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                                                                    Exhibit 10.3

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE 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 WARRANT
AND THE SECURITIES INTO WHICH THIS WARRANT IS EXERCISABLE MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.

                                  PEMSTAR INC.

                        WARRANT TO PURCHASE COMMON STOCK

Warrant No.: 3                                         Number of Shares: 500,000
Issuance Date: May 10, 2002 ("Issuance Date")

Pemstar Inc., a Minnesota corporation (the "Company"), hereby certifies that,
for Ten United States Dollars ($10.00) and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Smithfield Fiduciary LLC, the registered holder hereof or its permitted assigns,
is entitled, subject to the terms set forth below, to purchase from the Company,
at the Exercise Price (as defined below) then in effect, upon surrender of this
Warrant to Purchase Common Stock (including all Warrants to Purchase Common
Stock issued in exchange, transfer or replacement hereof, the "Warrant"), at any
time or times on or after the date hereof, but not after 11:59 P.M. Central Time
on the Expiration Date (as defined below), five hundred thousand (500,000) fully
paid nonassessable shares of Common Stock (as defined below) (the "Warrant
Shares"). Except as otherwise defined herein, capitalized terms in this Warrant
shall have the meanings set forth in Section 15. This Warrant is one of the
Warrants to Purchase Common Stock (the "Ancillary Warrants") issued pursuant to
that certain letter agreement, dated May 8, 2002, among the Company and the
Buyers (the "Buyers") referred to therein (the "Letter Agreement").

         1. EXERCISE OF WARRANT.

                  (a) Mechanics of Exercise. Subject to the terms and conditions
         hereof (including, without limitation, the limitations set forth in
         Section 1(f)), this Warrant may be exercised by the holder hereof on
         any day, in whole or in part, by (i) delivery of a written notice, in
         the form attached hereto as Exhibit A (the "Exercise Notice"), of such
         holder's election to exercise this Warrant, (ii) (A) payment to the
         Company of an amount equal to the applicable

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         Exercise Price multiplied by the number of Warrant Shares as to which
         this Warrant is being exercised (the "Aggregate Exercise Price") in
         cash or wire transfer of immediately available funds or (B) by
         notifying the Company that this Warrant is being exercised pursuant to
         a Cashless Exercise (as defined in Section 1(d)) and (iii) the
         surrender to a common carrier for overnight delivery to the Company, as
         soon as practicable following the date the holder of this Warrant
         delivers the Exercise Notice to the Company, of this Warrant (or an
         indemnification undertaking with respect to this Warrant in the case of
         its loss, theft or destruction). On or before the third Business Day
         following the date on which the Company has received each of the
         Exercise Notice, the Aggregate Exercise Price (or notice of a Cashless
         Exercise) and this Warrant (or an indemnification undertaking with
         respect to this Warrant in the case of its loss, theft or destruction)
         (the "Exercise Delivery Documents"), the Company shall (X) issue and
         deliver to the address as specified in the Exercise Notice, a
         certificate, registered in the name of the holder of this Warrant or
         its designee, for the number of shares of Common Stock to which the
         holder of this Warrant is entitled pursuant to such exercise, or (Y)
         provided that the Company's transfer agent (the "Transfer Agent") is
         participating in The Depository Trust Company ("DTC") Fast Automated
         Securities Transfer Program and provided that on the Exercise Date the
         shares of Common Stock to be issued pursuant to such exercise are
         registered for resale under the Securities Act of 1933, as amended (the
         "1933 Act"), or are eligible for resale under Rule 144(k) promulgated
         under the 1933 Act, upon the request of the holder, credit such
         aggregate number of shares of Common Stock to which the holder of this
         Warrant is entitled pursuant to such exercise to the holder's or its
         designee's balance account with DTC through its Deposit Withdrawal
         Agent Commission system. Upon delivery of the Exercise Notice and
         Aggregate Exercise Price referred to in clause (ii)(A) above or
         notification to the Company of a Cashless Exercise referred to in
         Section 1(d), the holder of this Warrant shall be deemed for all
         corporate purposes to have become the holder of record of the Warrant
         Shares with respect to which this Warrant has been exercised,
         irrespective of the date of delivery of this Warrant as required by
         clause (iii) above or the certificates evidencing such Warrant Shares.
         If the number of Warrant Shares represented by this Warrant submitted
         for exercise pursuant to this Section 1(a) is greater than the number
         of Warrant Shares being acquired upon an exercise, then the Company
         shall as soon as practicable and in no event later than three Business
         Days after any exercise and at its own expense, issue a new Warrant (in
         accordance with Section 7(d)) representing the right to purchase the
         number of Warrant Shares purchasable immediately prior to such exercise
         under this Warrant, less the number of Warrant Shares with respect to
         which this Warrant is exercised. No fractional shares of Common Stock
         are to be issued upon the exercise of this Warrant, but rather the
         number of shares of Common Stock to be issued shall be rounded up or
         down to the nearest whole number. The Company shall pay any and all
         taxes which may be payable with respect to the issuance and delivery of
         Warrant Shares upon exercise of this Warrant.

                  (b) Exercise Price. For purposes of this Warrant, "Exercise
         Price" means $2.00, subject to adjustment as provided herein.

                  (c) Company's Failure to Timely Deliver Securities.

                           (i) Failure to Deliver Shares. Subject to Section
                  1(f), if the Company shall fail for any reason or for no
                  reason to issue to the holder within five Business Days of
                  receipt of the Exercise Delivery Documents, a certificate for
                  the number of shares of Common

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                  Stock to which the holder is entitled or to credit the
                  holder's balance account with DTC for such number of shares of
                  Common Stock to which the holder is entitled upon the holder's
                  exercise of this Warrant, the Company shall pay as additional
                  damages in cash to such holder on each day after such fifth
                  Business Day that the issuance of such Common Stock
                  certificate is not timely effected an amount equal to 0.5% of
                  the product of (A) the sum of the number of shares of Common
                  Stock not issued to the holder on a timely basis and to which
                  the holder is entitled and (B) the average of the Closing Bid
                  Price of the Common Stock for the three consecutive trading
                  days immediately preceding the last possible date which the
                  Company could have issued such Common Stock to the holder
                  without violating Section 1(a).

                           (ii) Failure to Deliver New Warrant. If within ten
                  Business Days after the Company's receipt of the Exercise
                  Delivery Documents, the Company fails to deliver a new Warrant
                  to the holder for the number of shares of Common Stock to
                  which such holder is entitled, the Company shall pay as
                  additional damages in cash to such holder on each day after
                  such third Business Day that such delivery of such new Warrant
                  is not timely effected an amount equal to 0.5% of the product
                  of (A) the number of shares of Common Stock represented by the
                  portion of this Warrant which is not being exercised and (B)
                  the average of the Closing Bid Prices of the Common Stock for
                  the three consecutive trading days immediately preceding the
                  last possible date which the Company could have issued such
                  Warrant to the holder without violating Section 1(a).

                  (d) Cashless Exercise. Notwithstanding anything contained
         herein to the contrary, the holder of this Warrant may, in its sole
         discretion, exercise this Warrant in whole or in part and, in lieu of
         making the cash payment otherwise contemplated to be made to the
         Company upon such exercise in payment of the Aggregate Exercise Price,
         elect instead to receive upon such exercise the "Net Number" of shares
         of Common Stock determined according to the following formula (a
         "Cashless Exercise"):

                  Net Number = (A x B) - (A x C)
                                -----------------
                                       B

                           For purposes of the foregoing formula:

                                    A= the total number of shares with respect
                                    to which this Warrant is then being
                                    exercised.

                                    B= the Closing Sale Price of the Common
                                    Stock (as reported by Bloomberg) on the date
                                    immediately preceding the date of the
                                    Exercise Notice.

                                    C= the Exercise Price then in effect for the
                                    applicable Warrant Shares at the time of
                                    such exercise.

                  (e) Disputes. In the case of a dispute as to the determination
         of the Exercise Price or the arithmetic calculation of the Warrant
         Shares, the Company shall promptly issue to the holder the number of
         Warrant Shares that are not disputed and resolve such dispute in

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         accordance with Section 12.

                  (f) Limitations on Exercises.

                           (i) Beneficial Ownership. The Company shall not
                  effect the exercise of this Warrant, and no Person (as defined
                  below) who is a holder of this Warrant shall have the right to
                  exercise this Warrant, to the extent that after giving effect
                  to such exercise, such Person (together with such Person's
                  affiliates) would beneficially own in excess of 5% of the
                  shares of the Common Stock outstanding immediately after
                  giving effect to such exercise. For purposes of the foregoing
                  sentence, the aggregate number of shares of Common Stock
                  beneficially owned by such Person and its affiliates shall
                  include the number of shares of Common Stock issuable upon
                  exercise of this Warrant with respect to which the
                  determination of such sentence is being made, but shall
                  exclude shares of Common Stock which would be issuable upon
                  (i) exercise of the remaining, unexercised portion of this
                  Warrant beneficially owned by such Person and its affiliates
                  and (ii) exercise or conversion of the unexercised or
                  unconverted portion of any other securities of the Company
                  beneficially owned by such Person and its affiliates
                  (including, without limitation, any SPA Securities, Ancillary
                  Warrants, convertible notes or convertible preferred stock)
                  subject to a limitation on conversion or exercise analogous to
                  the limitation contained herein. Except as set forth in the
                  preceding sentence, for purposes of this paragraph, beneficial
                  ownership shall be calculated in accordance with Section 13(d)
                  of the Securities Exchange Act of 1934, as amended. For
                  purposes of this Warrant, in determining the number of
                  outstanding shares of Common Stock a holder may rely on the
                  number of outstanding shares of Common Stock as reflected in
                  (1) the Company's most recent Form 10-Q, Form 10-K or other
                  public filing with the Securities and Exchange Commission, as
                  the case may be, (2) a more recent public announcement by the
                  Company or (3) any other notice by the Company or its Transfer
                  Agent setting forth the number of shares of Common Stock
                  outstanding. For any reason at any time, upon the written or
                  oral request of the holder of this Warrant, the Company shall
                  within three Business Days confirm orally and in writing to
                  the holder of this Warrant the number of shares of Common
                  Stock then outstanding. In any case, the number of outstanding
                  shares of Common Stock shall be determined after giving effect
                  to the conversion or exercise of securities of the Company,
                  including the SPA Securities and the Ancillary Warrants, by
                  the holder of this Warrant and its affiliates since the date
                  as of which such number of outstanding shares of Common Stock
                  was reported.

                           (ii) Principal Market Regulation. The Company shall
                  not be obligated to issue any shares of Common Stock upon
                  exercise of this Warrant if the issuance of such shares of
                  Common Stock would exceed that number of shares of Common
                  Stock which the Company may issue upon exercise of this
                  Warrant (including, as applicable, any shares of Common Stock
                  issued upon conversion or exercise of or as payment of any
                  interest under the SPA Securities or upon exercise of any
                  Ancillary Warrants) without breaching the Company's
                  obligations under the rules or regulations of the Principal
                  Market (the "Exchange Cap"), except that such limitation shall
                  not apply in the event that the Company (A) obtains the
                  approval of its shareholders as required by the applicable
                  rules of the Principal Market for issuances of Common Stock in
                  excess of such amount or (B)

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                  obtains a written opinion from outside counsel to the Company
                  that such approval is not required, which opinion shall be
                  reasonably satisfactory to the holders of the Ancillary
                  Warrants representing a majority of the shares of Common Stock
                  underlying the Ancillary Warrants then outstanding. Until such
                  approval or written opinion is obtained, no Buyer shall be
                  issued, upon conversion or exercise of any SPA Securities or
                  Ancillary Warrants, shares of Common Stock in an amount
                  greater than the product of the Exchange Cap multiplied by a
                  fraction, the numerator of which is the total number of shares
                  of Common Stock underlying the Ancillary Warrants issued to
                  such Buyer pursuant to the Letter Agreement on the Issuance
                  Date and the denominator of which is the aggregate number of
                  shares of Common Stock underlying all the Ancillary Warrants
                  issued to the Buyers pursuant to the Letter Agreement on the
                  Issuance Date (with respect to each Buyer, the "Exchange Cap
                  Allocation"). In the event that any Buyer shall sell or
                  otherwise transfer any of such Buyer's Ancillary Warrants, the
                  transferee shall be allocated a pro rata portion of such
                  Buyer's Exchange Cap Allocation, and the restrictions of the
                  prior sentence shall apply to such transferee with respect to
                  the portion of the Exchange Cap Allocation allocated to such
                  transferee. In the event that any holder of Ancillary Warrants
                  shall exercise all of such holder's Ancillary Warrants into a
                  number of shares of Common Stock which, in the aggregate, is
                  less than such holder's Exchange Cap Allocation, then the
                  difference between such holder's Exchange Cap Allocation and
                  the number of shares of Common Stock actually issued to such
                  holder shall be allocated to the respective Exchange Cap
                  Allocations of the remaining holders of Ancillary Warrants on
                  a pro rata basis in proportion to the shares of Common Stock
                  underlying the Ancillary Warrants then held by each such
                  holder. In the event that the Company is prohibited from
                  issuing any Warrant Shares for which an Exercise Notice has
                  been received as a result of the operation of this Section
                  1(f)(ii), the Company shall pay cash in exchange for
                  cancellation of such Warrant Shares, at a price per Warrant
                  Share equal to the difference between the Closing Sale Price
                  and the Exercise Price as of the date of the attempted
                  exercise.

