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                                                                    Exhibit 10.1


                          SECURITIES PURCHASE AGREEMENT

         SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of May 3,
2002, by and among Pemstar Inc., a Minnesota corporation, with headquarters
located at 3535 Technology Drive, N.W., Rochester, Minnesota 55901 (the
"Company"), and the investors listed on the Schedule of Buyers attached hereto
(individually, a "Buyer" and collectively, the "Buyers").

         WHEREAS:

         A. The Company and each Buyer is executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 of Regulation D ("Regulation D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 Act");

         B. The Company has authorized (i) a new series of convertible notes of
the Company in the form attached hereto as Exhibit A (together with any
convertible notes issued in replacement thereof in accordance with the terms
thereof, the "Initial Notes"), which Initial Notes shall be convertible into
shares of the Company's Common Stock, par value $0.01 per share (the "Common
Stock") (as converted, the "Initial Conversion Shares"), in accordance with the
terms of the Initial Notes, (ii) a new series of convertible notes of the
Company in the form attached hereto as Exhibit B (together with any convertible
notes issued in replacement thereof in accordance with the terms thereof, the
"Subsequent Notes"), which Subsequent Notes shall be convertible into shares of
Common Stock (as converted, the "Subsequent Conversion Shares"), in accordance
with the terms of the Subsequent Notes and (iii) a new series of convertible
notes of the Company in the form attached hereto as Exhibit C (together with any
convertible notes issued in replacement thereof in accordance with the terms
thereof, the "Additional Notes" and, collectively with the Initial Notes and the
Subsequent Notes, the "Notes"), which Additional Notes shall be convertible into
shares of Common Stock (as converted, the "Additional Conversion Shares" and,
collectively with the Initial Conversion Shares and the Subsequent Conversion
Shares, the "Conversion Shares"), in accordance with the terms of the Additional
Notes. The Notes bear interest which at the option of the Company, subject to
certain conditions, may be paid in shares of Common Stock ("Interest Shares");

         C. Each Buyer wishes to purchase, upon the terms and conditions stated
in this Agreement, (i) that aggregate principal amount of Initial Notes set
forth opposite such Buyer's name in column (3) on the Schedule of Buyers (which
aggregate principal amount for all Buyers shall be $5,000,000) (the "Initial A-1
Notes") and (ii) warrants, in substantially the form attached hereto as Exhibit
I (the "Initial A-1 Warrants"), to acquire that number of shares of Common Stock
for each $1,000 of principal amount of Initial A-1 Notes purchased equal to the
quotient of (a) $300 divided by (b) the Market Price (as defined in Section
1(i)) with respect to the Initial Closing Date (as defined below) (as exercised,
collectively, the "Initial A-1 Warrant Shares");

         D. Upon the terms and conditions stated in this Agreement, each Buyer
may be required to purchase, and the Company may be required to sell, (i) up to
that aggregate principal amount of Initial Notes set forth opposite such Buyer's
name in column (4) on the Schedule of Buyers (which aggregate principal amount
for all Buyers shall be up to$5,000,000) (the "Initial A-2 Notes") and (ii)
warrants, in substantially the form attached hereto as Exhibit I (the "Initial
A-2 Warrants" and, collectively with the Initial A-1 Warrants, the "Initial
Warrants"), to acquire that number of shares of Common Stock for each $1,000 of
principal amount of Initial

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A-2 Notes purchased equal to the quotient of (a) $300 divided by (b) the greater
of the Market Price with respect to the Second Closing Date (as defined below)
and the Pricing Condition Floor (as defined in Section 1(i)) with respect to
such Buyer with respect to the Second Closing Date (as exercised, collectively,
the "Initial A-2 Warrant Shares" and, collectively with the Initial A-1 Warrant
Shares, the "Initial Warrant Shares");

         E. Upon the terms and conditions stated in this Agreement, each Buyer
may be required to purchase, and the Company may be required to sell, at
multiple closings (i) up to such Buyer's Subsequent Closing Percentage (as
defined in Section 1(i)) of an aggregate principal amount of $30,000,000 of
Subsequent Notes (as increased with respect to such Buyer for any principal
amount of Initial A-2 Notes set forth opposite such Buyer's name in column (4)
of the Schedule of Buyers not purchased by such Buyer at the Second Closing (as
defined below)) and (ii) warrants, in substantially the form attached hereto as
Exhibit I (the "Subsequent Warrants"), to acquire that number of shares of
Common Stock for each $1,000 of principal amount of Subsequent Notes purchased
equal to the quotient of (a) $300 divided by (b) the greater of the Market Price
with respect to the applicable Subsequent Closing Date (as defined below) and
the Pricing Condition Floor with respect to such Buyer with respect to the
applicable Subsequent Closing Date (as exercised, collectively, the "Subsequent
Warrant Shares");

         F. Upon the terms and conditions stated in this Agreement, each Buyer
may have the right to purchase, and the Company may be required to sell, (i) up
to such Buyer's Subsequent Closing Percentage of an aggregate principal amount
of $10,000,000 of Additional Notes and (ii) warrants, in substantially the form
attached hereto as Exhibit I (the "Additional Warrants" and, collectively with
the Initial A-1 Warrants, the Initial A-2 Warrants, and the Subsequent Warrants,
the "Warrants"), to acquire that number of shares of Common Stock for each
$1,000 of principal amount of Additional Notes purchased equal to the quotient
of (a) $300 divided by (b) the Market Price with respect to the Additional
Closing Date (as defined below) (as exercised, collectively, the "Additional
Warrant Shares" and, collectively with the Initial A-1 Warrant Shares, the A-2
Warrant Shares and the Subsequent Warrant Shares, the "Warrant Shares"); and

         G. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached hereto as Exhibit D (the "Registration Rights
Agreement") pursuant to which the Company has agreed to provide certain
registration rights with respect to the Conversion Shares and the Warrant Shares
under the 1933 Act and the rules and regulations promulgated thereunder, and
applicable state securities laws. The Notes, the Conversion Shares, the Interest
Shares, the Warrants and the Warrant Shares collectively are referred to herein
as the "Securities".

         NOW THEREFORE, the Company and each Buyer hereby agree as follows:

         1. PURCHASE AND SALE OF NOTES AND WARRANTS.

                  (a) Purchase of Notes and Warrants.


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                           (i) Initial Closing. Subject to the satisfaction (or
                  waiver) of the conditions set forth in Sections 6(a) and 7(a)
                  below, the Company shall issue and sell to each Buyer, and
                  each Buyer severally, but not jointly, agrees to purchase from
                  the Company, a principal amount of the Initial A-1 Notes as is
                  set forth opposite such Buyer's name in column (3) on the
                  Schedule of Buyers, along with Initial A-1 Warrants to acquire
                  that number of Initial A-1 Warrant Shares for each $1,000 of
                  principal amount of Initial A-1 Notes purchased equal to the
                  quotient of (a) $300 divided by (b) the Market Price with
                  respect to the Initial Closing Date (the "Initial Closing").

                           (ii) Second Closing. Subject to the satisfaction (or
                  waiver) of the conditions set forth in Sections 6(b) and 7(b),
                  the Company shall issue and sell to each Buyer, and each Buyer
                  severally, but not jointly, agrees to purchase from the
                  Company, the principal amount of Initial A-2 Notes, if any,
                  equal to such Buyer's Second Closing Amount (as defined in
                  Section 1(i)), along with Initial A-2 Warrants to acquire that
                  number of Initial A-2 Warrant Shares for each $1,000 of
                  principal amount of Initial A-2 Notes purchased equal to the
                  quotient of (a) $300 divided by (b) the greater of the Market
                  Price with respect to the Second Closing Date and the Pricing
                  Condition Floor with respect to such Buyer with respect to the
                  Second Closing Date (the "Second Closing").

                           (iii) Subsequent Closings. Subject to the
                  satisfaction (or waiver) of the conditions set forth in
                  Sections 6(b) and 7(b) and in accordance with Section 1(d),
                  the Company shall issue and sell to each Buyer, and each Buyer
                  severally, but not jointly, agrees to purchase from the
                  Company, at multiple closings (each a "Subsequent Closing"
                  and, collectively, the "Subsequent Closings"), such Buyer's
                  Subsequent Closing Percentage of an aggregate principal amount
                  of Subsequent Notes equal to $30,000,000 plus the aggregate
                  principal amount of Initial A-2 Notes set forth opposite such
                  Buyer's name in column (4) on the Schedule of Buyers which
                  were not issued to such Buyer at the Second Closing, along
                  with Subsequent Warrants to acquire that number of Subsequent
                  Warrant Shares for each $1,000 of principal amount of
                  Subsequent Notes purchased equal to the quotient of (a) $300
                  divided by (b) the greater of the Market Price with respect to
                  the applicable Subsequent Closing Date and the Pricing
                  Condition Floor with respect to such Buyer with respect to the
                  applicable Subsequent Closing Date. Subject to the
                  satisfaction (or waiver) of the conditions set forth in
                  Sections 6(b) and 7(b) and in accordance with Section 1(d), at
                  each Subsequent Closing each Buyer shall purchase, and the
                  Company shall sell to such Buyer, such Buyer's Subsequent
                  Closing Amount (as defined in Section 1(i)) with respect to
                  such Subsequent Closing, along with the related Subsequent
                  Warrants determined in accordance with the preceding sentence.

                           (iv) Additional Closing. Subject to the satisfaction
                  (or waiver) of the conditions set forth in Sections 1(e), 6(b)
                  and 7(b), at the option of each Buyer, the Company shall issue
                  and sell to each Buyer, at multiple closings, if applicable,
                  and each Buyer severally, but not jointly, may purchase from
                  the Company, up to the principal amount of Additional Notes,
                  if any, equal to such Buyer's Subsequent Closing Percentage of
                  $10,000,000 (but not in excess of such Buyer's Remaining
                  Principal Share Amount unless the Shareholder Approval (as
                  defined in Section 4(n)) has been obtained), along with
                  Additional Warrants to acquire that number of Additional
                  Warrant Shares for each $1,000 of principal amount of
                  Additional Notes purchased equal to the quotient of (a) $300
                  divided by (b) $7.50 (as appropriately adjusted for any stock
                  splits, stock dividends, stock combinations and other similar
                  transactions of the Common Stock


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                  which occur after the date of this Agreement and, on the terms
                  of Section 7 of the Additional Notes in proportion to
                  adjustments that would be made to the initial Conversion Price
                  thereunder, for any issuances or deemed issuances of
                  securities by the Company which occur after the date of this
                  Agreement) (the "Additional Closing" and, collectively with
                  the Initial Closing, the Second Closing and the Subsequent
                  Closings, the "Closings" and each, a "Closing").

                           (v) Purchase Price. The purchase price for each Buyer
                  (the "Purchase Price") of the Notes and the related Warrants
                  to be purchased by each such Buyer at each of the Closings
                  shall be equal to $1.00 for each $1.00 of principal amount of
                  Notes being purchased by such Buyer at such Closing.

                  (b) Initial Closing Date. The date and time of the Initial
         Closing (the "Initial Closing Date") shall be 10:00 a.m., Central Time,
         on May 7, 2002, subject to notification of satisfaction (or waiver) of
         the conditions to the Initial Closing set forth in Sections 6(a) and
         7(a) below (or such other earlier or later date as is mutually agreed
         to by the Company and each Buyer).

                  (c) Second Closing Date. The date and time of the Second
         Closing (the "Second Closing Date") shall be 10:00 a.m., Central Time,
         on the third (3rd) Business Day (as defined in Section 1(i)) following
         the last Trading Day (as defined in Section 1(i)) of the Initial
         Pricing Period (as defined in Section 1(i)), subject to notification of
         satisfaction (or waiver) of the conditions to Closing set forth in
         Sections 6(b) and 7(b) below (or such other date as is mutually agreed
         to by the Company and each Buyer).

                  (d) Subsequent Closing Dates. The date and time of each
         Subsequent Closing (each a "Subsequent Closing Date") shall be 10:00
         a.m., Central Time, on the third (3rd) Business Day following the last
         Trading Day of each Subsequent Pricing Period (as defined in Section
         1(i)), subject to notification of satisfaction (or waiver) of the
         conditions to such Subsequent Closing set forth in Sections 6(b) and
         7(b) below (or such other date as is mutually agreed to by the Company
         and each Buyer), until each Buyer's Subsequent Closing Amount is equal
         to zero (other than as a result of any Pricing Condition not being
         met); provided, however, that no Subsequent Closing Date shall occur on
         or after December 10, 2002.

                  (e) Additional Closing Date. The date and time of each
         Additional Closing (an "Additional Closing Date" and, collectively with
         the Initial Closing Date, the Second Closing Date and the Subsequent
         Closing Dates, the "Closing Dates" and each a "Closing Date") shall be
         10:00 a.m., Central Time, on the date specified in the Additional Note
         Notice (as defined below), subject to notification of satisfaction (or
         waiver) of the conditions to Closing set forth in Sections 6(b) and
         7(b) and the conditions set forth in this Section 1(e) (or such other
         date as is mutually agreed to by the Company and each Buyer purchasing
         Additional Notes at the Additional Closing). At any time during the
         period beginning on and including the earlier of December 11, 2002 and
         the first date on which a Buyer's Remaining Principal Amount is zero
         and ending on and including the later of December 18, 2002 and the date
         which is five (5) Trading Days after such Buyer's receipt of the
         Available Additional Note Notice (as defined in Section 1(h)(III)) (the
         "Additional Note Notice Period"), such Buyer may purchase, at such
         Buyer's option, Additional Notes (but not in excess of such Buyer's
         Remaining Principal Share


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         Amount unless the Shareholder Approval has been obtained) by delivering
         written notice to the Company (an "Additional Note Notice") on any day
         during the Additional Note Notice Period (the "Additional Note Notice
         Date"). The Additional Note Notice shall set forth (A) the Additional
         Closing Date, which shall be two (2) Business Days after the Additional
         Note Notice Date, (B) the principal amount of Additional Notes (which
         shall not exceed such Buyer's Remaining Principal Share Amount unless
         the Shareholder Approval has been obtained) and the number of related
         Additional Warrant Shares subject to the related Additional Warrant
         such Buyer will purchase, and (C) the aggregate Purchase Price for the
         Additional Notes and the related Additional Warrants to be purchased.

