THREE FIVE SYSTEMS INC
EX-10.4
<DOCUMENT>
<TYPE>EX-10.4
<SEQUENCE>5
<FILENAME>p67624exv10w4.txt
<DESCRIPTION>EX-10.4
<TEXT>
<PAGE>





                                                                    EXHIBIT 10.4




                  THREE-FIVE SYSTEMS, INC. AMENDED AND RESTATED
                             1993 STOCK OPTION PLAN
                 (AS AMENDED AND RESTATED THROUGH MARCH 7, 2003)


SECTION  1. PURPOSE OF PLAN; TERM

         (a) Adoption. On February 25, 1993, the Board of Directors (the
"Board") of Three-Five Systems, Inc., a Delaware corporation (the Company"),
adopted the 1993 Stock Option Plan (the "Original Plan"). The stockholders of
the Company approved the Original Plan on April 29, 1993. On June 21, 1994 and
April 26, 1995, the Board adopted certain technical amendments to the Original
Plan. Those amendments did not require stockholder approval. On October 24,
1996, the Board adopted a newly amended and restated 1993 Stock Option Plan as a
result of recent revisions to Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended (the "1934 Act") and to make certain other
technical changes. On January 30, 1997, the Board further revised the 1993 Stock
Option Plan to comply with certain requirements of Treasury Regulations
promulgated under the Internal Revenue Code. On February 27, 1997, the Board
further revised the 1993 Stock Option Plan to comply with certain requirements
of the Treasury Regulations such that the entire Plan be submitted for
re-approval. On March 7, 2003, the Board further revised the 1993 Stock Option
Plan to grant certain discretion to the Plan Administrator. The amended and
restated plan fully incorporating the revisions made on October 24, 1996,
January 30, 1997, February 27, 1997, and March 7, 2003 is referred to herein as
the "Revised Plan." The Revised Plan must be approved by the stockholders of the
Company within one year of the date of its adoption by the Board. If the Revised
Plan is not timely approved by the Company's stockholders, the Original Plan, as
previously amended and restated and except as otherwise specifically provided
herein, shall continue in effect and any Options or Awards issued after the date
of the adoption of the Revised Plan shall remain valid and unchanged to the
extent that such Options or Awards contain terms such that they could have been
issued under the Original Plan, as previously amended. Any Options or Awards
outstanding prior to the adoption by the Board of the Revised Plan shall remain
valid and unchanged. The Revised Plan shall be known as the Three-Five Systems,
Inc. Amended and Restated 1993 Stock Option Plan (the "Plan"). When applicable,
the term "Plan" shall include the Original Plan, as previously amended, and/or
the Revised Plan. Capitalized terms used in this Plan are defined in Section 12
hereof.

         (b) General Purpose. The purpose of the Plan is to further the
interests of Three-Five Systems, Inc., a Delaware corporation (the "Company"),
and its stockholders by encouraging key persons associated with the Company (or
parent or subsidiary corporations of the Company) to acquire shares of the
Company's common stock, thereby acquiring a proprietary interest in its business
and an increased personal interest in its continued success and progress. Such
purpose shall be accomplished by providing for the granting of options to
acquire the Company's common stock ("Options"), the direct granting of the
Company's common stock ("Stock Awards"), the granting of stock appreciation
rights ("SARs"), or the granting of other cash awards ("Cash Awards") (Stock
Awards, SARs and Cash Awards shall be collectively referred to herein as
"Awards"). A "parent corporation" for purposes of this Plan is any corporation
in the unbroken chain of corporations ending with the employer corporation,
where, at each link of the chain, the corporation and the link above owns at
least 50 percent of the combined total voting power of all classes of the stock
in the corporation in the link below. A "subsidiary corporation" for purposes of
this Plan is any corporation in the unbroken chain of corporations starting with
the employer corporation, where, at each link of the chain, the corporation and
the link above owns at least 50 percent of the combined voting power of all
classes of stock in the corporation below.

         (c) Options. Options granted under this Plan to employees of the
Company (or parent or subsidiary corporations of the Company) which are intended
to qualify as an "incentive stock option" as defined in section 422 of the
Internal Revenue Code of 1986, as amended (the "Code") will be specified in the
applicable stock option agreement. All other Options granted under this Plan
will be nonqualified options.

         (d) Rule 16b-3 Plan. With respect to persons subject to Section 16 of
the Securities Exchange Act of 1934, as amended (the "1934 Act"), this Plan is
intended to comply with all applicable conditions of Rule 16b-3 (and all
subsequent revisions thereof) promulgated under the 1934 Act. To the extent any
provision of the Plan or action by the Plan Administrators fail to so comply, it
shall be deemed null and void, to the extent permitted by law and deemed
advisable by


<PAGE>

the Plan Administrators. In addition, the Board may amend the Plan from time to
time as it deems necessary in order to meet the requirements of any amendments
to Rule 16b-3 without the consent of the stockholders of the Company.