                  (g) Early Expiration. At any time or times after the date
         which is 20 trading days after the date which is 180 days after the
         Issuance Date, the Company shall have the right, in its sole
         discretion, to accelerate the Expiration Date of this Warrant
         ("Expiration at Company's Election") to the Company Election Expiration
         Date (as defined below); provided that the Conditions to Expiration at
         Company's Election (as set forth below) are satisfied as of the
         Company's Election Expiration Date.

                           (i) Mechanics of Exercise. The Company shall exercise
                  its right to Expiration at Company's Election by providing the
                  holder of this Warrant written notice ("Notice of Expiration
                  at Company's Election") at least 20 trading days prior to the
                  accelerated Expiration Date selected by the Company
                  ("Company's Election Expiration Date"). The date of receipt of
                  the Notice of Expiration at Company's Election by each holder
                  of Ancillary Warrants is referred to herein as the "Notice
                  Date". If the Company exercises its rights to Expiration at
                  Company's Election under this Warrant, it shall take the same
                  action under the corresponding provisions of the other
                  Ancillary Warrants. The Notice of Expiration at Company's
                  Election shall indicate the Company's Election Expiration
                  Date, which date shall be not less than 20 or more than 30
                  trading days after the Notice Date.

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                           (ii) "Conditions to Expiration at Company's Election"
                  means the following conditions: (A) on each day during the 20
                  consecutive trading day period immediately preceding the
                  Notice Date, the Registration Statement (as defined in the
                  Registration Rights Agreement) shall be effective and
                  available for the sale of no less than the sum of (x) the
                  number of Warrant Shares then issuable upon exercise of all
                  outstanding Ancillary Warrants (without respect to any
                  limitations on exercise) and (y) the number of Warrant Shares
                  that are then held by the holders of the Ancillary Warrants;
                  (B) on each day during the period beginning on the Issuance
                  Date and ending on and including the Company's Election
                  Expiration Date, the Common Stock is designated for quotation
                  on the Nasdaq National Market or listed on The New York Stock
                  Exchange, Inc. and is not suspended from trading nor shall
                  delisting or suspension be threatened or pending either (I) in
                  writing by such market or exchange or (II) by falling below
                  the minimum listing maintenance requirements of such market or
                  exchange; (C) on each trading day during the 20 consecutive
                  trading day period immediately preceding the Notice Date, the
                  Weighted Average Price (as defined in the SPA Securities which
                  are convertible notes) of the Common Stock is greater than
                  $4.00 (as adjusted for any stock splits, stock dividends,
                  stock combinations or other similar transactions); (D) the
                  Company shall have obtained the Shareholder Approval (as
                  defined in the Securities Purchase Agreement) on or prior to
                  the date which is 20 trading days prior to the Notice Date or
                  the Company shall have provided the holder of this Warrant
                  with evidence reasonably satisfactory to such holder that the
                  Shareholder Approval is not necessary to permit the exercise
                  or conversion of all the Ancillary Warrants and SPA Securities
                  (without regard to any limitations on conversion or exercise);
                  (E) the Company is otherwise in compliance with the SPA
                  Securities, the Transaction Documents (as defined in the
                  Securities Purchase Agreement), the Ancillary Warrants and the
                  Registration Rights Agreement; and (F) during the period
                  beginning on the Issuance Date and ending on and including the
                  Company Election Expiration Date, there shall not have
                  occurred (x) an event constituting a Triggering Event (as
                  defined in the SPA Securities which are convertible notes),
                  (y) an event that with the passage of time and without being
                  cured would constitute a Triggering Event, or (z) the public
                  announcement of a pending, proposed or intended Change of
                  Control (as defined in the SPA Securities which are
                  convertible notes), unless such pending, proposed or intended
                  Change of Control has been terminated, abandoned or
                  consummated and the Company has publicly announced such
                  termination, abandonment or consummation of such Change of
                  Control.

         2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The
Exercise Price and the number of Warrant Shares shall be adjusted from time to
time as follows:

                  (a) Adjustment upon Issuance of Common Stock. If and whenever
         on or after the Issuance Date the Company issues or sells, or in
         accordance with this Section 2 is deemed to have issued or sold, any
         shares of Common Stock (including the issuance or sale of shares of
         Common Stock owned or held by or for the account of the Company, but
         excluding shares of Common Stock deemed to have been issued by the
         Company (I) in connection with any employee benefit plan (including,
         without limitation, employee stock purchase plans, provided that
         issuances pursuant thereto are at a price which is at least equal to
         85% of the then fair market value of the Common Stock) which has been
         approved by the Board of Directors of the Company, pursuant to which
         the Company's securities may be issued to any employee, officer or

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         director for, or in connection with, services provided to, or
         employment with, the Company (an "Approved Stock Plan"), (II) upon
         conversion or exercise of SPA Securities or exercise of Ancillary
         Warrants or as payment of interest on SPA Securities or (III) in
         connection with any Excluded Securities) for a consideration per share
         less than a price (the "Applicable Price") equal to the Exercise Price
         in effect immediately prior to such issue or sale or deemed issuance or
         sale, then immediately after such issue or sale or deemed issuance or
         sale the Exercise Price then in effect shall be reduced to an amount
         equal to the product of (x) the Exercise Price in effect immediately
         prior to such issue or sale or deemed issuance or sale and (y) the
         quotient determined by dividing (1) the sum of the product of the
         Applicable Price and the number of shares of Common Stock Deemed
         Outstanding immediately prior to such issue or sale or deemed issuance
         or sale and the consideration, if any, received by the Company upon
         such issue or sale or deemed issuance or sale, by (2) the product of
         the Applicable Price multiplied by the number of shares of Common Stock
         Deemed Outstanding immediately after such issue or sale or deemed
         issuance or sale. Upon each such adjustment of the Exercise Price
         hereunder, the number of Warrant Shares shall be adjusted to the number
         of shares of Common Stock determined by multiplying the Exercise Price
         in effect immediately prior to such adjustment by the number of Warrant
         Shares acquirable upon exercise of this Warrant immediately prior to
         such adjustment and dividing the product thereof by the Exercise Price
         resulting from such adjustment. For purposes of determining the
         adjusted Exercise Price under this Section 2(a), the following shall be
         applicable:

                           (i) Issuance of Options. If the Company in any manner
                  grants any Options and the lowest price per share for which
                  one share of Common Stock is issuable upon the exercise of any
                  such Option or upon conversion, exercise or exchange of any
                  Convertible Securities issuable upon exercise of any such
                  Option is less than the Applicable Price, then such share of
                  Common Stock shall be deemed to be outstanding and to have
                  been issued and sold by the Company at the time of the
                  granting or sale of such Option for such price per share. For
                  purposes of this Section 2(a)(i), the "lowest price per share
                  for which one share of Common Stock is issuable upon exercise
                  of such Options or upon conversion, exercise or exchange of
                  such Convertible Securities" shall be equal to the sum of the
                  lowest amounts of consideration (if any) received or
                  receivable by the Company with respect to any one share of
                  Common Stock upon the granting or sale of the Option, upon
                  exercise of the Option and upon conversion, exercise or
                  exchange of any Convertible Security issuable upon exercise of
                  such Option. No further adjustment of the Exercise Price or
                  number of Warrant Shares shall be made upon the actual
                  issuance of such Common Stock or of such Convertible
                  Securities upon the exercise of such Options or upon the
                  actual issuance of such Common Stock upon conversion, exercise
                  or exchange of such Convertible Securities. If the Company
                  issues or sells any Options which are Variable Securities (as
                  defined in the SPA Securities), no adjustment of the Exercise
                  Price shall be made pursuant to this Section 2(a)(i), and no
                  shares of Common Stock shall be deemed outstanding with
                  respect to such Variable Securities, as a result of the
                  issuance of such Variable Securities until the actual issuance
                  of Common Stock or Convertible Securities upon exercise of
                  such Variable Securities, except to the extent such Variable
                  Securities also include as a component of the exercise price a
                  price which does not vary with the market price of the Common
                  Stock.

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                           (ii) Issuance of Convertible Securities. If the
                  Company in any manner issues or sells any Convertible
                  Securities and the lowest price per share for which one share
                  of Common Stock is issuable upon the conversion, exercise or
                  exchange thereof is less than the Applicable Price, then such
                  share of Common Stock shall be deemed to be outstanding and to
                  have been issued and sold by the Company at the time of the
                  issuance or sale of such Convertible Securities for such price
                  per share. For the purposes of this Section 2(a)(ii), the
                  "lowest price per share for which one share of Common Stock is
                  issuable upon the conversion, exercise or exchange" shall be
                  equal to the sum of the lowest amounts of consideration (if
                  any) received or receivable by the Company with respect to one
                  share of Common Stock upon the issuance or sale of the
                  Convertible Security and upon conversion, exercise or exchange
                  of such Convertible Security. No further adjustment of the
                  Exercise Price or number of Warrant Shares shall be made upon
                  the actual issuance of such Common Stock upon conversion,
                  exercise or exchange of such Convertible Securities, and if
                  any such issue or sale of such Convertible Securities is made
                  upon exercise of any Options for which adjustment of this
                  Warrant has been or is to be made pursuant to other provisions
                  of this Section 2(a), no further adjustment of the Exercise
                  Price or number of Warrant Shares shall be made by reason of
                  such issue or sale. If the Company issues or sells any
                  Convertible Securities which are Variable Securities, no
                  adjustment of the Exercise Price shall be made pursuant to
                  this Section 2(a)(ii), and no shares of Common Stock shall be
                  deemed outstanding with respect to such Variable Securities,
                  as a result of the issuance of such Variable Securities until
                  the actual issuance of Common Stock upon exercise of such
                  Variable Securities, except to the extent such Variable
                  Securities also include as a component of the exercise price a
                  price which does not vary with the market price of the Common
                  Stock.

                           (iii) Change in Option Price or Rate of Conversion.
                  If the purchase price provided for in any Options, the
                  additional consideration, if any, payable upon the issue,
                  conversion, exercise or exchange of any Convertible
                  Securities, or the rate at which any Convertible Securities
                  are convertible into or exercisable or exchangeable for Common
                  Stock increases or decreases at any time, the Exercise Price
                  and the number of Warrant Shares in effect at the time of such
                  increase or decrease shall be adjusted to the Exercise Price
                  and the number of Warrant Shares which would have been in
                  effect at such time had such Options or Convertible Securities
                  provided for such increased or decreased purchase price,
                  additional consideration or increased or decreased conversion
                  rate, as the case may be, at the time initially granted,
                  issued or sold. For purposes of this Section 2(a)(iii), if the
                  terms of any Option or Convertible Security that was
                  outstanding as of the date of issuance of this Warrant are
                  increased or decreased in the manner described in the
                  immediately preceding sentence, then such Option or
                  Convertible Security and the Common Stock deemed issuable upon
                  exercise, conversion or exchange thereof shall be deemed to
                  have been issued as of the date of such increase or decrease.
                  No adjustment pursuant to this Section 2(a) shall be made if
                  such adjustment would result in an increase of the Exercise
                  Price then in effect or a decrease in the number of Warrant
                  Shares.

