EXHIBIT 10.89
                                CREDIT AGREEMENT

     This CREDIT  AGREEMENT (the  "Agreement"),  dated as of May 6, 1997 is made
between Southwall Technologies Inc., a Delaware corporation (the "Company"), and
The Sanwa Bank, Limited, San Francisco Branch (the "Bank").

     In  consideration of the premises and mutual covenants set forth below, the
parties agree as follows:

                                   ARTICLE I
                        INTERPRETATIONS AND DEFINITIONS

     Section 1.01  Definitions.  The following  terms are used in this Agreement
with the following respective meanings:

     "Agreement"  means this Credit  Agreement,  dated as of May 6, 1997 between
the Bank and the Company,  as amended from time to time in  accordance  with its
terms.

     "Applicable Rate" means the LIBOR Rate plus the Applicable Spread.

     "Applicable Spread" means 0.4375%.

     "Bank" means The Sanwa Bank, Limited, San Francisco Branch.

     "Business  Day" means each day other  than  Saturday,  a Sunday or a day on
which  commercial  banks in San  Francisco,  California,  New York,  New York or
London are authorized or required by law to close.

     "Company" means Southwall Technologies Inc., a Delaware corporation.

     "Company's  Account" shall mean account  number  5153-11059 at the Japanese
Banking San Francisco Branch of Sanwa Bank California.

     "Default"  means  any  condition  or event  which  constitutes  an Event of
Default or which  with  notice,  lapse of time or both  would,  unless  cured or
waived, constitute an Event of Default.

     "Dollars" and the sign "$" mean the lawful currency of the United States of
America.

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     "Effective Date" means, in respect of this Agreement,  the later of (i) May
6, 1997, and (ii) the date on which this  Agreement,  after having been executed
by the  Company  and the Bank,  shall  have been  delivered  to the Bank and all
conditions precedent as presented in Article IV of this Agreement have been met.

     "Equity  Securities"  of any  person  shall  mean  (i)  all  common  stock,
preferred stock,  participations,  shares, partnership interests or other equity
interests in and of such person, and (ii) all warrants, options and other rights
to acquire any of the foregoing.

     "Event of Default" has the meaning set forth in Section 7.01.

     "Federal Funds Rate" shall mean the Bank's Federal Funds Rate, as announced
by the Bank from its San Francisco Branch office from time to time.

     "Final  Maturity  Date" shall mean  November 5, 2004. If such date is not a
Business Day then the Final Maturity Date shall be the next  preceding  Business
Day.

     "Governmental Authority" means any national, state or local government, any
political  subdivision  or  any  governmental,  judicial,  public  or  statutory
instrumentality,  authority,  body or  entity,  including  the  Federal  Deposit
Insurance Corporation, any central bank or any comparable authority.

     "Governmental Rule" means any law, rule, regulation, ordinance, order, code
interpretation,  judgment, decree, directive,  guideline, policy or similar form
of decision of any Governmental Authority.

     "Guarantor" shall mean Teijin Limited, a Japan corporation.

     "Guaranty" means that certain Guaranty, written in japanese and governed by
the laws of Japan,  to be executed by Guarantor on or before the Effective  Date
in the form of Exhibit B attached  to this  Agreement,  as amended  from time to
time in accordance with its terms.

     "Interest Payment Date" means the last day of every Interest Period.

     "Interest  Period"  means  the  period  beginning  on the date of the first
disbursement  of the Loan pursuant to Section 2.01 of this  Agreement and ending
on and including  November 6, 1997 and subsequent  6-month periods  beginning on
the most recent Interest Payment Date and ending on and including each May 6 and
November 6 to and including the Final  Maturity Date;  provided,  however (i) no
Interest  Period  will extend  beyond the Final  Maturity  Date,  and (ii) if an
Interest  Period would end on a day that is not a Business  Day,  such  Interest
Period shall be extended to the next Business Day.

     "LIBOR Rate" means the US$ LIBOR BBA which appears on Telerate Page 3750 or

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such  applicable  page as may be  designated  from time to time as of 11:00 a.m.
London time on the day that is two (2) Business Days  preceding the first day of
the  applicable  Interest  Period,  for the  number of  months in such  Interest
Period.

     "Lien"  means any  mortgage,  deed of  trust,  pledge,  security  interest,
hypothecation,  assignment, deposit arrangement, encumbrance, lien (statutory or
other),  or preference,  priority,  or other security  agreement or preferential
arrangement, charge, or encumbrance of any kind or nature whatsoever (including,
without limitation, any conditional sale or other title retention agreement, any
financing  lease having  substantially  the same  economic  effect as any of the
foregoing,  and the filing of any  financing  statement  under the Uniform  Com-
mercial  Code or  comparable  law of any  jurisdiction  to  evidence  any of the
foregoing).

     "Loan" shall mean the aggregate  amount advanced by the Bank to the Company
under this Agreement.

     "Loan Documents" shall mean this Agreement, the Note, the Guaranty and such
other  certificates,  agreements,  instruments,  financing  statements and other
documents as are delivered to the Bank from time to time in connection  with the
Loan, this Agreement or any other Loan Document.

     "Note" means a promissory note made as of May 6, 1997 by the Company in the
form of Exhibit A attached to this  Agreement,  as amended  from time to time in
accordance with its terms.

     "Second  Disbursement"  shall have the meaning as set forth in section 2.01
of this Agreement.

     Section 1.02 Interpretation.  In this Agreement,  the singular includes the
plural and the plural the singular; words importing any gender include the other
genders;  references  to statutes are to be construed as including all statutory
provisions  consolidating,  amending or replacing  the statute  referred to; the
words  "including",  "includes" and "include"  shall be deemed to be followed by
the words "without  limitation";  references to agreements and other contractual
instruments  shall be deemed to  include  all  subsequent  amendments  and other
modifications  to such  instruments,  but only to the extent such amendments and
other modifications are not prohibited by the terms of this Agreement.