         (e) Duration of Plan. The term of the Plan is 10 years commencing on
the date of adoption of the Original Plan by the Board. No Option or Award shall
be granted under the Plan unless granted within 10 years of the adoption of the
Original Plan by the Board, but Options or Awards outstanding on that date shall
not be terminated or otherwise affected by virtue of the Plan's expiration.

SECTION  2. STOCK AND MAXIMUM NUMBER OF SHARES SUBJECT TO PLAN

         (a) Description of Stock and Maximum Shares Allocated. The stock
subject to the provisions of the Plan and issuable upon the grant of Stock
Awards or upon the exercise of SARs or Options granted under the Plan is shares
of the Company's common stock, $.01 par value per share (the "Stock"), which may
be either unissued or treasury shares, as the Board may from time to time
determine. Subject to adjustment as provided in Section 7 hereof, the aggregate
number of shares of Stock covered by the Plan and issuable thereunder shall be
770,909 shares of Stock (as adjusted to reflect the Company's 1994, 1999, and
2000 stock splits). No salaried employee of the Company shall receive options
for more than 150,000 shares of Stock in any one-year period.

         (b) Calculation of Available Shares. For purposes of calculating the
maximum number of shares of Stock which may be issued under the Plan: (i) the
shares issued (including the shares, if any, withheld for tax withholding
requirements) upon exercise of an Option shall be counted and (ii) the shares
issued (including the shares, if any, withheld for tax withholding requirements)
as a result of a grant of a Stock Award or an exercise of an SAR shall be
counted.

         (c) Restoration of Unpurchased Shares. If an Option or SAR expires or
terminates for any reason prior to its exercise in full and before the term of
the Plan expires, the shares of Stock subject to, but not issued under, such
Option or SAR shall, without further action or by or on behalf of the Company,
again be available under the Plan.

SECTION  3. ADMINISTRATION; APPROVAL; AMENDMENTS

         (a) General Administration. The Eligible Persons under the Plan shall
be divided into two groups and there shall be a separate administrator for each
group. One group will be comprised of Eligible Persons that are Affiliates. For
purposes of this Plan, the term "Affiliates" shall mean all "executive officers"
(as that term is defined in Rule 16a-1(f) promulgated under the 1934 Act) and
directors of the Company and all persons who own ten percent or more of the
Company's issued and outstanding Stock. The power to administer the Plan with
respect to Eligible Persons that are Affiliates shall be vested exclusively with
the Board. At any time, however, the Board may vest the power to administer the
Plan with respect to persons that are Affiliates with a committee (the "Senior
Committee") comprised of two or more Non-Employee Directors who are appointed by
the Board. The Senior Committee, in its sole discretion, may require approval of
the Board for specific grants of Options or Awards under the Plan. The second
group shall be composed of all Eligible Persons that are not Affiliates
("Non-Affiliates"), and the power to administer the Plan with respect to
Non-Affiliates shall be vested exclusively with the Board. The Board, however,
may at any time appoint a committee (the "Employee Committee") of one or more
persons who are members of the Board and delegate to such Employee Committee the
power to administer the Plan with respect to the Non-Affiliates. Members of the
Senior Committee and of the Employee Committee shall serve for such period of
time as the Board may determine and shall be subject to removal by the Board at
any time. The Board may at any time terminate the functions of the Senior
Committee or the Employee Committee and reassume all powers and authority
previously delegated to that committee.

         (b) Plan Administrators. The Board, the Senior Committee, and/or the
Employee Committee, whichever is applicable, shall each be referred to herein as
a "Plan Administrator." Each Plan Administrator shall have the authority and
discretion, with respect to its administered group, to select which Eligible
Persons shall participate in the Plan, to grant Options or Awards under the
Plan, to establish such rules and regulations as they may deem appropriate with
the proper administration of the Plan and to make such determinations under, and
issue such interpretations of, the Plan and any outstanding Option or Award as
they may deem necessary or advisable. Decisions of the Plan Administrators shall
be final and binding on all parties who have an interest in the Plan or any
outstanding Option or Award.

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         (c) Approval by Stockholders. The Revised Plan shall be submitted to
the stockholders of the Company for their approval at a regular or special
meeting to be held within 12 months after the adoption of the Revised Plan by
the Board. Stockholder approval shall be evidenced by the affirmative vote of
the holders of a majority of the shares of the Company's Common Stock present in
person or by proxy and voting at the meeting. If the stockholders decline to
approve the Plan at such meeting or if the Plan is not otherwise approved by the
stockholders within 12 months after its adoption by the Board, the Original
Plan, as previously amended, shall continue in effect and any Options or Awards
issued after the date of the adoption of the Revised Plan shall remain valid and
unchanged only to the extent that such Options or Awards contain terms such that
they could have been issued under the Original Plan, as previously amended. To
the extent that any Options or Awards could not have been issued under the
Original Plan, such Options and Awards will automatically terminate and be
forfeited to the same extent and with the same effect as though the Revised Plan
had never been adopted. Any Options or Awards outstanding prior the adoption by
the Board of the Revised Plan shall remain valid and unchanged.