                           (iv) Calculation of Consideration Received. If case
                  any Option is issued in connection with the issue or sale of
                  other securities of the Company, together comprising one
                  integrated transaction in which no specific consideration is
                  allocated to such Options by

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                  the parties thereto, the Options will be deemed to have been
                  issued for a consideration of $0.01. If any Common Stock,
                  Options or Convertible Securities are issued or sold or deemed
                  to have been issued or sold for cash, the consideration
                  received therefor will be deemed to be the net amount received
                  by the Company therefor. If any Common Stock, Options or
                  Convertible Securities are issued or sold for a consideration
                  other than cash, the amount of such consideration received by
                  the Company will be the fair value of such consideration,
                  except where such consideration consists of securities, in
                  which case the amount of consideration received by the Company
                  will be the Closing Sale Price of such security on the date of
                  receipt. If any Common Stock, Options or Convertible
                  Securities are issued to the owners of the non-surviving
                  entity in connection with any merger in which the Company is
                  the surviving entity, the amount of consideration therefor
                  will be deemed to be the fair value of such portion of the net
                  assets and business of the non-surviving entity as is
                  attributable to such Common Stock, Options or Convertible
                  Securities, as the case may be. The fair value of any
                  consideration other than cash or securities will be determined
                  jointly by the Company and the holders of Ancillary Warrants
                  representing at least a majority of the shares of Common Stock
                  obtainable upon exercise of the Ancillary Warrants then
                  outstanding. If such parties are unable to reach agreement
                  within 10 days after the occurrence of an event requiring
                  valuation (the "Valuation Event"), the fair value of such
                  consideration will be determined within fifteen Business Days
                  after the tenth day following the Valuation Event by an
                  independent, reputable appraiser jointly selected by the
                  Company and the holders of Ancillary Warrants representing at
                  least a majority of the shares of Common Stock obtainable upon
                  exercise of the Ancillary Warrants then outstanding. The
                  determination of such appraiser shall be final and binding
                  upon all parties absent manifest error and the fees and
                  expenses of such appraiser shall be borne by the Company.

                           (v) Record Date. If the Company takes a record of the
                  holders of Common Stock for the purpose of entitling them (A)
                  to receive a dividend or other distribution payable in Common
                  Stock, Options or in Convertible Securities or (B) to
                  subscribe for or purchase Common Stock, Options or Convertible
                  Securities, then such record date will be deemed to be the
                  date of the issue or sale of the shares of Common Stock deemed
                  to have been issued or sold upon the declaration of such
                  dividend or the making of such other distribution or the date
                  of the granting of such right of subscription or purchase, as
                  the case may be.

                  (b) Adjustment upon Subdivision or Combination of Common
         Stock. If the Company at any time after the date of issuance of this
         Warrant subdivides (by any stock split, stock dividend,
         recapitalization or otherwise) one or more classes of its outstanding
         shares of Common Stock into a greater number of shares, the Exercise
         Price in effect immediately prior to such subdivision will be
         proportionately reduced and the number of Warrant Shares will be
         proportionately increased. If the Company at any time after the date of
         issuance of this Warrant combines (by combination, reverse stock split
         or otherwise) one or more classes of its outstanding shares of Common
         Stock into a smaller number of shares, the Exercise Price in effect
         immediately prior to such combination will be proportionately increased
         and the number of Warrant Shares will be proportionately decreased. Any
         adjustment under this Section 2(b) shall become effective at the close
         of business on the date the subdivision or combination

                                       -9-

<PAGE>

         becomes effective.

                  (c) Other Events. If any event occurs of the type contemplated
         by the provisions of this Section 2 but not expressly provided for by
         such provisions (including, without limitation, the granting of stock
         appreciation rights, phantom stock rights or other rights with equity
         features), then the Company's Board of Directors will make an
         appropriate adjustment in the Exercise Price and the number of Warrant
         Shares so as to protect the rights of the holder of this Warrant;
         provided that no such adjustment pursuant to this Section 2(c) will
         increase the Exercise Price or decrease the number of Warrant Shares as
         otherwise determined pursuant to this Section 2.

         3. RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall declare or
make any dividend or other distribution of its assets (or rights to acquire its
assets) to holders of Common Stock, by way of return of capital or otherwise
(including, without limitation, any distribution of cash, stock or other
securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement or other similar transaction) (a
"Distribution"), at any time after the issuance of this Warrant, then, in each
such case:

                  (a) any Exercise Price in effect immediately prior to the
         close of business on the record date fixed for the determination of
         holders of Common Stock entitled to receive the Distribution shall be
         reduced, effective as of the close of business on such record date, to
         a price determined by multiplying such Exercise Price by a fraction of
         which (i) the numerator shall be the Closing Bid Price of the Common
         Stock on the trading day immediately preceding such record date minus
         the value of the Distribution (as determined in good faith by the
         Company's Board of Directors) applicable to one share of Common Stock,
         and (ii) the denominator shall be the Closing Bid Price of the Common
         Stock on the trading day immediately preceding such record date; and

                  (b) the number of Warrant Shares shall be increased to a
         number of shares equal to the number of shares of Common Stock
         obtainable immediately prior to the close of business on the record
         date fixed for the determination of holders of Common Stock entitled to
         receive the Distribution multiplied by the reciprocal of the fraction
         set forth in the immediately preceding paragraph (a); provided that in
         the event that the Distribution is of common stock ("Other Common
         Stock") of a company whose common stock is traded on a national
         securities exchange or a national automated quotation system, then the
         holder of this Warrant may elect to receive a warrant to purchase Other
         Common Stock in lieu of an increase in the number of Warrant Shares,
         the terms of which shall be identical to those of this Warrant, except
         that such warrant shall be exercisable into the number of shares of
         Other Common Stock that would have been payable to the holder of this
         Warrant pursuant to the Distribution had the holder exercised this
         Warrant immediately prior to such record date and with an aggregate
         exercise price equal to the product of the amount by which the exercise
         price of this Warrant was decreased with respect to the Distribution
         pursuant to the terms of the immediately preceding paragraph (a) and
         the number of Warrant Shares calculated in accordance with the first
         part of this paragraph (b).

         4. PURCHASE RIGHTS; ORGANIC CHANGE.

                                       -10-

<PAGE>

                  (a) Purchase Rights. In addition to any adjustments pursuant
         to Section 2 above, if at any time the Company grants, issues or sells
         any Options, Convertible Securities or rights to purchase stock,
         warrants, securities or other property pro rata to the record holders
         of any class of Common Stock (the "Purchase Rights"), then the holder
         of this Warrant will be entitled to acquire, upon the terms applicable
         to such Purchase Rights, the aggregate Purchase Rights which such
         holder could have acquired if such holder had held the number of shares
         of Common Stock acquirable upon complete exercise of this Warrant
         (without regard to any limitations on the exercise of this Warrant)
         immediately before the date on which a record is taken for the grant,
         issuance or sale of such Purchase Rights, or, if no such record is
         taken, the date as of which the record holders of Common Stock are to
         be determined for the grant, issue or sale of such Purchase Rights.

                  (b) Organic Change. Any recapitalization, reorganization,
         reclassification, consolidation, merger, sale of all or substantially
         all of the Company's assets to another Person or other transaction, in
         each case which is effected in such a way that holders of Common Stock
         are entitled to receive securities or assets with respect to or in
         exchange for Common Stock is referred to herein as an "Organic Change."
         Subject to Section 4(k) of the Securities Purchase Agreement, prior to
         the consummation of any (i) sale of all or substantially all of the
         Company's assets to an acquiring Person or (ii) other Organic Change
         following which the Company is not a surviving entity, the Company will
         secure from the Person purchasing such assets or the Person issuing the
         securities or providing the assets in such Organic Change (in each
         case, the "Acquiring Entity") a written agreement (in form and
         substance reasonably satisfactory to the holders of Ancillary Warrants
         representing at least a majority of the shares of Common Stock
         obtainable upon exercise of the Ancillary Warrants then outstanding) to
         deliver to the holder of this Warrant in exchange for this Warrant, a
         security of the Acquiring Entity evidenced by a written instrument
         substantially similar in form and substance to this Warrant and
         reasonably satisfactory to the holder of this Warrant (including, an
         adjusted exercise price equal to the value for the Common Stock
         reflected by the terms of such consolidation, merger or sale, and
         exercisable for a corresponding number of shares of Common Stock
         acquirable and receivable upon exercise of this Warrant (without regard
         to any limitations on the exercise of this Warrant), if the value so
         reflected is less than the Exercise Price in effect immediately prior
         to such consolidation, merger or sale). In the event that an Acquiring
         Entity is directly or indirectly controlled by a company or entity
         whose common stock or similar equity interest is listed, designated or
         quoted on a securities exchange or trading market, the holder of this
         Warrant may elect to treat such Person as the Acquiring Entity for
         purposes of this Section 4(b). Prior to the consummation of any other
         Organic Change, the Company shall make appropriate provision (in form
         and substance reasonably satisfactory to the holders of Ancillary
         Warrants representing at least a majority of the shares of Common Stock
         obtainable upon exercise of the Ancillary Warrants then outstanding) to
         insure that the holder of this Warrant thereafter will have the right
         to acquire and receive in lieu of or in addition to (as the case may
         be) the shares of Common Stock immediately theretofore acquirable and
         receivable upon the exercise of this Warrant (without regard to any
         limitations on the exercise of this Warrant), such shares of stock,
         securities or assets that would have been issued or payable in such
         Organic Change with respect to or in exchange for the number of shares
         of Common Stock which would have been acquirable and receivable upon
         the exercise of this Warrant as of the date of such Organic Change
         (without regard to any limitations on the exercise of this Warrant).

                                       -11-

<PAGE>

         5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the
Company will not, by amendment of its Articles of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, and will at all
times in good faith carry out all the provisions of this Warrant and take all
action as may be required to protect the rights of the holder of this Warrant.
Without limiting the generality of the foregoing, the Company (i) will not
increase the par value of any shares of Common Stock receivable upon the
exercise of this Warrant above the Exercise Price then in effect, (ii) will take
all such actions as may be necessary or appropriate in order that the Company
may validly and legally issue fully paid and nonassessable shares of Common
Stock upon the exercise of this Warrant, and (iii) will, so long as any of the
Ancillary Warrants are outstanding, take all action necessary to reserve and
keep available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the exercise of the Ancillary Warrants, 100% of the number
of shares of Common Stock as shall from time to time be necessary to effect the
exercise of the Ancillary Warrants then outstanding (without regard to any
limitations on exercise).

         6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise
specifically provided herein, no holder, solely in such Person's capacity as a
holder, of this Warrant shall be entitled to vote or receive dividends or be
deemed the holder of shares of the Company for any purpose, nor shall anything
contained in this Warrant be construed to confer upon the holder hereof, solely
in such Person's capacity as a holder of this Warrant, any of the rights of a
shareholder of the Company or any right to vote, give or withhold consent to any
corporate action (whether any reorganization, issue of stock, reclassification
of stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings, receive dividends or subscription rights, or otherwise, prior to the
issuance to the holder of this Warrant of the Warrant Shares which such Person
is then entitled to receive upon the due exercise of this Warrant. In addition,
nothing contained in this Warrant shall be construed as imposing any liabilities
on such holder to purchase any securities (upon exercise of this Warrant or
otherwise) or as a stockholder of the Company, whether such liabilities are
asserted by the Company or by creditors of the Company. Notwithstanding this
Section 6, the Company will provide the holder of this Warrant with copies of
the same notices and other information given to the stockholders of the Company
generally, contemporaneously with the giving thereof to the stockholders.

         7. REISSUANCE OF WARRANTS.

                  (a) Transfer of Warrant. If this Warrant is to be transferred,
         the holder shall surrender this Warrant to the Company, whereupon the
         Company will forthwith issue and deliver upon the order of the holder
         of this Warrant a new Warrant (in accordance with Section 7(d)),
         registered as the holder of this Warrant may request, representing the
         right to purchase the number of Warrant Shares being transferred by the
         Holder and, if less then the total number of Warrant Shares then
         underlying this Warrant is being transferred, a new Warrant (in
         accordance with Section 7(d)) to the holder of this Warrant
         representing the right to purchase the number of Warrant Shares not
         being transferred.

                                       -12-

<PAGE>

                  (b) Lost, Stolen or Mutilated Warrant. Upon receipt by the
         Company of evidence reasonably satisfactory to the Company of the loss,
         theft, destruction or mutilation of this Warrant, and, in the case of
         loss, theft or destruction, of any indemnification undertaking by the
         holder of this Warrant to the Company in customary form and, in the
         case of mutilation, upon surrender and cancellation of this Warrant,
         the Company shall execute and deliver to the Holder a new Warrant (in
         accordance with Section 7(d)) representing the right to purchase the
         Warrant Shares then underlying this Warrant.

                  (c) Warrant Exchangeable for Multiple Warrants. This Warrant
         is exchangeable, upon the surrender hereof by the Holder at the
         principal office of the Company, for a new Warrant or Warrants (in
         accordance with Section 7(d)) representing in the aggregate the right
         to purchase the number of Warrant Shares then underlying this Warrant,
         and each such new Warrant will represent the right to purchase such
         portion of such Warrant Shares as is designated by the holder of this
         Warrant at the time of such surrender; provided, however, that no
         Warrants for fractional shares of Common Stock shall be given.

