreement  or until Teijin shall no longer
hold 5% of the outstanding  Common Stock of the Company,  the Company  covenants
and agrees as follows:

     2.1 Rule 144.  With a view to making  available  to Teijin the  benefits of
Rule 144  promulgated  under the  Securities  Act,  any other  similar  rules or
regulations of the SEC which may at any time permit Teijin to sell or distribute
without  registration the Shares and shares of Common Stock issued upon exercise
of the Warrant,  the Company agrees to use its best efforts to file with the SEC
in a timely  manner all reports and other  documents  required to be filed under
the Exchange Act.

     2.2 Future SEC Filings. The Company shall promptly provide to Teijin copies
of all SEC Documents  (excluding  exhibits) filed with the SEC after the Closing
Date.

     2.3 Stock Exchange Listing. The Company will use its best efforts to obtain
the listing on the Nasdaq National Market of the Shares and the shares of Common
Stock which Teijin may acquire upon exercise of the Warrant.

                                       5


<PAGE>


                                   EXHIBIT C

                                   ARTICLE I

                              REGISTRATION RIGHTS

     1.1 Rights to Demand Registration.

         (a) If at any time and from  time to time,  Teijin  shall  request  the
Company in writing to register under the Securities Act the Shares or any shares
of Common  Stock  issued  upon  exercise  of the Warrant and held by Teijin (the
shares subject to such request herein referred to as the "Registrable  Shares"),
the Company shall use all  reasonable  efforts to cause the  Registrable  Shares
specified  in such  request  (which  must be at  least  such  percentage  of the
aggregate shares of Common Stock then  outstanding as is reasonably  anticipated
to result in an offering with  aggregate  gross  proceeds to Teijin in excess of
$7,500,000,  or such lesser  percentage if it  constitutes  all shares of voting
stock  held by  Teijin  at such  time) to be  registered  as soon as  reasonably
practicable so as to permit the sale thereof and in connection therewith prepare
and file,  on such  appropriate  form as the  Company  in its  discretion  shall
determine,  a  registration  statement  under the  Securities Act to effect such
registration  and seek to have such  registration  statement become effective as
promptly as practicable; provided, however, that each such request shall:

               (i)  specify  the number of  Registrable  Shares  intended  to be
offered and sold,

               (ii)  express the present  intention  of Teijin to offer or cause
the offering of such Registrable Shares for distribution,

               (iii)  describe  the nature or method of the  proposed  offer and
sale thereof, and

               (iv)  contain  the  undertaking  of  Teijin to  provide  all such
information  and  materials and take all such action as may be required in order
to permit the Company to comply with all applicable  requirements of the SEC and
to obtain any desired  acceleration  of the effective date of such  registration
statement.

         (b) Upon any registration  becoming  effective pursuant to this Section
1.1, the Company shall use its best efforts to keep such registration  statement
current for a period of 90 days.  Notwithstanding the foregoing, (i) the Company
shall not be obligated to cause any special audit to be undertaken in connection
with any such registration, (ii) the Company shall be entitled to postpone for a
reasonable period of time, but not in excess of 120 calendar days, the filing of
any registration  statement otherwise required to be prepared and filed by it if
the  Company at the time it  receives  a request  for  registration,  reasonably
believes in good faith,  and  discloses  to Teijin the reasons for such  belief,
that it would be disadvantageous to




<PAGE>


the Company for such filing to be made at the time  requested by Teijin in which
event the  Company  may  delay  the  preparation  and  filing of a  registration
statement  for a period  of up to 120 days and (iii)  the  Company  shall not be
obligated to file a registration  statement  pursuant to this Section 1.1 during
the 90-day period  following the  effectiveness  of any  registration  statement
filed by the Company in connection with an underwritten  primary offering of its
securities.  The obligation of the Company to register any Registrable Shares on
demand  by Teijin  in  accordance  with this  Section  1.1  shall  expire  after
registration statements filed by reason of such demands have become effective on
four  separate  occasions,  and in no event shall  Teijin be entitled to request
more than two demand registration  statements  hereunder in any 12-month period.
The Company  shall not be  obligated to file any  registration  statement if the
number of shares of Common  Stock to be  registered  for sale  would  exceed ten
percent  (10%) of the  aggregate  shares of Common  Stock then  outstanding.  In
connection  with any  demand  offering  under  this  section  1.1  involving  an
underwriting of shares of the Company's  capital stock, the Company shall select
the underwriters subject to the reasonable consent of Teijin.

     1.2 The Company's Obligations.  As to each offering of Common Stock covered
by a registration statement referred to in Section 1.1, the Company shall:

         (a) Use its best effort to have such  registration  statement  declared
effective as promptly as reasonably  practicable  on or after such time and date
as specified by Teijin and will promptly notify Teijin and its underwriters,  if
any, and confirm such advice in writing (i) when such registration statement has
become  effective,   (ii)  when  any   post-effective   amendment  to  any  such
registration statement becomes effective and (iii) of any request by the SEC for
any  amendment or supplement to such  registration  statement or any  prospectus
relating thereto or for additional information;

         (b) Furnish to Teijin or the underwriters  such number of copies of any
prospectus  (including  any  preliminary  prospectus)  in  conformity  with  the
requirements of the Securities Act, as Teijin may reasonably request in order to
effect the  offering  and sale of the shares of Common  Stock being  offered and
sold by Teijin,  but only while the  Company is  required  under the  provisions
hereof to cause the registration statement to remain current;