                  (f) Closing Location. Each Closing shall occur on the
         applicable Closing Date at the offices of Katten Muchin Zavis Rosenman,
         525 West Monroe Street, Suite 1600, Chicago, Illinois 60661-3693.

                  (g) Form of Payment. On each Closing Date, (i) each Buyer
         shall pay its Purchase Price to the Company for the Notes and Warrants,
         if any, to be issued and sold to such Buyer at such Closing, by wire
         transfer of immediately available funds in accordance with the
         Company's written wire instructions, and (ii) the Company shall deliver
         to each Buyer, Notes (in the principal amounts as such Buyer shall
         request) (with respect to each such Closing, the "Note Certificates")
         representing such principal amount of the Notes which such Buyer is
         then purchasing (as determined in accordance with Sections 1(a), 1(d)
         and 1(e), as applicable) along with the Warrants such Buyer is
         purchasing (as determined in accordance with Sections 1(a), 1(d) and
         1(e), as applicable) hereunder, duly executed on behalf of the Company
         and registered in the name of such Buyer or its designee.

                  (h) Closing and Pricing Notices.

                           (I) On the last Trading Day of each Subsequent
                  Pricing Period, the Company (or its designated agent) shall
                  deliver (by facsimile and e-mail) written notice (each a
                  "Pricing Period Notice") to each Buyer by 11:59 p.m., Central
                  Time, on such Trading Day, which Pricing Period Notice shall
                  set forth (i) such Buyer's Total Set Share Amount (as defined
                  in Section 1(i)) as of such Trading Day and (ii) the Company's
                  calculation of the Market Price and such Buyer's Subsequent
                  Closing Amount with respect to the Subsequent Closing Date
                  immediately following such Subsequent Pricing Period.

                           (II) Before 11:59 p.m., Central Time, on any Trading
                  Day during a Subsequent Pricing Period on which a Buyer's
                  Total Set Share Amount first exceeds such Buyer's Subsequent
                  Closing Percentage of the Maximum Principal Share Number (as
                  defined in Section 1(i)), the Company (or its designated
                  agent) shall deliver (by facsimile and e-mail) written notice
                  (with respect to each Buyer, each a "Limit Notice") to such
                  Buyer (i) stating that such Buyer's Total Set Share Amount has
                  exceeded such Buyer's Subsequent Closing Percentage of the
                  Maximum Principal Share Number and the Company's calculations
                  of such fact, including, without limitation, such Buyer's
                  Total Set Share Amount on such Trading Day and (ii) the
                  Company's calculation of the Market Price and such Buyer's
                  Subsequent Closing Amount with respect to the Subsequent
                  Closing Date immediately following such Subsequent Pricing
                  Period; provided, however, that the Company shall not be
                  required to deliver a Limit Notice after the date on which it
                  obtains


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                  the Shareholder Approval if the Company obtains the
                  Shareholder Approval prior to the first date on which the
                  Company was required, pursuant to this Section 1(h)(II), to
                  deliver a Limit Notice to any Buyer.

                           (III) On the first (1st) Business Day following the
                  earlier of December 10, 2002 and the first date on which a
                  Buyer's Remaining Principal Amount is zero, the Company (or
                  its designated agent) shall deliver (by facsimile and e-mail)
                  written notice (with respect to each Buyer, each an "Available
                  Additional Note Notice") to such Buyer setting forth the
                  Company's calculation of such Buyer's Remaining Principal
                  Share Amount and the aggregate principal amount of Additional
                  Notes which such Buyer is entitled to purchase pursuant to
                  Sections 1(a) and 1(e), or, if the Shareholder Approval has
                  been obtained, setting forth the Company's calculation of such
                  Buyer's Subsequent Closing Percentage of $10,000,000 of
                  Additional Notes.

                           (IV) On or before the first (1st) Business Day
                  following the last Trading Day of the Initial Pricing Period,
                  the Company (or its designated agent) shall deliver (by
                  facsimile and e-mail) to each Buyer a written notice setting
                  forth the Company's calculation of the Market Price with
                  respect to the Initial Closing Date and the Second Closing
                  Date and the Conversion Price of the Initial A-1 Notes and the
                  Initial A-2 Notes.

                           (V) If on any Trading Day during the Initial Pricing
                  Period the Company delivers a Trading Day Designation Notice
                  (as defined in the Initial A-1 Notes) to any Buyer by 7:30
                  a.m., Central Time, on such Trading Day, then the Company must
                  deliver in the same manner the same Trading Day Designation
                  Notice to all Buyers by 7:30 a.m., Central Time, on such
                  Trading Day.

                  (i) Certain Defined Terms. For purposes of this Agreement and
         the Registration Rights Agreement and, unless otherwise defined
         therein, the Notes and the Warrants, the following terms have the
         following meanings:

                           (i) "Assumed Conversion Price" means (A) for purposes
                  of the term Remaining Principal Share Amount with respect to a
                  Buyer being used in the definition of Subsequent Closing
                  Amount as of any Subsequent Closing Date, 120% of the greater
                  of the Market Price with respect to such Subsequent Closing
                  Date and the Pricing Condition Floor with respect to such
                  Buyer with respect to such Subsequent Closing Date and (B) for
                  purposes of determining the principal amount of Additional
                  Notes a Buyer may purchase, if any, and for purposes of
                  setting forth the Remaining Principal Share Amount in an
                  Available Additional Note Notice, $9.00 (as appropriately
                  adjusted for any stock splits, stock dividends, stock
                  combinations and other similar transactions of the Common
                  Stock which occur after the date of this Agreement and, on the
                  terms of Section 7 of the Additional Notes, for any issuances
                  or deemed issuances of securities by the Company which occur
                  after the date of this Agreement).

                           (ii) "Business Day" means any day other than
                  Saturday, Sunday and any other day on which commercial banks
                  in The City of New York are authorized or required by law to
                  remain closed.

                           (iii) "Initial Pricing Period" means the period
                  beginning on and including the date which is three (3) Trading
                  Days after the Initial Closing Date and ending on



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                  and including the date which is 18 Trading Days after the
                  Initial Closing Date.

                           (iv) "Market Price" means (A) with respect to the
                  Initial Closing Date and the Second Closing Date, that price
                  which shall be computed as the arithmetic average of the
                  Weighted Average Price (as defined in the Initial A-1 Notes)
                  of the Common Stock on each Designated Trading Day (as defined
                  in the Initial A-1 Notes) during the Initial Pricing Period,
                  (B) with respect to any Subsequent Closing Date, that price
                  which shall be computed as the arithmetic average of the
                  Weighted Average Price of the Common Stock on each Trading Day
                  during the Subsequent Pricing Period immediately preceding
                  such Subsequent Closing Date (excluding, with respect to any
                  Buyer, those Trading Days (and the Weighted Average Prices on
                  such Trading Days) on and after the Trading Day on which the
                  Company is required, pursuant to Section 1(h)(II), to deliver
                  a Limit Notice to such Buyer) and (C) with respect to any
                  Additional Closing Date, $7.50 (as appropriately adjusted for
                  any stock splits, stock dividends, stock combinations and
                  other similar transactions of the Common Stock which occur
                  after the date of this Agreement and, on the terms of Section
                  7 of the Additional Notes in proportion to adjustments that
                  would be made to the initial Conversion Price thereunder, for
                  any issuances or deemed issuances of securities by the Company
                  which occur after the date of this Agreement). All such
                  determinations to be appropriately adjusted for any stock
                  dividend, stock split, stock combination or other similar
                  transaction during such period.

                           (v) "Maximum Closing Amount" means, with respect to
                  each Buyer with respect to a Subsequent Closing Date: (A) if
                  the Pricing Condition was met with respect to the Closing Date
                  immediately preceding such Subsequent Closing Date (or, if
                  despite the Pricing Condition not being met with respect to
                  such preceding Closing Date, such Buyer elected to purchase
                  the maximum principal amount of Notes that such Buyer could
                  purchase on such preceding Closing Date) and is met with
                  respect to such Subsequent Closing Date, then such Buyer's
                  Subsequent Closing Percentage of $10,000,000; (B) if the
                  Pricing Condition was not met with respect to the Closing Date
                  immediately preceding such Subsequent Closing Date but is met
                  with respect to such Subsequent Closing Date, then the
                  difference of (I) such Buyer's Subsequent Closing Percentage
                  of $10,000,000 minus (II) the aggregate principal amount of
                  Notes purchased by such Buyer pursuant to this Agreement since
                  the last Target Day, or, if no Target Day has occurred, since
                  the date of this Agreement; or (C) if the Pricing Condition is
                  not met with respect to such Subsequent Closing Date, then
                  zero, unless within one (1) Business Day after the last
                  Trading Day of the Pricing Period immediately preceding such
                  Subsequent Closing Date such Buyer delivers written notice to
                  the Company of such Buyer's election to purchase Subsequent
                  Notes, in which case, the aggregate principal amount of
                  Subsequent Notes which such Buyer will purchase at such
                  Subsequent Closing Date shall be as set forth in such written
                  notice up to the amount determined pursuant to clause (A) or
                  (B), as applicable (assuming for purposes of such
                  determination the Pricing Condition had been met with respect
                  to such Subsequent Closing Date).

                           (vi) "Maximum Principal Share Number" means 5,372,058
                  (as appropriately adjusted for any stock splits, stock
                  dividends, stock combinations and other similar transactions
                  of the Common Stock which occur after the date of this
                  Agreement).

                           (vii) "Pricing Condition" means, with respect to a
                  Buyer with respect to a Closing Date (other than the Initial
                  Closing Date), that the Market Price with respect to such



                                       -7-

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                  Closing Date is greater than or equal to the Pricing Condition
                  Floor with respect to such Buyer with respect to such Closing
                  Date.

                           (viii) "Pricing Condition Floor" means, with respect
                  to a Buyer with respect to a Closing Date (other than the
                  Initial Closing Date) (A) on or prior to the First Target Day
                  (as defined below), $5.42 (as appropriately adjusted for any
                  stock splits, stock dividends, stock combinations and other
                  similar transactions of the Common Stock which occur after the
                  date of this Agreement, (B) after the First Target Date and on
                  or prior to the Second Target Day (as defined below), $5.84
                  (as appropriately adjusted for any stock splits, stock
                  dividends, stock combinations and other similar transactions
                  of the Common Stock which occur after the date of this
                  Agreement) or (C) after the Second Target Day, $6.25 (as
                  appropriately adjusted for any stock splits, stock dividends,
                  stock combinations and other similar transactions of the
                  Common Stock which occur after the date of this Agreement).

                           (ix) "Pricing Period" means the Initial Pricing
                  Period or any Subsequent Pricing Period, as applicable.

                           (x) "Remaining Principal Amount" means, with respect
                  to a Buyer as of any date of determination, the difference of
                  (A) such Buyer's Subsequent Closing Percentage of $40,000,000
                  minus (B) the aggregate principal amount of Notes purchased by
                  such Buyer pursuant to this Agreement prior to such date of
                  determination.

                           (xi) "Remaining Principal Share Amount" means, with
                  respect to a Buyer as of any date of determination, that
                  principal amount of Notes which would be convertible, at the
                  Assumed Conversion Price, into a number of Conversion Shares
                  equal to the difference between (A) such Buyer's Subsequent
                  Closing Percentage of the Maximum Principal Share Number minus
                  (B) the aggregate number of Conversion Shares issuable upon
                  conversion of the aggregate principal amount of Notes
                  purchased by such Buyer prior to such date of determination,
                  assuming each such Note had been converted in full on its
                  applicable Closing Date at the Conversion Price for such Note
                  as of such Closing Date (without regard to any limitations on
                  conversions or the accrual of any Interest (as defined in the
                  Notes) on such Notes).

                           (xii) "Second Closing Amount" means, with respect to
                  each Buyer: (i) if the Pricing Condition is met with respect
                  to the Second Closing Date, then the aggregate principal
                  amount of Initial A-2 Notes set forth opposite such Buyer's
                  name in column (4) on the Schedule of Buyers; or (ii) if the
                  Pricing Condition is not met with respect to the Second
                  Closing Date, then zero, unless within one (1) Business Day
                  after the last Trading Day of the Initial Pricing Period such
                  Buyer delivers written notice to the Company of such Buyer's
                  election to purchase Initial A-2 Notes, in which case, the
                  aggregate principal amount of Initial A-2 Notes in such
                  written notice (which amount shall in no event exceed the
                  aggregate principal amount of Initial A-2 Notes set forth
                  opposite such Buyer's name in column (4) on the Schedule of
                  Buyers).

                           (xiii) "Subsequent Closing Amount" means, with
                  respect to a Buyer with respect to a Subsequent Closing Date,
                  the least of (A) the Maximum Closing Amount, (B) the Remaining
                  Principal Amount and (C) the Remaining Principal Share Amount
                  immediately preceding such Subsequent Closing Date; provided,
                  however, that if the Company has obtained the Shareholder
                  Approval prior to the first date on which the Company is
                  required, pursuant to


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<PAGE>

                  Section 1(h)(II), to deliver a Limit Notice to any Buyer, then
                  "Subsequent Closing Amount" shall mean, with respect to a
                  Buyer with respect to a Subsequent Closing Date after the
                  receipt of the Shareholder Approval, the lesser of (I) the
                  Maximum Closing Amount and (II) the Remaining Principal Amount
                  immediately preceding such Subsequent Closing Date.

