Document:

<PAGE>

                                                                    Exhibit 10.1

                            SONIC INNOVATIONS, INC.

                             EMPLOYMENT AGREEMENT

     This Employment Agreement (the "Agreement") is entered into by and between
Sonic Innovations, Inc., a Delaware corporation (the "Company"), and Kevin Ryan
(the "Employee") as of December __, 2001.

     WHEREAS, the Company desires to employ the Employee on a part-time basis in
the capacity of Chairman of the Board of Directors (the "Board") of the Company,
and the Employee desires to accept such employment; and

     WHEREAS the parties desire and agree to enter into an employment
relationship by means of this Agreement;

     NOW THEREFORE in consideration of the promises and mutual covenants herein
contained, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, it is mutually covenanted and
agreed by the parties as follows:

     1.   Position and Duties. The Employee shall be employed as Chairman of the
Board, an officer position, reporting solely to the Board but coordinating his
efforts with those of the CEO, and assuming and discharging such duties and
responsibilities as are commensurate with the Employee's position. The Employee
shall perform his duties faithfully and to the best of his ability and shall
devote approximately 60% his business time and effort (except for permitted
vacation periods and periods of illness and other incapacity) to the performance
of his duties hereunder. The Employee may perform such duties at such locations
as he and the Board deem reasonably appropriate. The Employee shall commence
employment with the Company effective January 1, 2002 (the "Effective Date").

     2.   Term of Employment. The Employee's employment with the Company shall
continue until terminated by either party at any time upon thirty days' prior
written notice for any or no reason. In the event of an involuntary termination
for Cause or a voluntary termination for Good Reason, such notice period shall
be deemed to have begun upon the delivery of a notice under Section 7(a) or
Section 7(d). The parties agree and acknowledge that this Agreement is an "at
will" agreement and that no implied covenant or standard of practice will cause
this Agreement to have any minimum period of employment.

     3.   Compensation.

          (a)  Base Salary. For all services to be rendered by the Employee to
the Company while this Agreement is in effect, the Employee shall receive a
minimum annual base salary equal to $200,000.00 (the "Base Salary"), subject to
applicable tax withholding and payable in accordance
<PAGE>

with the Company's normal payroll practices. The Base Salary shall be
reevaluated yearly but in no event reduced.

          (b)  Reimbursement of Expenses. The Company shall reimburse Employee
for all out-of-pocket expenses reasonably incurred and paid by him in the
performance of his duties pursuant to this Agreement, in accordance with Company
policies adopted from time to time.

     4.   Options.

          (a)  First Option. The Company shall grant to the Employee an
incentive stock option (to the extent allowable) to purchase a total of 350,000
shares of the Company's Common Stock (the "First Option"). The exercise price of
the First Option shall equal the fair market value of a share of Common Stock as
of the date of grant. Subject to the Employee's continued employment with the
Company, the First Option shall vest and become exercisable as to 1/48/th/ of
the shares underlying the First Option on each monthly anniversary of the
Effective Date. Notwithstanding the foregoing, all of the then unvested portion
of the First Option shall become vested and exercisable upon the occurrence of
certain events as provided in Section 6(a) below. The form of stock option
agreement pertaining to the First Option is attached hereto as Exhibit A.

          (b)  Second Option. The Company shall grant to the Employee an
incentive stock option (to the extent allowable) to purchase a total of 175,000
shares of the Company's Common Stock (the "Second Option"). The exercise price
of the Second Option shall equal the fair market value of a share of Common
Stock as of the date of grant. Subject to the Employee's continued employment
with the Company, the Second Option shall vest and become exercisable as to 1/7
of the shares subject to the Second Option on the first annual anniversary of
the Effective Date, and an additional 1/84/th/ of the shares subject to the
Second Option shall vest and become exercisable on each subsequent monthly
anniversary of the Effective Date. Notwithstanding the foregoing, (x) all of the
then unvested portion of the Second Option shall become vested and exercisable
immediately upon the earlier to occur of the following events, so long as such
event occurs within two years of the Effective Date: (i) such time as the
closing sales price of the Company's Common Stock on the Nasdaq National Market
(or such other established stock exchange or national market system on which the
Company's Common Stock is listed) exceeds $10.00 per share for 30 consecutive
trading days or (ii) the consummation of a Change of Control pursuant to which
the holders of the Company's Common Stock receive consideration having a fair
market value (as determined by the Board) of not less than $10.00 per share and
(y) a portion of the then unvested portion of the Second Option shall become
vested and exercisable upon the occurrence of certain events as provided in
Section 6(b) below. The form of stock option agreement pertaining to the Second
Option is attached hereto as Exhibit B.

