PROMISSORY NOTE


$5,000,000.00                                                   Phoenix, Arizona

                                                                October 24, 1996


         FOR  VALUE  RECEIVED,  the  undersigned  THREE-FIVE  SYSTEMS,  INC.,  a
Delaware  corporation  ("Maker"),  promises  to pay to the order of WELLS  FARGO
BANK, NATIONAL  ASSOCIATION (the "Payee";  Payee and each subsequent  transferee
and/or owner of this Note,  whether  taking by  endorsement  or  otherwise,  are
herein successfully called "Holder") at Post Office Box 29742, Phoenix,  Arizona
85038-9742,  or at such other place as Holder may from time to time designate in
writing, the principal sum of FIVE MILLION AND NO/100 DOLLARS ($5,000,000.00) or
so much  thereof  as Holder  may  advance  to or for the  benefit  of maker plus
interest  calculated  on a daily basis  (based on a 360-day  year) from the date
hereof on the principal  balance from time to time  outstanding  as  hereinafter
provided, principal, interest and all other sums payable hereunder to be paid in
lawful money of the United States of America as follows:

         A.  Until  the Term  Termination  Date,  interest  shall  accrue on the
principal balance hereunder as follows:

                  1. At the Prime Rate if it is a Prime Rate Term Advance.

                  2. At the  applicable  Term  LIBOR  Rate if it is a LIBOR Rate
         Term Advance.

         B. After the Term Termination Date,  interest shall accrue hereunder as
follows:

                  1. At the Fixed Rate if Maker  shall  have  elected by written
         notice to Holder by no later than 11:00 a.m.  (Phoenix,  Arizona  local
         time) on the Term  Termination  Date that interest should accrue at the
         Fixed Rate,  commencing the next day, at the Fixed Rate.  Maker's right
         to elect that  interest  accrue at the Fixed Rate  shall  terminate  at
         11:00 a.m. (Phoenix, Arizona local time) on the Term Termination Date.

                  2.  Otherwise  at either the Prime Rate or the Term LIBOR Rate
         as Maker shall elect from time to time,  provided  that at any one time
         after the Term  Termination  Date  interest  shall accrue on the entire
         Term Loan at either  the Prime Rate or the then  applicable  Term LIBOR
         Rate based on a single Interest Period.

         C. All accrued interest  hereunder shall be due and payable on the Term
Payment Date.

         D. Principal  payments shall be made in equal amounts on each Quarterly
End Date  commencing  the first  Quarterly  End Date after the Term  Termination
Date, sufficient to fully 
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amortize the balance  outstanding  hereunder on the Term Termination Date on the
Term Maturity Date.

         E. The entire  outstanding  principal balance of this Note, all accrued
and unpaid interest and all other sums which may have become payable  thereunder
shall be due and payable in full on the Term Maturity Date.

         F. The  capitalized  terms used and not otherwise  defined herein shall
have the same meanings as defined in the Loan Agreement.

From the date hereof until the Term Termination  Date, the principal  balance of
this Note  represents  a line of credit all or any part of which may be advanced
by Maker, from time to time, subject to the terms hereof and the conditions,  if
any,  contained in the Loan Agreement,  and provided that the principal  balance
outstanding at any one time shall not exceed the face amount hereof.  Commencing
on the Term  Termination  Date no further  disbursements  shall be made to Maker
under this Note.

         Maker agrees to an effective  rate of interest  that is the rate stated
above plus any additional  rate of interest  resulting from any other charges in
the  nature of  interest  paid or to be paid by or on  behalf  of Maker,  or any
benefit received or to be received by Holder, in connection with this Note.

         If any  payment  required  under this Note is not paid  within five (5)
Business  Days of when due;  then,  at the option of Holder,  Maker  shall pay a
"late  charge"  equal to three  percent  (3%) of the  amount of that  payment to
compensate  Holder for  administrative  expenses  and other costs of  delinquent
payments.  This late charge may be assessed without notice, shall be immediately
due and  payable  and shall be in  addition  to all other  rights  and  remedies
available to Holder.

         All payments on this Note shall be applied  first to the payment of any
costs,  fees or other  charges  incurred  in  connection  with the  indebtedness
evidenced  hereby,  next to the  payment  of  accrued  interest  and then to the
reduction of the principal balance.

         This Note is issued  pursuant to that Loan  Agreement  (as amended from
time to time, the "Loan Agreement") dated as of July 11, 1994, between Maker and
Payee,  and is secured by, among other things,  that Security  Agreement of even
date herewith,  by and between Maker, as debtor and Payee, as secured party (the
"Security Agreement"), encumbering the personal property described therein. Such
Security  Agreement  and  all  other  documents  or  instruments   securing  the
indebtedness  evidenced by this Note or executed or delivered in connection with
this Note are herein called the "Security Documents."

         Time is of the  essence  of this Note.  At the  option of  Holder,  the
entire unpaid principal  balance,  all accrued and unpaid interest and all other
amounts  payable  hereunder  shall become  immediately  due and payable  without
notice  upon the  failure  to pay any sum due and owing  hereunder  as  provided
herein or upon the  occurrence of any event of default under the Loan  Agreement
or any Security Document.