                                   ARTICLE 11
                                    THE LOAN

     Section  2.01  Terms  and  Conditions  of Loan.  Subject  to the  terms and
conditions of this  Agreement,  the Bank hereby agrees to extend the Loan to the
Company  and the  Company  hereby  agrees to borrow the Loan from the Bank.  The
principal  amount of the Loan will be  advanced  in two equal  disbursements  of
$5,000,000.00 each to the Company's

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Account. The first disbursement will be made on the Effective Date or as soon as
reasonably  possible  thereafter  and the  second  disbursement  will be made on
November  6,  1997,  or if November 6, 1997 is not a Business  Day, the next day
which is a Business Day ("Second Disbursement").  Each disbursement will be made
not later  than 12:00  noon (San  Francisco  time) on the day such  disbursement
occurs.

     Section 2.02 Repayment of Principal.  Installments of principal of the Loan
shall be due and payable by the Company as follows:

             Date                       Amount Payable  
             ----                       --------------
             
             May 6, 2001                $1,250,000.00  
             November 6, 2001           $1,250,000.00  
             May 6, 2002                $1,250,000.00  
             November 6, 2002           $1,250,000.00  
             May 6, 2003                $1,250,000.00  
             November 6, 2003           $1,250,000.00  
             May 6, 2004                $1,250,000.00  
                           

     The outstanding  principal amount of the Loan together with all accrued and
unpaid  interest  thereon  shall be due and  payable by the Company on the Final
Maturity Date.

     Section 2.03 Interest.  The unpaid  principal amount of the Loan shall bear
interest  until paid in full at the Applicable  Rate,  payable in arrears to the
extent accrued on each Interest Payment Date.

     Section 2.04 Prepayments.  Until the date which is the first anniversary of
the Effective Date, the Company shall have no right to prepay all or any portion
of the  Loan.  From and after the date  which is the  first  anniversary  of the
Effective Date, the Company may prepay all or any portion of the Loan; provided,
however that any such prepayment of the Loan (i) shall be in a principal  amount
of not less than  $100,000,  (ii) shall include  payment of accrued  interest on
such prepaid principal, (iii) shall be made only upon at least four (4) Business
Days prior written notice to Bank, and (iv) shall include payment by the Company
of all amounts  required to be paid by the Company  pursuant to Section  3.02 of
this Agreement by reason of any prepayment  which is made on a date which is not
an Interest  Payment Date (which amounts  required to be paid under Section 3.02
do not include any  prepayment  premium or similar  penalty).  Additionally,  no
partial  prepayments  shall be permitted if a Default shall have occurred and be
continuing.  In the event of any partial  prepayment  of the Loan,  such partial
prepayment  shall be applied first to the  unamortized  portion of the principal
due and  payable  on the Final  Maturity  Date and then to that  portion  of the
principal  due and  payable  in  installments  as  provided  herein  in  reverse
chronological order.

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     Section 2.05 Payments; Calculations.

     (a) The Company shall make each payment due under this  Agreement not later
than 11:30 a.m. (San Francisco time) on the date when due in lawful money of the
United  States  of  America  in  immediately   available   funds  to  the  Bank.
Notwithstanding  the  foregoing,  the  Company  hereby  authorizes  the  Bank to
transfer,  or cause the  transfer  of, the amount of such  payment to the Bank's
account on the date when due from the Company's Account;  provided,  however (i)
it  shall  be the  Company's  sole  responsibility  to  ensure  that  there  are
sufficient  funds in the  Company's  Account to make all such payments when due,
and (ii) nothing  contained  in clause (i) above shall  relieve the Company from
making any payment when due hereunder.

     (b) Calculations. All computations of interest in respect of the Loan shall
be made on the  basis  of a year of 360  days  for  the  actual  number  of days
(including the first day but excluding the last day) occurring in the period for
which such interest is payable.

     (c) Business Day. If any payment  hereunder to the Bank shall fall due on a
day that is not a Business Day, then such due date shall be extended to the next
succeeding  Business Day, and such extension  shall be taken into account in the
computation of interest, fees or other amounts due.

     Section 2.06 Overdue  Interest.  In the event that the principal  amount of
the Loan,  any  interest or any other  amount  payable by the  Company  under or
pursuant  to this  Agreement  or any other Loan  Document  is not paid when due,
whether at stated maturity, by acceleration or otherwise,  the Company shall pay
on demand interest on such unpaid amount (to the extent  permitted by applicable
law) from the date such amount is due until the date such amount is paid in full
at a rate of two percent  (2%) per annum plus the greater of the (1)  Applicable
Rate or (2) the Federal  Funds Rate at the time such  payment  became due.  Each
change in the  Federal  Funds  Rate  shall be  effective  as of the  opening  of
business on the day such change occurs.

     Section 2.07 Payments. All payments hereunder shall be made without set-off
or  counterclaim,  free and  clear  of all  claims  an  without  any  deductions
whatsoever  to the  account  of the Bank  from  time to time  designated  to the
Company in immediately available funds.