          (c)  Third Option. The Company shall grant to the Employee an
incentive stock option (to the extent allowable) to purchase a total of 175,000
shares of the Company's Common Stock (the "Third Option"). The exercise price of
the Third Option shall equal the fair market value of a share as of the date of
grant. Subject to the Employee's continued employment with the Company, the
Third Option shall vest and become exercisable as to 1/7 of the shares subject
to the Third Option on the first annual anniversary of the Effective Date, and
an additional 1/84/th/ of the

                                       2
<PAGE>

shares subject to the Third Option shall vest and become exercisable on each
subsequent monthly anniversary of the Effective Date. Notwithstanding the
foregoing (x) all of the then unvested portion of the Third Option shall become
vested and exercisable immediately upon the earlier to occur of the following
events, so long as such event occurs within two years of the Effective Date: (i)
such time as the closing sales price of the Company's Common Stock on the Nasdaq
National Market (or such other established stock exchange or national market
system on which the Company's Common Stock is listed) exceeds $14.00 per share
for 30 consecutive trading days or (ii) the consummation of a Change of Control
pursuant to which the holders of the Company's Common Stock receive
consideration having a fair market value (as determined by the Board) of not
less than $14.00 per share and (y) a portion of the then unvested portion of the
Third Option shall become vested and exercisable upon the occurrence of certain
events as provided in Section 6(b) below. The form of stock option agreement
pertaining to the Third Option is attached hereto as Exhibit C.

     5. Other Benefits. The Employee shall be entitled to participate in the
employee benefit plans and programs that the Company makes available to its
senior executives, subject to the rules and regulations applicable thereto, and
subject to the Employee's right to decline participation in any such plan or
program for his convenience or for the benefit of the Company. The Company
reserves the right to cancel or change the benefit plans and programs it offers
to its senior executive employees at any time. If not declined, the Employee
will be eligible for vacation and sick leave in accordance with the policies in
effect for senior executives during the term of this Agreement and such other
benefits and perquisites as the Company generally provides to its senior
executives.

     6.   Change of Control and Termination.

          (a)  Option Vesting in Connection with a Change of Control. If, on or
within 12 months after a "Change of Control" (as defined below), Employee's
employment with the Company or his status as Chairman of the Board terminates
due to (i) a voluntary termination by the Employee for "Good Reason" (as defined
below), where the grounds for the Good Reason are not cured within 30 days
following receipt of written notice from Employee specifying the grounds, or
(ii) an involuntary termination by the Company other than for "Cause" (as
defined below), death or "Disability" (as defined below), then, subject to
Employee executing and not revoking a standard form of mutual release of claims
with the Company, 100% of the Shares subject to the First Option shall vest and
become immediately exercisable.

          (b)  Option Vesting in Connection with a Termination Occurring Within
One Year. If, prior to the first annual anniversary of the Effective Date,
Employee's employment with the Company or his status as Chairman of the Board
terminates due to (i) a voluntary termination by the Employee for "Good Reason"
(as defined below), where the grounds for the Good Reason are not cured within
30 days following receipt of written notice from Employee specifying the
grounds, or (ii) an involuntary termination by the Company other than for
"Cause" (as defined below), death or "Disability" (as defined below), then,
subject to Employee executing and not revoking a standard form of mutual release
of claims with the Company, 1/7 of the Shares subject to the Second Option and
1/7 of the Shares subject to the Third Option shall vest and become immediately
exercisable.