         (c) Use the best  efforts to  register  or  qualify  not later than the
effective date of such registration statement the shares of Common Stock held by
Teijin registered  thereunder under the "blue sky" laws of such states as Teijin
may  reasonably  request;  provided,  however,  that the  Company  shall  not be
obligated to qualify as a foreign corporation or as a dealer in securities or to
execute or file any general  consent to service of process under the laws of any
such state where it is not at such time so qualified or subject; and

         (d) For a period  of at least 90 days  from the  effective  date of the
registration  statement,  keep such registration statement in effect and current
and from time to time amend or  supplement  the  registration  statement and the
prospectus in connection therewith in compliance with the Securities Act and the
rules and regulations  adopted  thereunder to permit the sale or distribution of
the shares with respect to which such  registration  statement shall have become
effective.  If at any time the SEC should institute or threaten to institute any
proceedings

                                       2




<PAGE>


for the  purpose  of  issuing,  or  should  issue a stop  order  suspending  the
effectiveness  of any such  registration  statement,  the Company will  promptly
notify  Teijin and will use its best efforts to prevent the issuance of any such
stop order or to obtain the withdrawal thereof as soon as possible.  The Company
will advise Teijin promptly of any order or communication of any public board or
body  addressed  to  the  Company  suspending  or  threatening  to  suspend  the
qualification of any of the shares of Common Stock for sale in any Jurisdiction.

     1.3 Expenses.  The out-of-pocket  costs and expenses incurred in connection
with any registration pursuant to Section 1.1 shall be borne by Teijin, provided
that Teijin shall not be required to reimburse the Company for  compensation  of
the  Company's  officers  and  employees,  regular  audit  expenses,  and normal
corporate costs. The costs and expenses of any such registration  shall include,
without  limitation,  the reasonable fees and expenses of the Company's  counsel
and its  accountants  and all  other  out-of-pocket  costs and  expenses  of the
Company  incident to the  preparation,  printing and filing under the Securities
Act of the registration statement and all amendments and supplements thereto and
the  cost of  furnishing  copies  of each  preliminary  prospectus,  each  final
prospectus and, each amendment or supplement  thereto to  underwriters,  dealers
and other  purchasers of the  securities so  registered,  the costs and expenses
incurred in connection with the  qualification  of such securities so registered
under the "blue sky" laws of various jurisdictions, the fees and expenses of the
Company's  transfer agent and all other costs and expenses of complying with the
foregoing provisions of this Article I.

     1.4 Indemnification.

         (a) In the case of any offering registered pursuant to Section 1.1, the
Company hereby  indemnifies and agrees to hold harmless Teijin,  any underwriter
(as defined in the Securities Act) of shares offered by Teijin, and each person,
if any,  who  controls  Teijin or any such  underwriter  within  the  meaning of
Section  15 of the  Securities  Act  against  any  losses,  claims,  damages  or
liabilities,  joint or several, to which any such persons may be subject,  under
the  Securities  Act or otherwise,  and to reimburse any of such persons for any
legal  or  other  expenses  reasonably  incurred  by  them  in  connection  with
investigating  any claims or  defending  against  any  actions,  insofar as such
losses, claims, damages or liabilities arise out of or are based upon any untrue
statement  or alleged  untrue  statement  of a material  fact  contained  in the
registration statement under which such Registrable Shares were registered under
the Securities Act pursuant to this Article I, any prospectus contained therein,
if used during the period  appropriate for such prospectus,  or any amendment or
supplement  thereto, or the omission or alleged omission to state therein (if so
used) a material  fact  required to be stated  therein or  necessary to make the
statements  therein,  in light of the circumstances in which they were made, not
misleading,  except insofar as such losses, claims, damages or liabilities arise
out of or are (x) based upon any such  untrue  statement  or omission or alleged
untrue statement or omission made in reliance upon information  furnished to the
Company in writing by Teijin or any underwriter for Teijin  specifically for use
therein, or (y) made in any preliminary prospectus, and the prospectus contained
in the registration statement, as declared effective or in the form filed by the
Company  with the SEC pursuant to Rule 424 under the  Securities  Act shall have
corrected  such  statement or omission and a copy of such  prospectus  shall not
have  been  sent or  otherwise  delivered  to such  person  at or  prior  to the
confirmation of such sale to such person.

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<PAGE>


     1.5   Participation.   The   Company   will   permit   counsel   and  other
representatives  of Teijin to  participate  in meetings in  connection  with the
preparation of each  registration  statement  referred to in Section 1.1. Before
filing the  registration  statement or amendments or  supplements  thereto,  the
Company  shall  furnish to Teijin  copies of all such  documents  proposed to be
filed.  The Company shall promptly  deliver to Teijin copies of the registration
statement  and   amendments   thereto  as  filed  with  the  SEC  and  upon  the
effectiveness  of the  registration  statement  such  number  of  copies  of the
prospectus  included in such  registration  statement  as Teijin may  reasonably
request.

     1.6 Proposed Distribution. As to each registration statement referred to in
Section 1.1,  Teijin will provide the Company with a description of the proposed
method or methods of distribution  of securities from time to time  contemplated
by Teijin,  and the Company shall include such  description in the  registration
statement  and  file  any  and  all  amendments  and  supplements  necessary  in
connection therewith.

     1.7 Prior Registration Rights.  Notwithstanding the foregoing, however, the
registration  rights  granted  to Teijin in this  Article I are  subject  to the
registration rights granted by the Company to certain investors under agreements
entered into by the Company prior to the date of this Agreement. The Company has
made available to Teijin copies of such prior registration rights.

     1.8  Termination of  Registration  Rights.  Teijin shall not be entitled to
exercise any right  provided for in this Article 1 after the two (3) year period
following the issuance of the shares.

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