                                  ARTICLE III
                     LEGAL RESTRICTIONS; YIELD PROTECTIONS

     Section 3.01  Increased  Costs.  If after the date of this  Agreement,  the
adoption  of any  applicable  Governmental  Rule,  any change in any  applicable
Governmental Rule or in the  interpretations or administration of any applicable
Governmental Rule by any

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Governmental  Authority  charged with its  interpretation  or  administration or
compliance by the Bank with any request, directive, guideline or policy (whether
or not having the force of law) of any such Governmental Authority: 

     (a) shall subject the Bank to any tax, duty or other change with respect to
the Loan or shall  change the basis of  taxation  of payments to the Bank of the
principal  of, or  interest  on,  the Loan or any other  amounts  due under this
Agreement or the Note in respect of such Loan (except for changes in the rate of
taxation on the overall net income of the Bank imposed by the jurisdiction which
the Bank is located); or

     (b) shall impose,  modify or deem  applicable  any reserve  (including  any
imposed  by the Board of  governors  of the  Federal  Reserve  System),  special
deposit or similar  requirement  against  assets  of,  deposits  with or for the
account,  or credit  extended  by,  the Bank or shall  impose on the Bank or the
relevant  market  to  increase  the  cost to or to  impose a cost on the Bank of
making,  maintaining  or  funding  the Loan,  or to reduce the amount of any sum
received or receivable by the Bank under this Agreement or the Note,

then, within 15 days after demand by the Bank, the Company shall pay to the Bank
such additional  amount or amounts as will reimburse the Bank for such increased
cost or reduction.

     Section 3.02 Funding Losses. The Company shall reimburse the Bank within 15
days  after  demand  for any  losses,  costs  or  expenses  (including,  without
limitation,  breakage  costs  and  the  like)  incurred  or  expended  by  it in
connection  with any payment or prepayment  (including any prepayment or payment
resulting from  acceleration) in respect of the Note or any portion thereof made
on a date other than the last day of the then current Interest Period. Such loss
may include the difference,  as reasonably  determined by the Bank,  between (i)
(a) in the case of any voluntary repayment,  the interest at the Applicable Rate
less  Applicable  Spread  that  would have  accrued  on the  portion of the Loan
repaid,  or (b) in the  case  of any  required  repayment,  the  Bank's  cost of
obtaining funds in an amount equal to the sum being repaid or prepaid,  and (ii)
any lesser amount which would have been realized by the Bank in reemploying  the
funds so received in  repayment or  prepayment  by placing such funds on deposit
for a comparable  period in the relevant market,  in each case during the period
from the date of repayment or prepayment  (as the case may be) to the end of the
then  current  Interest  Period.  The  certificate  of the Bank with  respect to
reimbursement  under this  Section  3.02 as to the  amount of any loss,  cost or
expense  incurred or to be  incurred by it shall show the amount  payable and in
reasonable  detail the calculations  used to determine in good faith such amount
and shall be conclusive  absent  manifest  error.  The Bank hereby agrees to use
reasonable commercial efforts to minimize any losses, costs or expenses incurred
or expended  for which the Bank seeks  reimbursement  pursuant  to this  Section
3.02.  The  Company  hereby  agrees  that  following  an Event of Default by the
Company  hereunder and the acceleration of the maturity of the Loan by the Bank,
a tender of payment of the amount  necessary to satisfy the entire  indebtedness
of the Loan  made at any time by the  Company  or by  anyone  on  behalf  of the
Company shall be deemed a voluntary prepayment hereunder.

                                      -6-
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     Section 3.03. Indemnification. The Company shall indemnify, defend and hold
harmless the Bank,  and each of the Bank's  shareholders,  directors,  officers,
employees,  agents,  successors and assigns  (collectively,  the "Indemnitees"),
against  any  and  all  losses,  liabilities,   obligations,   damages,  claims,
assessments, judgments, costs and expenses (collectively, the "Losses") that may
be imposes on,  incurred by or asserted  against any Indemnitee  resulting from,
arising  out of or  relating  to this  Agreement,  the  Note or any  other  Loan
Document;  provided,  however, that the Company shall not indemnify,  defend and
hold harmless the  Indemnitees  from any Losses that are the result of the gross
negligence  or  willful  acts  of  any   Indemnitee.   Any  Indemnitee   seeking
indemnification pursuant to this Section shall give notice to the Company within
a reasonable time of the assertion of any claim that could result in a Loss. The
Company,  at its  expense,  shall have the right to assume  the  defense of such
claim with counsel reasonably satisfactory to the Indemnitee, including, without
limitation, the right to compromise or settle such claim. If the Company, within
a reasonable time after receipt of the notice of such claim, fails to defend the
Indemnitee,  then such Indemnitee shall have the right to undertake the defense,
compromise or  settlement  of such claim on its own behalf,  and for the account
and risk of the  Company.  The  provisions  of this  Section  shall  survive the
termination of the Note and the repayment of all amounts owned hereunder.

                                  ARTICLE IV.
                              CONDITIONS PRECEDENT

     Section 4.01. The obligation of the Bank to make the Loan to the Company is
subject to  satisfaction  (as determined  solely by the Bank),  on or before the
Effective Date, of the following conditions precedent:

     (a) the  Agreement  and the Note  shall  have  been  duly  executed  by the
Company,  and  delivered  to the Bank and the  Guaranty  shall  have  been  duly
executed by the Guarantor and delivered to the Bank;

     (b)  the  Bank  shall  have  received  the   Certificate   or  Articles  of
Incorporation  of the  Company,  certified  as of a  recent  date  prior  to the
Effective  Date by the  Secretary  of  State  (or  comparable  official)  of its
jurisdiction of incorporation;

     (c) the Bank  shall  have  received  a  Certificate  of Good  Standing  (or
comparable certificate) for the Company,  certified as of a recent date prior to
the  Effective  Date by the Secretary of State (or  comparable  official) of its
jurisdiction of incorporation;

     (d)  the  Bank   shall  have   received   evidence   that  all   approvals,
authorizations,  consents and permission for the  performance by the Company and
the Guarantor of their  respective  obligations  have been obtained and that all
other regulatory  requirements have been complied with has been delivered to the
Bank.