                                       3
<PAGE>

          (c)  Limitation on Payments. In the event that any payment or benefit
received or to be received by the Employee in connection with a Change of
Control or the termination of the Employee's employment (the "Total Payments")
would subject the Employee to the excise tax or any interest or penalties with
respect to such excise tax (such excise tax, interest and penalties are
collectively referred to as the "Excise Tax") imposed under Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), and the net after-tax
amount receivable by the Employee is less than the net after-tax amount that
could otherwise be payable to the Employee without the imposition of the Excise
Tax, then to the extent necessary to eliminate the imposition of the Excise Tax,
such Total Payments shall be reduced in the following order by the least amount
which results in the Employee not being subject to the Excise Tax: Total
Payments payable in cash shall first be reduced (if necessary, to zero) and
Total Payments in connection with any option shall next be reduced. For purposes
of this limitation, no portion of the Total Payments shall be taken into account
that, in the opinion of tax counsel selected by the Company and reasonably
acceptable to the Employee, does not constitute a "parachute payment" within the
meaning of Section 280G(b)(2) of the Code, including by reason of Section
280G(b)(4)(A) (or successor provisions as then in effect).

     7.   Definitions. For purposes of this Agreement, the following terms shall
have the following meanings:

          (a)  Cause. "Cause" shall mean (i) any act of personal dishonesty
taken by the Employee in connection with his responsibilities as an employee and
intended to result in personal enrichment of himself or his associates at the
expense of the Company or its stockholders, (ii) committing an act of fraud
against the Company, (iii) conviction of, or plea of nolo contendere to, a
felony by the Employee, (iv) continued violations of the Employee's employment-
related obligations which are willful and deliberate after there has been
delivered to the Employee a written demand from the Board regarding such
activities or (v) willful refusal to carry out legally permissible instructions
from the Board after the Employee has been given written notice of a failure to
carry out such instructions and a reasonable opportunity to correct the
situation.

          (b)  Change of Control. A "Change of Control" shall mean (i) the sale,
lease, conveyance or other disposition of all or substantially all of the
Company's assets as an entirety or substantially as an entirety to any "person"
(as such term is used in Section 13(d) of the Securities Exchange Act of 1934,
as amended), entity or group of persons acting in concert; (ii) any "person"
becoming the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing 50% or more of
the total voting power represented by the Company's then outstanding voting
securities; (iii) a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation that would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity or its controlling entity) at
least 50% of the total voting power represented by the voting securities of the
Company or such surviving entity (or its controlling entity) outstanding
immediately after such merger or consolidation; (iv) a change in the composition
of the Board occurring within a two (2)-year period, such that a majority of the
then current Board members ceases to be comprised of individuals who either (a)
have been Board members continuously since the beginning of such period, or (b)
have been elected or nominated for election as Board members during such period
by at least a majority of

                                       4
<PAGE>

the Board members described in clause (a) who were still in office at the time
such election or nomination was approved by the Board.

          (c)  Disability. A "Disability" shall mean the Employee's inability to
substantially perform his essential job functions as the result of a physical or
mental disability as determined by a qualified physician or incapacity for a
period of 180 days, consecutive or otherwise, in any 360-day period.

          (d)  Good Reason. Resignation for "Good Reason" shall mean any of the
following without the Employee's written consent: (i) any material diminution or
material adverse change in the Employee's position with the Company, duties,
responsibilities or the positions that report directly to him, (ii) a reduction
by the Company in Employee's Base Salary, (iii) a material reduction in the
aggregate program of employee benefits and perquisites to which Employee is
entitled, (iv) the conviction of, or plea of nolo contendere to, a felony by the
Company, except where the Employee has knowingly participated in such felony,
(v) the failure of the Company to maintain an effective Directors and Officers
indemnification insurance policy that includes the Employee under its coverage,
or (vi) continued violations of the Company's employment-related obligations to
Employee which are willful and deliberate after there has been delivered to the
Board a written demand from the Employee regarding such activities.