                           (xiv) "Subsequent Closing Percentage" means, with
                  respect to a Buyer, the percentage set forth opposite such
                  Buyer's name in column (5) on the Schedule of Buyers.

                           (xv) "Subsequent Pricing Period" means each period
                  beginning on and including the date which is 4 Trading Days
                  after the last Trading Day of the immediately preceding
                  Pricing Period and ending on and including the date which is
                  13 Trading Days after the last Trading Day of the immediately
                  preceding Pricing Period.

                           (xvi) "Target Day" means, with respect to a Buyer,
                  each of (A) the first (1st) day as of which the aggregate
                  principal amount of Notes purchased by such Buyer pursuant to
                  this Agreement equals such Buyer's Subsequent Closing
                  Percentage of $10,000,000 (the "First Target Day"), (B) the
                  first (1st) day as of which the aggregate principal amount of
                  Notes purchased by such Buyer pursuant to this Agreement
                  equals such Buyer's Subsequent Closing Percentage of
                  $20,000,000 (the "Second Target Day"), (C) the first (1st) day
                  as of which the aggregate principal amount of Notes purchased
                  by such Buyer pursuant to this Agreement equals such Buyer's
                  Subsequent Closing Percentage of $30,000,000 and (D) the first
                  (1st) day as of which the aggregate principal amount of Notes
                  purchased by such Buyer pursuant to this Agreement equals such
                  Buyer's Subsequent Closing Percentage of $40,000,000.

                           (xvii) "Total Set Share Amount" means, with respect
                  to a Buyer as used in a Pricing Period Notice, the sum of (A)
                  the aggregate number of Conversion Shares issuable upon
                  conversion of the aggregate principal amount of Notes
                  purchased by such Buyer prior to such date of determination,
                  assuming each such Note had been converted in full on its
                  applicable Closing Date at the Conversion Price for such Note
                  as of such Closing Date (without regard to any limitations on
                  conversions or the accrual of any Interest (as defined in the
                  Notes) on such Notes) and (B) the result of (I) the product of
                  (x) the number of Trading Days during the period beginning on
                  and including the first day of the Pricing Period during which
                  such Pricing Period Notice is being delivered and ending on
                  and including the date such Pricing Period Notice is being
                  delivered, multiplied by (y) one-tenth (1/10) of the lower of
                  such Buyer's Maximum Closing Amount (assuming for purposes of
                  such determination that the Pricing Condition were met with
                  respect to such Closing Date immediately following such
                  Pricing Period) and such Buyer's Remaining Principal Amount,
                  divided by (II) 120% of the arithmetic average of the Weighted
                  Average Price of the Common Stock on each Trading Day during
                  the period beginning on and including the first day of the
                  Pricing Period during which such Pricing Period Notice is
                  being delivered and ending on and including the date such
                  Pricing Period Notice is being delivered.

                           (xiii) "Trading Day" shall have the meaning set forth
                  in the Notes.

                           (xix) "Weighted Average Price" shall have the meaning
                  set forth in the Notes.


                                       -9-

<PAGE>

         2. BUYER'S REPRESENTATIONS AND WARRANTIES.

         Each Buyer represents and warrants with respect to only itself that:

                  (a) No Public Sale or Distribution. Such Buyer (i) is
         acquiring the Notes and the Warrants and (ii) upon exercise of the
         Warrants (other than pursuant to a Cashless Exercise (as defined in
         Section 1(d) of the Warrants)), will acquire the Warrant Shares
         issuable upon exercise thereof, for its own account and not with a view
         towards, or for resale in connection with, the public sale or
         distribution thereof, except pursuant to sales registered or exempted
         under the 1933 Act; provided, however, that by making the
         representations herein, such Buyer does not agree to hold any of the
         Securities for any minimum or other specific term and reserves the
         right to dispose of the Securities at any time in accordance with or
         pursuant to a registration statement or an exemption under the 1933
         Act.

                  (b) Accredited Investor Status. Such Buyer is an "accredited
         investor" as that term is defined in Rule 501(a) of Regulation D.

                  (c) Reliance on Exemptions. Such Buyer understands that the
         Securities are being offered and sold to it in reliance on specific
         exemptions from the registration requirements of United States federal
         and state securities laws and that the Company is relying in part upon
         the truth and accuracy of, and such Buyer's compliance with, the
         representations, warranties, agreements, acknowledgments and
         understandings of such Buyer set forth herein in order to determine the
         availability of such exemptions and the eligibility of such Buyer to
         acquire the Securities.

                  (d) Experience of Buyer. Such Buyer, either alone or together
         with its representatives, has such knowledge, sophistication and
         experience in business and financial matters so as to be capable of
         evaluating the merits and risks of the prospective investment in the
         Securities. Such Buyer is able to bear the economic risk and complete
         loss of its investment in the Securities.

                  (e) Information. Such Buyer and its advisors, if any, have
         been furnished with all materials relating to the business, finances
         and operations of the Company and materials relating to the offer and
         sale of the Securities which have been requested by such Buyer. Such
         Buyer and its advisors, if any, have been afforded the opportunity to
         ask questions of the Company. Neither such inquiries nor any other due
         diligence investigations conducted by such Buyer or its advisors, if
         any, or its representatives shall modify, amend or affect such Buyer's
         right to rely on the Company's representations and warranties contained
         herein. Such Buyer understands that its investment in the Securities
         involves a high degree of risk. Such Buyer has sought such accounting,
         legal and tax advice as it has considered necessary to make an informed
         investment decision with respect to its acquisition of the Securities.

                  (f) No Governmental Review. Such Buyer understands that no
         United States federal or state agency or any other government or
         governmental agency has passed on or made any recommendation or
         endorsement of the Securities or the fairness or suitability of the
         investment in the Securities nor have such authorities passed upon or
         endorsed the merits of the



                                       -10-

<PAGE>

         offering of the Securities.

                  (g) Transfer or Resale. Such Buyer understands that except as
         provided in the Registration Rights Agreement: (i) the Securities have
         not been and are not being registered under the 1933 Act or any state
         securities laws, and may not be offered for sale, sold, assigned or
         transferred unless (A) subsequently registered thereunder, (B) such
         Buyer shall have delivered to the Company an opinion of counsel, in a
         generally acceptable form, to the effect that such Securities to be
         sold, assigned or transferred may be sold, assigned or transferred
         pursuant to an exemption from such registration, or (C) such Buyer
         provides the Company with reasonable assurance that such Securities can
         be sold, assigned or transferred pursuant to Rule 144 promulgated under
         the 1933 Act, as amended, (or a successor rule thereto) ("Rule 144");
         (ii) any sale of the Securities made in reliance on Rule 144 may be
         made only in accordance with the terms of Rule 144 and further, if Rule
         144 is not applicable, any resale of the Securities under circumstances
         in which the seller (or the Person (as defined in Section 3(r)) through
         whom the sale is made) may be deemed to be an underwriter (as that term
         is defined in the 1933 Act) may require compliance with some other
         exemption under the 1933 Act or the rules and regulations of the SEC
         thereunder; and (iii) neither the Company nor any other Person is under
         any obligation to register the Securities under the 1933 Act or any
         state securities laws or to comply with the terms and conditions of any
         exemption thereunder.

                  (h) Legends. Such Buyer understands that the certificates or
         other instruments representing the Notes and the Warrants and, until
         such time as the sale of the Conversion Shares, the Interest Shares and
         the Warrant Shares have been registered under the 1933 Act as
         contemplated by the Registration Rights Agreement, the stock
         certificates representing the Conversion Shares, the Interest Shares
         and the Warrant Shares, except as set forth below, shall bear any
         legend required by the "blue sky" laws of any state and a restrictive
         legend in substantially the following form (and a stop-transfer order
         may be placed against transfer of such stock certificates):

                  [NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED
                  BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE
                  SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE BEEN] [THE
                  SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN]
                  REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS
                  AMENDED, OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT
                  BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT EITHER
                  (I) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
                  UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY
                  APPLICABLE STATE SECURITIES LAWS, (II) AN OPINION OF COUNSEL,
                  IN A GENERALLY ACCEPTABLE FORM, THAT SUCH TRANSFER MAY BE MADE
                  WITHOUT REGISTRATION OR QUALIFICATION UNDER SAID ACT OR
                  APPLICABLE STATE SECURITIES LAWS OR (III) SUCH TRANSFER BEING
                  MADE PURSUANT TO RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE
                  FOREGOING, [THIS [NOTE/ WARRANT] AND THE SECURITIES INTO WHICH
                  THIS [NOTE/WARRANT] IS [CONVERTIBLE/EXERCISABLE]] [THE
                  SECURITIES] MAY BE PLEDGED


                                       -11-

<PAGE>

                  IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
                  FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

         The legend set forth above shall be removed and the Company shall issue
         a certificate without such legend to the holder of the Securities upon
         which it is stamped, if, unless otherwise required by state securities
         laws, (i) such Securities are registered for sale under the 1933 Act,
         (ii) in connection with a sale, assignment or other transfer, such
         holder provides the Company with an opinion of counsel, in a generally
         acceptable form, to the effect that such sale, assignment or transfer
         of the Securities may be made without registration under the 1933 Act,
         (iii) following any sale of such Securities pursuant to Rule 144, or
         (iv) if such Securities are eligible for resale under Rule 144(k).

                  (i) Validity; Enforcement. Such Buyer is a validly existing
         corporation, partnership, limited liability company or other entity and
         has the requisite corporate, partnership, limited liability or other
         organizational power and authority to invest in the Securities pursuant
         to this Agreement. This Agreement has been, and as of the Initial
         Closing the Registration Rights Agreement shall have been, duly and
         validly authorized, executed and delivered on behalf of such Buyer and
         this Agreement is, and as of the Initial Closing the Registration
         Rights Agreement shall be, a valid and binding obligation of such
         Buyer, enforceable against such Buyer in accordance with its terms,
         except as such enforceability may be limited by general principles of
         equity or applicable bankruptcy, insolvency, reorganization,
         moratorium, liquidation and other similar laws relating to, or
         affecting generally, the enforcement of applicable creditors' rights
         and remedies.

                  (j) Residency. Such Buyer is a resident of that country
         specified in its address on the Schedule of Buyers.

         3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

         The Company represents and warrants to each of the Buyers that:

                  (a) Organization and Qualification. The Company and its
         "Subsidiaries" (which for purposes of this Agreement means any entity
         in which the Company, directly or indirectly, owns capital stock or
         holds an equity or similar interest) are corporations duly organized
         and validly existing in good standing under the laws of the
         jurisdiction in which they are incorporated, and have the requisite
         corporate power and authorization to own their properties and to carry
         on their business as now being conducted. Each of the Company and its
         Subsidiaries is duly qualified as a foreign corporation to do business
         and is in good standing in every jurisdiction in which its ownership of
         property or the nature of the business conducted by it makes such
         qualification necessary, except to the extent that the failure to be so
         qualified or be in good standing would not have a Material Adverse
         Effect. As used in this Agreement, "Material Adverse Effect" means any
         material adverse effect on the business, properties, assets,
         operations, results of operations, financial condition or prospects of
         the Company and its Subsidiaries, if any, taken as a whole, or on the
         transactions contemplated hereby or by the agreements and instruments
         to be entered into in connection herewith, or on the authority or
         ability of the Company to perform its obligations under the Transaction
         Documents (as defined below). The Company has no Subsidiaries except as
         set forth on Schedule 3(a).


                                       -12-

<PAGE>

                  (b) Authorization; Enforcement; Validity. The Company has the
         requisite corporate power and authority to enter into and perform this
         Agreement, the Notes, the Registration Rights Agreement, the
         Irrevocable Transfer Agent Instructions (as defined in Section 5(b)),
         the Warrants and each of the other agreements entered into by the
         parties hereto in connection with the transactions contemplated by this
         Agreement (collectively, the "Transaction Documents") and to issue the
         Securities in accordance with the terms hereof and thereof. The
         execution and delivery of the Transaction Documents by the Company and
         the consummation by the Company of the transactions contemplated hereby
         and thereby, including, without limitation, the issuance of the Notes
         and the Warrants and the reservation for issuance and the issuance of
         the Conversion Shares and the Warrant Shares issuable upon conversion
         or exercise thereof, as the case may be, have been duly authorized by
         the Company's Board of Directors and no further consent or
         authorization is required by the Company, its Board of Directors or its
         shareholders. This Agreement and the other Transaction Documents of
         even date herewith have been duly executed and delivered by the
         Company, and constitute the valid and binding obligations of the
         Company enforceable against the Company in accordance with their terms,
         except as such enforceability may be limited by general principles of
         equity or applicable bankruptcy, insolvency, reorganization,
         moratorium, liquidation or similar laws relating to, or affecting
         generally, the enforcement of creditors' rights and remedies. As of
         each Closing, the Transaction Documents dated after the date hereof
         required to have been executed and delivered with respect to such
         Closing shall have been duly executed and delivered by the Company, and
         shall constitute the valid and binding obligations of the Company
         enforceable against the Company in accordance with their terms, except
         as such enforceability may be limited by general principles of equity
         or applicable bankruptcy, insolvency, reorganization, moratorium,
         liquidation or similar laws relating to, or affecting generally, the
         enforcement of creditors' rights and remedies.

                  (c) Issuance of Securities. The Notes are duly authorized and,
         upon issuance in accordance with the terms hereof, shall be free from
         all taxes, liens and charges with respect to the issue thereof. As of
         the applicable Closing, a number of shares of Common Stock shall have
         been duly authorized and reserved for issuance which equals the sum of
         120% of the number of shares of Common Stock issuable upon conversion
         of, or as payment for interest on, the Notes to be issued at such
         Closing and 100% of the number of shares of Common Stock issuable upon
         exercise of the Warrants to be issued at such Closing (subject to
         adjustment pursuant to the Company covenants set forth in the Notes and
         the Warrants). Upon conversion or exercise in accordance with the Notes
         or the Warrants, as the case may be, and upon issuance of the Interest
         Shares as interest on the Notes, the Conversion Shares, the Warrant
         Shares and the Interest Shares, respectively, will be validly issued,
         fully paid and nonassessable and free from all taxes, liens and charges
         with respect to the issue thereof, with the holders being entitled to
         all rights accorded to a holder of Common Stock. Subject to the
         accuracy as to factual matters of the Buyers' representations in
         Section 2, the issuance by the Company of the Securities is exempt from
         registration under the 1933 Act.