         (d) Amendments to Plan. The Board may, without action on the part of
the Company's stockholders, make such amendments to, changes in and additions to
the Plan as it may, from time to time, deem necessary or appropriate and in the
best interests of the Company; provided, the Board may not, without the consent
of the Optionholder, take any action which disqualifies any Option previously
granted under the Plan for treatment as an incentive stock option or which
adversely affects or impairs the rights of the Optionholder of any Option
outstanding under the Plan, and further provided that, except as provided in
Sections 1(e) and 7 hereof, the Board may not, without the approval of the
Company's stockholders, (i) increase the aggregate number of shares of Stock
subject to the Plan, (ii) reduce the exercise price at which Options may be
granted or the exercise price at which any outstanding Option may be exercised,
(iii) extend the term of the Plan, (iv) change the class of persons eligible to
receive Options or Awards under the Plan, or (v) materially increase the
benefits accruing to participants under the Plan. Notwithstanding the foregoing,
Options or Awards may be granted under this Plan to purchase shares of Stock in
excess of the number of shares then available for issuance under the Plan if (A)
an amendment to increase the maximum number of shares issuable under the Plan is
adopted by the Board prior to the initial grant of any such Option or Award and
within one year thereafter such amendment is approved by the Company's
stockholders and (B) each such Option or Award granted is not to become
exercisable or vested, in whole or in part, at any time prior to the obtaining
of such stockholder approval.

SECTION  4. PARTICIPANTS

         (a) Eligibility and Participation. Options and Awards may be granted
only to persons ("Eligible Persons") who at the time of grant are (i) key
personnel (including officers and directors) of the Company or parent or
subsidiaries of the Company, or (ii) consultants or independent contractors who
provide valuable services to the Company or parent or subsidiaries of the
Company. Notwithstanding the foregoing, incentive stock options may only be
granted to key personnel of the Company (and its parent or subsidiary) who are
also employees of the Company (or its parent or subsidiary). The Plan
Administrators shall have full authority to determine which Eligible Persons in
its administered group are to receive Option grants under the Plan, the number
of shares to be covered by each such grant, whether the granted Option is to be
an incentive stock option which satisfies the requirements of section 422 of the
Code or a nonstatutory option not intended to meet such requirements, the time
or times at which each such Option is to become exercisable, and the maximum
term for which the Option is to be outstanding. The Plan Administrators shall
also have full authority to determine which Eligible Persons in such group are
to receive Awards under the Plan and the conditions relating to such Award.

         (b) Guidelines for Participation. In designating and selecting Eligible
Persons for participation in the Plan, the Plan Administrators shall consult
with and give consideration to the recommendations and criticisms submitted by
appropriate managerial and executive officers of the Company. The Plan
Administrators also shall take into account the duties and responsibilities of
the Eligible Persons, their past, present and potential contributions to the
success of the Company and such other factors as the Plan Administrators shall
deem relevant in connection with accomplishing the purpose of the Plan.

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SECTION  5. TERMS AND CONDITIONS OF OPTIONS

         (a) Allotment of Shares. The Plan Administrators shall determine the
number of shares of Stock to be optioned from time to time and the number of
shares to be optioned to any Eligible Person (the "Optioned Shares"). The grant
of an Option to a person shall neither entitle such person to, nor disqualify
such person from, participation in any other grant of Options or Stock Awards
under this Plan or any other stock option plan of the Company.

         (b) Exercise Price. Upon the grant of any Option, the Plan
Administrators shall specify the option price per share. In no event may the
option price per share specified by a Plan Administrator be less than 100
percent of the fair market value per share of the Stock on the date the Option
is granted (110 percent if Options are intended to be incentive stock options
and are granted to a stockholder who at the time the Option is granted owns or
is deemed to own stock possessing more than 10 percent of the total combined
voting power of all classes of stock of the Company or of any parent or any
subsidiary corporation of the Company).

         (c) Calculation of Fair Market Value of Stock. The fair market value of
a share of Stock on any relevant date shall be determined in accordance with the
following provisions:

                  (i) If the Stock is not at the time listed or admitted to
         trading on any stock exchange but is traded in the over-the-counter
         market, the fair market value shall be the mean between the highest bid
         and lowest asked prices (or, if such information is available, the
         closing selling price) per share of Stock on the date in question in
         the over-the-counter market, as such prices are reported by the
         National Association of Securities Dealers through The NASDAQ Stock
         Market, Inc. system or any successor system. If there are no reported
         bid and asked prices (or closing selling price) for the Stock on the
         date in question, then the mean between the highest bid price and
         lowest asked price (or the closing selling price) on the last preceding
         date for which such quotations exist shall be determinative of fair
         market value.