     8.   Right to Advice of Counsel. The Employee acknowledges that he has
consulted with counsel and is fully aware of his rights and obligations under
this Agreement and of the tax consequences thereof.

     9.   Invention Assignment Agreement. As a condition of the Employee's
employment with the Company, the Employee shall execute the Company's standard
form of non-disclosure and assignment and inventions agreement.

     10.  Successors.

          (a)  Company's Successors. Any successor (whether direct or indirect
and whether by purchase, lease, merger, consolidation, liquidation or otherwise)
to all or substantially all of the Company's business or assets shall assume the
obligations under this Agreement and agree expressly to perform the obligations
under this Agreement in the same manner and to the same extent as the Company
would be required to perform such obligations in the absence of a succession.
For all purposes under this Agreement, the term "Company" shall include any
successor to the Company's business or assets which executes and delivers the
assumption agreement described in this subsection (a) or which becomes bound by
the terms of this Agreement by operation of law.

          (b)  Employee's Successors. Without the written consent of the
Company, the Employee shall not assign or transfer this Agreement or any right
or obligation under this Agreement to any other person or entity except trusts
or other legal entities which exist primarily for the benefit of the Employee or
his family.

     11.  Notice Clause.

                                       5
<PAGE>

           (a) Manner. Any notice hereby required or permitted to be given shall
be sufficiently given if in writing and upon mailing by registered or certified
mail, postage prepaid, to either party at the address of such party listed under
such party's signature or such other address as shall have been designated by
written notice by such party to the other party.

           (b) Effectiveness. Any notice or other communication required or
permitted to be given under this Agreement will be deemed given on the day when
delivered in person, or the third business day after the day on which such
notice was mailed in accordance with Section 11(a).

     12.   Governing Law. This Agreement shall be governed by and construed in
accordance with the internal substantive laws, but not the choice of law rules,
of the state of Utah.

     13.   Severability. The invalidity or unenforceability of any provision of
this Agreement, or any terms hereof, shall not affect the validity or
enforceability of any other provision or term of this Agreement.

     14.   Integration. Except as otherwise expressly provided otherwise herein,
this Agreement represents the entire agreement and understanding between the
parties as to the subject matter herein and supersedes all prior or
contemporaneous agreements, whether written or oral. No waiver, alteration, or
modification of any of the provisions of this Agreement shall be binding unless
in writing and signed by duly authorized representatives of the parties hereto.

     15.   Taxes. All payments made pursuant to this Agreement shall be subject
to withholding of applicable income and employment taxes.

     16.   Arbitration. Except for proceedings seeking injunctive relief,
including, without limitation, allegations of misappropriation of trade secrets,
copyright or patent infringements, or breach of any anti-competition provisions
of this Agreement, any controversy or claim arising out of or in relation to
this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the commercial arbitration rules of the American Arbitration
Association ("AAA"), and judgment upon the award rendered by the arbitrator may
be entered in any court having jurisdiction thereof. Arbitration of this
Agreement shall include all claims, regardless of whether the dispute arises
during the term of the Agreement, at the time of termination or thereafter.
Either party may initiate the arbitration proceedings, for which the provision
is herein made, by notifying the opposing party, in writing, of its demand to
arbitrate. In any such arbitration there shall be appointed one arbitrator who
shall be selected in accordance with the AAA Commercial Arbitration Rules. The
place of arbitration shall be Salt Lake City, Utah. The parties agree that the
award of the arbitrator shall be the sole and exclusive remedy between them
regarding any claims, counterclaims, issues or accounting presented or plead to
the arbitrator; that the arbitrator shall be the final judge of both law and
fact in arbitration of disputes arising out of or relating to this Agreement,
including the interpretation of the terms of this Agreement. The parties further
agree it shall be the sole and exclusive duty of the arbitrator to determine the
arbitrability of issues in dispute and that neither party shall have recourse to
the court of such a determination.

                                       6
<PAGE>

     17.  Counterparts. This Agreement may be executed by either of the parties
hereto in one or more counterparts, none of which need contain the signature of
more than one party hereto, and each of which shall be deemed to be an original,
and all of which together shall constitute a single agreement.

     WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by a duly authorized officer, as of the day and year first
above written.

                                 SONIC INNOVATIONS, INC.

                                 By:  /s/ Andrew G. Raguskus
                                      ----------------------
                                 Name:  Andrew G. Raguskus
                                        ------------------
                                 Title:  President and CEO
                                         -----------------

                                 KEVIN RYAN

                                 /s/ Kevin Ryan
                                 --------------

                                       7
<PAGE>

                                    EXHIBIT A
                                    ---------

                     SONIC INNOVATIONS, INC. (the "Company")

                          2000 STOCK PLAN (the "Plan")

                    STOCK OPTION AGREEMENT (the "Agreement")

Optionee:
--------

     Name: Kevin Ryan

     Employee Social Security #: ###-##-####

     You have been granted an option (the "Option") to purchase Common Stock of
the Company (the "Shares"), subject to the terms and conditions of the Plan
(which is incorporated herein by reference) and this Stock Option Agreement, as
follows:

<TABLE>
<S>                                       <C>                          <C>                              <C>
Grant Number                               798                           Exercise Price per Share           $ 4.20

Date of Grant                              January 2, 2002               Total Exercise Price               $ 1,470,000.00

Vesting Commencement Date                  January 1, 2002               Type of Option                    X Incentive Stock Option
                                                                                                          --

Option Shares Granted                      350,000                        __ Nonstatutory Stock Option

Expiration Date                            January 2, 2012
</TABLE>

Vesting Schedule:
----------------

     This Option is granted pursuant to Section 4(a) of the Employment
Agreement, dated as of January 10, 2002, by and between the Company and you (the
"Employment Agreement"), and may be exercised, in whole or in part, in
accordance with the following schedule:
                            Your Shares will vest over four years with 1/48/th/
                            of the Shares vesting on each monthly anniversary of
                            the Vesting Commencement Date."

     Notwithstanding the foregoing, if, on or within 12 months after a "Change
of Control" (as defined below), your employment with the Company or your status
as Chairman of the Board terminates due to (i) a voluntary termination by you
for "Good Reason" (as defined below), where the grounds for the Good Reason are
not cured within 30 days following receipt of written notice from you specifying
the grounds, or (ii) an involuntary termination by the Company other than for
"Cause" (as defined below), death or "Disability" (as defined below), then,
subject to you executing

                                       8
<PAGE>

and not revoking a standard form of mutual release of claims with the Company,
100% of the Shares shall vest and become immediately exercisable.

     For purposes of this Agreement, the following terms shall have the
following meanings:

          (a) Cause. "Cause" shall mean (i) any act of personal dishonesty taken
by you in connection with your responsibilities as an employee and intended to
result in personal enrichment of yourself or your associates at the expense of
the Company or its stockholders, (ii) committing an act of fraud against the
Company, (iii) conviction of, or plea of nolo contrendre to, a felony by you,
(iv) continued violations of your employment-related obligations which are
willful and deliberate after there has been delivered to you a written demand
from the Board regarding such activities or (v) willful refusal to carry out
legally permissible instructions from the Board after you have been given
written notice of a failure to carry out such instructions and a reasonable
opportunity to correct the situation.

          (b) Change of Control. A "Change of Control" shall mean (i) the sale,
lease, conveyance or other disposition of all or substantially all of the
Company's assets as an entirety or substantially as an entirety to any "person"
(as such term is used in Section 13(d) of the Securities Exchange Act of 1934,
as amended), entity or group of persons acting in concert; (ii) any "person"
becoming the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing 50% or more of
the total voting power represented by the Company's then outstanding voting
securities; (iii) a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation that would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity or its controlling entity) at
least 50% of the total voting power represented by the voting securities of the
Company or such surviving entity (or its controlling entity) outstanding
immediately after such merger or consolidation; (iv) a change in the composition
of the Board occurring within a two (2)-year period, such that a majority of the
then current Board members ceases to be comprised of individuals who either (a)
have been Board members continuously since the beginning of such period, or (b)
have been elected or nominated for election as Board members during such period
by at least a majority of the Board members described in clause (a) who were
still in office at the time such election or nomination was approved by the
Board.