                  (d) No Conflicts. Except as disclosed in Schedule 3(d), the
         execution, delivery and performance of the Transaction Documents by the
         Company and the consummation by the Company of the transactions
         contemplated hereby and thereby (including, without limitation, the
         reservation for issuance and issuance of the Conversion Shares, the
         Interest Shares



                                       -13-

<PAGE>

         and the Warrant Shares) will not (i) result in a violation of the
         Articles of Incorporation, any Certificate of Designations, Preferences
         and Rights of any outstanding series of preferred stock of the Company
         or the Bylaws or (ii) conflict with, or constitute a default (or an
         event which with notice or lapse of time or both would become a
         default) under, or give to others any rights of termination, amendment,
         acceleration or cancellation of, any material agreement, indenture or
         instrument to which the Company or any of its Subsidiaries is a party,
         or (iii) result in a violation of any law, rule, regulation, order,
         judgment or decree (including federal and state securities laws and
         regulations and the rules and regulations of the Principal Market (as
         defined below)) applicable to the Company or any of its Subsidiaries or
         by which any property or asset of the Company or any of its
         Subsidiaries is bound or affected.

                  (e) Consents. Except as disclosed in Schedule 3(e), the
         Company is not required to obtain any consent, authorization or order
         of, or make any filing or registration with, any court, governmental
         agency or any regulatory or self-regulatory agency or any other Person
         in order for it to execute, deliver or perform any of its obligations
         under or contemplated by the Transaction Documents, in each case in
         accordance with the terms hereof or thereof other than filings that
         will have been made pursuant to applicable state securities laws and
         post-sale filings pursuant to applicable state and federal securities
         laws and the additional listing application requirements of The Nasdaq
         Stock Market, Inc., which the Company undertakes to file within the
         applicable time periods. All consents, authorizations, orders, filings
         and registrations which the Company is required to obtain pursuant to
         the preceding sentence have been obtained or effected on or prior to
         the date hereof. The Company and its Subsidiaries are unaware of any
         facts or circumstances which might prevent the Company from obtaining
         or effecting any of the foregoing.

                  (f) Acknowledgment Regarding Buyer's Purchase of Securities.
         The Company acknowledges and agrees that each Buyer is acting solely in
         the capacity of arm's length purchaser with respect to the Transaction
         Documents and the transactions contemplated hereby and thereby, and
         that no Buyer is (i) an officer or director of the Company, (ii) to the
         knowledge of the Company, an "affiliate" of the Company (as defined in
         Rule 144) or (iii) to the knowledge of the Company, a "beneficial
         owner" of more than 10% of the Common Stock (as defined for purposes of
         Rule 13d-3 of the 1934 Act (as defined below)). The Company further
         acknowledges that no Buyer is acting as a financial advisor or
         fiduciary of the Company (or in any similar capacity) with respect to
         the Transaction Documents and the transactions contemplated hereby and
         thereby, and any advice given by a Buyer or any of its representatives
         or agents in connection with the Transaction Documents and the
         transactions contemplated hereby and thereby is merely incidental to
         such Buyer's purchase of the Securities. The Company further represents
         to each Buyer that the Company's decision to enter into the Transaction
         Documents has been based solely on the independent evaluation by the
         Company and its representatives.

                  (g) No General Solicitation; Placement Agent. Neither the
         Company, nor any of its affiliates, nor any Person acting on its or
         their behalf, has engaged in any form of general solicitation or
         general advertising (within the meaning of Regulation D) in connection
         with the offer or sale of the Securities. The Company acknowledges that
         it has engaged Lehman Brothers Inc. as placement agent (the "Agent") in
         connection with the sale of the Notes and the Warrants, which Agent may
         have formally or informally engaged other agents on its behalf. Other
         than the


                                       -14-

<PAGE>

         Agent, the Company has not engaged any placement agent, broker, dealer,
         finder or other agent in connection with the sale of the Notes and the
         Warrants.

                  (h) No Integrated Offering. None of the Company, its
         Subsidiaries, any of their affiliates, and any Person acting on their
         behalf has, directly or indirectly, made any offers or sales of any
         security or solicited any offers to buy any security, under
         circumstances that would require registration of any of the Securities
         under the 1933 Act or cause this offering of the Securities to be
         integrated with prior offerings by the Company for purposes of the 1933
         Act or any applicable shareholder approval provisions, including,
         without limitation, under the rules and regulations of any exchange or
         automated quotation system on which any of the securities of the
         Company are listed or designated. None of the Company, its
         Subsidiaries, their affiliates and any Person acting on their behalf
         will take any action or steps referred to in the preceding sentence
         that would require registration of any of the Securities under the 1933
         Act or cause the offering of the Securities to be integrated with other
         offerings.

                  (i) Dilutive Effect. The Company understands and acknowledges
         that the number of Conversion Shares issuable upon conversion of the
         Notes and the Warrant Shares issuable upon exercise of the Warrants
         will increase in certain circumstances. The Company further
         acknowledges that its obligation to issue Conversion Shares upon
         conversion of the Notes in accordance with this Agreement and the Notes
         and its obligation to issue the Warrant Shares upon exercise of the
         Warrants in accordance with this Agreement and the Warrants, is, in
         each case, absolute and unconditional regardless of the dilutive effect
         that such issuance may have on the ownership interests of other
         shareholders of the Company.

                  (j) Application of Takeover Protections; Rights Agreement. The
         Company and its Board of Directors have taken all necessary action, if
         any, in order to render inapplicable any control share acquisition,
         business combination, poison pill (including any distribution under a
         rights agreement) or other similar anti-takeover provision under the
         Articles of Incorporation or the laws of the state of its incorporation
         which is or could become applicable to any Buyer as a result of the
         transactions contemplated by this Agreement, including, without
         limitation, the Company's issuance of the Securities and any Buyer's
         ownership of the Securities. The Company specifically represents,
         warrants and agrees that, in accordance with Section 1 of the rights
         agreement, dated August 11, 2000, between the Company and Wells Fargo
         Bank Minnesota, N.A. (the "Rights Plan"), regardless of the number of
         Conversion Shares, Interest Shares and Warrant Shares of which each
         Buyer is deemed the Beneficial Owner (as defined in the Rights Plan),
         none of the Buyers is intended to be or will be deemed to be an
         Acquiring Person within the meaning of the Rights Plan because of the
         acquisition of the Securities (including the Conversion Shares,
         Interest Shares and the Warrant Shares) pursuant to this Agreement, and
         the acquisition of the Securities (including the Conversion Shares,
         Interest Shares and the Warrant Shares) pursuant to this Agreement,
         shall not, under any circumstances, trigger a Distribution Date within
         the meaning of the Rights Plan; provided, however, that only Securities
         (including the Conversion Shares, Interest Shares and the Warrant
         Shares) acquired pursuant to this Agreement, upon conversion of the
         Notes or upon exercise of the Warrants, as the case may be, shall be
         deemed excluded from the number of shares of Common Stock deemed
         beneficially owned by each Buyer in determining whether such Buyer is
         an Acquiring Person within the meaning of the Rights Plan.


                                       -15-

<PAGE>

                  (k) SEC Documents; Financial Statements. Since August 7, 2000,
         the Company has filed all reports, schedules, forms, statements and
         other documents required to be filed by it with the SEC pursuant to the
         reporting requirements of the Securities Exchange Act of 1934, as
         amended (the "1934 Act") (all of the foregoing filed prior to the date
         hereof and all exhibits included therein and financial statements and
         schedules thereto and documents incorporated by reference therein being
         hereinafter referred to as the "SEC Documents"). A complete and
         accurate list of all the SEC Documents is set forth in Schedule 3(k)
         and all such SEC Documents were filed on the SEC's Edgar System. As of
         their respective dates, the SEC Documents complied in all material
         respects with the requirements of the 1934 Act and the rules and
         regulations of the SEC promulgated thereunder applicable to the SEC
         Documents, and none of the SEC Documents, at the time they were filed
         with the SEC, contained any untrue statement of a material fact or
         omitted to state a material fact required to be stated therein or
         necessary in order to make the statements therein, in the light of the
         circumstances under which they were made, not misleading. As of their
         respective dates, the financial statements of the Company included in
         the SEC Documents complied as to form in all material respects with
         applicable accounting requirements and the published rules and
         regulations of the SEC with respect thereto. Such financial statements
         have been prepared in accordance with generally accepted accounting
         principles, consistently applied, during the periods involved (except
         (i) as may be otherwise indicated in such financial statements or the
         notes thereto, or (ii) in the case of unaudited interim statements, to
         the extent they may exclude footnotes or may be condensed or summary
         statements) and fairly present in all material respects the financial
         position of the Company as of the dates thereof and the results of its
         operations and cash flows for the periods then ended (subject, in the
         case of unaudited statements, to normal year-end audit adjustments). No
         other written information provided by or on behalf of the Company to
         the Buyers which is not included in the SEC Documents, including,
         without limitation, information referred to in Section 2(e) of this
         Agreement, contains any untrue statement of a material fact or omits to
         state any material fact necessary in order to make the statements
         therein, in the light of the circumstance under which they are or were
         made, not misleading.

                  (l) Absence of Certain Changes. Except as disclosed with
         reasonable specificity in the SEC Documents filed at least ten days
         prior to the date of this Agreement or as disclosed in Schedule 3(l),
         since March 31, 2001 there has been no material adverse change and no
         material adverse development in the business, properties, operations,
         financial condition, results of operations or prospects of the Company
         or its Subsidiaries. During the period beginning on and including April
         1, 2001 and ending on and including March 31, 2002, the Company has not
         (i) declared or paid any dividends, (ii) sold any assets, individually
         or in the aggregate, in excess of $5,000,000 outside of the ordinary
         course of business or (iii) had capital expenditures, individually or
         in the aggregate, in excess of $40,000,000. The Company has not taken
         any steps to seek protection pursuant to any bankruptcy law nor does
         the Company or any of its Subsidiaries have any knowledge or reason to
         believe that its creditors intend to initiate involuntary bankruptcy
         proceedings or any actual knowledge of any fact which would reasonably
         lead a creditor to do so. The Company is not as of the date hereof, and
         after giving effect to the transaction contemplated hereby, will not be
         Insolvent (as defined below). For purposes of this Section 3(l),
         "Insolvent" means (i) the present fair saleable value of the Company's
         assets is less than the amount required to pay the Company's total
         indebtedness, contingent or otherwise, (ii) the Company is unable to
         pay its debts and liabilities, subordinated, contingent or otherwise,
         as such debts and liabilities become absolute and matured, (iii) the


                                       -16-

<PAGE>

         Company intends to incur or believes that it will incur debts that
         would be beyond its ability to pay as such debts mature or (iv) the
         Company has unreasonably small capital with which to conduct the
         business in which it is engaged as such business is now conducted and
         is proposed to be conducted.

                  (m) Certain Financial Matters. As of the date hereof and as of
         the Initial Closing Date, the Company has no knowledge that the
         aggregate amount of all charges related to restructuring, impairment of
         assets (including write-offs of inventory and accounts receivable) and
         other non-recurring items (other than non-cash charges for write-offs
         of goodwill and related non-cash charges with respect to deferred tax
         assets) to be recorded by the Company in the quarter ended March 31,
         2002 will exceed $10,000,000, on a pre-tax basis.

                  (n) Conduct of Business; Regulatory Permits. Neither the
         Company nor its Subsidiaries is in violation of any term of or in
         default under the Articles of Incorporation, any Certificate of
         Designations, Preferences and Rights of any outstanding series of
         preferred stock of the Company, Bylaws or such Subsidiaries'
         organizational charter or bylaws, respectively. Except as disclosed in
         Schedule 3(n), neither the Company nor any of its Subsidiaries is in
         violation of any judgment, decree or order or any statute, ordinance,
         rule or regulation applicable to the Company or its Subsidiaries or by
         which any property or asset of the Company or any of its Subsidiaries
         is bound or affected, and neither the Company nor any of its
         Subsidiaries will conduct its business in violation of any of the
         foregoing, except for possible violations which would not, individually
         or in the aggregate, have a Material Adverse Effect. Without limiting
         the generality of the foregoing, the Company is not in violation of any
         of the rules, regulations or requirements of the Nasdaq National Market
         (the "Principal Market") and has no knowledge of any facts or
         circumstances which would reasonably lead to delisting or suspension of
         the Common Stock by the Principal Market. Since August 7, 2000, (i) the
         Common Stock has been designated for quotation or listed on the
         Principal Market, (ii) trading in the Common Stock has not been
         suspended by the SEC or the Principal Market and (iii) the Company has
         received no communication, written or oral, from the SEC or the
         Principal Market regarding the suspension or delisting of the Common
         Stock from the Principal Market. The Company and its Subsidiaries
         possess all certificates, authorizations and permits issued by the
         appropriate federal, state or foreign regulatory authorities necessary
         to conduct their respective businesses, except where the failure to
         possess such certificates, authorizations or permits would not have,
         individually or in the aggregate, a Material Adverse Effect, and
         neither the Company nor any such Subsidiary has received any notice of
         proceedings relating to the revocation or modification of any such
         certificate, authorization or permit.