                  (ii) If the Stock is at the time listed or admitted to trading
         on any stock exchange, then the fair market value shall be the closing
         selling price per share of Stock on the date in question on the stock
         exchange determined by the Board to be the primary market for the
         Stock, as such price is officially quoted in the composite tape of
         transactions on such exchange. If there is no reported sale of Stock on
         such exchange on the date in question, then the fair market value shall
         be the closing selling price on the exchange on the last preceding date
         for which such quotation exists.

                  (iii) If the Stock at the time is neither listed nor admitted
         to trading on any stock exchange nor traded in the over-the-counter
         market, then the fair market value shall be determined by the Board
         after taking into account such factors as the Board shall deem
         appropriate, including one or more independent professional appraisals.

         (d) Individual Stock Option Agreements. Options granted under the Plan
shall be evidenced by option agreements in such form and content as a Plan
Administrator from time to time approves, which agreements shall substantially
comply with and be subject to the terms of the Plan, including the terms and
conditions of this Section 5. As determined by a Plan Administrator, each option
agreement shall state (i) the total number of shares to which it pertains, (ii)
the exercise price for the shares covered by the Option, (iii) the time at which
the Options vest and become exercisable and (iv) the Option's scheduled
expiration date. The option agreements may contain such other provisions or
conditions as a Plan Administrator deems necessary or appropriate to effectuate
the sense and purpose of the Plan, including covenants by the Optionholder
not-to-compete and remedies to the Company in the event of the breach of any
such covenant.

         (e) Option Period. No Option granted under the Plan that is intended to
be an incentive stock option shall be exercisable for a period in excess of 10
years from the date of its grant (5 years if the Option is granted to a
stockholder who at the time the Option is granted owns or is deemed to own stock
possessing more than 10 percent of the total combined voting power of all
classes of stock of the Company or of its parent or any subsidiary corporation),
subject to earlier termination in the event of termination of employment,
retirement or death of the Optionholder. An Option may be exercised in full or
in part at any time or from time to time during the term of the Option or
provide for its exercise in stated installments at stated times during the
Option's term.

         (f) Vesting; Limitations. The time at which the Optioned Shares vest
with respect to a participant shall be in the discretion of that participant's
Plan Administrator. Notwithstanding the foregoing, to the extent an Option is

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intended to qualify as an incentive stock option under the Code, the aggregate
fair market value (determined as of the respective date or dates of grant) of
the Stock for which one or more Options granted to any person under this Plan
(or any other option plan of the Company or its parent or subsidiary
corporations) may for the first time become exercisable as incentive stock
options under the Code during any one calendar year shall not exceed the sum of
$100,000 (referred to herein as the "$100,000 Limitation"). To the extent that
any person holds two or more Options which become exercisable for the first time
in the same calendar year, the foregoing limitation on the exercisability as an
incentive stock option shall be applied on the basis of the order in which such
Options are granted.

         (g) No Fractional Shares. Options shall be exercisable only for whole
shares; no fractional shares will be issuable upon exercise of any Option
granted under the Plan.

         (h) Method of Exercising Options; Full Payment. Options shall be
exercised by written notice to the Company, addressed to the Company at its
principal place of business. Such notice shall state the election to exercise
the Option and the number of shares with respect to which it is being exercised,
and shall be signed by the person exercising the Option. Such notice shall be
accompanied by payment in full of the exercise price for the number of shares
being purchased. Payment may be made in cash or by check as prescribed by the
applicable Plan Administrator or by tendering duly endorsed certificates
representing shares of Stock then owned by the Optionholder and held for the
requisite period necessary to avoid a charge to the Company's earnings and
valued at fair market value on the date of exercise (as determined in accordance
with Section 5(c) hereof). Upon the exercise of any Option, the Company shall
deliver, or cause to be delivered, to the Optionholder a certificate or
certificates representing the shares of Stock purchased upon such exercise as
soon as practicable after payment for those shares has been received by the
Company. If an Option is exercised pursuant to Section 6(c) hereof by any person
other than the Optionholder, such notice shall be accompanied by appropriate
proof of the right of such person to exercise the Option. All shares that are
purchased and paid for in full upon the exercise of an Option shall be fully
paid and non-assessable.

         (i) Rights of a Stockholder. An Optionholder shall have no rights as a
stockholder with respect to shares covered by his Option until such Optionholder
shall have exercised the Option and paid the full exercise price for the
Optioned Shares. No adjustment will be made for dividends or other rights with
respect to any Optioned Shares for which the record date is prior to the date on
which the Optionholder exercises the Option for such shares.

         (j) Exercise of Options After Cessation of Service.