          (c) Disability. A "Disability" shall mean your inability to
substantially perform your essential job functions as the result of a physical
or mental disability as determined by a qualified physician or incapacity for a
period of 180 days, consecutive or otherwise, in any 360-day period.

          (d) Good Reason. Resignation for "Good Reason" shall mean any of the
following without your written consent: (i) any material diminution or material
adverse change in your position with the Company, duties, responsibilities or
the positions that report directly to you, (ii) a reduction by the Company in
your Base Salary (as defined in the Employment Agreement), (iii) a material
reduction in the aggregate program of employee benefits and perquisites to which
you are entitled, (iv) the conviction of, or plea of nolo contendere to, a
felony by the Company, except where you have knowingly participated in such
felony, (v) the failure of the Company to maintain an

                                       9
<PAGE>

effective Directors and Officers indemnification insurance policy that includes
you under its coverage, or (vi) continued violations of the Company's
employment-related obligations to you which are willful and deliberate after
there has been delivered to the Board a written demand from you regarding such
activities.

Termination Period:
------------------

     This Option may be exercised for three months after Optionee ceases to be a
Service Provider as defined in the Plan. Upon the death or Disability of the
Optionee, this Option may be exercised for twelve months after Optionee ceases
to be a Service Provider. In no event shall this Option be exercised later than
the Expiration Date.

Exercise:
--------

     This Option is exercisable by delivery of an "Exercise Notice" to the
Company's CFO. The Exercise Notice shall be accompanied by payment. Payment of
the aggregate Exercise Price shall be by any of the following, or a combination
thereof, at the election of the Optionee: cash; check; consideration received by
the Company under a cashless option exercise program; surrender of Company
common stock which in the case of shares acquired upon exercise of an option,
have been owned by the Optionee for more than six (6) months on the date of
surrender; or with the Plan Administrator's consent, delivery of Optionee's
promissory note in a form agreeable to the Plan Administrator.

OPTIONEE SHOULD CONSULT A TAX ADVISOR BEFORE EXERCISING THIS OPTION OR DISPOSING
OF THE SHARES.

General:

     This Option may not be transferred in any manner otherwise than by will or
by the laws of descent or distribution and may be exercised during the lifetime
of Optionee only by the Optionee. The terms of the Plan and this Agreement shall
be binding upon the executors, administrators, heirs, successors and assigns of
the Optionee.

     The Plan, this Agreement and the Employment Agreement constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede
in their entirety all prior undertakings and agreements of the Company and
Optionee with respect to the subject matter hereof.

     In the event of a conflict between the terms and conditions of the Plan and
the terms and conditions of this Agreement, the terms and conditions of the Plan
shall prevail; provided, however, that the definitions set forth under "Vesting
Schedule" of this Agreement shall be used in lieu of any directly conflicting
definition set forth in the Plan.

     If designated as an Incentive Stock Option ("ISO"), this Option is intended
to qualify as an Incentive Stock Option under Section 422 of the Code. However,
if this Option is intended to be an Incentive Stock Option, to the extent that
it exceeds the $100,000 rule of Code Section 422(d) it shall be treated as a
Nonstatutory Stock Option ("NSO").

                                       10
<PAGE>

OPTIONEE ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT DOES NOT CONSTITUTE AN
EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER AND
SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE
OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT
CAUSE.

OPTIONEE:                     SONIC INNOVATIONS, INC.