                  (d) Issuance of New Warrants. Whenever the Company is required
         to issue a new Warrant pursuant to the terms of this Warrant, such new
         Warrant (i) shall be of like tenor with this Warrant, (ii) shall
         represent, as indicated on the face of such new Warrant, the right to
         purchase the Warrant Shares then underlying this Warrant (or in the
         case of a new Warrant being issued pursuant to Section 7(a) or Section
         7(c), the Warrant Shares designated by the holder of this Warrant
         which, when added to the number of shares of Common Stock underlying
         the other new Warrants issued in connection with such issuance, does
         not exceed the number of Warrant Shares then underlying this Warrant),
         (iii) shall have an issuance date, as indicated on the face of such new
         Warrant which is the same as the Issuance Date, and (iv) shall have the
         same rights and conditions as this Warrant.

         8. NOTICES. Whenever notice is required to be given under this Warrant,
unless otherwise provided herein, such notice shall be given in accordance with
Section 9(f) of the Securities Purchase Agreement. The Company shall provide the
holder of this Warrant with prompt written notice of all actions taken pursuant
to this Warrant, including in reasonable detail a description of such action and
the reason therefore. Without limiting the generality of the foregoing, the
Company will give written notice to the holder of this Warrant (i) immediately
upon any adjustment of the Exercise Price, setting forth in reasonable detail,
and certifying, the calculation of such adjustment and (ii) at least fifteen
days prior to the date on which the Company closes its books or takes a record
(A) with respect to any dividend or distribution upon the Common Stock, (B) with
respect to any grants, issues or sales of any Options, Convertible Securities or
rights to purchase stock, warrants, securities or other property to holders of
Common Stock or (C) for determining rights to vote with respect to any Change of
Control (as defined in the SPA Securities), dissolution or liquidation, provided
in each case that such information shall be made known to the public prior to or
in conjunction with such notice being provided to such holder. Notwithstanding
the foregoing, Section 4(j) of the Securities Purchase Agreement shall apply to
all notices given pursuant to this Warrant.

         9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the
provisions of this Warrant may be amended and the Company may take any action
herein

                                       -13-

<PAGE>

prohibited, or omit to perform any act herein required to be performed by it,
only if the Company has obtained the written consent of the holders of Ancillary
Warrants representing at least a majority of the shares of Common Stock
obtainable upon exercise of the Ancillary Warrants then outstanding; provided
that no such action may increase the exercise price of any SPA Warrant or
decrease the number of shares or class of stock obtainable upon exercise of any
SPA Warrant without the written consent of the holder of this Warrant. No such
amendment shall be effective to the extent that it applies to less than all of
the holders of the Ancillary Warrants then outstanding.

         10. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Warrant 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.

         11. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly
drafted by the Company and all the Buyers and shall not be construed against any
person as the drafter hereof. The headings of this Warrant are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Warrant.

         12. DISPUTE RESOLUTION. In the case of a dispute as to the
determination of the Exercise Price or the arithmetic calculation of the Warrant
Shares, the Company shall submit the disputed determinations or arithmetic
calculations via facsimile within two Business Days of receipt of the Exercise
Notice giving rise to such dispute, as the case may be, to the holder of this
Warrant. If the holder of this Warrant and the Company are unable to agree upon
such determination or calculation of the Exercise Price or the Warrant Shares
within three Business Days of such disputed determination or arithmetic
calculation being submitted to the Holder, then the Company shall, within two
Business Days submit via facsimile (a) the disputed determination of the
Exercise Price to an independent, reputable investment bank selected by the
Company and approved by the holder of this Warrant or (b) the disputed
arithmetic calculation of the Warrant Shares to the Company's independent,
outside accountant. The Company shall cause the investment bank or the
accountant, as the case may be, to perform the determinations or calculations
and notify the Company and the Holder of the results no later than ten Business
Days from the time it receives the disputed determinations or calculations. Such
investment bank's or accountant's determination or calculation, as the case may
be, shall be binding upon all parties absent demonstrable error.

         13. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The
remedies provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant, the Securities Purchase Agreement,
the SPA Securities and the Registration Rights Agreement, at law or in equity
(including a decree of specific performance and/or other injunctive relief), and
nothing herein shall limit the right of the holder of this Warrant right to
pursue actual damages for any failure by the Company to comply with the terms of
this Warrant. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the holder of this Warrant and that the
remedy at law for any such breach may be inadequate. The Company therefore
agrees that, in the event of any

                                       -14-

<PAGE>

such breach or threatened breach, the holder of this Warrant shall be entitled,
in addition to all other available remedies, to an injunction restraining any
breach, without the necessity of showing economic loss and without any bond or
other security being required.

         14. TRANSFER. This Warrant may be offered for sale, sold, transferred
or assigned without the consent of the Company, except as may otherwise be
required by Section 2(f) of the Securities Purchase Agreement.

         15. CERTAIN DEFINITIONS. For purposes of this Warrant, the following
terms shall have the following meanings:

                  (a) "Bloomberg" means Bloomberg Financial Markets.

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

                  (c) "Closing Bid Price" and "Closing Sale Price" means, for
         any security as of any date, the last closing bid price and last
         closing trade price, respectively, for such security on the Principal
         Market as reported by Bloomberg, or, if the Principal Market begins to
         operate on an extended hours basis and does not designate the closing
         bid price or the closing trade price, as the case may be, then the last
         bid price or last trade price, respectively, of such security prior to
         4:00:00 p.m. Eastern Time as reported by Bloomberg, or, if the
         Principal Market is not the principal securities exchange or trading
         market for such security, the last closing bid price or last trade
         price, respectively, of such security on the principal securities
         exchange or trading market where such security is listed or traded as
         reported by Bloomberg, or if the foregoing do not apply, the last
         closing bid price or last trade price, respectively, of such security
         in the over-the-counter market on the electronic bulletin board for
         such security as reported by Bloomberg, or, if no closing bid price or
         last trade price, respectively, is reported for such security by
         Bloomberg, the average of the bid prices, or the ask prices,
         respectively, of any market makers for such security as reported in the
         "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid
         Price or the Closing Sale Price cannot be calculated for a security on
         a particular date on any of the foregoing bases, the Closing Bid Price
         or the Closing Sale Price, as the case may be, of such security on such
         date shall be the fair market value as mutually determined by the
         Company and the holder of this Warrant. If the Company and the holder
         of this Warrant are unable to agree upon the fair market value of such
         security, then such dispute shall be resolved pursuant to Section 12.
         All such determinations to be appropriately adjusted for any stock
         dividend, stock split, stock combination or other similar transaction
         during such period.

                  (d) "Common Stock" means (i) the Company's common stock, par
         value $0.01 per share, and (ii) any capital stock into which such
         Common Stock shall have been changed or any capital stock resulting
         from a reclassification of such Common Stock.

                  (e) "Common Stock Deemed Outstanding" means, at any given
         time, the number of shares of Common Stock actually outstanding at such
         time, plus the number of shares of Common Stock deemed to be
         outstanding pursuant to Sections 2(a)(i) and 2(a)(ii) hereof

                                       -15-

<PAGE>

         regardless of whether the Options or Convertible Securities are
         actually exercisable or convertible at such time, but excluding any
         shares of Common Stock owned or held by or for the account of the
         Company or issuable upon conversion of the SPA Securities or exercise
         of the Ancillary Warrants.

                  (f) "Convertible Securities" means any stock or securities
         (other than Options) directly or indirectly convertible into or
         exercisable or exchangeable for Common Stock.

                  (g) "Excluded Securities" means any shares of Common Stock
         issued or issuable (i) in connection with a strategic partnership or
         joint venture in which there is a significant commercial relationship
         with the Company and in which the primary purpose of which is not to
         raise capital, (ii) pursuant to a bona fide firm commitment
         underwritten public offering with a nationally recognized underwriter
         which generates gross proceeds in excess of $45,000,000 (other than an
         "at-the-market offering" as defined in Rule 415(a)(4) under the 1933
         Act and "equity lines"), (iii) upon conversion or exercise of any
         Options or Convertible Securities which are outstanding on the day
         immediately preceding the Issuance Date, provided that the terms of
         such Options or Convertible Securities are not amended, modified or
         changed on or after the Issuance Date, and (iv) pursuant to any
         subdivision of one or more classes of the Company's outstanding shares
         of Common Stock with respect to which an adjustment to the Exercise
         Price has been made pursuant to Section 7(b).

                  (h) "Expiration Date" means May 1, 2009 or, if such date falls
         on a day other than a Business Day or on which trading does not take
         place on the Principal Market (a "Holiday"), the next date that is not
         a Holiday.

                  (i) "Options" means any rights, warrants or options to
         subscribe for or purchase Common Stock or Convertible Securities.

                  (j) "Person" means an individual, a limited liability company,
         a partnership, a joint venture, a corporation, a trust, an
         unincorporated organization, any other entity and a government or any
         department or agency thereof.

                  (k) "Principal Market" means the Nasdaq National Market.

                  (l) "Registration Rights Agreement" means that certain
         registration rights agreement dated as of May 10, 2002 between the
         Company and the Buyers.

                  (m) "Securities Purchase Agreement" means that certain
         securities purchase agreement dated as of May 3, 2002 between the
         Company and the Buyers.

                  (n) "SPA Securities" means the convertible notes and warrants
         issued pursuant to the Securities Purchase Agreement.

                  (o) "Warrant Shares" means the shares of Common Stock issuable
         upon exercise of this Warrant.

                                       -16-

<PAGE>

                            [Signature Page Follows]

                                       -17-

<PAGE>

         IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase
Common Stock to be duly executed as of the Issuance Date set out above.

                                       PEMSTAR INC.

                                       By: /s/ William J. Kullback
                                           -------------------------------------
                                           Name: William J. Kullback
                                           Title: Chief Financial Officer

<PAGE>

                                                                       EXHIBIT A

                                 EXERCISE NOTICE

            TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
                        WARRANT TO PURCHASE COMMON STOCK

                                  PEMSTAR INC.

         The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("Warrant Shares") of Pemstar
Inc., a Minnesota corporation (the "Company"), evidenced by the attached Warrant
to Purchase Common Stock (the "Warrant"). Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant.

         1. Form of Exercise Price. The Holder intends that payment of the
Exercise Price shall be made as:

                  ____________  a "Cash Exercise" with respect to
                                _________________ Warrant Shares; and/or

                  ____________  a "Cashless Exercise" with respect to
                                _______________ Warrant Shares.

         2. Payment of Exercise Price. In the event that the holder has elected
a Cash Exercise with respect to some or all of the Warrant Shares to be issued
pursuant hereto, the holder shall pay the Aggregate Exercise Price in the sum of
$___________________ to the Company in accordance with the terms of the Warrant.

         3. Notwithstanding anything to the contrary contained herein, this
Exercise Notice shall constitute a representation by the holder of the Warrant
that, after giving effect to the exercise provided for in this Exercise Notice,
such holder (together with its affiliates) will not have beneficial ownership
(together with the beneficial ownership of such person's affiliates) of a number
of shares of Common Stock which exceeds 5.0% of the total outstanding shares of
Common Stock as reflected in the Company's most recent Form 10-Q or Form 10-K or
other public filing with the SEC, as the case may be, or a more recent public
announcement by the Company or other notice by the Company or its transfer agent
setting forth the number of shares of Common Stock outstanding, but after giving
effect to conversions or exercise of securities of the Company, including the
Warrant, by such holder and its affiliates since the date as of which such
number of outstanding shares of Common Stock was reported.

         4. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.

Date: _______________ __, ______

----------------------------------
    Name of Registered Holder

By:
    ------------------------------
    Name:
    Title:

<PAGE>

                                 ACKNOWLEDGMENT

         The Company hereby acknowledges this Exercise Notice and hereby directs
[TRANSFER AGENT] to issue the above indicated number of shares of Common Stock
in accordance with the Transfer Agent Instructions dated ______ __, 2002 from
the Company and acknowledged and agreed to by [TRANSFER AGENT].

                                       PEMSTAR INC.

                                       By:
                                           -------------------------------------
                                           Name:
                                           Title:<PAGE>
                                                                    Exhibit 10.4

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE 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 WARRANT
AND THE SECURITIES INTO WHICH THIS WARRANT IS EXERCISABLE MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.

                                  PEMSTAR INC.