                  (i) Termination of Employment. If any Optionholder who is an
         employee of the Company ceases to be in Service to the Company for a
         reason other than death, such Optionholder may, within one month after
         the date of termination of such Service, but in no event after the
         Option's stated expiration date, exercise some or all of the Options
         that the Optionholder was entitled to exercise on the date the
         Optionholder's Service terminated; provided, that (i) if the
         Optionholder's Service is terminated by the Company in its good faith
         judgment, for (A) commission of a crime by the Optionholder or for
         reasons involving moral turpitude; (B) an act by the Optionholder which
         tends to bring the Company into disrepute; or (C) negligent, fraudulent
         or willful misconduct by the Optionholder, or (ii) if after the Service
         of the Optionholder is terminated, the Optionholder commits acts
         detrimental to the Company's interests, then the Option shall
         thereafter be void for all purposes. Notwithstanding the foregoing, if
         any Optionholder who is an employee of the Company ceases to be in
         Service to the Company by reason of permanent disability within the
         meaning of Section 22(e)(3) of the Code (as determined by the
         applicable Plan Administrator), the Optionholder shall have 12 months
         after the date of termination of Service, but in no event after
         Optionholder's Option's stated expiration date, to exercise Options
         that the Optionholder was entitled to exercise on the date the
         Optionholder's Service terminated as a result of disability.

                  (ii) Termination of Options Held by Consultants, Independent
         Contractors, and Other Non-Employees. Any Options which are held by
         Eligible Persons other than employees of the Company and which are
         outstanding at the time the Optionholder ceases to be in Service to the
         Company shall remain exercisable for such period of time thereafter as
         determined by the Plan Administrator at the time of grant and set forth
         in the documents evidencing such Options. In the absence of any
         provision in the documents evidencing such Option, the Option shall
         remain exercisable (i) for a period of one month after the termination
         of the Optionholder's Service to the Company; and (ii) for a period of
         12 months if the Optionholder ceases to be in Service to the Company by
         reason of permanent disability within the meaning of Section 22(e)(3)
         of the Code; provided, that no Option shall be exercisable after the
         Option's stated expiration date, and

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         provided further, that (a) if the Optionholder's Service is terminated
         by the Company in its good faith judgment for the reasons stated in
         Section 5(j)(i) above, or (b) if after the Service of the Optionholder
         is terminated, the Optionholder commits acts detrimental to the
         Company's interests, then the Option will thereafter be void for all
         purposes.

                  (iii) Discretion of Plan Administrator. Notwithstanding
         anything to the contrary herein, the terms and conditions under which
         an option may be exercised following termination of an optionholder's
         employment or independent contractor relationship with the Company may
         be extended to any period in the sole discretion of the Plan
         Administrator.

         (k) Death of Optionholder. If an Optionholder dies while in the
Company's Service, the Optionholder's vested Options on the date of death shall
be exercisable within three months of such death or until the stated expiration
date of the Optionholder's Option, whichever occurs first, by the person or
persons ("successors") to whom the Optionholder's rights pass under a will or by
the laws of descent and distribution. An Option may be exercised and payment of
the option price made in full by the successors only after written notice to the
Company specifying the number of shares to be purchased. Such notice shall state
that the Option price is being paid in full in the manner specified in Section
5(h) hereof. As soon as practicable after receipt by the Company of such notice
and of payment in full of the Option price, a certificate or certificates
representing such shares shall be registered in the name or names specified by
the successors in the written notice of exercise and shall be delivered to the
successors.

         (l) Other Plan Provisions Still Applicable. If an Option is exercised
upon the termination of Service or death of an Optionholder under this Section
5, the other provisions of the Plan shall still be applicable to such exercise.

         (m) Definition of "Service." For purposes of this Plan, unless it is
evidenced otherwise in the option agreement with the Optionholder, the
Optionholder shall be deemed to be in "Service" to the Company so long as such
individual renders services on a periodic basis to the Company (or to any parent
or subsidiary corporation) in the capacity of an employee or a consultant or
independent contractor. The Optionholder shall be considered to be an employee
for so long as such individual remains in the employ of the Company or one or
more of its parent or subsidiary corporations.

         (n) Nonassignability. Except as specifically allowed by the Plan
Administrator at the time of grant and as set forth in the documents evidencing
an Option, no Option granted under the Plan or any of the rights and privileges
conferred thereby shall be assignable or transferable by an Optionholder other
than by will or the laws of descent and distribution, and such Option shall be
exercisable during the Optionholder's lifetime only by the Optionholder.

SECTION  6. TERMS AND CONDITIONS OF STOCK AWARDS

         (a) Eligibility. All Eligible Persons shall be eligible to receive
Stock Awards. The Plan Administrator of each administered group shall determine
the number of shares of Stock to be awarded from time to time to any Eligible
Person in such group. The grant of a Stock Award to a Person shall neither
entitle such person to, nor disqualify such person from participation in, any
other grant of options or awards by the Company, whether under this Plan or
under any other stock option or award plan of the Company.

         (b) Award for Services Rendered. Stock Awards shall be granted in
recognition of an Eligible Person's past services to the Company. The grantee of
any such Stock Award shall not be required to pay any consideration to the
Company upon receipt of such Stock Award, except as may be required to satisfy
applicable employment taxes and income tax withholding requirements.