                                      -7-
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     (e) the Bank shall have  received a  certificate  of the  Secretary  of the
Company  certifying the names and true signatures of each such person authorized
to sign each Loan Document to be delivered by the Company to the Bank under this
Agreement;

     (f) each of the  representations and warranties of the Company contained in
this  Agreement or in any other Loan  Document  shall be true and correct in all
material respects as of the Effective Date;

     (g) no Default  shall have  occurred and be  continuing as of the Effective
Date; and

     (h)  the  Bank  shall  have  received  such  other  documents,  agreements,
instruments, certificates and opinions as the Bank may reasonably require.

     Section  4.02.  The Bank's  obligation to make the Second  Disbursement  is
subject to the following conditions:

     (a) On the date of the Second Disbursement, the following shall be true and
correct:


         (i) the  representations  and  warranties  of the  Company set forth in
         Article V and any other  Loan  Documents  are true and  correct  in all
         material  respects as if made on such date (except for  representations
         and warranties  expressly made as of a specified  date,  which shall be
         true as of such date);

         (ii) No Default has occurred and is continuing or will result from Bank
         making the Second Disbursement;

         (iii) All of the Loan Documents are in full force and effect; and

     (b) The Bank shall have received a notice of drawing  substantially  in the
form of  Exhibit C  attached  to this  Agreement.  Such  notice  shall have been
received four (4) Business Days prior to November 6, 1997.

                                   ARTICLE V.
                         REPRESENTATIONS AND WARRANTIES


     The Company,  at the date of its acceptance  hereof and throughout the term
of the Agreement, represents and warrants to the Bank as follows:

     Section  5.01.  Corporate  Authorization.  The  Company  has full power and
authority to accept and perform  this  Agreement  and the Note,  and each of the
foregoing  instruments  constitutes a legal, valid and binding obligation of the
Company enforceable in accordance

                                      -8-
<PAGE>

with its terms.

     Section 5.02.  Governmental  and Other Approvals.  All consents,  licenses,
approvals  or  authorizations  of,  exemption  from or  registrations  with  any
authority  required  in  connection  with  the  performance  of its  obligations
hereunder and under the Note and the other Loan Documents have been obtained.

     Section  5.03.  Litigation.  Except as  otherwise  disclosed to the Bank in
writing or otherwise  disclosed in the Company's most recent Form 10K filed with
the  Securities  and  Exchange  Commission,  there are no  material  litigation,
arbitration or  administrative  proceedings  presently pending before any court,
tribunal or regulatory  authority nor threatened against the Company which would
have a material adverse effect on the Company.

     Section 5.04.  Obligatory  Effect. The obligations of the Company hereunder
and under the Note constitute direct,  unconditional and general  obligations of
the  Company  and will  continue  to rank at least  pari  passu  with all  other
unsecured and unsubordinated liabilities of the Company.

     Section 5.05.  Disclosure of Defaults. To the best knowledge of the Company
(i) the Company is not in default in any  material  respect in the  performance,
observance,  or fulfillment of any of the obligations,  covenants, or conditions
contained in any  agreement or  instrument  to which it is a party,  and (ii) no
Event of Default has occurred and no event has occurred  which,  with the giving
of notice of lapse or time or both, would constitute an Event of Default.

     Section 5.06. Financial  Statements.  To the best knowledge of the Company,
the most recent balance sheet and statement of income and retained  earnings and
changes in  financial  position of the Company as delivered to the Bank are true
and  correct  in all  material  respects,  do not  omit  any  material  facts or
information  and no  material  adverse  change  has  occurred  in the  financial
condition of the Company since the date of such financial statements.

     Section 5.07. Full Disclosure. Except as otherwise disclosed to the Bank in
writing or otherwise  disclosed in the Company's most recent Form 10K filed with
the  Securities and Exchange  Commission,  there is no fact known to the Company
which has or could have a material  adverse effect on the ability of the Company
to pay the  principal of or the  interest on the Note or  otherwise  perform its
material obligations under the Loan Documents.

     Section 5.08. No Conflicts.  The making and  performance  by the Company of
this Agreement and the Note will not (either immediately or with passage of time
or the giving of notice, or both):

     (a) violate any charter or by-law provisions of the Company, or violate any
laws

                                      -9-

<PAGE>
or result in a default under any contract,  agreement or instrument to which the
Company is a party or by which the Company or its property is bound; or

     (b) result in the creation or imposition of any Lien upon any of the assets
of the Company except Liens in favor of the Bank or the Guarantor.

     Section 5.09.  Taxes. The Company has filed all federal state and local tax
returns and other reports which it is required by all Governmental Rules to file
prior to the date hereof and which are material to the conduct of its  business,
has paid or  caused to be paid all  taxes,  assessments  and other  governmental
charges that are due and payable prior to the date hereof, and has made adequate
provisions for the payment of such taxes,  assessments or other charges  accrued
but  not  yet  payable.  The  Company  has no  knowledge  of any  deficiency  or
additional  assessment in a materially  important  amount in connection with any
taxes, assessments or charges which is not provided for on its books.

     Section 5.10. ERISA Obligations.  To the best knowledge of the Company, the
Company  has  satisfied  the  minimum  funding   standards  under  the  Employee
Retirement  Income Security Act of 1974, as amended  ("ERISA"),  with respect to
each and  every one of its  employee  benefit  plans,  is in  compliance  in all
material respects with the presently applicable provisions for ERISA and has not
incurred any liability to the Pension Benefit  Guaranty  Corporation,  or to any
plan  under  Title IV of ERISA,  other  than to any  employer  plan to which the
Company is a party, there exists no unfunded vested liability.

     Section  5.11.  Margin  Regulations.  The  Company  is not  engaged  in the
business of  extending  credit for the  purpose of  purchasing  or carrying  any
margin stock or margin securities (within the meanings of Regulations G, U and X
or the Board of  Governors  of the  Federal  Reserve  System),  and or carry any
margin stock or margin  securities or to extend credit to others for the purpose
of purchasing or carrying any margin stock or margin securities.