                        WARRANT TO PURCHASE COMMON STOCK

Warrant No.: 4                                         Number of Shares: 500,000
Issuance Date: May 10, 2002 ("Issuance Date")

Pemstar Inc., a Minnesota corporation (the "Company"), hereby certifies that,
for Ten United States Dollars ($10.00) and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Citadel Equity Fund Ltd., the registered holder hereof or its permitted assigns,
is entitled, subject to the terms set forth below, to purchase from the Company,
at the Exercise Price (as defined below) then in effect, upon surrender of this
Warrant to Purchase Common Stock (including all Warrants to Purchase Common
Stock issued in exchange, transfer or replacement hereof, the "Warrant"), at any
time or times on or after the date hereof, but not after 11:59 P.M. Central Time
on the Expiration Date (as defined below), five hundred thousand (500,000) fully
paid nonassessable shares of Common Stock (as defined below) (the "Warrant
Shares"). Except as otherwise defined herein, capitalized terms in this Warrant
shall have the meanings set forth in Section 15. This Warrant is one of the
Warrants to Purchase Common Stock (the "Ancillary Warrants") issued pursuant to
that certain letter agreement, dated May 8, 2002, among the Company and the
Buyers (the "Buyers") referred to therein (the "Letter Agreement").

         1. EXERCISE OF WARRANT.

                  (a) Mechanics of Exercise. Subject to the terms and conditions
         hereof (including, without limitation, the limitations set forth in
         Section 1(f)), this Warrant may be exercised by the holder hereof on
         any day, in whole or in part, by (i) delivery of a written notice, in
         the form attached hereto as Exhibit A (the "Exercise Notice"), of such
         holder's election to exercise this Warrant, (ii) (A) payment to the
         Company of an amount equal to the applicable

<PAGE>

         Exercise Price multiplied by the number of Warrant Shares as to which
         this Warrant is being exercised (the "Aggregate Exercise Price") in
         cash or wire transfer of immediately available funds or (B) by
         notifying the Company that this Warrant is being exercised pursuant to
         a Cashless Exercise (as defined in Section 1(d)) and (iii) the
         surrender to a common carrier for overnight delivery to the Company, as
         soon as practicable following the date the holder of this Warrant
         delivers the Exercise Notice to the Company, of this Warrant (or an
         indemnification undertaking with respect to this Warrant in the case of
         its loss, theft or destruction). On or before the third Business Day
         following the date on which the Company has received each of the
         Exercise Notice, the Aggregate Exercise Price (or notice of a Cashless
         Exercise) and this Warrant (or an indemnification undertaking with
         respect to this Warrant in the case of its loss, theft or destruction)
         (the "Exercise Delivery Documents"), the Company shall (X) issue and
         deliver to the address as specified in the Exercise Notice, a
         certificate, registered in the name of the holder of this Warrant or
         its designee, for the number of shares of Common Stock to which the
         holder of this Warrant is entitled pursuant to such exercise, or (Y)
         provided that the Company's transfer agent (the "Transfer Agent") is
         participating in The Depository Trust Company ("DTC") Fast Automated
         Securities Transfer Program and provided that on the Exercise Date the
         shares of Common Stock to be issued pursuant to such exercise are
         registered for resale under the Securities Act of 1933, as amended (the
         "1933 Act"), or are eligible for resale under Rule 144(k) promulgated
         under the 1933 Act, upon the request of the holder, credit such
         aggregate number of shares of Common Stock to which the holder of this
         Warrant is entitled pursuant to such exercise to the holder's or its
         designee's balance account with DTC through its Deposit Withdrawal
         Agent Commission system. Upon delivery of the Exercise Notice and
         Aggregate Exercise Price referred to in clause (ii)(A) above or
         notification to the Company of a Cashless Exercise referred to in
         Section 1(d), the holder of this Warrant shall be deemed for all
         corporate purposes to have become the holder of record of the Warrant
         Shares with respect to which this Warrant has been exercised,
         irrespective of the date of delivery of this Warrant as required by
         clause (iii) above or the certificates evidencing such Warrant Shares.
         If the number of Warrant Shares represented by this Warrant submitted
         for exercise pursuant to this Section 1(a) is greater than the number
         of Warrant Shares being acquired upon an exercise, then the Company
         shall as soon as practicable and in no event later than three Business
         Days after any exercise and at its own expense, issue a new Warrant (in
         accordance with Section 7(d)) representing the right to purchase the
         number of Warrant Shares purchasable immediately prior to such exercise
         under this Warrant, less the number of Warrant Shares with respect to
         which this Warrant is exercised. No fractional shares of Common Stock
         are to be issued upon the exercise of this Warrant, but rather the
         number of shares of Common Stock to be issued shall be rounded up or
         down to the nearest whole number. The Company shall pay any and all
         taxes which may be payable with respect to the issuance and delivery of
         Warrant Shares upon exercise of this Warrant.

                  (b) Exercise Price. For purposes of this Warrant, "Exercise
         Price" means $2.00, subject to adjustment as provided herein.

                  (c) Company's Failure to Timely Deliver Securities.

                           (i) Failure to Deliver Shares. Subject to Section
                  1(f), if the Company shall fail for any reason or for no
                  reason to issue to the holder within five Business Days of
                  receipt of the Exercise Delivery Documents, a certificate for
                  the number of shares of Common

                                       -2-

<PAGE>

                  Stock to which the holder is entitled or to credit the
                  holder's balance account with DTC for such number of shares of
                  Common Stock to which the holder is entitled upon the holder's
                  exercise of this Warrant, the Company shall pay as additional
                  damages in cash to such holder on each day after such fifth
                  Business Day that the issuance of such Common Stock
                  certificate is not timely effected an amount equal to 0.5% of
                  the product of (A) the sum of the number of shares of Common
                  Stock not issued to the holder on a timely basis and to which
                  the holder is entitled and (B) the average of the Closing Bid
                  Price of the Common Stock for the three consecutive trading
                  days immediately preceding the last possible date which the
                  Company could have issued such Common Stock to the holder
                  without violating Section 1(a).

                           (ii) Failure to Deliver New Warrant. If within ten
                  Business Days after the Company's receipt of the Exercise
                  Delivery Documents, the Company fails to deliver a new Warrant
                  to the holder for the number of shares of Common Stock to
                  which such holder is entitled, the Company shall pay as
                  additional damages in cash to such holder on each day after
                  such third Business Day that such delivery of such new Warrant
                  is not timely effected an amount equal to 0.5% of the product
                  of (A) the number of shares of Common Stock represented by the
                  portion of this Warrant which is not being exercised and (B)
                  the average of the Closing Bid Prices of the Common Stock for
                  the three consecutive trading days immediately preceding the
                  last possible date which the Company could have issued such
                  Warrant to the holder without violating Section 1(a).

                  (d) Cashless Exercise. Notwithstanding anything contained
         herein to the contrary, the holder of this Warrant may, in its sole
         discretion, exercise this Warrant in whole or in part and, in lieu of
         making the cash payment otherwise contemplated to be made to the
         Company upon such exercise in payment of the Aggregate Exercise Price,
         elect instead to receive upon such exercise the "Net Number" of shares
         of Common Stock determined according to the following formula (a
         "Cashless Exercise"):

                  Net Number = (A x B) - (A x C)
                                -----------------
                                       B

                           For purposes of the foregoing formula:

                                    A= the total number of shares with respect
                                    to which this Warrant is then being
                                    exercised.

                                    B= the Closing Sale Price of the Common
                                    Stock (as reported by Bloomberg) on the date
                                    immediately preceding the date of the
                                    Exercise Notice.

                                    C= the Exercise Price then in effect for the
                                    applicable Warrant Shares at the time of
                                    such exercise.

                  (e) Disputes. In the case of a dispute as to the determination
         of the Exercise Price or the arithmetic calculation of the Warrant
         Shares, the Company shall promptly issue to the holder the number of
         Warrant Shares that are not disputed and resolve such dispute in

                                       -3-

<PAGE>

         accordance with Section 12.

                  (f) Limitations on Exercises.

                           (i) Beneficial Ownership. The Company shall not
                  effect the exercise of this Warrant, and no Person (as defined
                  below) who is a holder of this Warrant shall have the right to
                  exercise this Warrant, to the extent that after giving effect
                  to such exercise, such Person (together with such Person's
                  affiliates) would beneficially own in excess of 5% of the
                  shares of the Common Stock outstanding immediately after
                  giving effect to such exercise. For purposes of the foregoing
                  sentence, the aggregate number of shares of Common Stock
                  beneficially owned by such Person and its affiliates shall
                  include the number of shares of Common Stock issuable upon
                  exercise of this Warrant with respect to which the
                  determination of such sentence is being made, but shall
                  exclude shares of Common Stock which would be issuable upon
                  (i) exercise of the remaining, unexercised portion of this
                  Warrant beneficially owned by such Person and its affiliates
                  and (ii) exercise or conversion of the unexercised or
                  unconverted portion of any other securities of the Company
                  beneficially owned by such Person and its affiliates
                  (including, without limitation, any SPA Securities, Ancillary
                  Warrants, convertible notes or convertible preferred stock)
                  subject to a limitation on conversion or exercise analogous to
                  the limitation contained herein. Except as set forth in the
                  preceding sentence, for purposes of this paragraph, beneficial
                  ownership shall be calculated in accordance with Section 13(d)
                  of the Securities Exchange Act of 1934, as amended. For
                  purposes of this Warrant, in determining the number of
                  outstanding shares of Common Stock a holder may rely on the
                  number of outstanding shares of Common Stock as reflected in
                  (1) the Company's most recent Form 10-Q, Form 10-K or other
                  public filing with the Securities and Exchange Commission, as
                  the case may be, (2) a more recent public announcement by the
                  Company or (3) any other notice by the Company or its Transfer
                  Agent setting forth the number of shares of Common Stock
                  outstanding. For any reason at any time, upon the written or
                  oral request of the holder of this Warrant, the Company shall
                  within three Business Days confirm orally and in writing to
                  the holder of this Warrant the number of shares of Common
                  Stock then outstanding. In any case, the number of outstanding
                  shares of Common Stock shall be determined after giving effect
                  to the conversion or exercise of securities of the Company,
                  including the SPA Securities and the Ancillary Warrants, by
                  the holder of this Warrant and its affiliates since the date
                  as of which such number of outstanding shares of Common Stock
                  was reported.

                           (ii) Principal Market Regulation. The Company shall
                  not be obligated to issue any shares of Common Stock upon
                  exercise of this Warrant if the issuance of such shares of
                  Common Stock would exceed that number of shares of Common
                  Stock which the Company may issue upon exercise of this
                  Warrant (including, as applicable, any shares of Common Stock
                  issued upon conversion or exercise of or as payment of any
                  interest under the SPA Securities or upon exercise of any
                  Ancillary Warrants) without breaching the Company's
                  obligations under the rules or regulations of the Principal
                  Market (the "Exchange Cap"), except that such limitation shall
                  not apply in the event that the Company (A) obtains the
                  approval of its shareholders as required by the applicable
                  rules of the Principal Market for issuances of Common Stock in
                  excess of such amount or (B)

                                       -4-

<PAGE>

                  obtains a written opinion from outside counsel to the Company
                  that such approval is not required, which opinion shall be
                  reasonably satisfactory to the holders of the Ancillary
                  Warrants representing a majority of the shares of Common Stock
                  underlying the Ancillary Warrants then outstanding. Until such
                  approval or written opinion is obtained, no Buyer shall be
                  issued, upon conversion or exercise of any SPA Securities or
                  Ancillary Warrants, shares of Common Stock in an amount
                  greater than the product of the Exchange Cap multiplied by a
                  fraction, the numerator of which is the total number of shares
                  of Common Stock underlying the Ancillary Warrants issued to
                  such Buyer pursuant to the Letter Agreement on the Issuance
                  Date and the denominator of which is the aggregate number of
                  shares of Common Stock underlying all the Ancillary Warrants
                  issued to the Buyers pursuant to the Letter Agreement on the
                  Issuance Date (with respect to each Buyer, the "Exchange Cap
                  Allocation"). In the event that any Buyer shall sell or
                  otherwise transfer any of such Buyer's Ancillary Warrants, the
                  transferee shall be allocated a pro rata portion of such
                  Buyer's Exchange Cap Allocation, and the restrictions of the
                  prior sentence shall apply to such transferee with respect to
                  the portion of the Exchange Cap Allocation allocated to such
                  transferee. In the event that any holder of Ancillary Warrants
                  shall exercise all of such holder's Ancillary Warrants into a
                  number of shares of Common Stock which, in the aggregate, is
                  less than such holder's Exchange Cap Allocation, then the
                  difference between such holder's Exchange Cap Allocation and
                  the number of shares of Common Stock actually issued to such
                  holder shall be allocated to the respective Exchange Cap
                  Allocations of the remaining holders of Ancillary Warrants on
                  a pro rata basis in proportion to the shares of Common Stock
                  underlying the Ancillary Warrants then held by each such
                  holder. In the event that the Company is prohibited from
                  issuing any Warrant Shares for which an Exercise Notice has
                  been received as a result of the operation of this Section
                  1(f)(ii), the Company shall pay cash in exchange for
                  cancellation of such Warrant Shares, at a price per Warrant
                  Share equal to the difference between the Closing Sale Price
                  and the Exercise Price as of the date of the attempted
                  exercise.