         (c) Conditions to Award. All Stock Awards shall be subject to such
terms, conditions, restrictions, or limitations as the applicable Plan
Administrator deems appropriate, including, by way of illustration but not by
way of limitation, restrictions on transferability, requirements of continued
employment, individual performance or the financial performance of the Company,
or payment by the recipient of any applicable employment or withholding taxes.
Such Plan Administrator may modify or accelerate the termination of the
restrictions applicable to any Stock Award under the circumstances as it deems
appropriate.

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<PAGE>

         (d) Award Agreements. A Plan Administrator may require as a condition
to a Stock Award that the recipient of such Stock Award enter into an award
agreement in such form and content as that Plan Administrator from time to time
approves.

SECTION  7. TERMS AND CONDITIONS OF SARS

         (a) Eligibility. All Eligible persons shall be eligible to receive
SARs. The Plan Administrator of each administered group shall determine the SARs
to be awarded from time to time to any Eligible Person in such group. The grant
of a SAR to a person shall neither entitle such person to, nor disqualify such
person from participation in, any other grant of options or awards by the
Company, whether under this Plan or under any other stock option or award plan
of the Company.

         (b) Award of SARs. Concurrently with or subsequent to the grant of any
Option to purchase one or more shares of Stock, a Plan Administrator may award
to the Optionholder, with respect to each share of Stock underlying the Option,
a related SAR permitting the Optionholder to be paid the appreciation on the
Stock underlying the Option in lieu of exercising the Option. In addition, a
Plan Administrator may award to any Eligible Person a SAR permitting the
Eligible Person to be paid the appreciation on a designated number of shares of
the Stock, whether or not such shares are actually issued.

         (c) Conditions to SAR. All SARs shall be subject to such terms,
conditions, restrictions or limitations as the applicable Plan Administrator
deems appropriate, including, by way of illustration but not by way of
limitation, restrictions of transferability, requirements of continued
employment, individual performance, financial performance of the Company, or
payment by the recipient of any applicable employment or withholding taxes. Such
Plan Administrator may modify or accelerate the termination of the restrictions
applicable to any SAR under the circumstances as it deems appropriate.

         (d) SAR Agreements. A Plan Administrator may require as a condition to
the grant of a SAR that the recipient of such SAR enter into a SAR agreement in
such form and content as that Plan Administrator from time to time approves.

         (e) Exercise. An Eligible Person who has been granted a SAR may
exercise such SAR subject to the conditions specified by the Plan Administrator
in the SAR agreement.

         (f) Amount of Payment. The amount of payment to which the grantee of a
SAR shall be entitled upon the exercise of each SAR shall be equal to the
amount, if any, by which the fair market value of the specified shares of Stock
on the exercise date exceeds the fair market value of the specified shares of
Stock on the date the Option related to the SAR was granted or became effective,
or, if the SAR is not related to any Option, on the date the SAR was granted or
became effective.

         (g) Form of Payment. The SAR may be paid in either cash or Stock, as
determined in the discretion of the applicable Plan Administrator and set forth
in the SAR agreement. If the payment is in Stock, the number of shares to be
paid to the participant shall be determined by dividing the amount of the
payment determined pursuant to Section 6(f) by the fair market value of a share
of Stock on the exercise date of such SAR. As soon as practical after exercise,
the Company shall deliver to the SAR grantee a certificate or certificates for
such shares of Stock.

         (h) Termination of Employment; Death. Sections 5(j) and (k), applicable
to Options, shall apply equally to SARs.

SECTION  8. NONASSIGNABILITY.

         Except as specifically allowed by the Plan Administrator at the time of
grant and as set forth in the documents evidencing a SAR, no SAR granted under
the Plan or any of the rights and privileges conferred hereby shall

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be assignable or transferable by a grantee other than by will or the laws of
decent and distribution, and such SAR shall be exercisable during the grantee's
lifetime only by the grantee.

SECTION  9. OTHER CASH AWARDS

         (a) In General. The Plan Administrator of each administered group shall
have the discretion to make other awards of cash to Eligible Persons in such
group ("Cash Awards"). Such Cash Awards may relate to existing Options or to the
appreciation in the value of the Stock or other Company securities.

         (b) Conditions to Award. All Cash Awards shall be subject to such
terms, conditions, restrictions or limitations as the applicable Plan
Administrator deems appropriate, and such Plan Administrator may require as a
condition to such Cash Award that the recipient of such Cash Award enter into an
award agreement in such form and content as the Plan Administrator from time to
time approves.

SECTION  10. CERTAIN ADJUSTMENTS.

         (a) Capital Adjustments. The aggregate number of shares of Stock
subject to the Plan (and the number of shares covered by outstanding Options and
Awards and the price per share stated in such Options and Awards) shall be
proportionately adjusted for any increase or decrease in the number of
outstanding shares of Stock of the Company resulting from a subdivision or
consolidation of shares or any other capital adjustment or the payment of a
stock dividend or any other increase or decrease in the number of such shares
effected without the Company's receipt of consideration therefor in money,
services or property.