     Section  5.12.  Survival  of  Representations  and  Warranties.  All of the
foregoing  representations  and  warranties  shall  survive  until  all  of  the
Company's  obligations hereunder and under each of the other Loan Documents have
been satisfied in full.

                                  ARTICLE VI.
                                   COVENANTS

     By its acceptance  hereof,  the Company agrees to undertake  throughout the
term of the Loan as follows:

     Section 6.01. Consents. The Company agrees to maintain, renew or obtain all
necessary permissions,  consents,  approvals, licenses an registrations required
in connection herewith.

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<PAGE>


     Section 6.02.  Financial  Statements.  The Company agrees to deliver to the
Bank:

     (a) as soon as  available,  and in no event  later  than 100 days after the
close of each fiscal  year of the  Company,  a copy of the audited  consolidated
financial   statements  of  the  Company  for  such  fiscal  year,  prepared  by
independent certified public accountants of recognized national standing; and

     (b) as soon as available  and in no event later than ten (10) Business Days
after they are sent,  made  available or filed,  copies of (1) all  registration
statements and reports filed by the Company or any of its subsidiaries  with any
securities  exchange  or the  securities  and  Exchange  Commission  (including,
without  limitation,  all 10-Q,  10-K and 8-Q reports);  and all reports,  proxy
statements and financial statements sent or made available by the Company or any
of its subsidiaries to its security holders.

     Section  6.03.  Compliance  with Law. The Company will use due diligence in
order to comply in all material  respects with all material  Governmental  Rules
the noncompliance with which would materially and adversely affect the business,
financial condition or consolidated results of operations of the Company, except
where the  necessity of  compliance  is  contested in good faith by  appropriate
proceedings and to which appropriate reserves have been established on the books
of the Company in accordance with generally accepted accounting principles.

     Section  6.04.  Maintenance  of Assets  and  Insurance.  The  Company  will
maintain all of its assets material to the Company's  business in good condition
and repair (normal wear and tear excepted),  and will pay and discharge or cause
to be paid and discharged when due the cost of repairs to and maintenance of the
same,  and will pay or cause to be paid all rental and mortgage  payments due on
such assets. The Company shall maintain, or cause to be maintained, insurance on
all of its assets and  activities,  in such forms and  amounts as are normal and
customary for the business in which the Company engages and as may be reasonably
satisfactory to the Bank.  Each such insurance  policy shall contain a provision
whereby it cannot be canceled  except after 30 days  written  notice to the Bank
and the  Company.  The  Company  will  furnish to the Bank,  upon  demand,  such
evidence of insurance as the Bank may reasonably require.

     Section 6.05. Taxes and  Assessments.  The Company shall pay or cause to be
paid when due all taxes, assessments, charges and levies imposed upon it or upon
any of its  properties  or assets or which it is required  to  withhold  and pay
over,  except where  contested  in good faith by  appropriate  proceedings  with
adequate  reserves  therefore  having  been set aside on its books.  The Company
shall pay or cause to be paid all such  taxes,  assessment,  charges  and levies
forthwith whenever foreclosure on any Lien that attached in connection wherewith
(or  security  therefor)  appears  imminent.  Without  in any way  limiting  the
foregoing, the Company shall pay in a timely fashion all charges and assessments
required of it under ERISA.

                                     - 11-
<PAGE>
     Section  6.06.  Corporate  Existence.  The  Company  shall  take all  steps
necessary to preserve its corporate existence and franchises and of its business
and all material agreements to which it is subject and shall continue to conduct
its  business  substantially  in the  manner  in  which  it is  currently  being
conducted.

     Section 6.07. Notice of Litigation. The Company shall give the Bank written
notice within 30 days of: (i) the institution of any litigation or proceeding to
which the Company is a party if an adverse  decision therein would require it to
pay more than  $100,000 or deliver  assets the value of which  exceeds  such sum
(whether or not the claim is considered to be covered by insurance), or (ii) the
institution of any other suit or proceeding  involving it that might  materially
and adversely affect its operations, financial condition, property or business.

     Section 6.08.  Payment of Indebtedness.  The Company shall pay when due (or
within  applicable  grace periods) all  indebtedness due to third persons except
(i) when the amount  thereof  is being  contested  in good faith by  appropriate
proceedings and with adequate reserves therefor begin set aside on the Company's
books,  or (ii)  when the  non-payment  of such  indebtedness  would  not have a
material adverse effect on the Company's  business or the ability of the Company
to perform its obligations under this Agreement and the other Loan Documents.

     Section 6.09. Notice of Default. The Company shall notify the Bank within 5
days after it becomes aware of the  occurrence of any Event of Default or of any
fact, conditions or event that with the giving of notice or the passage of time,
or both,  could become an Event of Default,  or of the failure of the Company to
observe any of its undertakings hereunder.

     Section  6.10.  Sale of Assets.  Without the prior  written  consent of the
Bank, which consent shall not be unreasonably  withheld or delayed,  the Company
shall not sell, transfer, lease or otherwise dispose of all or substantially all
of its business or assets.

     Section 6.11.  Margin  Stock.  The Company shall not directly or indirectly
apply any part of the proceeds of the Loan to the  purchasing or carrying of any
margin stock or margin securities (within the meanings of Regulations G, U and X
or the Board of Governors of the Federal Reserve System).

     Section 6.12. No Untrue Statements. The Company shall not knowingly furnish
to the Bank any  certificate  or other  document  that will  contain  any untrue
statement of material fact or that will omit to state a material fact  necessary
to make it not  misleading  in light  of the  circumstances  under  which it was
furnished.

                                      -12-
<PAGE>

     Section 6.13.  General  Information.  The Company shall furnish to the Bank
such other  information  regarding  the  condition or  operations,  financial or
otherwise, of the Company as the Bank may from time to time reasonably request.

