ADDENDUM NO. 1
                                       TO
                  AGREEMENT FOR THE ASSEMBLY OF OPTOELECTRONIC
                           AND OTHER RELATED PRODUCTS


         THIS ADDENDUM NO. 1 TO AGREEMENT FOR THE ASSEMBLY OF OPTOELECTRONIC AND
OTHER  RELATED  PRODUCTS  ("Addendum")  is  entered  into as of the _____ day of
March,  1997,  by and between  TECHNOLOGY  ELECTRONIC  ASSEMBLY  AND  MANAGEMENT
(T.E.A.M.) PACIFIC CORPORATION, a Philippine corporation, with principal offices
located at FTI Complex, Taguig, Metro Manila,  Philippines (hereinafter referred
to as "TEAM") and THREE-FIVE SYSTEMS, lNC., a Delaware, U.S.A. corporation, with
its  principal  place of business  located at 1600 North  Desert  Drive,  Tempe,
Arizona 85281 (hereinafter referred to as "TFS").

         A. On February  22, 1995,  TEAM and TFS entered into an agreement  (the
"Original  Agreement")  for the  assembly of  optoelectronic  and other  related
products.

         B. TEAM and TFS now wish to add an addendum to the Original Agreement.

         In  consideration  of  the  foregoing  recitals  and  mutual  covenants
hereinafter set forth, the parties hereto hereby agree as follows:

Section 1 Definitions.

         1.1 Direct Labor. Subject to the terms and conditions contained in this
Addendum  and in  the  Original  Agreement,  TEAM  shall  provide  direct  labor
resources  and other  services  needed by TFS for the  assembly  and  testing of
optoelectronic products and other such products as TFS shall designate from time
to time pursuant to the procedures set forth in the Original Agreement. TFS will
have the responsibility of providing, and will employ, all others, including its
own indirect work force. For purposes of the foregoing, a person in the "direct"
work force shall mean those  nonsupervisory  personnel  directly  engaged in the
manufacturing  of TFS products and whose hours worked are associated  with labor
standards.  Direct labor shall include operators,  material  handlers,  and line
QA's. TFS will offer to hire the existing  indirect work force of TEAM currently
working on TFS' projects. The terms and conditions of this Addendum shall become
fully applicable on the day that TFS hires the indirect labor force.

         1.2  Available  Hours.  Notwithstanding  the  Original  Agreement,  and
subject to Section 4 below, TFS shall pay TEAM for the Actual Work Hours ("AWH")
of each direct labor employee of TEAM requested by TFS and provided by TEAM. For
purposes of defining  AWH,  (a) the hours spent in training  and work  stoppages
initiated by TFS are included in AWH and (b) maternity leave ("ML"), bereavement
leave ("BL"),  vacation  leave ("VL"),  and all other leaves are not included in
AWH.
<PAGE>
Section 2 Data Reference.

         2.1 Procedures.  TFS and TEAM agree to follow the Labor Available Hours
Billing Proposal set forth on Exhibit A.

                  2.1.1 The Timetrack system of TEAM shall validated by TFS with
an attendance  register.  When discrepancies arise, TEAM and TFS shall reconcile
data using the attendance records.

                  2.1.2 The  authorization  and approval of overtime,  change of
shift, VL, SL, BL, and all other leaves will be the  responsibility  of the TEAM
representative upon the request of the appropriate TFS supervisor.

                  2.1.3 With respect to the direct  labor force  provided to TFS
by TEAM, TFS will have the operational control of the direct labor but TEAM will
be the employer and have the duty to provide  administrative  and other  related
services  relating  to the  direct  labor  force  such as  payroll,  hiring  and
cafeteria services.

         2.2  Weekly Invoicing.  TEAM shall invoice TFS weekly for AWH.

         2.3 Standard  Hours.  The daily standard AWH for a direct labor person,
except as  otherwise  provided  in  Section 4 below,  shall be based on the work
rendered or performed for 8 hours in a day including training and work stoppages
initiated by TFS.

         2.4 Overtime  Hours.  The amount of overtime  hours included in the AWH
for a direct labor person shall be (a) the work  actually  performed or rendered
in excess of 8 hours in any day that is not a Sunday or holiday and (b) all work
actually  performed  or  rendered  on any day that is a Sunday or  holiday.  The
specified  holidays  shall be as set forth in the current  TEAM  guidelines  and
policies.  Any change to TEAM's  guidelines  and policies which would affect the
calculation of overtime hours shall require the approval of TFS.

Section 3 Calculation Method.

         3.1  Billing  Separated.  Billing  by  TEAM to TFS  for  AWH  shall  be
separated into two categories: (a) Standard rate charge and (b) Overtime premium
charge.

         3.2 Standard  Rate Charge.  The standard  rate charge shall be equal to
the sum of all regular  hours and  overtime  hours  multiplied  by the  Standard
Hourly Rate set forth on the attached Exhibit B.

         3.3 Overtime  Premium Charge.  The overtime rate charge for each direct
labor person shall be equal to the number of overtime  hours  multiplied  by the
Actual Basic Rate multiplied by the Premium Percentage set forth on the attached
Exhibit B. For purposes of the foregoing,  the Actual Basic Rate for each direct
labor  person is the actual  hourly wage of that person paid by TEAM.
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<PAGE>
Section 4 TFS Initiated Work Stoppages.

         4.1 Unannounced Stoppages.  In the case of TFS initiated work stoppages
which are  unannounced  in advance and require  direct labor  persons to be sent
home,  the AWH for such sent home persons shall as follows:  (a) four hours if a
person is sent home after  working four or less hours in a day; (b) six hours if
such person is sent home after  working  more than four hours but less than six;
and (c) eight  hours if such  person is sent home  after  working  more than six
hours.

         4.2  Announced  Stoppages  for  Material  Shortages.  If  there  is  an
announced  stoppage  for  material  shortages  or other  similar  TFS  initiated
reasons,  TFS shall specify by the end of each working day (a) the actual number
of persons that TEAM shall make  available for the next  succeeding  working day
("Available  Directs")  and (b) an good faith  estimate of the actual  number of
persons  that TFS will  require for the next three  working days after that (the
"Estimated Directs").  For each direct labor person that is directed not to show
up (but remains as direct labor  available  headcount) on a regular  working day
("On-Leave  Directs"),  TFS  shall be  billed  by TEAM at the rate of 37% of the
Actual Basic Rate (as defined in Section 3.3 above) of each On-Leave Direct.

Section 5 Miscellaneous

         5.1. TEAM agrees that it will work closely with TFS in TFS' development
of weekly labor  utilization  and labor  capacity  schedules.  This effort shall
include but not be limited to TEAM  providing  dedicated  personnel  to serve on
joint committees with TFS personnel and a commitment from TEAM's human resources
and  accounting  departments  to ensure  that the TFS  labor  plan  schedule  is
successful.

         5.2  Section  II.B  in  the  Original  Agreement  shall  no  longer  be
applicable.  TFS will  guarantee  to pay a minimum of 150,000  AWH per  calendar
quarter.

         5.3 To the  extent  that  this  Addendum  conflicts  with the  Original
Agreement,  this Addendum shall control.  Otherwise,  the Original Agreement and
this Addendum shall be considered as one document.

         IN WITNESS  WHEREOF,  the parties hereto have executed this Addendum as
of the day and year first above written.

THREE-FIVE SYSTEMS, INC.                TECHNOLOGY ELECTRONIC ASSEMBLY
                                             AND MANAGEMENT (T.E.A.M.) PACIFIC
                                             CORPORATION


By:                                          By:
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Name:                                        Name:
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Its:                                         Its:
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