         (b) Mergers, Etc. If the Company is the surviving corporation in any
merger or consolidation, any Option or Award granted under the Plan shall
pertain to and apply to the securities to which a holder of the number of shares
of Stock subject to the Option or Award would have been entitled prior to the
merger or consolidation. A dissolution or liquidation of the Company shall cause
every Option or Award outstanding hereunder to terminate. A merger or
consolidation in which the Company is not the surviving corporation shall also
cause every Option or Award outstanding hereunder to terminate, but each
Optionholder or grantee of an Award shall have the right, immediately prior to
such merger or consolidation in which the Company is not a surviving
corporation, to exercise his vested Options or Awards in whole or in part,
subject to the other provisions of this Plan.

         (c) Change in Control. With respect to any Change in Control, a Plan
Administrator shall have the discretion and authority, exercisable at any time,
whether before or after the Change in Control, to provide for the automatic
acceleration of one or more outstanding Options or Awards granted by it under
the Plan upon the occurrence of such Change in Control. A Plan Administrator may
also impose limitations upon the automatic acceleration of such Options or
Awards to the extent it deems appropriate. Any Options or Awards accelerated
upon a Change in Control will remain fully exercisable until the expiration or
sooner termination of the Option term.

         (d) Incentive Stock Option Limits. The exercisability of any Options
which are intended to qualify as incentive stock options and which are
accelerated under the Plan in connection with a Change in Control shall remain
subject to the $100,000 Limitation and shall vest as quickly as possible without
violating the $100,000 Limitation.

SECTION  11. MISCELLANEOUS

         (a) Use of Proceeds. The proceeds received by the Company from the sale
of Stock pursuant to the exercise of Options or Awards hereunder, if any, shall
be used for general corporate purposes.

         (b) Cancellation of Options. Each Plan Administrator shall have the
authority to effect, at any time and from time to time, with the consent of the
affected Optionholders, the cancellation of any or all outstanding Options
granted under the Plan by that Plan Administrator and to grant in substitution
therefore new Options under the Plan covering the same or different numbers of
shares of Stock as long as such new Options have an exercise price per share of
Stock no less than the minimum exercise price as set forth in Section 5(b)
hereof on the new grant date.

                                       8
<PAGE>

         (c) Regulatory Approvals. The implementation of the Plan, the granting
of any Option or Award hereunder, and the issuance of Stock upon the exercise of
any such Option or Award shall be subject to the procurement by the Company of
all approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the Options or Awards granted under it and the Stock issued
pursuant to it.

         (d) Indemnification. In addition to such other rights of
indemnification as they may have, the members of the Plan Administrators shall
be indemnified and held harmless by the Company, to the extent permitted under
applicable law, for, from and against all costs and expenses reasonably incurred
by them in connection with any action, legal proceeding to which any member
thereof may be a party by reason of any action taken, failure to act under or in
connection with the Plan or any rights granted thereunder and against all
amounts paid by them in settlement thereof or paid by them in satisfaction of a
judgment of any such action, suit or proceeding, except a judgment based upon a
finding of bad faith.

         (e) Plan Not Exclusive. This Plan is not intended to be the exclusive
means by which the Company may issue options or warrants to acquire its Stock,
stock awards or any other type of award. To the extent permitted by applicable
law, any such other option, warrants or awards may be issued by the Company
other than pursuant to this Plan without stockholder approval.

         (f) Governing Law. The Plan shall be governed by, and all questions
arising hereunder shall be determined in accordance with, the laws of the State
of Arizona.

         (g) Withholding Taxes. Whenever the Company issues Stock under the Plan
pursuant to an Option or Award, the Company shall have the right to require the
grantee to remit to the Company an amount sufficient to satisfy any federal,
state and/or local withholding or employment tax requirements prior to the
delivery of any certificate or certificates for such shares. Alternatively, the
Company may issue or transfer such shares of Stock net of the number of shares
sufficient to satisfy the withholding or employment tax requirements. For such
purposes, the shares of Stock shall be valued on the date the withholding or
employment tax obligation is incurred.

SECTION  12. SECURITIES RESTRICTIONS

         (a) Legend on Certificates. All certificates representing shares of
Stock issued upon exercise of Options or Awards granted under the Plan shall be
endorsed with a legend reading as follows:

         The shares of Common Stock evidenced by this certificate have been
         issued to the registered owner in reliance upon written representations
         that these shares have been purchased solely for investment. These
         shares may not be sold, transferred or assigned unless in the opinion
         of the Company and its legal counsel such sale, transfer or assignment
         will not be in violation of the Securities Act of 1933, as amended, and
         the rules and regulations thereunder.