                  (o) Foreign Corrupt Practices. Neither the Company, nor any of
         its Subsidiaries, nor any director, officer, agent, employee or other
         Person acting on behalf of the Company or any of its Subsidiaries has,
         in the course of its actions for, or on behalf of, the Company, (i)
         used any corporate funds for any unlawful contribution, gift,
         entertainment or other unlawful expenses relating to political
         activity, (ii) made any direct or indirect unlawful payment to any
         foreign or domestic government official or employee from corporate
         funds, (iii) violated or is in violation of any provision of the U.S.
         Foreign Corrupt Practices Act of 1977, as amended or (iv) made any
         unlawful bribe, rebate, payoff, influence payment, kickback or other
         unlawful payment to any foreign or domestic government official or
         employee.


                                       -17-

<PAGE>

                  (p) Transactions With Affiliates. Except as set forth on
         Schedule 3(p) or in the SEC Documents filed at least ten days prior to
         the date of this Agreement and other than the grant of stock options
         disclosed on Schedule 3(q), none of the officers or directors of the
         Company is presently a party to any transaction with the Company or any
         of its Subsidiaries (other than for services as officers or directors
         of the Company), including any contract, agreement or other arrangement
         providing for the furnishing of services to or by, providing for rental
         of real or personal property to or from, or otherwise requiring
         payments to or from any such officer or director or employee or, to the
         knowledge of the Company, any corporation, partnership, trust or other
         entity in which any such officer, director, or employee has a material
         interest or is an officer or director, trustee or partner.

                  (q) Equity Capitalization. As of the date hereof, the
         authorized capital stock of the Company consists of (x) 150,000,000
         shares of Common Stock, of which as of the date hereof, 36,715,255
         shares are issued and outstanding, 3,791,508 shares are reserved for
         issuance pursuant to the Company's stock option and purchase plans and
         none are reserved for issuance pursuant to securities (other than the
         Notes and the Warrants) exercisable or exchangeable for, or convertible
         into, shares of Common Stock, and (y) 5,000,000 shares of preferred
         stock, of which as of the date hereof, none are issued and outstanding,
         and, except with respect to the Rights Plan, none are reserved for
         issuance. All of such outstanding shares have been, or upon issuance
         will be, validly issued and are fully paid and nonassessable. Except as
         disclosed in Schedule 3(q): (i) no shares of the Company's capital
         stock are subject to preemptive rights or any other similar rights or
         any liens or encumbrances suffered or permitted by the Company; (ii)
         there are no outstanding options, warrants, scrip, rights to subscribe
         to, calls or commitments of any character whatsoever relating to, or
         securities or rights convertible into, or exercisable or exchangeable
         for, any shares of capital stock of the Company or any of its
         Subsidiaries, or contracts, commitments, understandings or arrangements
         by which the Company or any of its Subsidiaries is or may become bound
         to issue additional shares of capital stock of the Company or any of
         its Subsidiaries or options, warrants, scrip, rights to subscribe to,
         calls or commitments of any character whatsoever relating to, or
         securities or rights convertible into, any shares of capital stock of
         the Company or any of its Subsidiaries; (iii) there are no agreements
         or arrangements under which the Company or any of its Subsidiaries is
         obligated to register the sale of any of their securities under the
         1933 Act (except the Registration Rights Agreement); (iv) there are no
         outstanding securities or instruments of the Company or any of its
         Subsidiaries which contain any redemption or similar provisions, and
         there are no contracts, commitments, understandings or arrangements by
         which the Company or any of its Subsidiaries is or may become bound to
         redeem a security of the Company or any of its Subsidiaries; (v) there
         are no securities or instruments containing anti-dilution or similar
         provisions that will be triggered by the issuance of the Securities;
         and (vi) the Company does not have any stock appreciation rights or
         "phantom stock" plans or agreements or any similar plan or agreement.
         The Company has furnished to each Buyer true, correct and complete
         copies of the Company's Articles of Incorporation, as amended and as in
         effect on the date hereof (the "Articles of Incorporation"), and the
         Company's Bylaws, as amended and as in effect on the date hereof (the
         "Bylaws"), and the terms of all securities convertible into or
         exercisable or exchangeable for Common Stock, other than securities
         issued pursuant to the Company's stock option plans, and the material
         rights of the holders thereof in respect thereto.

                  (r) Indebtedness. As of the date hereof and as of the Initial
         Closing Date,



                                       -18-

<PAGE>

         except as disclosed in Schedule 3(r), neither the Company nor any of
         its Subsidiaries has any outstanding Indebtedness (as defined below).
         As of the date hereof and as of the applicable Closing Date, neither
         the Company nor any of its Subsidiaries (i) is in violation of any term
         of or in default under any Indebtedness, except where such violations
         and defaults would not result, individually or in the aggregate, in a
         Material Adverse Effect, or (ii) is a party to any Indebtedness the
         performance of which, in the judgement of the Company's officers, has
         or is expected to have, individually or in the aggregate, a Material
         Adverse Effect, assuming that the Company and its Subsidiaries remain
         in compliance in all material respects with the terms and conditions of
         such Indebtedness. Schedule 3(r) identifies whether all Indebtedness
         listed thereon is secured or unsecured. For purposes of this Agreement:
         (x) "Indebtedness" of any Person means, without duplication (A) all
         indebtedness for borrowed money, (B) all obligations issued, undertaken
         or assumed as the deferred purchase price of property or services
         (other than trade payables entered into in the ordinary course of
         business), (C) all reimbursement or payment obligations with respect to
         letters of credit, surety bonds and other similar instruments, (D) all
         obligations evidenced by notes, bonds, debentures or similar
         instruments, including obligations so evidenced incurred in connection
         with the acquisition of property, assets or businesses, (E) all
         indebtedness created or arising under any conditional sale or other
         title retention agreement, or incurred as financing, in either case
         with respect to any property or assets acquired with the proceeds of
         such indebtedness (even though the rights and remedies of the seller or
         bank under such agreement in the event of default are limited to
         repossession or sale of such property), (F) all monetary obligations
         under any leasing or similar arrangement which, in connection with
         generally accepted accounting principles, consistently applied for the
         periods covered thereby, is classified as a capital lease, (G) all
         indebtedness referred to in clauses (A) through (F) above secured by
         (or for which the holder of such Indebtedness has an existing right,
         contingent or otherwise, to be secured by) any mortgage, lien, pledge,
         change, security interest or other encumbrance upon or in any property
         or assets (including accounts and contract rights) owned by any Person,
         even though the Person which owns such assets or property has not
         assumed or become liable for the payment of such indebtedness, and (H)
         all Contingent Obligations in respect of indebtedness or obligations of
         others of the kinds referred to in clauses (A) through (G) above; (y)
         "Contingent Obligation" means, as to any Person, any direct or indirect
         liability, contingent or otherwise, of that Person with respect to any
         indebtedness, lease, dividend or other obligation of another Person if
         the primary purpose or intent of the Person incurring such liability,
         or the primary effect thereof, is to provide assurance to the obligee
         of such liability that such liability will be paid or discharged, or
         that any agreements relating thereto will be complied with, or that the
         holders of such liability will be protected (in whole or in part)
         against loss with respect thereto; and (z) "Person" means an
         individual, a limited liability company, a partnership, a joint
         venture, a corporation, a trust, an unincorporated organization and a
         government or any department or agency thereof. The Company has
         furnished to each Buyer true, correct and complete copies of the
         Original Facilities (as defined in the Notes), as amended and as in
         effect on the date hereof, including the Credit Facility Amendments (as
         defined in Section 4(i)).

                  (s) Absence of Litigation. There is no action, suit,
         proceeding, inquiry or investigation before or by the Principal Market,
         any court, public board, government agency, self-regulatory
         organization or body pending or, to the knowledge of the Company,
         threatened against or affecting the Company, the Common Stock or any of
         the Company's Subsidiaries or any of the Company's or the Company's
         Subsidiaries' officers or directors in their capacities as such which,
         if determined adversely to the Company, would have, either individually
         or in the


                                       -19-

<PAGE>

         aggregate, a Material Adverse Effect, except as set forth in Schedule
         3(s).

                  (t) Insurance. The Company and each of its Subsidiaries are
         insured by insurers of recognized financial responsibility against such
         losses and risks and in such amounts as management of the Company
         believes to be prudent and customary in the businesses in which the
         Company and its Subsidiaries are engaged. Neither the Company nor any
         of its Subsidiaries has any reason to believe that it will not be able
         to renew its existing insurance coverage as and when such coverage
         expires or to obtain similar coverage from similar insurers as may be
         necessary to continue its business at a cost that would not have a
         Material Adverse Effect, taken as a whole.

                  (u) Employee Relations. Except as set forth in Schedule 3(u),
         Neither the Company nor any of its Subsidiaries is a party to a
         collective bargaining agreement or employs any member of a union. No
         material labor dispute with the employees of the Company or its
         Subsidiaries exists or, to the knowledge of the Company is imminent. No
         executive officer (as defined in Rule 501(f) of the 1933 Act) of the
         Company has notified the Company that such officer intends to leave the
         Company or otherwise terminate such officer's employment with the
         Company. No executive officer of the Company, to the knowledge of the
         Company, is, or is now expected to be, in violation of any material
         term of any employment contract, confidentiality, disclosure or
         proprietary information agreement, non-competition agreement, or any
         other contract or agreement or any restrictive covenant, and the
         continued employment of each such executive officer does not subject
         the Company or any of its Subsidiaries to any liability with respect to
         any of the foregoing matters.

                  (v) Title. The Company and its Subsidiaries have good and
         marketable title in fee simple to all real property and good and
         marketable title to all personal property owned by them which is
         material to the business of the Company and its Subsidiaries, in each
         case free and clear of all liens, encumbrances and defects except such
         as are described in Schedule 3(v) or such as do not materially affect
         the value of such property and do not interfere with the use made and
         proposed to be made of such property by the Company and any of its
         Subsidiaries. Any real property and facilities held under lease by the
         Company and any of its Subsidiaries are held by them under valid,
         subsisting and enforceable leases with such exceptions as are not
         material and do not interfere with the use made and proposed to be made
         of such property and buildings by the Company and its Subsidiaries.

                  (w) Intellectual Property Rights. The Company and its
         Subsidiaries own or possess adequate rights or licenses to use all
         trademarks, trade names, service marks, service mark registrations,
         service names, patents, patent rights, copyrights, inventions,
         licenses, approvals, governmental authorizations, trade secrets and
         other intellectual property rights ("Intellectual Property Rights")
         necessary to conduct their respective businesses as now conducted.
         Except as set forth in Schedule 3(w), none of the Company's
         Intellectual Property Rights have expired or terminated, or are
         expected to expire or terminate within three years from the date of
         this Agreement. The Company does not have any knowledge of any
         infringement by the Company or its Subsidiaries of Intellectual
         Property Rights of others. Except as set forth in Schedule 3(w), there
         is no claim, action or proceeding being made or brought, or to the
         knowledge of the Company, being threatened, against the Company or its
         Subsidiaries regarding its Intellectual Property Rights. The Company is
         unaware of any facts or circumstances which


                                       -20-

<PAGE>

         might give rise to any of the foregoing infringements or claims,
         actions or proceedings. The Company and its Subsidiaries have taken
         reasonable security measures to protect the secrecy, confidentiality
         and value of all of their intellectual properties.

                  (x) Environmental Laws. The Company and its Subsidiaries (i)
         are in compliance with any and all applicable foreign, federal, state
         and local laws and regulations relating to the protection of human
         health and safety, the environment or hazardous or toxic substances or
         wastes, pollutants or contaminants ("Environmental Laws"), (ii) have
         received all permits, licenses or other approvals required of them
         under applicable Environmental Laws to conduct their respective
         businesses and (iii) are in compliance with all terms and conditions of
         any such permit, license or approval where, in each of the foregoing
         clauses (i), (ii) and (iii), the failure to so comply would have,
         individually or in the aggregate, a Material Adverse Effect.

                  (y) Tax Status. The Company and each of its Subsidiaries has
         made or filed all federal and state income and all other tax returns,
         reports and declarations required by any jurisdiction to which it is
         subject, and has paid all taxes and other governmental assessments and
         charges that are material in amount, shown or determined to be due on
         such returns, reports and declarations, except those being contested in
         good faith and has set aside on its books provision reasonably adequate
         for the payment of all taxes for periods subsequent to the periods to
         which such returns, reports or declarations apply. There are no unpaid
         taxes in any material amount claimed to be due by the taxing authority
         of any jurisdiction, and the officers of the Company know of no basis
         for any such claim.

                  (z) Other Contracts. Except as disclosed in Schedule 3(z),
         neither the Company nor any of its Subsidiaries is (i) subject to any
         charter, corporate or other legal restriction, or any judgment, decree,
         order, rule or regulation which in the judgment of the Company's
         officers has or could reasonably be expected to have, individually or
         in the aggregate, a Material Adverse Effect, (ii) a party to any
         contract, agreement or instrument which in the judgment of the
         Company's officers has or is expected to have, individually or in the
         aggregate, a Material Adverse Effect, assuming that the Company and its
         Subsidiaries remain in compliance in all material respects with the
         terms and conditions of such contracts and agreements, (iii) a party to
         any contract, agreement or instrument, the violation of which, or
         default under which, by the other party(ies) to such contract,
         agreement or instrument would, individually or in the aggregate, result
         in a Material Adverse Effect, or (iv) is in violation of any term of or
         in default under any contract, agreement or instrument, except where
         such violations and defaults would not result, either individually or
         in the aggregate, in a Material Adverse Effect. Pursuant to the terms
         of substantially all the manufacturing service agreements with the
         significant customers of the Company and its Subsidiaries (the
         "Significant MSA's"), the Company and/or its Subsidiaries have the
         unqualified right to cause such customer to purchase any or all of the
         inventory acquired by the Company and/or its Subsidiaries on behalf of
         such customer at a price equal to the cost incurred by the Company
         and/or Subsidiary in acquiring such inventory. As of the date hereof,
         substantially all of the inventory that the Company plans to record on
         its consolidated balance sheet for purposes of its Form 10-K for the
         2002 fiscal year is inventory acquired pursuant to the Significant
         MSA's.