/s/ Kevin Ryan
--------------
                              By: /s/ Andrew G. Raguskus
                                  ----------------------

Kevin Ryan
----------
          Andrew Raguskus, President & CEO
          --------------------------------

Print Name                    Name and Title

                                       11
<PAGE>

                                   EXHIBIT B
                                   ---------

                    SONIC INNOVATIONS, INC. (the "Company")

                         2000 STOCK PLAN (the "Plan")

                   STOCK OPTION AGREEMENT (the "Agreement")

Optionee:
--------

     Name: Kevin Ryan

     Employee Social Security #: ###-##-####

     You have been granted an option (the "Option") to purchase Common Stock of
the Company (the "Shares"), subject to the terms and conditions of the Plan
(which is incorporated herein by reference) and this Stock Option Agreement, as
follows:

<TABLE>
<S>                            <C>                  <C>                             <C>
Grant Number                   799                  Exercise Price per Share           $ 4.20

Date of Grant                  January 2, 2002      Total Exercise Price               $ 735,000.00

Vesting Commencement Date      January 1, 2002      Type of Option                  X  Incentive Stock Option
                                                                                   ---
Option Shares Granted          175,000                __ Nonstatutory Stock Option

Expiration Date                January 2, 2012
</TABLE>

Vesting Schedule:
----------------

     This Option is granted pursuant to Section 4(b) of the Employment
Agreement, dated as of January 10, 2002, by and between the Company and you (the
"Employment Agreement"), and may be exercised, in whole or in part, in
accordance with the following schedule:

                           Your Shares will vest over seven years, the first 1/7
                           on the date of the first anniversary of the "Vesting
                           Commencement Date," with an additional 1/84/th/ of
                           the Shares vesting on each subsequent monthly
                           anniversary of the Vesting Commencement Date.

     Notwithstanding the foregoing, (x) all of the then unvested portion of the
Option shall become vested and exercisable immediately upon the earlier to occur
of the following events, so long as such event occurs within two years of the
Vesting Commencement Date: (i) such time as the closing sales price of the
Company's Common Stock on the Nasdaq National Market (or such other established
stock exchange or national market system on which the Company's Common Stock is

                                       12
<PAGE>

listed) exceeds $10.00 per share for 30 consecutive trading days or (ii) the
consummation of a Change of Control pursuant to which the holders of the
Company's Common Stock receive consideration having a fair market value (as
determined by the Board) of not less than $10.00 per share and (y) if, on or
within 12 months after January 1, 2002, your employment with the Company or your
status as Chairman of the Board terminates due to (i) a voluntary termination by
you for "Good Reason" (as defined below), where the grounds for the Good Reason
are not cured within 30 days following receipt of written notice from you
specifying the grounds, or (ii) an involuntary termination by the Company other
than for "Cause" (as defined below), death or "Disability" (as defined below),
then, subject to you executing and not revoking a standard form of mutual
release of claims with the Company, 1/7 of the Shares shall vest and become
immediately exercisable.

         For purposes of this Agreement, the following terms shall have the
following meanings:

         (e)  Cause. "Cause" shall mean (i) any act of personal dishonesty taken
by you in connection with your responsibilities as an employee and intended to
result in personal enrichment of yourself or your associates at the expense of
the Company or its stockholders, (ii) committing an act of fraud against the
Company, (iii) conviction of, or plea of nolo contrendre to, a felony by you,
(iv) continued violations of your employment-related obligations which are
willful and deliberate after there has been delivered to you a written demand
from the Board regarding such activities or (v) willful refusal to carry out
legally permissible instructions from the Board after you have been given
written notice of a failure to carry out such instructions and a reasonable
opportunity to correct the situation.

         (f)  Change of Control. A "Change of Control" shall mean (i) the sale,
lease, conveyance or other disposition of all or substantially all of the
Company's assets as an entirety or substantially as an entirety to any "person"
(as such term is used in Section 13(d) of the Securities Exchange Act of 1934,
as amended), entity or group of persons acting in concert; (ii) any "person"
becoming the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing 50% or more of
the total voting power represented by the Company's then outstanding voting
securities; (iii) a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation that would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity or its controlling entity) at
least 50% of the total voting power represented by the voting securities of the
Company or such surviving entity (or its controlling entity) outstanding
immediately after such merger or consolidation; (iv) a change in the composition
of the Board occurring within a two (2)-year period, such that a majority of the
then current Board members ceases to be comprised of individuals who either (a)
have been Board members continuously since the beginning of such period, or (b)
have been elected or nominated for election as Board members during such period
by at least a majority of the Board members described in clause (a) who were
still in office at the time such election or nomination was approved by the
Board.