                  (g) Early Expiration. At any time or times after the date
         which is 20 trading days after the date which is 180 days after the
         Issuance Date, the Company shall have the right, in its sole
         discretion, to accelerate the Expiration Date of this Warrant
         ("Expiration at Company's Election") to the Company Election Expiration
         Date (as defined below); provided that the Conditions to Expiration at
         Company's Election (as set forth below) are satisfied as of the
         Company's Election Expiration Date.

                           (i) Mechanics of Exercise. The Company shall exercise
                  its right to Expiration at Company's Election by providing the
                  holder of this Warrant written notice ("Notice of Expiration
                  at Company's Election") at least 20 trading days prior to the
                  accelerated Expiration Date selected by the Company
                  ("Company's Election Expiration Date"). The date of receipt of
                  the Notice of Expiration at Company's Election by each holder
                  of Ancillary Warrants is referred to herein as the "Notice
                  Date". If the Company exercises its rights to Expiration at
                  Company's Election under this Warrant, it shall take the same
                  action under the corresponding provisions of the other
                  Ancillary Warrants. The Notice of Expiration at Company's
                  Election shall indicate the Company's Election Expiration
                  Date, which date shall be not less than 20 or more than 30
                  trading days after the Notice Date.

                                       -5-

<PAGE>

                           (ii) "Conditions to Expiration at Company's Election"
                  means the following conditions: (A) on each day during the 20
                  consecutive trading day period immediately preceding the
                  Notice Date, the Registration Statement (as defined in the
                  Registration Rights Agreement) shall be effective and
                  available for the sale of no less than the sum of (x) the
                  number of Warrant Shares then issuable upon exercise of all
                  outstanding Ancillary Warrants (without respect to any
                  limitations on exercise) and (y) the number of Warrant Shares
                  that are then held by the holders of the Ancillary Warrants;
                  (B) on each day during the period beginning on the Issuance
                  Date and ending on and including the Company's Election
                  Expiration Date, the Common Stock is designated for quotation
                  on the Nasdaq National Market or listed on The New York Stock
                  Exchange, Inc. and is not suspended from trading nor shall
                  delisting or suspension be threatened or pending either (I) in
                  writing by such market or exchange or (II) by falling below
                  the minimum listing maintenance requirements of such market or
                  exchange; (C) on each trading day during the 20 consecutive
                  trading day period immediately preceding the Notice Date, the
                  Weighted Average Price (as defined in the SPA Securities which
                  are convertible notes) of the Common Stock is greater than
                  $4.00 (as adjusted for any stock splits, stock dividends,
                  stock combinations or other similar transactions); (D) the
                  Company shall have obtained the Shareholder Approval (as
                  defined in the Securities Purchase Agreement) on or prior to
                  the date which is 20 trading days prior to the Notice Date or
                  the Company shall have provided the holder of this Warrant
                  with evidence reasonably satisfactory to such holder that the
                  Shareholder Approval is not necessary to permit the exercise
                  or conversion of all the Ancillary Warrants and SPA Securities
                  (without regard to any limitations on conversion or exercise);
                  (E) the Company is otherwise in compliance with the SPA
                  Securities, the Transaction Documents (as defined in the
                  Securities Purchase Agreement), the Ancillary Warrants and the
                  Registration Rights Agreement; and (F) during the period
                  beginning on the Issuance Date and ending on and including the
                  Company Election Expiration Date, there shall not have
                  occurred (x) an event constituting a Triggering Event (as
                  defined in the SPA Securities which are convertible notes),
                  (y) an event that with the passage of time and without being
                  cured would constitute a Triggering Event, or (z) the public
                  announcement of a pending, proposed or intended Change of
                  Control (as defined in the SPA Securities which are
                  convertible notes), unless such pending, proposed or intended
                  Change of Control has been terminated, abandoned or
                  consummated and the Company has publicly announced such
                  termination, abandonment or consummation of such Change of
                  Control.

         2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The
Exercise Price and the number of Warrant Shares shall be adjusted from time to
time as follows:

                  (a) Adjustment upon Issuance of Common Stock. If and whenever
         on or after the Issuance Date the Company issues or sells, or in
         accordance with this Section 2 is deemed to have issued or sold, any
         shares of Common Stock (including the issuance or sale of shares of
         Common Stock owned or held by or for the account of the Company, but
         excluding shares of Common Stock deemed to have been issued by the
         Company (I) in connection with any employee benefit plan (including,
         without limitation, employee stock purchase plans, provided that
         issuances pursuant thereto are at a price which is at least equal to
         85% of the then fair market value of the Common Stock) which has been
         approved by the Board of Directors of the Company, pursuant to which
         the Company's securities may be issued to any employee, officer or

                                       -6-

<PAGE>

         director for, or in connection with, services provided to, or
         employment with, the Company (an "Approved Stock Plan"), (II) upon
         conversion or exercise of SPA Securities or exercise of Ancillary
         Warrants or as payment of interest on SPA Securities or (III) in
         connection with any Excluded Securities) for a consideration per share
         less than a price (the "Applicable Price") equal to the Exercise Price
         in effect immediately prior to such issue or sale or deemed issuance or
         sale, then immediately after such issue or sale or deemed issuance or
         sale the Exercise Price then in effect shall be reduced to an amount
         equal to the product of (x) the Exercise Price in effect immediately
         prior to such issue or sale or deemed issuance or sale and (y) the
         quotient determined by dividing (1) the sum of the product of the
         Applicable Price and the number of shares of Common Stock Deemed
         Outstanding immediately prior to such issue or sale or deemed issuance
         or sale and the consideration, if any, received by the Company upon
         such issue or sale or deemed issuance or sale, by (2) the product of
         the Applicable Price multiplied by the number of shares of Common Stock
         Deemed Outstanding immediately after such issue or sale or deemed
         issuance or sale. Upon each such adjustment of the Exercise Price
         hereunder, the number of Warrant Shares shall be adjusted to the number
         of shares of Common Stock determined by multiplying the Exercise Price
         in effect immediately prior to such adjustment by the number of Warrant
         Shares acquirable upon exercise of this Warrant immediately prior to
         such adjustment and dividing the product thereof by the Exercise Price
         resulting from such adjustment. For purposes of determining the
         adjusted Exercise Price under this Section 2(a), the following shall be
         applicable:

                           (i) Issuance of Options. If the Company in any manner
                  grants any Options and the lowest price per share for which
                  one share of Common Stock is issuable upon the exercise of any
                  such Option or upon conversion, exercise or exchange of any
                  Convertible Securities issuable upon exercise of any such
                  Option is less than the Applicable Price, then such share of
                  Common Stock shall be deemed to be outstanding and to have
                  been issued and sold by the Company at the time of the
                  granting or sale of such Option for such price per share. For
                  purposes of this Section 2(a)(i), the "lowest price per share
                  for which one share of Common Stock is issuable upon exercise
                  of such Options or upon conversion, exercise or exchange of
                  such Convertible Securities" shall be equal to the sum of the
                  lowest amounts of consideration (if any) received or
                  receivable by the Company with respect to any one share of
                  Common Stock upon the granting or sale of the Option, upon
                  exercise of the Option and upon conversion, exercise or
                  exchange of any Convertible Security issuable upon exercise of
                  such Option. No further adjustment of the Exercise Price or
                  number of Warrant Shares shall be made upon the actual
                  issuance of such Common Stock or of such Convertible
                  Securities upon the exercise of such Options or upon the
                  actual issuance of such Common Stock upon conversion, exercise
                  or exchange of such Convertible Securities. If the Company
                  issues or sells any Options which are Variable Securities (as
                  defined in the SPA Securities), no adjustment of the Exercise
                  Price shall be made pursuant to this Section 2(a)(i), and no
                  shares of Common Stock shall be deemed outstanding with
                  respect to such Variable Securities, as a result of the
                  issuance of such Variable Securities until the actual issuance
                  of Common Stock or Convertible Securities upon exercise of
                  such Variable Securities, except to the extent such Variable
                  Securities also include as a component of the exercise price a
                  price which does not vary with the market price of the Common
                  Stock.

                                       -7-

<PAGE>

                           (ii) Issuance of Convertible Securities. If the
                  Company in any manner issues or sells any Convertible
                  Securities and the lowest price per share for which one share
                  of Common Stock is issuable upon the conversion, exercise or
                  exchange thereof is less than the Applicable Price, then such
                  share of Common Stock shall be deemed to be outstanding and to
                  have been issued and sold by the Company at the time of the
                  issuance or sale of such Convertible Securities for such price
                  per share. For the purposes of this Section 2(a)(ii), the
                  "lowest price per share for which one share of Common Stock is
                  issuable upon the conversion, exercise or exchange" shall be
                  equal to the sum of the lowest amounts of consideration (if
                  any) received or receivable by the Company with respect to one
                  share of Common Stock upon the issuance or sale of the
                  Convertible Security and upon conversion, exercise or exchange
                  of such Convertible Security. No further adjustment of the
                  Exercise Price or number of Warrant Shares shall be made upon
                  the actual issuance of such Common Stock upon conversion,
                  exercise or exchange of such Convertible Securities, and if
                  any such issue or sale of such Convertible Securities is made
                  upon exercise of any Options for which adjustment of this
                  Warrant has been or is to be made pursuant to other provisions
                  of this Section 2(a), no further adjustment of the Exercise
                  Price or number of Warrant Shares shall be made by reason of
                  such issue or sale. If the Company issues or sells any
                  Convertible Securities which are Variable Securities, no
                  adjustment of the Exercise Price shall be made pursuant to
                  this Section 2(a)(ii), and no shares of Common Stock shall be
                  deemed outstanding with respect to such Variable Securities,
                  as a result of the issuance of such Variable Securities until
                  the actual issuance of Common Stock upon exercise of such
                  Variable Securities, except to the extent such Variable
                  Securities also include as a component of the exercise price a
                  price which does not vary with the market price of the Common
                  Stock.

                           (iii) Change in Option Price or Rate of Conversion.
                  If the purchase price provided for in any Options, the
                  additional consideration, if any, payable upon the issue,
                  conversion, exercise or exchange of any Convertible
                  Securities, or the rate at which any Convertible Securities
                  are convertible into or exercisable or exchangeable for Common
                  Stock increases or decreases at any time, the Exercise Price
                  and the number of Warrant Shares in effect at the time of such
                  increase or decrease shall be adjusted to the Exercise Price
                  and the number of Warrant Shares which would have been in
                  effect at such time had such Options or Convertible Securities
                  provided for such increased or decreased purchase price,
                  additional consideration or increased or decreased conversion
                  rate, as the case may be, at the time initially granted,
                  issued or sold. For purposes of this Section 2(a)(iii), if the
                  terms of any Option or Convertible Security that was
                  outstanding as of the date of issuance of this Warrant are
                  increased or decreased in the manner described in the
                  immediately preceding sentence, then such Option or
                  Convertible Security and the Common Stock deemed issuable upon
                  exercise, conversion or exchange thereof shall be deemed to
                  have been issued as of the date of such increase or decrease.
                  No adjustment pursuant to this Section 2(a) shall be made if
                  such adjustment would result in an increase of the Exercise
                  Price then in effect or a decrease in the number of Warrant
                  Shares.