                  (aa) Internal Accounting Controls. The Company and each of its
         Subsidiaries maintain a system of internal accounting controls
         sufficient to provide reasonable assurance that (i) transactions are
         executed in accordance with management's general or specific
         authorizations,



                                       -21-

<PAGE>

         (ii) transactions are recorded as necessary to permit preparation of
         financial statements in conformity with generally accepted accounting
         principles and to maintain asset and liability accountability, (iii)
         access to assets or incurrence of liabilities is permitted only in
         accordance with management's general or specific authorization and (iv)
         the recorded accountability for assets and liabilities is compared with
         the existing assets and liabilities at reasonable intervals and
         appropriate action is taken with respect to any difference.

         4. COVENANTS.

                  (a) Best Efforts. Each party shall use its best efforts timely
         to satisfy each of the conditions to be satisfied by it as provided in
         Sections 6 and 7 of this Agreement.

                  (b) Form D and Blue Sky. The Company agrees to file a Form D
         with respect to the Securities as required under Regulation D and to
         provide a copy thereof to each Buyer promptly after such filing. The
         Company shall, on or before each Closing Date, take such action as the
         Company shall reasonably determine is necessary in order to obtain an
         exemption for or to qualify the Securities for sale to the Buyers
         pursuant to this Agreement under applicable securities or "Blue Sky"
         laws of the states of the United States, and shall provide evidence of
         any such action so taken to the Buyers on or prior to the applicable
         Closing Date. The Company shall make all filings and reports relating
         to the offer and sale of the Securities required under applicable
         securities or "Blue Sky" laws of the states of the United States
         following each of the Closing Dates.

                  (c) Reporting Status. Until the date on which the Investors
         (as defined in the Registration Rights Agreement) shall have sold all
         the Conversion Shares, the Interest Shares and the Warrant Shares, none
         of the Notes or Warrants is outstanding and no obligation to purchase
         Subsequent Notes or right to purchase Additional Notes exists (the
         "Reporting Period"), the Company shall file all reports required to be
         filed with the SEC pursuant to the 1934 Act, and the Company shall not
         terminate its status as an issuer required to file reports under the
         1934 Act even if the 1934 Act or the rules and regulations thereunder
         would otherwise permit such termination.

                  (d) Use of Proceeds. The Company will use the proceeds from
         the sale of the Securities for general corporate purposes, including
         growth initiatives, capital expenditures and potential acquisitions.

                  (e) Financial Information. The Company agrees to send the
         following to each Investor during the Reporting Period (i) unless the
         following are filed with the SEC through EDGAR and are available to the
         public through EDGAR, within one Business Day after the filing thereof
         with the SEC, a copy of its Annual Reports on Form 10-K, its Quarterly
         Reports on Form 10-Q, any Current Reports on Form 8-K and any
         registration statements (other than on Form S-8) or amendments filed
         pursuant to the 1933 Act, (ii) on the same day as the release thereof,
         facsimile copies of all press releases issued by the Company or any of
         its Subsidiaries, and (iii) copies of any notices and other information
         made available or given to the shareholders of the Company generally,
         contemporaneously with the making available or giving thereof to the
         shareholders.

                  (f) Listing. The Company shall promptly secure the listing of
         all of the



                                       -22-

<PAGE>

         Registrable Securities (as defined in the Registration Rights
         Agreement) upon each national securities exchange and automated
         quotation system, if any, upon which shares of Common Stock are then
         listed (subject to official notice of issuance) and shall maintain, so
         long as any other shares of Common Stock shall be so listed, such
         listing of all Registrable Securities from time to time issuable under
         the terms of the Transaction Documents. The Company shall maintain the
         Common Stock's authorization for quotation on the Nasdaq National
         Market or obtain a listing on The New York Stock Exchange, Inc. (the
         "NYSE"). If the Company obtains a listing of the Common Stock on the
         NYSE and terminates its listing on the Nasdaq National Market,
         references in this Agreement to the "Principal Market" shall mean, from
         and after the date of the NYSE listing, the NYSE. The Company shall pay
         all fees and expenses in connection with satisfying its obligations
         under this Section 4(f).

                  (g) Expenses; Fees. Subject to Section 8 below, at the Initial
         Closing, the Company shall pay a nonaccountable expense allowance of
         $62,500 to Smithfield Fiduciary LLC (a Buyer) or its designee(s) (in
         addition to any other expense amounts paid to any Buyer prior to the
         date of this Agreement), which amount shall be withheld by such Buyer
         from its Purchase Price at the Initial Closing. The Company shall be
         responsible for the payment of any placement agent's fees or broker's
         commissions relating to or arising out of the transactions contemplated
         hereby, including, without limitation, any fees or commissions payable
         to the Agent. Except as otherwise set forth in this Agreement or in the
         Registration Rights Agreement, each party to this Agreement shall bear
         its own expenses in connection with the sale of the Securities to the
         Buyers.

                  (h) Pledge of Securities. The Company acknowledges and agrees
         that the Securities may be pledged by an Investor (as defined in the
         Registration Rights Agreement) in connection with a bona fide margin
         agreement or other loan or financing arrangement that is secured by the
         Securities. The pledge of Securities shall not be deemed to be a
         transfer, sale or assignment of the Securities hereunder, and no
         Investor effecting a pledge of Securities shall be required to provide
         the Company with any notice thereof or otherwise make any delivery to
         the Company pursuant to this Agreement or any other Transaction
         Document, including, without limitation, Section 2(g) of this
         Agreement; provided that an Investor and its pledgee shall be required
         to comply with the provisions of Section 2(g) hereof in order to effect
         a sale, transfer or assignment of Securities to such pledgee. At the
         appropriate Investor's expense, the Company hereby agrees to execute
         and deliver such reasonable documentation as a pledgee of the
         Securities may reasonably request in connection with a pledge of the
         Securities to such pledgee by an Investor.

                  (i) Disclosure of Transactions and Other Material Information.
         On or before 8:30 a.m., New York Time, on the first Business Day
         following the date of this Agreement, the Company shall file a Current
         Report on Form 8-K describing the terms of the transactions
         contemplated by the Transaction Documents in the form required by the
         1934 Act, and attaching the material Transaction Documents (including,
         without limitation, this Agreement (and all schedules to this
         Agreement), the form of each of the Notes, the form of Warrant and the
         Registration Rights Agreement) as exhibits to such filing (including
         all attachments, the "8-K Filing"). At or before the time of the 8-K
         Filing, the Company shall have disclosed the terms of the amendments
         dated December 20, 2001, March 25, 2002 and May 3, 2002 to, and the
         waiver letter dated February 13, 2002 relating to, the Loan and
         Security Agreement dated June 28, 2001


                                       -23-

<PAGE>

         between U.S. Bank National Association and the Company and the waivers
         and/or amendments dated February 14, 2002, March 29, 2002 and May 3,
         2002 to, and the consent letters dated April 12, 2002, April 19, 2002,
         April 30, 2002 and May 3, 2002 (two letters) relating to, the Amended
         and Restated Revolving Credit Agreement dated June 29, 2001 between IBM
         Credit Corporation, the Company, Turtle Mountain Corporation and
         Pemstar Pacific Consultants Inc. (the "Credit Facility Amendments") in
         a filing with the SEC pursuant to the 1934 Act, and shall have attached
         such amendments to such filing. On or before 8:30 a.m., New York Time,
         on the first Business Day following each Closing Date, the Company
         shall file a Current Report on Form 8-K disclosing the transactions
         consummated at such Closing Date, including, without limitation the
         aggregate principal amount of the Notes purchased on such Closing Date,
         the Conversion Price of such Notes, the aggregate number of Warrant
         Shares subject to the Warrants issued on such Closing Date and the
         Exercise Price of such Warrants. From and after the filing of the 8-K
         Filing with the SEC, no Buyer shall be in possession of any material
         nonpublic information received from the Company, any of its
         subsidiaries or any of its respective officers, directors, employees or
         agents, that is not disclosed in the 8-K Filing. The Company shall not,
         and shall cause each of its Subsidiaries and its and each of their
         respective officers, directors, employees and agents, not to, provide
         any Buyer with any material nonpublic information regarding the Company
         or any of its Subsidiaries from and after the filing of the 8-K Filing
         with the SEC without the express written consent of such Buyer. In the
         event of a breach of the foregoing covenant by the Company, any of its
         Subsidiaries, or any of its or their respective officers, directors,
         employees and agents, in addition to any other remedy provided herein
         or in the Transaction Documents, a Buyer shall have the right to make a
         public disclosure, in the form of a press release, public advertisement
         or otherwise, of such material nonpublic information without the prior
         approval by the Company, its Subsidiaries, or any of its or their
         respective officers, directors, employees or agents. No Buyer shall
         have any liability to the Company, its Subsidiaries, or any of its or
         their respective officers, directors, employees, shareholders or agents
         for any such disclosure. Subject to the foregoing, neither the Company
         nor any Buyer shall issue any press releases or any other public
         statements with respect to the transactions contemplated hereby;
         provided, however, that the Company shall be entitled, without the
         prior approval of any Buyer, to make any press release or other public
         disclosure with respect to such transactions (i) in substantial
         conformity with the 8-K Filing and contemporaneously therewith and (ii)
         as is required by applicable law and regulations (provided that in the
         case of clause (i) each Buyer shall be consulted by the Company in
         connection with any such press release or other public disclosure prior
         to its release).

                  (j) Restrictions on the Company. So long as any Notes are
         outstanding or any Buyer has a right to purchase Notes hereunder, the
         Company shall not, directly or indirectly, redeem, or declare or pay
         any cash dividend or distribution on, the Common Stock without the
         prior express written consent of the holders of Notes representing not
         less than a majority of the aggregate principal amount of the then
         outstanding Notes. On and after the date of this Agreement, so long as
         any Notes are outstanding or any Buyer has a right to purchase Notes
         hereunder, the Company shall comply with Section 15(a) of the Notes as
         though the Notes were outstanding.

                  (k) Corporate Existence. So long as any Buyer beneficially
         owns any Notes or Warrants or has the right to purchase any Additional
         Notes, the Company shall maintain its corporate existence and shall not
         sell all or substantially all of the Company's assets, except in



                                       -24-

<PAGE>

         the event of a merger or consolidation or sale of all or substantially
         all of the Company's assets, where the surviving or successor entity in
         such transaction (i) assumes the Company's obligations hereunder and
         under the agreements and instruments entered into in connection
         herewith and (ii) is a publicly traded corporation whose common stock
         is quoted on or listed for trading on the Nasdaq National Market, Inc.
         or the NYSE.

                  (l) Trading Activities. The Company acknowledges and agrees
         that nothing in the Transaction Documents prohibits any Buyer (and any
         of its affiliates) from engaging, directly or indirectly, in hedging
         transactions involving the Securities (including, without limitation,
         by way of short sales, purchases and sales of options, swap
         transactions, synthetic transactions and other derivative transactions)
         at any time.

                  (m) Voting. Each Buyer agrees that it shall not vote any
         shares of Common Stock in connection with the Shareholder Approval.

                  (n) Shareholder Approval. The Company shall provide each
         shareholder entitled to vote at the next meeting of shareholders of the
         Company, which shall be not later than August 30, 2002, a proxy
         statement, which has been previously reviewed by the Buyers and a
         counsel of their choice, soliciting each such shareholder's affirmative
         vote at such shareholder meeting for approval of the Company's issuance
         of all of the Securities as described in this Agreement in accordance
         with applicable law and the rules and regulations of the Principal
         Market (such approval of such issuance of the Securities is referred to
         as the "Shareholder Approval") and to cause the Board of Directors of
         the Company to recommend to the shareholders that they approve such
         proposal.

         5. REGISTER; TRANSFER AGENT INSTRUCTIONS.

                  (a) Register. The Company shall maintain at its principal
         executive offices (or such other office or agency of the Company as it
         may designate by notice to each holder of Notes or Warrants), a
         register for the Notes and the Warrants, in which the Company shall
         record the name and address of the Person in whose name the Notes and
         the Warrants have been issued (including the name and address of each
         transferee), the principal amount of Notes held by such Person and the
         number of Warrant Shares issuable upon exercise of the Warrants held by
         such Person. The Company shall keep the register open and available at
         all times during business hours for inspection of any Buyer or its
         legal representatives.

                  (b) Transfer Agent Instructions. The Company shall issue
         irrevocable instructions to its transfer agent, and any subsequent
         transfer agent, to issue certificates, registered in the name of each
         Buyer or its respective nominee(s), for the Conversion Shares, the
         Interest Shares and the Warrant Shares in such amounts as specified
         from time to time by each Buyer to the Company upon conversion of the
         Notes or exercise of the Warrants in the form of Exhibit F attached
         hereto (the "Irrevocable Transfer Agent Instructions"). The Company
         warrants that no instruction other than the Irrevocable Transfer Agent
         Instructions referred to in this Section 5(b) and stop transfer
         instructions to give effect to Section 2(g) hereof will be given by the
         Company to its transfer agent, and that the Securities shall otherwise
         be freely transferable on the books and records of the Company as and
         to the extent provided in this Agreement and the Registration Rights
         Agreement. If a Buyer effects a sale, assignment or transfer of the


                                       -25-

<PAGE>

         Securities in accordance with Section 2(g), the Company shall permit
         the transfer, and shall promptly instruct its transfer agent to issue
         one or more certificates in such name and in such denominations as
         specified by such Buyer to effect such sale, transfer or assignment. In
         the event that such sale, assignment or transfer involves Conversion
         Shares, Interest Shares or Warrant Shares sold, assigned or transferred
         pursuant to an effective registration statement or pursuant to Rule
         144, the transfer agent shall issue such Securities to the Buyer,
         assignee or transferee, as the case may be, without any restrictive
         legend. The Company acknowledges that a breach by it of its obligations
         hereunder will cause irreparable harm to a Buyer. Accordingly, the
         Company acknowledges that the remedy at law for a breach of its
         obligations under this Section 5(b) will be inadequate and agrees, in
         the event of a breach or threatened breach by the Company of the
         provisions of this Section 5(b), that a Buyer shall be entitled, in
         addition to all other available remedies, to an order and/or injunction
         restraining any breach and requiring immediate issuance and transfer,
         without the necessity of showing economic loss and without any bond or
         other security being required.