     Section 6.14. Stock Acquisitions.  Without the prior written consent of the
Bank, which consent shall not be unreasonably  withheld or delayed,  the Company
shall  not agree to or  otherwise  permit  the  acquisition  (other  than by the
Guarantor)  by any person or group of persons  (within the meaning of Section 13
or 14 of the Securities  Exchange Act of 1934, as amended (the "Exchange  Act"),
but  exclusive of the holdings of any person who is a director of the Company on
the date of this  Agreement and exclusive of the holdings of any person or group
of persons  which has  reported or may report on Schedule 13G under the Exchange
Act and has not ceased to be eligible to report on Schedule 13G pursuant to Rule
13d-1 of the Exchange Act) of beneficial  ownership  (within the meaning of Rule
13d-3  promulgated by the Securities and Exchange  Commission under the Exchange
Act) of more  than  fifty  percent  (50%)  or  more  of the  outstanding  Equity
Securities  of the  Company  entitled  to  vote  for  members  of the  board  of
directors.  The Company shall  endeavor to provide the Bank with as much advance
notice as reasonably  possible of any  acquisition  of Equity  Securities  which
requires the prior written consent of the Bank under this Section 6.14.

                                  ARTICLE VII.
                               EVENTS OF DEFAULT

     Section  7.01.  Events of Default The  occurrence of any one or more of the
following events shall constitute "Events of Default":

     (a) the Company  fails to pay any  installment  of  interest  or  principal
within five (5) days when due hereunder; or

     (b) the  Company  fails to make any payment  due to the Bank  hereunder  or
under any of the other Loan  Documents  to which the  Company is a party  (other
than  payments  referred to in subsection  (a) above),  within five (5) Business
Days after written notice from the Bank;

     (c) any material representation or warranty made by the Company in any Loan
Document  or  which is  contained  in any  certificate,  document,  opinion,  or
financial  or  other  statement  furnished  by the  Company  at any  time  or in
connection  with any Loan  Document  shall prove to have been  incorrect  in any
material respect on or as of the date made; or

     (d) at any time it becomes  unlawful  (i) for the Company to perform any or
all of its material obligations hereunder,  or (ii) for the Guarantor to perform
any or all of its material obligations under the Guaranty; or

     (e) the Company or the Guarantor shall suspend or discontinue its business

                                      -13-

<PAGE>

operations whether voluntarily or involuntarily; or

     (f) the Company or the  Guarantor  shall (i)  commence a voluntary  case or
other  proceeding  seeking  liquidation,  reorganization,  or other  relief with
respect to itself or its debts under any bankruptcy, insolvency or other similar
law now or in the  future in  effect,  (ii) seek the  appointment  of a trustee,
receiver,  liquidator,  custodian  or  other  similar  official  of  it  or  any
substantial  part of its  property,  (iii)  make a  general  assignment  for the
benefit of creditors, (iv) fail generally to pay its debts as they become due or
(v) take any corporate action to authorize any of the foregoing; or

     (g) an involuntary case or other proceeding shall be commenced  against the
Company or the Guarantor  seeking  liquidation,  reorganization  or other relief
with  respect  to it or its debts  under  any  bankruptcy,  insolvency  or other
similar  law now or in the  future in effect or  seeking  the  appointment  of a
trustee, receiver, liquidator,  custodian or other similar official of it or any
other proceeding shall remain  undismissed and unstayed for a period of 90 days;
or any order for relief  shall be entered  against the Company or the  Guarantor
under the federal bankruptcy laws as now or in the future in effect; or

     (h) the  Company  shall fail duly to  perform  or  observe in any  material
respect  any other  material  term,  covenant  or  agreement  contained  in this
Agreement  or any other Loan  Document  to which the Company is a party and such
failure is not remedied within 30 days after receipt by the Company of a written
notice from the Bank requiring such remedy; provided, however if such failure by
the  Company is of a type that cannot be cured or  corrected  within such 30 day
period, no Event of Default shall occur by reason thereof so long as the Company
commences to cure or correct such failure  promptly at the  beginning of such 30
day period and thereafter diligently prosecutes the same to completion within 60
days; or

     (i) the Company shall suffer any material  adverse  change to its financial
condition or its business activities as currently conducted.

     Section 7.02.  Remedies.  Upon the occurrence and continuation of any Event
of Default  specified in Section 7.01 (f) or (g) the entire  principal amount of
the Loan outstanding,  together with accrued interest thereon and all other sums
payable  hereunder or under the Note shall be immediately and  automatically due
and  payable;  and upon the  occurrence  and  continuance  of any other Event of
Default,  the Bank may at any time  declare the entire  principal  amount of the
Loan  together  with  accrued  interest  thereon and all other  amounts  payable
hereunder  to be  immediately  due and  payable,  whereupon  then same  shall be
immediately due and payable.  All notices of dishonor,  presentment or any other
notice not expressly  called for by this Agreement or the Note are hereby waived
in connection with the foregoing.

                                      -14-
<PAGE>


     Section 7.03. Default Expenses. The Company will assume and pay upon demand
of the Bank all costs and  expenses,  including,  but not limited to  reasonable
attorney's  fees,  incurred  by  the  Bank  (including  those  incurred  in  any
bankruptcy proceeding) as a result of a Default.

                                  ARTICLE VIII.
                                 MISCELLANEOUS.