                           (iv) Calculation of Consideration Received. If case
                  any Option is issued in connection with the issue or sale of
                  other securities of the Company, together comprising one
                  integrated transaction in which no specific consideration is
                  allocated to such Options by

                                       -8-

<PAGE>

                  the parties thereto, the Options will be deemed to have been
                  issued for a consideration of $0.01. If any Common Stock,
                  Options or Convertible Securities are issued or sold or deemed
                  to have been issued or sold for cash, the consideration
                  received therefor will be deemed to be the net amount received
                  by the Company therefor. If any Common Stock, Options or
                  Convertible Securities are issued or sold for a consideration
                  other than cash, the amount of such consideration received by
                  the Company will be the fair value of such consideration,
                  except where such consideration consists of securities, in
                  which case the amount of consideration received by the Company
                  will be the Closing Sale Price of such security on the date of
                  receipt. If any Common Stock, Options or Convertible
                  Securities are issued to the owners of the non-surviving
                  entity in connection with any merger in which the Company is
                  the surviving entity, the amount of consideration therefor
                  will be deemed to be the fair value of such portion of the net
                  assets and business of the non-surviving entity as is
                  attributable to such Common Stock, Options or Convertible
                  Securities, as the case may be. The fair value of any
                  consideration other than cash or securities will be determined
                  jointly by the Company and the holders of Ancillary Warrants
                  representing at least a majority of the shares of Common Stock
                  obtainable upon exercise of the Ancillary Warrants then
                  outstanding. If such parties are unable to reach agreement
                  within 10 days after the occurrence of an event requiring
                  valuation (the "Valuation Event"), the fair value of such
                  consideration will be determined within fifteen Business Days
                  after the tenth day following the Valuation Event by an
                  independent, reputable appraiser jointly selected by the
                  Company and the holders of Ancillary Warrants representing at
                  least a majority of the shares of Common Stock obtainable upon
                  exercise of the Ancillary Warrants then outstanding. The
                  determination of such appraiser shall be final and binding
                  upon all parties absent manifest error and the fees and
                  expenses of such appraiser shall be borne by the Company.

                           (v) Record Date. If the Company takes a record of the
                  holders of Common Stock for the purpose of entitling them (A)
                  to receive a dividend or other distribution payable in Common
                  Stock, Options or in Convertible Securities or (B) to
                  subscribe for or purchase Common Stock, Options or Convertible
                  Securities, then such record date will be deemed to be the
                  date of the issue or sale of the shares of Common Stock deemed
                  to have been issued or sold upon the declaration of such
                  dividend or the making of such other distribution or the date
                  of the granting of such right of subscription or purchase, as
                  the case may be.

                  (b) Adjustment upon Subdivision or Combination of Common
         Stock. If the Company at any time after the date of issuance of this
         Warrant subdivides (by any stock split, stock dividend,
         recapitalization or otherwise) one or more classes of its outstanding
         shares of Common Stock into a greater number of shares, the Exercise
         Price in effect immediately prior to such subdivision will be
         proportionately reduced and the number of Warrant Shares will be
         proportionately increased. If the Company at any time after the date of
         issuance of this Warrant combines (by combination, reverse stock split
         or otherwise) one or more classes of its outstanding shares of Common
         Stock into a smaller number of shares, the Exercise Price in effect
         immediately prior to such combination will be proportionately increased
         and the number of Warrant Shares will be proportionately decreased. Any
         adjustment under this Section 2(b) shall become effective at the close
         of business on the date the subdivision or combination

                                       -9-

<PAGE>

         becomes effective.

                  (c) Other Events. If any event occurs of the type contemplated
         by the provisions of this Section 2 but not expressly provided for by
         such provisions (including, without limitation, the granting of stock
         appreciation rights, phantom stock rights or other rights with equity
         features), then the Company's Board of Directors will make an
         appropriate adjustment in the Exercise Price and the number of Warrant
         Shares so as to protect the rights of the holder of this Warrant;
         provided that no such adjustment pursuant to this Section 2(c) will
         increase the Exercise Price or decrease the number of Warrant Shares as
         otherwise determined pursuant to this Section 2.

         3. RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall declare or
make any dividend or other distribution of its assets (or rights to acquire its
assets) to holders of Common Stock, by way of return of capital or otherwise
(including, without limitation, any distribution of cash, stock or other
securities, property or options by way of a dividend, spin off,
reclassification, corporate rearrangement or other similar transaction) (a
"Distribution"), at any time after the issuance of this Warrant, then, in each
such case:

                  (a) any Exercise Price in effect immediately prior to the
         close of business on the record date fixed for the determination of
         holders of Common Stock entitled to receive the Distribution shall be
         reduced, effective as of the close of business on such record date, to
         a price determined by multiplying such Exercise Price by a fraction of
         which (i) the numerator shall be the Closing Bid Price of the Common
         Stock on the trading day immediately preceding such record date minus
         the value of the Distribution (as determined in good faith by the
         Company's Board of Directors) applicable to one share of Common Stock,
         and (ii) the denominator shall be the Closing Bid Price of the Common
         Stock on the trading day immediately preceding such record date; and

                  (b) the number of Warrant Shares shall be increased to a
         number of shares equal to the number of shares of Common Stock
         obtainable immediately prior to the close of business on the record
         date fixed for the determination of holders of Common Stock entitled to
         receive the Distribution multiplied by the reciprocal of the fraction
         set forth in the immediately preceding paragraph (a); provided that in
         the event that the Distribution is of common stock ("Other Common
         Stock") of a company whose common stock is traded on a national
         securities exchange or a national automated quotation system, then the
         holder of this Warrant may elect to receive a warrant to purchase Other
         Common Stock in lieu of an increase in the number of Warrant Shares,
         the terms of which shall be identical to those of this Warrant, except
         that such warrant shall be exercisable into the number of shares of
         Other Common Stock that would have been payable to the holder of this
         Warrant pursuant to the Distribution had the holder exercised this
         Warrant immediately prior to such record date and with an aggregate
         exercise price equal to the product of the amount by which the exercise
         price of this Warrant was decreased with respect to the Distribution
         pursuant to the terms of the immediately preceding paragraph (a) and
         the number of Warrant Shares calculated in accordance with the first
         part of this paragraph (b).

         4. PURCHASE RIGHTS; ORGANIC CHANGE.

                                       -10-

<PAGE>

                  (a) Purchase Rights. In addition to any adjustments pursuant
         to Section 2 above, if at any time the Company grants, issues or sells
         any Options, Convertible Securities or rights to purchase stock,
         warrants, securities or other property pro rata to the record holders
         of any class of Common Stock (the "Purchase Rights"), then the holder
         of this Warrant will be entitled to acquire, upon the terms applicable
         to such Purchase Rights, the aggregate Purchase Rights which such
         holder could have acquired if such holder had held the number of shares
         of Common Stock acquirable upon complete exercise of this Warrant
         (without regard to any limitations on the exercise of this Warrant)
         immediately before the date on which a record is taken for the grant,
         issuance or sale of such Purchase Rights, or, if no such record is
         taken, the date as of which the record holders of Common Stock are to
         be determined for the grant, issue or sale of such Purchase Rights.

                  (b) Organic Change. Any recapitalization, reorganization,
         reclassification, consolidation, merger, sale of all or substantially
         all of the Company's assets to another Person or other transaction, in
         each case which is effected in such a way that holders of Common Stock
         are entitled to receive securities or assets with respect to or in
         exchange for Common Stock is referred to herein as an "Organic Change."
         Subject to Section 4(k) of the Securities Purchase Agreement, prior to
         the consummation of any (i) sale of all or substantially all of the
         Company's assets to an acquiring Person or (ii) other Organic Change
         following which the Company is not a surviving entity, the Company will
         secure from the Person purchasing such assets or the Person issuing the
         securities or providing the assets in such Organic Change (in each
         case, the "Acquiring Entity") a written agreement (in form and
         substance reasonably satisfactory to the holders of Ancillary Warrants
         representing at least a majority of the shares of Common Stock
         obtainable upon exercise of the Ancillary Warrants then outstanding) to
         deliver to the holder of this Warrant in exchange for this Warrant, a
         security of the Acquiring Entity evidenced by a written instrument
         substantially similar in form and substance to this Warrant and
         reasonably satisfactory to the holder of this Warrant (including, an
         adjusted exercise price equal to the value for the Common Stock
         reflected by the terms of such consolidation, merger or sale, and
         exercisable for a corresponding number of shares of Common Stock
         acquirable and receivable upon exercise of this Warrant (without regard
         to any limitations on the exercise of this Warrant), if the value so
         reflected is less than the Exercise Price in effect immediately prior
         to such consolidation, merger or sale). In the event that an Acquiring
         Entity is directly or indirectly controlled by a company or entity
         whose common stock or similar equity interest is listed, designated or
         quoted on a securities exchange or trading market, the holder of this
         Warrant may elect to treat such Person as the Acquiring Entity for
         purposes of this Section 4(b). Prior to the consummation of any other
         Organic Change, the Company shall make appropriate provision (in form
         and substance reasonably satisfactory to the holders of Ancillary
         Warrants representing at least a majority of the shares of Common Stock
         obtainable upon exercise of the Ancillary Warrants then outstanding) to
         insure that the holder of this Warrant thereafter will have the right
         to acquire and receive in lieu of or in addition to (as the case may
         be) the shares of Common Stock immediately theretofore acquirable and
         receivable upon the exercise of this Warrant (without regard to any
         limitations on the exercise of this Warrant), such shares of stock,
         securities or assets that would have been issued or payable in such
         Organic Change with respect to or in exchange for the number of shares
         of Common Stock which would have been acquirable and receivable upon
         the exercise of this Warrant as of the date of such Organic Change
         (without regard to any limitations on the exercise of this Warrant).

                                       -11-

<PAGE>

         5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the
Company will not, by amendment of its Articles of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, and will at all
times in good faith carry out all the provisions of this Warrant and take all
action as may be required to protect the rights of the holder of this Warrant.
Without limiting the generality of the foregoing, the Company (i) will not
increase the par value of any shares of Common Stock receivable upon the
exercise of this Warrant above the Exercise Price then in effect, (ii) will take
all such actions as may be necessary or appropriate in order that the Company
may validly and legally issue fully paid and nonassessable shares of Common
Stock upon the exercise of this Warrant, and (iii) will, so long as any of the
Ancillary Warrants are outstanding, take all action necessary to reserve and
keep available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the exercise of the Ancillary Warrants, 100% of the number
of shares of Common Stock as shall from time to time be necessary to effect the
exercise of the Ancillary Warrants then outstanding (without regard to any
limitations on exercise).

         6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise
specifically provided herein, no holder, solely in such Person's capacity as a
holder, of this Warrant shall be entitled to vote or receive dividends or be
deemed the holder of shares of the Company for any purpose, nor shall anything
contained in this Warrant be construed to confer upon the holder hereof, solely
in such Person's capacity as a holder of this Warrant, any of the rights of a
shareholder of the Company or any right to vote, give or withhold consent to any
corporate action (whether any reorganization, issue of stock, reclassification
of stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings, receive dividends or subscription rights, or otherwise, prior to the
issuance to the holder of this Warrant of the Warrant Shares which such Person
is then entitled to receive upon the due exercise of this Warrant. In addition,
nothing contained in this Warrant shall be construed as imposing any liabilities
on such holder to purchase any securities (upon exercise of this Warrant or
otherwise) or as a stockholder of the Company, whether such liabilities are
asserted by the Company or by creditors of the Company. Notwithstanding this
Section 6, the Company will provide the holder of this Warrant with copies of
the same notices and other information given to the stockholders of the Company
generally, contemporaneously with the giving thereof to the stockholders.

         7. REISSUANCE OF WARRANTS.

                  (a) Transfer of Warrant. If this Warrant is to be transferred,
         the holder shall surrender this Warrant to the Company, whereupon the
         Company will forthwith issue and deliver upon the order of the holder
         of this Warrant a new Warrant (in accordance with Section 7(d)),
         registered as the holder of this Warrant may request, representing the
         right to purchase the number of Warrant Shares being transferred by the
         Holder and, if less then the total number of Warrant Shares then
         underlying this Warrant is being transferred, a new Warrant (in
         accordance with Section 7(d)) to the holder of this Warrant
         representing the right to purchase the number of Warrant Shares not
         being transferred.

                                       -12-

<PAGE>

                  (b) Lost, Stolen or Mutilated Warrant. Upon receipt by the
         Company of evidence reasonably satisfactory to the Company of the loss,
         theft, destruction or mutilation of this Warrant, and, in the case of
         loss, theft or destruction, of any indemnification undertaking by the
         holder of this Warrant to the Company in customary form and, in the
         case of mutilation, upon surrender and cancellation of this Warrant,
         the Company shall execute and deliver to the Holder a new Warrant (in
         accordance with Section 7(d)) representing the right to purchase the
         Warrant Shares then underlying this Warrant.

                  (c) Warrant Exchangeable for Multiple Warrants. This Warrant
         is exchangeable, upon the surrender hereof by the Holder at the
         principal office of the Company, for a new Warrant or Warrants (in
         accordance with Section 7(d)) representing in the aggregate the right
         to purchase the number of Warrant Shares then underlying this Warrant,
         and each such new Warrant will represent the right to purchase such
         portion of such Warrant Shares as is designated by the holder of this
         Warrant at the time of such surrender; provided, however, that no
         Warrants for fractional shares of Common Stock shall be given.