         6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.

                  (a) The obligation of the Company hereunder to issue and sell
         the Initial A-1 Notes and the related Initial A-1 Warrants to each
         Buyer at the Initial Closing is subject to the satisfaction, at or
         before the Initial Closing Date, of each of the following conditions,
         provided that these conditions are for the Company's sole benefit and
         may be waived by the Company at any time in its sole discretion by
         providing each Buyer with prior written notice thereof:

                           (i) Such Buyer shall have executed each of the
                  Transaction Documents to which it is a party and delivered the
                  same to the Company.

                           (ii) Such Buyer shall have delivered to the Company
                  the Purchase Price (less, in the case of Smithfield Fiduciary
                  LLC, the amounts withheld pursuant to Section 4(g)) for the
                  Initial A-1 Notes and the related Initial A-1 Warrants being
                  purchased by such Buyer at the Initial Closing by wire
                  transfer of immediately available funds pursuant to the
                  written wire instructions provided by the Company.

                           (iii) The representations and warranties of such
                  Buyer shall be true and correct in all material respects as of
                  the date when made and as of the Initial Closing Date as
                  though made at that time (except for representations and
                  warranties that speak as of a specific date), and such Buyer
                  shall have performed, satisfied and complied in all material
                  respects with the covenants, agreements and conditions
                  required by this Agreement to be performed, satisfied or
                  complied with by such Buyer at or prior to the Initial Closing
                  Date.

                  (b) The obligation of the Company hereunder to issue and sell
         the applicable Notes and the related Warrants to each Buyer at each
         Closing other than the Initial Closing is subject to the satisfaction,
         at or before the applicable Closing Date, of each of the following
         conditions, provided that these conditions are for the Company's sole
         benefit and may be waived by the Company at any time in its sole
         discretion by providing each Buyer with prior written notice thereof:


                                       -26-

<PAGE>

                           (i) Such Buyer shall have delivered to the Company
                  the Purchase Price for the applicable Notes and the related
                  Warrants being purchased by such Buyer at the applicable
                  Closing (as determined in accordance with Sections 1(a), 1(d)
                  and 1(e), as applicable) by wire transfer of immediately
                  available funds pursuant to the written wire instructions
                  provided by the Company.

                           (ii) The representations and warranties of such Buyer
                  shall be true and correct in all material respects as of the
                  date when made and as of the applicable Closing Date as though
                  made at that time (except for representations and warranties
                  that speak as of a specific date), and such Buyer shall have
                  performed, satisfied and complied in all material respects
                  with the covenants, agreements and conditions required by this
                  Agreement to be performed, satisfied or complied with by such
                  Buyer at or prior to the applicable Closing Date.

         7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.

                  (a) The obligation of each Buyer hereunder to purchase the
         Initial A-1 Notes and the related Initial A-1 Warrants at the Initial
         Closing is subject to the satisfaction, at or before the Initial
         Closing Date, of each of the following conditions, provided that these
         conditions are for each Buyer's sole benefit and may be waived by such
         Buyer at any time in its sole discretion by providing the Company with
         prior written notice thereof:

                           (i) The Company shall have executed and delivered to
                  such Buyer (A) each of the Transaction Documents and (B) the
                  Note Certificates (in such principal amounts as such Buyer
                  shall request) representing the Initial A-1 Notes and the
                  related Initial A-1Warrants being purchased by such Buyer
                  pursuant to this Agreement.

                           (ii) Such Buyer shall have received the opinion of
                  Dorsey & Whitney LLP, the Company's counsel, dated as of the
                  Initial Closing Date, in form, scope and substance reasonably
                  satisfactory to such Buyer and in substantially the form of
                  Exhibit E attached hereto.

                           (iii) The Company shall have delivered to such Buyer
                  a copy of the Irrevocable Transfer Agent Instructions, in the
                  form of Exhibit F attached hereto, which instructions shall
                  have been delivered to and acknowledged in writing by the
                  Company's transfer agent.

                           (iv) The Company shall have delivered to such Buyer a
                  certificate evidencing the incorporation and good standing of
                  the Company and each Subsidiary located in the United States
                  in such corporation's state of incorporation issued by the
                  Secretary of State of such state of incorporation as of a date
                  within 10 days of the Initial Closing Date.

                           (v) The Company shall have delivered to such Buyer a
                  certified copy of the Articles of Incorporation as certified
                  by the Secretary of State of the State of Minnesota within 10
                  days of the Initial Closing Date.

                           (vi) The Company shall have delivered to such Buyer a
                  certificate, executed by the



                                       -27-

<PAGE>

                  Secretary of the Company dated as of the Initial Closing Date,
                  as to (A) the resolutions described in Section 3 as adopted by
                  the Company's Board of Directors in a form reasonably
                  acceptable to such Buyer (the "Resolutions"), (B) the Articles
                  of Incorporation and (C) the Bylaws, each as in effect at the
                  Initial Closing, in the form attached hereto as Exhibit G.

                           (vii) The representations and warranties of the
                  Company shall be true and correct as of the date when made and
                  as of the Initial Closing Date as though made at that time
                  (except for representations and warranties that speak as of a
                  specific date) and the Company shall have performed, satisfied
                  and complied in all respects with the covenants, agreements
                  and conditions required by the Transaction Documents to be
                  performed, satisfied or complied with by the Company at or
                  prior to the Initial Closing Date. Such Buyer shall have
                  received a certificate, executed by the Chief Executive
                  Officer of the Company, dated as of the Initial Closing Date,
                  to the foregoing effect in the form attached hereto as Exhibit
                  H.

                           (viii) The Company shall have delivered to such Buyer
                  a letter from the Company's transfer agent certifying the
                  number of shares of Common Stock outstanding as of a date
                  within five days of the Initial Closing Date.

                           (ix) The Common Stock shall be (A) designated for
                  quotation or listing on the Principal Market, and (B) trading
                  in the Common Stock on the Principal Market shall not have
                  been suspended by the SEC or the Principal Market nor shall
                  suspension by the SEC or the Principal Market have been
                  threatened.

                           (xi) The Company shall have delivered to such Buyer
                  copies of the executed Credit Facility Amendments and the
                  consents to the transactions contemplated by this Agreement
                  required from U.S. Bank National Association and I.B.M. Credit
                  Corporation, and such amendments and consents shall be in a
                  form, scope and substance reasonably satisfactory to such
                  Buyer.

                  (b) The obligation of each Buyer hereunder to purchase the
         applicable Notes and the related Warrants at the applicable Closing
         (other than the Initial Closing) is subject to the satisfaction, at or
         before the applicable Closing Date, of each of the following
         conditions, provided that these conditions are for each Buyer's sole
         benefit and may be waived by such Buyer at any time in its sole
         discretion by providing the Company with prior written notice thereof:

                           (i) The Company shall have executed and delivered to
                  such Buyer the Note Certificates (in such principal amounts as
                  such Buyer shall request) representing the Notes and the
                  related Warrants being purchased by such Buyer pursuant to
                  this Agreement at the applicable Closing (as determined in
                  accordance with Sections 1(a), 1(d) and 1(e), as applicable).

                           (ii) Such Buyer shall have received the opinion of
                  the Company's outside counsel dated as of the applicable
                  Closing Date, in form, scope and substance reasonably
                  satisfactory to such Buyer and in substantially the form of
                  Exhibit E attached hereto.


                                       -28-

<PAGE>

                           (iii) The Irrevocable Transfer Agent Instructions
                  shall remain in effect as of the applicable Closing Date and
                  the Company shall have caused its transfer agent to deliver a
                  letter to such Buyer to that effect.

                           (iv) The Company shall have delivered to such Buyer a
                  certificate evidencing the incorporation and good standing of
                  the Company and each Subsidiary located in the United States
                  in such corporation's state of incorporation issued by the
                  Secretary of State of such state of incorporation as of a date
                  within 10 days of the applicable Closing Date.

                           (v) The Company shall have delivered to such Buyer a
                  certified copy of the Articles of Incorporation as certified
                  by the Secretary of State of the State of Minnesota within 10
                  days of the applicable Closing Date.

                           (vi) The Company shall have delivered to such Buyer a
                  certificate, executed by the Secretary of the Company dated as
                  of the applicable Closing Date, as to (A) the Resolutions, (B)
                  the Articles of Incorporation and (C) the Bylaws, each as in
                  effect at the applicable Closing, in the form attached hereto
                  as Exhibit G.

                           (vii) The representations and warranties of the
                  Company shall be true and correct as of the date when made and
                  as of the applicable Closing Date as though made at that time
                  (except for representations and warranties that speak as of a
                  specific date) and the Company shall have performed, satisfied
                  and complied in all respects with the covenants, agreements
                  and conditions required by the Transaction Documents
                  (including, without limitation, the Notes and the Warrants
                  issued prior to the applicable Closing Date) to be performed,
                  satisfied or complied with by the Company at or prior to the
                  applicable Closing Date. Such Buyer shall have received a
                  certificate, executed by the Chief Executive Officer of the
                  Company, dated as of the applicable Closing Date, to the
                  foregoing effect in the form attached hereto as Exhibit H.

                           (viii) The Company shall have delivered to such Buyer
                  a letter from the Company's transfer agent certifying the
                  number of shares of Common Stock outstanding as of a date
                  within five days of the applicable Closing Date.

                           (ix) The Common Stock shall be (A) designated for
                  quotation or listing on the Principal Market, and (B) trading
                  in the Common Stock on the Principal Market shall not have
                  been suspended by the SEC or the Principal Market nor shall
                  suspension by the SEC or the Principal Market have been
                  threatened.

                           (x) During the period beginning on the Initial
                  Closing Date and ending on and including the applicable
                  Closing Date, neither the Company nor any of its Subsidiaries
                  shall have been in default under any mortgage, indenture or
                  instrument under which there may be issued or by which there
                  may be secured or evidenced any indebtedness for money
                  borrowed by the Company or any of its Subsidiaries or for
                  money borrowed the repayment of which is guaranteed by the
                  Company or any of its Subsidiaries, whether such indebtedness
                  or guarantee exists at the Initial Closing Date or is created
                  thereafter, nor shall there exist as of the applicable Closing
                  Date an event that with the passage of time or giving notice,
                  and assuming it were not cured, would constitute such a
                  default.


                                       -29-

<PAGE>

                           (xi) During the period beginning on the Initial
                  Closing Date and ending on and including the applicable
                  Closing Date, there shall not have occurred (A) a Triggering
                  Event (as defined in the Notes) or an event that with the
                  passage of time or giving of notice, and assuming it were not
                  cured, would constitute a Triggering Event or (B) a
                  consummation of a Change of Control (as defined in Section
                  5(a) of the Notes) or a public announcement of a pending,
                  proposed or intended Change of Control which has not been
                  abandoned or terminated prior to the beginning of the Pricing
                  Period immediately prior to the applicable Closing Date,
                  provided that this clause (B) shall not apply to the
                  Additional Closing.

                           (xii) The aggregate amount of all charges related to
                  restructuring, impairment of assets (including write-offs of
                  inventory and accounts receivable) and other non-recurring
                  items (other than non-cash charges for write-offs of goodwill
                  and related non-cash charges with respect to deferred tax
                  assets) to be recorded by the Company in the quarter ended
                  March 31, 2002 did not exceed $10,000,000.

         8. TERMINATION. In the event that the Initial Closing shall not have
occurred with respect to a Buyer on or before five Business Days from the date
hereof due to the Company's or such Buyer's failure to satisfy the conditions
set forth in Sections 6(a) and 7(a) above (and the nonbreaching party's failure
to waive such unsatisfied condition(s)), the nonbreaching party shall have the
option to terminate this Agreement with respect to such breaching party at the
close of business on such date without liability of any party to any other
party; provided, however, that if this Agreement is terminated pursuant to this
Section 8, the Company shall remain obligated to reimburse the nonbreaching
Buyers for the expenses described in Section 4(g) above.

         9. MISCELLANEOUS.

                  (a) Governing Law; Jurisdiction; Jury Trial. All questions
         concerning the construction, validity, enforcement and interpretation
         of this Agreement shall be governed by the internal laws of the State
         of New York, without giving effect to any choice of law or conflict of
         law provision or rule (whether of the State of New York or any other
         jurisdictions) that would cause the application of the laws of any
         jurisdictions other than the State of New York. Each party hereby
         irrevocably submits to the non-exclusive jurisdiction of the state and
         federal courts sitting in The City of New York, Borough of Manhattan,
         for the adjudication of any dispute hereunder or in connection herewith
         or with any transaction contemplated hereby or discussed herein, and
         hereby irrevocably waives, and agrees not to assert in any suit, action
         or proceeding, any claim that it is not personally subject to the
         jurisdiction of any such court, that such suit, action or proceeding is
         brought in an inconvenient forum or that the venue of such suit, action
         or proceeding is improper. Each party hereby irrevocably waives
         personal service of process and consents to process being served in any
         such suit, action or proceeding by mailing a copy thereof to such party
         at the address for such notices to it under this Agreement and agrees
         that such service shall constitute good and sufficient service of
         process and notice thereof. Nothing contained herein shall be deemed to
         limit in any way any right to serve process in any manner permitted by
         law. Each party hereby irrevocably waives any right it may have, and
         agrees not to request, a jury trial for the adjudication of any dispute
         hereunder or in connection with or arising


                                       -30-

<PAGE>

         out of this agreement or any transaction contemplated hereby.