         After  maturity,  including  maturity  upon  acceleration,  the  unpaid
principal balance, all 
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accrued and unpaid interest and all other amounts  payable  hereunder shall bear
interest  at that  rate that is five  percent  (5%)  above  the rate that  would
otherwise  be  payable  under the terms  hereof.  Maker  shall pay all costs and
expenses,  including reasonable attorneys' fees and court costs, incurred in the
collection or enforcement of all or any part of this Note.  Such court costs and
attorneys' fees shall be set by the court and not by jury,  shall be included in
any judgement obtained by Holder and shall be secured by the Security Documents.

         Maker shall have the option to prepay this Note, in full or in part, at
any time as provided in the Loan Agreement.  All prepayments shall be applied in
the inverse order of maturity.

         Failure of Holder to exercise any option hereunder shall not constitute
a waiver  of the  right to  exercise  the  same in the  event of any  subsequent
default or in the event of continuance of any existing  default after demand for
strict performance hereof.

         Maker and all sureties,  guarantors  and/or endorsers hereof (or of any
obligation   hereunder)  and   accommodation   parties  hereon  (severally  each
hereinafter  called a "Surety")  each:  (a) agree that the liability  under this
Note of all parties hereto is joint and several; (b) severally waive any and all
formalities  in connection  with this Note to the maximum extent allowed by law,
including  (but not limited  to) demand,  diligence,  presentment  for  payment,
protest and  demand,  and notice of  extension,  dishonor,  protest,  demand and
nonpayment  of this Note;  and (c)  consent  that  Holder may extend the time of
payment or otherwise modify the terms of payment of any part or the whole of the
debt  evidenced by this Note, at the request of any other person liable  hereon,
and such  consent  shall not alter nor  diminish  the  liability  of any  person
hereon.

         In addition, each Surety waives and agrees not to assert: (a) any right
to  require  Holder to proceed  against  Maker or any other  Surety,  to proceed
against  or  exhaust  any  security  for the Note,  to pursue  any other  remedy
available to Holder,  or to pursue any remedy in any particular order or manner;
(b) the benefit of any statute of limitations  affecting its liability hereunder
or the enforcement  hereof;  (c) the benefits of any legal or equitable doctrine
or principle of marshalling; (d) notice of the existence,  creation or incurring
of new or additional  indebtedness  of Maker to Holder;  (e) the benefits of any
statutory  provision  limiting  the  liability  of a surety,  including  without
limitation the provisions of Sections  12-1641,  et seq., of the Arizona Revised
Statutes;  and (f) any  defense  arising  by reason of any  disability  or other
defense of Maker or by reason of the cessation from any cause whatsoever  (other
than payment in full) of the  liability of Maker for payment of the Note.  Until
payment in full of the Note, no Surety shall have any right of  subrogation  and
each hereby  waives any right to enforce any remedy which Holder now has, or may
hereafter  have,  against Maker or any other Surety,  and waives any benefit of,
and any right to participate in, any security now or hereafter held by Holder.

         Maker  agrees that to the extent  Maker or any Surety makes any payment
to Holder in connection with the indebtedness evidenced by this Note, and all or
any part of such payment is subsequently invalidated,  declared to be fraudulent
or preferential,  set aside or required to be repaid by Holder or paid over to a
trustee,  receiver or any other  entity,  whether  under any  bankruptcy  act or
otherwise  (any such  payment  is  hereinafter  referred  to as a  "Preferential
Payment"),  then the  indebtedness  of Maker  under this Note shall  continue or
shall be  reinstated,  as the case may be, and, to the extent of such payment or
repayment  by Holder,  the  indebtedness  
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evidenced  by  this  Note or  part  thereof  intended  to be  satisfied  by such
Preferential  Payment shall be revived and continued in full force and effect as
if said Preferential Payment had not been made.

         Without  limiting the right of Holder to bring any action or proceeding
against  Maker or any Surety or against any  property of Maker or any Surety (an
"Action") arising out of or relating to this Note or any indebtedness  evidenced
hereby  in the  courts of other  jurisdictions,  Maker  and each  Surety  hereby
irrevocably  submit to the jurisdiction,  process and venue of any Arizona State
or Federal court sitting in Phoenix,  Arizona, and hereby irrevocably agree that
any Action may be heard and  determined  in such Arizona  State court or in such
Federal court.  Maker and all Sureties each hereby  irrevocably  waives,  to the
fullest extent it may  effectively  do so, the defenses of lack of  jurisdiction
over any person, inconvenient forum or improper venue, to the maintenance of any
Action in any jurisdiction.

         This Note shall be binding  upon Maker and its  successors  and assigns
and shall  inure to the  benefit of Payee,  and any  subsequent  holders of this
Note, and their successors and assigns.

         All notices required or permitted in connection with this Note shall be
given at the place and in the  manner  provided  in the Loan  Agreement  for the
giving of notices.

         This  Note  shall be  construed  according  to the laws of the State of
Arizona.

         IN WITNESS  WHEREOF,  this  Promissory Note has been executed as of the
date first written above.

                                        THREE-FIVE SYSTEMS, INC., a Delaware
                                        corporation



                                        By_____________________________________
                                             Its_______________________________

                                                                          MAKER
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