                  (d) Issuance of New Warrants. Whenever the Company is required
         to issue a new Warrant pursuant to the terms of this Warrant, such new
         Warrant (i) shall be of like tenor with this Warrant, (ii) shall
         represent, as indicated on the face of such new Warrant, the right to
         purchase the Warrant Shares then underlying this Warrant (or in the
         case of a new Warrant being issued pursuant to Section 7(a) or Section
         7(c), the Warrant Shares designated by the holder of this Warrant
         which, when added to the number of shares of Common Stock underlying
         the other new Warrants issued in connection with such issuance, does
         not exceed the number of Warrant Shares then underlying this Warrant),
         (iii) shall have an issuance date, as indicated on the face of such new
         Warrant which is the same as the Issuance Date, and (iv) shall have the
         same rights and conditions as this Warrant.

         8. NOTICES. Whenever notice is required to be given under this Warrant,
unless otherwise provided herein, such notice shall be given in accordance with
Section 9(f) of the Securities Purchase Agreement. The Company shall provide the
holder of this Warrant with prompt written notice of all actions taken pursuant
to this Warrant, including in reasonable detail a description of such action and
the reason therefore. Without limiting the generality of the foregoing, the
Company will give written notice to the holder of this Warrant (i) immediately
upon any adjustment of the Exercise Price, setting forth in reasonable detail,
and certifying, the calculation of such adjustment and (ii) at least fifteen
days prior to the date on which the Company closes its books or takes a record
(A) with respect to any dividend or distribution upon the Common Stock, (B) with
respect to any grants, issues or sales of any Options, Convertible Securities or
rights to purchase stock, warrants, securities or other property to holders of
Common Stock or (C) for determining rights to vote with respect to any Change of
Control (as defined in the SPA Securities), dissolution or liquidation, provided
in each case that such information shall be made known to the public prior to or
in conjunction with such notice being provided to such holder. Notwithstanding
the foregoing, Section 4(j) of the Securities Purchase Agreement shall apply to
all notices given pursuant to this Warrant.

         9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the
provisions of this Warrant may be amended and the Company may take any action
herein

                                       -13-

<PAGE>

prohibited, or omit to perform any act herein required to be performed by it,
only if the Company has obtained the written consent of the holders of Ancillary
Warrants representing at least a majority of the shares of Common Stock
obtainable upon exercise of the Ancillary Warrants then outstanding; provided
that no such action may increase the exercise price of any SPA Warrant or
decrease the number of shares or class of stock obtainable upon exercise of any
SPA Warrant without the written consent of the holder of this Warrant. No such
amendment shall be effective to the extent that it applies to less than all of
the holders of the Ancillary Warrants then outstanding.

         10. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Warrant 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.

         11. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly
drafted by the Company and all the Buyers and shall not be construed against any
person as the drafter hereof. The headings of this Warrant are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Warrant.

         12. DISPUTE RESOLUTION. In the case of a dispute as to the
determination of the Exercise Price or the arithmetic calculation of the Warrant
Shares, the Company shall submit the disputed determinations or arithmetic
calculations via facsimile within two Business Days of receipt of the Exercise
Notice giving rise to such dispute, as the case may be, to the holder of this
Warrant. If the holder of this Warrant and the Company are unable to agree upon
such determination or calculation of the Exercise Price or the Warrant Shares
within three Business Days of such disputed determination or arithmetic
calculation being submitted to the Holder, then the Company shall, within two
Business Days submit via facsimile (a) the disputed determination of the
Exercise Price to an independent, reputable investment bank selected by the
Company and approved by the holder of this Warrant or (b) the disputed
arithmetic calculation of the Warrant Shares to the Company's independent,
outside accountant. The Company shall cause the investment bank or the
accountant, as the case may be, to perform the determinations or calculations
and notify the Company and the Holder of the results no later than ten Business
Days from the time it receives the disputed determinations or calculations. Such
investment bank's or accountant's determination or calculation, as the case may
be, shall be binding upon all parties absent demonstrable error.

         13. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The
remedies provided in this Warrant shall be cumulative and in addition to all
other remedies available under this Warrant, the Securities Purchase Agreement,
the SPA Securities and the Registration Rights Agreement, at law or in equity
(including a decree of specific performance and/or other injunctive relief), and
nothing herein shall limit the right of the holder of this Warrant right to
pursue actual damages for any failure by the Company to comply with the terms of
this Warrant. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the holder of this Warrant and that the
remedy at law for any such breach may be inadequate. The Company therefore
agrees that, in the event of any

                                       -14-

<PAGE>

such breach or threatened breach, the holder of this Warrant shall be entitled,
in addition to all other available remedies, to an injunction restraining any
breach, without the necessity of showing economic loss and without any bond or
other security being required.

         14. TRANSFER. This Warrant may be offered for sale, sold, transferred
or assigned without the consent of the Company, except as may otherwise be
required by Section 2(f) of the Securities Purchase Agreement.

         15. CERTAIN DEFINITIONS. For purposes of this Warrant, the following
terms shall have the following meanings:

                  (a) "Bloomberg" means Bloomberg Financial Markets.

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

                  (c) "Closing Bid Price" and "Closing Sale Price" means, for
         any security as of any date, the last closing bid price and last
         closing trade price, respectively, for such security on the Principal
         Market as reported by Bloomberg, or, if the Principal Market begins to
         operate on an extended hours basis and does not designate the closing
         bid price or the closing trade price, as the case may be, then the last
         bid price or last trade price, respectively, of such security prior to
         4:00:00 p.m. Eastern Time as reported by Bloomberg, or, if the
         Principal Market is not the principal securities exchange or trading
         market for such security, the last closing bid price or last trade
         price, respectively, of such security on the principal securities
         exchange or trading market where such security is listed or traded as
         reported by Bloomberg, or if the foregoing do not apply, the last
         closing bid price or last trade price, respectively, of such security
         in the over-the-counter market on the electronic bulletin board for
         such security as reported by Bloomberg, or, if no closing bid price or
         last trade price, respectively, is reported for such security by
         Bloomberg, the average of the bid prices, or the ask prices,
         respectively, of any market makers for such security as reported in the
         "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid
         Price or the Closing Sale Price cannot be calculated for a security on
         a particular date on any of the foregoing bases, the Closing Bid Price
         or the Closing Sale Price, as the case may be, of such security on such
         date shall be the fair market value as mutually determined by the
         Company and the holder of this Warrant. If the Company and the holder
         of this Warrant are unable to agree upon the fair market value of such
         security, then such dispute shall be resolved pursuant to Section 12.
         All such determinations to be appropriately adjusted for any stock
         dividend, stock split, stock combination or other similar transaction
         during such period.

                  (d) "Common Stock" means (i) the Company's common stock, par
         value $0.01 per share, and (ii) any capital stock into which such
         Common Stock shall have been changed or any capital stock resulting
         from a reclassification of such Common Stock.

                  (e) "Common Stock Deemed Outstanding" means, at any given
         time, the number of shares of Common Stock actually outstanding at such
         time, plus the number of shares of Common Stock deemed to be
         outstanding pursuant to Sections 2(a)(i) and 2(a)(ii) hereof

                                       -15-

<PAGE>

         regardless of whether the Options or Convertible Securities are
         actually exercisable or convertible at such time, but excluding any
         shares of Common Stock owned or held by or for the account of the
         Company or issuable upon conversion of the SPA Securities or exercise
         of the Ancillary Warrants.

                  (f) "Convertible Securities" means any stock or securities
         (other than Options) directly or indirectly convertible into or
         exercisable or exchangeable for Common Stock.

                  (g) "Excluded Securities" means any shares of Common Stock
         issued or issuable (i) in connection with a strategic partnership or
         joint venture in which there is a significant commercial relationship
         with the Company and in which the primary purpose of which is not to
         raise capital, (ii) pursuant to a bona fide firm commitment
         underwritten public offering with a nationally recognized underwriter
         which generates gross proceeds in excess of $45,000,000 (other than an
         "at-the-market offering" as defined in Rule 415(a)(4) under the 1933
         Act and "equity lines"), (iii) upon conversion or exercise of any
         Options or Convertible Securities which are outstanding on the day
         immediately preceding the Issuance Date, provided that the terms of
         such Options or Convertible Securities are not amended, modified or
         changed on or after the Issuance Date, and (iv) pursuant to any
         subdivision of one or more classes of the Company's outstanding shares
         of Common Stock with respect to which an adjustment to the Exercise
         Price has been made pursuant to Section 7(b).

                  (h) "Expiration Date" means May 1, 2009 or, if such date falls
         on a day other than a Business Day or on which trading does not take
         place on the Principal Market (a "Holiday"), the next date that is not
         a Holiday.

                  (i) "Options" means any rights, warrants or options to
         subscribe for or purchase Common Stock or Convertible Securities.

                  (j) "Person" means an individual, a limited liability company,
         a partnership, a joint venture, a corporation, a trust, an
         unincorporated organization, any other entity and a government or any
         department or agency thereof.

                  (k) "Principal Market" means the Nasdaq National Market.

                  (l) "Registration Rights Agreement" means that certain
         registration rights agreement dated as of May 10, 2002 between the
         Company and the Buyers.

                  (m) "Securities Purchase Agreement" means that certain
         securities purchase agreement dated as of May 3, 2002 between the
         Company and the Buyers.

                  (n) "SPA Securities" means the convertible notes and warrants
         issued pursuant to the Securities Purchase Agreement.

                  (o) "Warrant Shares" means the shares of Common Stock issuable
         upon exercise of this Warrant.

                                       -16-

<PAGE>

                            [Signature Page Follows]

                                       -17-

<PAGE>

         IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase
Common Stock to be duly executed as of the Issuance Date set out above.

                                       PEMSTAR INC.

                                       By: /s/ William J. Kullback
                                           -------------------------------------
                                           Name: William J. Kullback
                                           Title: Chief Financial Officer

<PAGE>

                                                                       EXHIBIT A

                                 EXERCISE NOTICE

            TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
                        WARRANT TO PURCHASE COMMON STOCK

                                  PEMSTAR INC.

         The undersigned holder hereby exercises the right to purchase
_________________ of the shares of Common Stock ("Warrant Shares") of Pemstar
Inc., a Minnesota corporation (the "Company"), evidenced by the attached Warrant
to Purchase Common Stock (the "Warrant"). Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant.

         1. Form of Exercise Price. The Holder intends that payment of the
Exercise Price shall be made as:

                  ____________  a "Cash Exercise" with respect to
                                _________________ Warrant Shares; and/or

                  ____________  a "Cashless Exercise" with respect to
                                _______________ Warrant Shares.

         2. Payment of Exercise Price. In the event that the holder has elected
a Cash Exercise with respect to some or all of the Warrant Shares to be issued
pursuant hereto, the holder shall pay the Aggregate Exercise Price in the sum of
$___________________ to the Company in accordance with the terms of the Warrant.

         3. Notwithstanding anything to the contrary contained herein, this
Exercise Notice shall constitute a representation by the holder of the Warrant
that, after giving effect to the exercise provided for in this Exercise Notice,
such holder (together with its affiliates) will not have beneficial ownership
(together with the beneficial ownership of such person's affiliates) of a number
of shares of Common Stock which exceeds 5.0% of the total outstanding shares of
Common Stock as reflected in the Company's most recent Form 10-Q or Form 10-K or
other public filing with the SEC, as the case may be, or a more recent public
announcement by the Company or other notice by the Company or its transfer agent
setting forth the number of shares of Common Stock outstanding, but after giving
effect to conversions or exercise of securities of the Company, including the
Warrant, by such holder and its affiliates since the date as of which such
number of outstanding shares of Common Stock was reported.

         4. Delivery of Warrant Shares. The Company shall deliver to the holder
__________ Warrant Shares in accordance with the terms of the Warrant.

Date: _______________ __, ______

----------------------------------
   Name of Registered Holder

By:
    ------------------------------
    Name:
    Title:

<PAGE>

                                 ACKNOWLEDGMENT

         The Company hereby acknowledges this Exercise Notice and hereby directs
[TRANSFER AGENT] to issue the above indicated number of shares of Common Stock
in accordance with the Transfer Agent Instructions dated ______ __, 2002 from
the Company and acknowledged and agreed to by [TRANSFER AGENT].

                                       PEMSTAR INC.

                                       By:
                                           -------------------------------------
                                           Name:
                                           Title:

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