                  (b) Counterparts. This Agreement may be executed in two or
         more identical counterparts, all of which shall be considered one and
         the same agreement and shall become effective when counterparts have
         been signed by each party and delivered to the other party; provided
         that a facsimile signature shall be considered due execution and shall
         be binding upon the signatory thereto with the same force and effect as
         if the signature were an original, not a facsimile signature.

                  (c) Headings. The headings of this Agreement are for
         convenience of reference and shall not form part of, or affect the
         interpretation of, this Agreement.

                  (d) Severability. If any provision of this Agreement shall be
         invalid or unenforceable in any jurisdiction, such invalidity or
         unenforceability shall not affect the validity or enforceability of the
         remainder of this Agreement in that jurisdiction or the validity or
         enforceability of any provision of this Agreement in any other
         jurisdiction.

                  (e) Entire Agreement; Amendments. This Agreement supersedes
         all other prior oral or written agreements between the Buyers, the
         Company, their affiliates and Persons acting on their behalf with
         respect to the matters discussed herein (including, without limitation,
         the confidentiality agreements dated April 16, 2002 between the Company
         and each of the Buyers), and this Agreement and the instruments
         referenced herein contain the entire understanding of the parties with
         respect to the matters covered herein and therein and, except as
         specifically set forth herein or therein, neither the Company nor any
         Buyer makes any representation, warranty, covenant or undertaking with
         respect to such matters. No provision of this Agreement may be amended
         other than by an instrument in writing signed by the Company and the
         holders of Notes representing a majority of the aggregate principal
         amount of the Initial A-1 Notes on the Initial Closing Date, or if
         prior to the Initial Closing Date, the Buyers listed on the Schedule of
         Buyers as being obligated to purchase a majority of the aggregate
         principal amount of the Initial A-1 Notes. No provision hereof may be
         waived other than by an instrument in writing signed by the party
         against whom enforcement is sought. No such amendment shall be
         effective to the extent that it applies to less than all of the holders
         of the Notes then outstanding. No consideration shall be offered or
         paid to any Person to amend or consent to a waiver or modification of
         any provision of any of the Transaction Documents unless the same
         consideration also is offered to all of the parties to the Transaction
         Documents, holders of the Notes or holders of the Warrants, as the case
         may be. The Company has not, directly or indirectly, made any
         agreements with any Buyers relating to the terms or conditions of the
         transactions contemplated by the Transaction Documents except as set
         forth in the Transaction Documents.

                  (f) Notices. Any notices, consents, waivers or other
         communications required or permitted to be given under the terms of
         this Agreement must be in writing and will be deemed to have been
         delivered: (i) upon receipt, when delivered personally; (ii) upon
         receipt, when sent by facsimile (provided confirmation of transmission
         is mechanically or electronically generated and kept on file by the
         sending party); or (iii) one Business Day after deposit with an
         overnight courier service, in each case properly addressed to the party
         to receive the same. The addresses and facsimile numbers for such
         communications shall be:


                                       -31-

<PAGE>

         If to the Company:

                  Pemstar Inc.
                  3535 Technology Drive N.W.
                  Rochester, Minnesota 55901
                  Telephone: (507) 292-6941
                  Facsimile: (507) 280-0838
                  Attention: William J. Kullback, Executive Vice President
                             and Chief Financial Officer

         With a copy to:

                  Dorsey & Whitney LLP
                  50 South Sixth Street
                  Minneapolis, Minnesota 55402
                  Telephone: (612) 340-2600
                  Facsimile: (612) 340-7800
                  Attention: Jonathan Abram, Esq.

         If to a Buyer, to its address and facsimile number set forth on the
         Schedule of Buyers, with copies to such Buyer's representatives as set
         forth on the Schedule of Buyers, or to such other address and/or
         facsimile number and/or to the attention of such other Person as the
         recipient party has specified by written notice given to each other
         party five days prior to the effectiveness of such change. Written
         confirmation of receipt (A) given by the recipient of such notice,
         consent, waiver or other communication, (B) mechanically or
         electronically generated by the sender's facsimile machine containing
         the time, date, recipient facsimile number and an image of the first
         page of such transmission or (C) provided by an overnight courier
         service shall be rebuttable evidence of personal service, receipt by
         facsimile or receipt from an overnight courier service in accordance
         with clause (i), (ii) or (iii) above, respectively.

                  (g) Successors and Assigns. This Agreement shall be binding
         upon and inure to the benefit of the parties and their respective
         successors and assigns, including any purchasers of the Notes or the
         Warrants. The Company shall not assign this Agreement or any rights or
         obligations hereunder without the prior written consent of the holders
         of Notes representing a majority of the aggregate principal amount of
         the Notes then outstanding, including by merger or consolidation,
         except pursuant to a Change of Control (as defined in Section 5 of the
         Notes) with respect to which the Company is in compliance with Section
         5 of the Notes and Section 4(b) of the Warrants. A Buyer may assign
         some or all of its rights hereunder without the consent of the Company,
         in which event such assignee shall be deemed to be a Buyer hereunder
         with respect to such assigned rights; provided, however, that any such
         assignment shall not release such Buyer from its obligations hereunder
         unless such obligations are assumed by such assignee and the Company
         has consented to such assignment and assumption, which consent shall
         not be unreasonably withheld or delayed. Nothing in this Section 9(g)
         shall be deemed to modify the provisions of Section 2(g) of this
         Agreement.


                                       -32-

<PAGE>

                  (h) No Third Party Beneficiaries. Except for Section 9(k),
         this Agreement is intended for the benefit of the parties hereto and
         their respective permitted successors and assigns, and is not for the
         benefit of, nor may any provision hereof be enforced by, any other
         Person.

                  (i) Survival. Unless this Agreement is terminated under
         Section 8, the representations and warranties of the Company and the
         Buyers contained in Sections 2 and 3, the agreements and covenants set
         forth in Sections 4, 5 and 9 shall survive each Closing. Each Buyer
         shall be responsible only for its own representations, warranties,
         agreements and covenants hereunder.

                  (j) Further Assurances. Each party shall do and perform, or
         cause to be done and performed, all such further acts and things, and
         shall execute and deliver all such other agreements, certificates,
         instruments and documents, as the other party may reasonably request in
         order to carry out the intent and accomplish the purposes of this
         Agreement and the consummation of the transactions contemplated hereby.

                  (k) Indemnification. In consideration of each Buyer's
         execution and delivery of the Transaction Documents and acquiring the
         Securities thereunder and in addition to all of the Company's other
         obligations under the Transaction Documents, the Company shall defend,
         protect, indemnify and hold harmless each Buyer and each other holder
         of the Securities and all of their stockholders, members, partners,
         officers, directors, employees and direct or indirect investors and any
         of the foregoing Persons' agents or other representatives (including,
         without limitation, those retained in connection with the transactions
         contemplated by this Agreement) (collectively, the "Indemnitees") from
         and against any and all actions, causes of action, suits, claims,
         losses, costs, penalties, fees, liabilities and damages, and expenses
         in connection therewith (irrespective of whether any such Indemnitee is
         a party to the action for which indemnification hereunder is sought),
         and including reasonable attorneys' fees and disbursements (the
         "Indemnified Liabilities"), incurred by any Indemnitee as a result of,
         or arising out of, or relating to (a) any misrepresentation or breach
         of any representation or warranty made by the Company in the
         Transaction Documents or any other certificate, instrument or document
         contemplated hereby or thereby, (b) any breach of any covenant,
         agreement or obligation of the Company contained in the Transaction
         Documents or any other certificate, instrument or document contemplated
         hereby or thereby or (c) any cause of action, suit or claim brought or
         made against such Indemnitee by a third party (including for these
         purposes a derivative action brought on behalf of the Company) and
         arising out of or resulting from (i) the execution, delivery,
         performance or enforcement of the Transaction Documents or any other
         certificate, instrument or document contemplated hereby or thereby,
         (ii) any transaction financed or to be financed in whole or in part,
         directly or indirectly, with the proceeds of the issuance of the
         Securities, (iii) any disclosure made by such Buyer pursuant to Section
         4(i), or (iv) the status of such Buyer or holder of the Securities as
         an investor in the Company. To the extent that the foregoing
         undertaking by the Company may be unenforceable for any reason, the
         Company shall make the maximum contribution to the payment and
         satisfaction of each of the Indemnified Liabilities which is
         permissible under applicable law. Except as otherwise set forth herein,
         the mechanics and procedures with respect to the rights and obligations
         under this Section 9(k) shall be the same as those set forth in Section
         6 of the Registration Rights Agreement.


                                       -33-

<PAGE>

                  (l) No Strict Construction. The language used in this
         Agreement will be deemed to be the language chosen by the parties to
         express their mutual intent, and no rules of strict construction will
         be applied against any party.

                  (m) Remedies. Each Buyer and each holder of the Securities
         shall have all rights and remedies set forth in the Transaction
         Documents and all rights and remedies which such holders have been
         granted at any time under any other agreement or contract and all of
         the rights which such holders have under any law. Any Person having any
         rights under any provision of this Agreement shall be entitled to
         enforce such rights specifically (without posting a bond or other
         security), to recover damages by reason of any breach of any provision
         of this Agreement and to exercise all other rights granted by law.

                  (n) Payment Set Aside. To the extent that the Company makes a
         payment or payments to the Buyers hereunder or pursuant to any of the
         other Transaction Documents or the Buyers enforce or exercise their
         rights hereunder or thereunder, and such payment or payments or the
         proceeds of such enforcement or exercise or any part thereof are
         subsequently invalidated, declared to be fraudulent or preferential,
         set aside, recovered from, disgorged by or are required to be refunded,
         repaid or otherwise restored to the Company, a trustee, receiver or any
         other Person under any law (including, without limitation, any
         bankruptcy law, state or federal law, common law or equitable cause of
         action), then to the extent of any such restoration the obligation or
         part thereof originally intended to be satisfied shall be revived and
         continued in full force and effect as if such payment had not been made
         or such enforcement or setoff had not occurred.


                            [Signature Page Follows]



                                       -34-

<PAGE>


         IN WITNESS WHEREOF, each Buyer and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.

COMPANY:                               BUYERS:

PEMSTAR INC.                           SMITHFIELD FIDUCIARY LLC

By: /s/ Al Berning                     By: /s/ Adam J. Chill
    ------------------------------         ------------------------------------
    Name: Allen J. Berning                 Name: Adam J. Chill
    Title: Chairman, Chief Executive       Title: Authorized Signatory
           Officer and President

                                       CITADEL EQUITY FUND LTD.

                                       By: /s/ Kenneth A. Simpler
                                           -------------------------------------
                                           Name: Kenneth A. Simpler
                                           Title: Vice President

<PAGE>

                               SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
           (1)                           (2)                    (3)         (4)         (5)                     (6)

                                                                          Maximum
                                                             Aggregate   Aggregate
                                                             Principal   Principal
                                                             Amount of   Amount of  Subsequent
                                                              Initial     Initial    Closing      Legal Representative's
          Buyer           Address and Facsimile Number       A-1 Notes   A-2 Notes  Percentage  Address and Facsimile Number
          -----           ----------------------------       ---------   ---------  ----------  ----------------------------
<S>                       <C>                               <C>         <C>            <C>      <C>
Smithfield Fiduciary LLC  c/o Highbridge Capital            $2,500,000  $2,500,000     50%      Schulte Roth & Zabel LLP
                             Management, LLC                                                    919 Third Avenue
                          9 West 57th Street, 27th Floor                                        New York, New York 10022
                          New York, New York 10019                                              Attention: Eleazer Klein, Esq.
                          Attention: Ari J. Storch                                              Facsimile: (212) 593-5955
                                     Adam J. Chill                                              Telephone: (212) 756-2376
                          Facsimile: (212) 751-0755                                             e-mail: Eleazer.klein@srz.com
                          Telephone: (212) 287-4720
                          e-mail: aris@hcmny.com
                                  adamc@hcmny.com
                          Residence: Cayman Islands

Citadel Equity Fund Ltd.  c/o Citadel Investment Group,     $2,500,000  $2,500,000     50%      Katten Muchin Zavis Rosenman
                          L.L.C.                                                                525 W. Monroe Street
                          225 West Washington Street                                            Chicago, Illinois 60661-3693
                          Chicago, Illinois 60606                                               Attention: Robert J. Brantman, Esq.
                          Attention: Kenneth A. Simpler                                         Facsimile: (312) 902-1061
                          Facsimile: (312) 338-0780                                             Telephone: (312) 902-5200
                          Telephone: (312) 696-2100                                             e-mail: robert.brantman@kmzr.com
                          e-mail:
                          kenneth.simpler@citadelgroup.com
                          Residence: Cayman Islands

</TABLE>

<PAGE>

                                   SCHEDULES
                                   ---------

Schedule 3(a)      Subsidiaries
Schedule 3(d)      Conflicts
Schedule 3(e)      Consents
Schedule 3(k)      SEC Documents
Schedule 3(l)      Material Changes
Schedule 3(n)      Conduct of Business; Regulatory Permits
Schedule 3(p)      Transactions with Affiliates
Schedule 3(q)      Capitalization
Schedule 3(r)      Indebtedness and Other Contracts
Schedule 3(s)      Litigation
Schedule 3(u)      Employee Relations
Schedule 3(v)      Title
Schedule 3(w)      Intellectual Property
Schedule 3(z)      Other Contracts


                                    EXHIBITS
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Exhibit A          Form of Initial Note
Exhibit B          Form of Subsequent Note
Exhibit C          Form of Additional Note
Exhibit D          Form of Registration Rights Agreement
Exhibit E          Form of Company Counsel Opinion
Exhibit F          Form of Irrevocable Transfer Agent Instructions
Exhibit G          Form of Secretary's Certificate
Exhibit H          Form of Officer's Certificate
Exhibit I          Form of Warrant