     Section 8.01. Notices.  All notices and other  communications  provided for
under this  Agreement  shall be in writing and shall be personally  delivered or
sent by first class  United  States mail,  by  nationally  recognized  overnight
courier  such as Federal  Express or DHL,  or by  telecopy  or by other means of
telecommunication, to the following addresses:

The Company:               Southwall Technologies Inc.
                           1029 Corporation Way       
                           Palo Alto, CA 94303        
                           Attn: Martin Schwartz      
                           Telephone: (415) 962-9111  
                           Facsimile: (415) 967-8713  
                           
The Bank:                  The Sanwa Bank, Limited         
                           San Francisco Branch            
                           444 Market Street, 18th Floor   
                           San Francisco, CA 94111         
                           Attn: Mr. Tadahiko Kanayama     
                           Telephone: (415) 597-5210       
                           Facsimile: (415) 788-5459       
                           
with a copy
to the Guarantor:          Teijin Limited                                     
                           1-1, Uchisaiwaicho                                 
                           2-Chome                                            
                           Chioyada-ku                                        
                           Tokyo, Japan                                       
                           Attn: General Manager,                             
                                 Films Planning and Administration Department 
                           Telephone: 011-81-3-3506-4291                      
                           Facsimile: 011-81-3-3506-4378                      
                           

or, as to each party, at such other address as shall be designated by such party
in a written  notice to the other party  complying as to delivery with the terms
of this Section.  All such notices and  communications  shall be deemed received
(i) if personally delivered,  upon delivery,  (ii) if sent by first class United
States mail, following deposit in the mail with first

                                      -15-

<PAGE>


class postage prepaid, upon receipt,  (iii) if sent by courier service with next
Business Day delivery charges prepaid,  upon receipt, and (iv) if sent by telex,
telecopy or similar form of  telecommunications,  upon receipt.  With respect to
copies of notices to the  Borrower to be sent to the  Guarantor,  the Bank shall
endeavor to provide  copies of notices sent to the Borrower  solely with respect
to Article  VII of this  Agreement;  provided,  however,  the Bank's  failure to
provide a copy of any such  notice to the  Guarantor  shall not (i)  affect  the
validity  of any  such  notice  given by the Bank to the  Borrower  as  provided
herein,  or (ii) affect any of the rights or  remedies  that the Bank has or may
have  against the Borrower or the  Guarantor  arising from or relating to any of
the Loan Documents.

     Section 8.02.  Amendments  and Waivers;  Cumulative  Remedies.  None of the
terms of this  Agreement may be waived,  altered or amended  except by a written
consent from the Bank. No failure or delay on the part of the Bank in exercising
any right,  power or privilege under this Agreement or the Note shall operate as
a waiver of such right,  power or  privilege  under this  Agreement  or the Note
preclude  any other or further  exercise  thereof or the  exercise  of any other
right, power or privilege.  The rights and remedies provided in and contemplated
by this  Agreement and the other Loan Documents are cumulative and not exclusive
of any rights or remedies provided by law.

     Section  8.03.  Headings.  The article and  section  headings  used in this
Agreement  have been  inserted  for  convenience  of  reference  only and do not
constitute matters to be considered in interpreting this Agreement.

     Section 8.04.  Miscellaneous Expenses. The Company will assume and pay upon
demand  from the Bank all costs and  expenses,  including,  but not  limited  to
reasonable  attorney's fees and documentation  costs,  incurred by the Bank as a
result of the  preparation of Loan Documents and  advancement of the Loan to the
Company.

     Section 8.05.  Severability.  Any  provisions of this Agreement or the Note
which is prohibited  or  unenforceable  in any  jurisdiction  shall,  as to such
jurisdiction,   be   ineffective   to  the   extent  of  such   prohibition   or
unenforceability without invalidating the remaining provisions of this Agreement
or the Note, and any such  prohibition or  unenforceability  in any jurisdiction
shall  not  invalidate  or  render  unenforceable  such  provision  in any other
jurisdiction.

     Section 8.06.  Governing Law and Jurisdiction.  The validity,  construction
and performance of the Agreement and the Note shall be governed by and construed
in accordance  with the laws and  regulations  of the State of  California.  The
Company  and the Bank hereby  submit to the  non-exclusive  jurisdiction  of the
courts of the State of  California  for the  purpose  of any  claim,  dispute or
difference relating to this Agreement, or the Note.

                                      -16-

<PAGE>

     Section 8.07. Additional  Assurances.  From time to time, the Company shall
execute  and deliver to the Bank such  additional  documents  and  provide  such
additional information as the Bank may reasonably require to carry out the terms
of this Agreement.

     Section 8.08.  Entire  Agreement.  This Agreement,  together with the other
Loan  Documents to which Company is a party,  constitutes  the entire  agreement
among the  parties  with  respect to the  subject  matter  contained  herein and
therein, and supersedes any prior agreements or understanding among the parties,
whether written or oral.

     Section 8.09. Bank-Company  Relationship.  The Loan Documents do not create
and the parties do not intend to create a joint venture,  partnership,  trust or
other business or fiduciary relationship between the Company and the Bank, other
than that of debtor and creditor.

     Section  8.10.  Waiver of Jury  Trial.  THE COMPANY AND THE BANK EACH WAIVE
THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON  OR  ARISING  OUT OF OR  RELATED  TO  THIS  AGREEMENT,  ANY OF  OTHER  LOAN
DOCUMENTS,  OR THE TRANSACTIONS  CONTEMPLATED  HEREBY OR THEREBY, IN ANY ACTION,
PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST
ANY OTHER PARTY OR  PARTIES,  WHETHER  WITH  RESPECT TO  CONTRACT  CLAIMS,  TORT
CLAIMS,  OR OTHERWISE.  COMPANY AND BANK EACH AGREE THAT ANY SUCH CLAIM OR CAUSE
OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY.  WITHOUT  LIMITING THE
FOREGOING,  THE PARTIES FURTHER AGREE THAT THEIR  RESPECTIVE RIGHT TO A TRIAL BY
JURY IS WAIVED BY OPERATION OF THIS  SECTION AS TO ANY ACTION,  COUNTERCLAIM  OR
OTHER  PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY  OF THIS  AGREEMENT  OR ANY OF THE OTHER  LOAN  DOCUMENTS  OR ANY
PROVISION  HEREOF  OR  THEREOF.  THIS  WAIVER  SHALL  APPLY  TO  ANY  SUBSEQUENT
AMENDMENTS,  RENEWALS,  SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR ANY OF
THE OTHER LOAN DOCUMENTS.