         (b) Private Offering for Investment Only. The Options and Awards are
and shall be made available only to a limited number of present and future key
personnel of the Company, and their permitted transferees, who have knowledge of
the Company's financial condition, management and its affairs. The Plan is not
intended to provide additional capital for the Company, but to encourage
ownership of Stock among the Company's key personnel. By the act of accepting an
Option or Award, each grantee or such permitted transferee agrees (i) that, any
shares of Stock acquired will be solely for investment and not with any
intention to resell or redistribute those shares and (ii) such intention will be
confirmed by an appropriate certificate at the time the Stock is acquired if
requested by the Company. The neglect or failure to execute such a certificate,
however, shall not limit or negate the foregoing agreement.

         (c) Registration Statement. If a Registration Statement covering the
shares of Stock issuable upon exercise of options granted under the Plan is
filed under the Securities Exchange Act of 1933, as amended, and is declared
effective by the Securities Exchange Commission, the provisions of Sections
10(a) and (b) shall terminate during the period of time that such Registration
Statement, as periodically amended, remains effective.

                                       9
<PAGE>

SECTION  13. DEFINITIONS

         The following capitalized terms used in this Plan shall have the
meaning described below:

         "Affiliates" shall mean all "executive officers" (as that term is
defined in Rule 16a-1(f) promulgated under the 1934 Act) and directors of the
Company and all persons who own ten percent or more of the Company's issued and
outstanding Stock.

         "Award" shall mean a Stock Award, SAR or Cash Award.

         "Board" shall mean the Board of Directors of the Company.

         "Cash Award" shall mean an award to be paid in cash and granted under
Section 8 hereunder.

         "Change in Control" shall mean (i) a person or related group of
persons, other than the Company or a person that directly or indirectly
controls, is controlled by, or under common control with the Company, acquires
ownership of 40 percent or more of the Company's outstanding common stock
pursuant to a tender or exchange offer which the Board of Directors recommends
that the Company's stockholders not accept, or (ii) the change in the
composition of the Board occurs such that those individuals who were elected to
the Board at the last stockholders' meeting at which there was not a contested
election for Board membership subsequently ceased to comprise a majority of the
Board by reason of a contested election.

         "Code" shall mean the Internal Revenue Code of 1986, as amended.

         "Company" shall mean Three-Five Systems, Inc., a Delaware corporation.


         "Eligible Persons" shall mean those persons who, at the time that the
Option or Award is granted, are (i) key personnel (including officers and
directors) of the Company or parent or subsidiaries of the Company, or (ii)
consultants or independent contractors who provide valuable services to the
Company or parent or subsidiaries of the Company.

         "Employee Committee" shall mean that committee appointed by the Board
to administer the Plan with respect to the Non-Affiliates and comprised of one
or more persons who are members of the Board of the Company.

         "Non-Affiliates" shall mean all Eligible Persons who are not
Affiliates.

         "Non-Employee Directors" shall mean those directors of the Company who
satisfy the definition of "Non-Employee Director" under Rule 16b-3(b)(3)(i)
promulgated under the 1934 Act.

         "$100,000 Limitation" shall mean the limitation pursuant to which the
aggregate fair market value (determined as of the respective date or dates of
grant) of the Stock for which one or more Options granted to any person under
this Plan (or any other option plan of the Company or its parent or subsidiary
corporations) may for the first time be exercisable as incentive stock options
under the Code during any one calendar year shall not exceed the sum of
$100,000.

         "Optionholder" shall mean an Eligible Person to whom Options have been
granted.

         "Optioned Shares" shall be those shares of Stock to be optioned from
time to time to any Eligible Person.

         "Options" shall mean options to acquire Stock granted under the Plan.

         "Plan" shall mean this stock option plan for Three-Five Systems, Inc.

         "Plan Administrator" shall mean (a) either the Board or the Senior
Committee, with respect to the administration of the Plan as it relates to
Affiliates and (b) either the Board or the Employee Committee, with respect to
the administration of the Plan as it relates to Non-Affiliates.

                                       10
<PAGE>

         "SAR" shall mean stock appreciation rights granted pursuant to Section
7 hereunder.

         "Senior Committee" shall mean that committee appointed by the Board to
administer the Plan with respect to the Affiliates and comprised of two or more
Non-Employee Directors.

         "Service" shall have the meaning set forth in Section 5(m) hereof.

         "Stock" shall mean shares of the Company's common stock, $.01 par value
per share, which may be unissued or treasury shares, as the Board may from time
to time determine.

         "Stock Awards" shall mean Stock directed granted under the Plan.

         The Plan was originally adopted on February 25, 1993. This Amended and
Restated Plan is hereby executed this 7th day of March, 2003.

                                  THREE-FIVE SYSTEMS, INC.


                                  By:      /s/ Jack L. Saltich
                                           -------------------------------------
                                  Name:    Jack L. Saltich
                                  Its:     President and Chief Executive Officer

ATTESTED BY:


/s/ Jeffrey D. Buchanan
-----------------------
Secretary



                                       11

</TEXT>
</DOCUMENT>