     Section 8.11.  Successors and Assigns. This Agreement shall be binding upon
and  inure to the  benefit  of the  Company  and the Bank and  their  respective
successors  and assigns,  except that the Company may not assign or transfer any
of its rights under any Loan Document  without the prior written  consent of the
Bank.  The Bank may,  without the  consent of the  Company,  negotiate,  pledge,
hypothecate,  or grant  participations in this Agreement or in any of its rights
under this  Agreement.  The Company  shall accord full  recognition  to any such
assignment,  and all  rights and  remedies  of the Bank in  connection  with the
interest so

                                      -17-
<PAGE>

assigned  shall be as fully  enforceable by such assignee or participant as they
were by the Bank  before  such  assignment.  In  connection  with  any  proposed
assignment,  Bank may  disclose  to the  proposed  assignee or  participant  any
information that the Company is required to deliver to the Bank pursuant to this
Agreement.

     IN WITNESS  WHEREOF,  the parties  have caused  this  Agreement  to be duly
executed and  delivered by their proper and duly  authorized  officers as of the
date first written above.

                                          COMPANY:                           
                                          

                                          Southwall Technologies Inc.

                                          By:  /s/ Martin Schwartz
                                             ------------------------
                                          Name: Martin Schwartz
                                          Title: President
                                          
                                          
                                          BANK:
                                          
                                          
                                          The Sanwa Bank, Limited, 
                                          San Francisco Branch
                                          
                                          By: /s/ Tadahiko Kanayama
                                             ------------------------
                                          Name: Tadahiko Kanayama
                                          Title: General Manager
                                          


                                      -18-


<PAGE>


                         EXHIBIT A TO CREDIT AGREEMENT

                                PROMISSORY NOTE

us$10,000,000.00                                       May 6, 1997
                                                       San Francisco, California


     FOR VALUE RECEIVED,  Southwall  Technologies,  Inc. (the "Company")  hereby
unconditionally promises to pay at the times set forth in the Agreement referred
to below and in any event on Final Maturity Date to the order of The Sanwa Bank,
Limited,  San Francisco  Branch (the "Bank") the principal amount of Ten Million
United States Dollars  (US$10,000,000.00).  The Company promises to pay interest
on the unpaid  principal  amount of the Loan at such interest  rates and on such
dates as are provided for in the Agreement.

     All such principal and interest  (including  interest on overdue  principal
and, to the extent  permitted  by law,  overdue  interest  and any and all other
amounts  payable by the Company  under the terms of the  Agreement and which are
not paid when due)  shall be payable  in lawful  money of the  United  States of
America  at the times and  places,  and in  accordance  with the  payment  terms
contained in the Agreement. Principal may be prepaid only in accordance with the
terms and conditions set forth in the Agreement.

     Each payment made on account of the principal of the Loan shall be recorded
by the Bank on its books and, prior to any transfer of this Promissory Note (the
"Note"),  endorsed  by the Bank on the  schedule  attached  to this  Note or any
continuation of such schedule (provided that the failure by the Bank to make, or
any error in making,  any such  endorsement  shall not limit or otherwise affect
the obligations of the Company under this Note with respect to the Loan).

     This Note is the  Promissory  Note  referred  to,  and is  entitled  to the
benefits of, that certain Credit Agreement dated as of May 6, 1997 (as it may be
amended from time to time)  between the Company and the Bank (the  "Agreement").
Terms defined in the Agreement  are used in this Note with  respective  meanings
assigned to those terms in the Agreement.

     This Note shall be construed in accordance with and governed by the laws of
the State of California  applicable to contracts made and performed in the State
of California.

                                        Southwall Technologies, Inc.

                                        By:__________________________
                                        Name: Martin Schwartz
                                        Title: President


<PAGE>
                         EXHIBIT B TO CREDIT AGREEMENT
 

                                Form of Guaranty

<PAGE>
                         EXHIBIT C TO CREDIT AGREEMENT

                              NOTICE OF BORROWING

To:   The Sanwa Bank, Limited
      San Francisco Branch
Fax:  (415) 788-5459
Attn: Mr. Shunji Endo


     Reference is made to that certain Credit Agreement, dated as of May 6, 1997
(the "Agreement")  between  Southwall  Technologies Inc. (the "Company") and The
Sanwa Bank,  Limited,  San  Francisco  Branch  (the  "Bank").  Unless  otherwise
indicated,  all terms defined in the Agreement have the same respective meanings
when used herein.

     Pursuant to Section 4.02 of the Agreement,  the Company hereby  irrevocably
requests the Second Disbursement ($5,000,000.00) upon the following terms:

     (a)  The date of the  requested  Second  Disbursement  is to be November 6,
          1997 ("Disbursement Date").

     (b)  The representations and warranties of the Company set forth in Article
          V of the Agreement and any other Loan Documents,  after  giving effect
          to the requested Second Disbursement, are and will be true and correct
          in all material  respects as if made on the Disbursement  Date (except
          for  representations  and warranties  expressly made as of a specified
          date, which shall be true as of such date);

     (c)  No Default has occurred and is continuing or will result from the Bank
          making the Second Disbursement; and

     (d)  All of the Loan Documents are in full force and effect.


     Please  disburse the proceeds of the requested  Second  Disbursement to the
Company's Account.


     IN WITNESS  WHEREOF,  the Company has executed  this Notice of Borrowing on
the date set forth above.

                                             SOUTHWALL TECHNOLOGIES, INC.

                                             By:__________________________

                                                 Name:____________________

                                                 Title: __________________