         (g)  Disability. A "Disability" shall mean your inability to
substantially perform your essential job functions as the result of a physical
or mental disability as determined by a qualified physician or incapacity for a
period of 180 days, consecutive or otherwise, in any 360-day period.

                                       13
<PAGE>

          (h)  Good Reason. Resignation for "Good Reason" shall mean any of the
following without your written consent: (i) any material diminution or material
adverse change in your position with the Company, duties, responsibilities or
the positions that report directly to you, (ii) a reduction by the Company in
your Base Salary (as defined in the Employment Agreement), (iii) a material
reduction in the aggregate program of employee benefits and perquisites to which
you are entitled, (iv) the conviction of, or plea of nolo contendere to, a
felony by the Company, except where you have knowingly participated in such
felony, (v) the failure of the Company to maintain an effective Directors and
Officers indemnification insurance policy that includes you under its coverage,
or (vi) continued violations of the Company's employment-related obligations to
you which are willful and deliberate after there has been delivered to the Board
a written demand from you regarding such activities.

Termination Period:
------------------

     This Option may be exercised for three months after Optionee ceases to be a
Service Provider as defined in the Plan. Upon the death or Disability of the
Optionee, this Option may be exercised for twelve months after Optionee ceases
to be a Service Provider. In no event shall this Option be exercised later than
the Expiration Date.

Exercise:
--------

     This Option is exercisable by delivery of an "Exercise Notice" to the
Company's CFO. The Exercise Notice shall be accompanied by payment. Payment of
the aggregate Exercise Price shall be by any of the following, or a combination
thereof, at the election of the Optionee: cash; check; consideration received by
the Company under a cashless option exercise program; surrender of Company
common stock which in the case of shares acquired upon exercise of an option,
have been owned by the Optionee for more than six (6) months on the date of
surrender; or with the Plan Administrator's consent, delivery of Optionee's
promissory note in a form agreeable to the Plan Administrator.

OPTIONEE SHOULD CONSULT A TAX ADVISOR BEFORE EXERCISING THIS OPTION OR DISPOSING
OF THE SHARES.

General:

     This Option may not be transferred in any manner otherwise than by will or
by the laws of descent or distribution and may be exercised during the lifetime
of Optionee only by the Optionee. The terms of the Plan and this Agreement shall
be binding upon the executors, administrators, heirs, successors and assigns of
the Optionee.

     The Plan, this Agreement and the Employment Agreement constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede
in their entirety all prior undertakings and agreements of the Company and
Optionee with respect to the subject matter hereof.

                                       14
<PAGE>

     In the event of a conflict between the terms and conditions of the Plan and
the terms and conditions of this Agreement, the terms and conditions of the Plan
shall prevail; provided, however, that the definitions set forth under "Vesting
Schedule" of this Agreement shall be used in lieu of any directly conflicting
definition set forth in the Plan.

     If designated as an Incentive Stock Option ("ISO"), this Option is intended
to qualify as an Incentive Stock Option under Section 422 of the Code. However,
if this Option is intended to be an Incentive Stock Option, to the extent that
it exceeds the $100,000 rule of Code Section 422(d) it shall be treated as a
Nonstatutory Stock Option ("NSO").

OPTIONEE ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT DOES NOT CONSTITUTE AN
EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER AND
SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE
OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT
CAUSE.

OPTIONEE:                          SONIC INNOVATIONS, INC.

/s/ Kevin Ryan
--------------
                                   By: /s/ Andrew G. Raguskus
                                       ----------------------

Kevin Ryan
----------
          Andrew Raguskus, President & CEO
          --------------------------------
Print Name
                                   Name and Title

                                       15
<PAGE>

                                   EXHIBIT C
                                   ---------

                    SONIC INNOVATIONS, INC. (the "Company")

                         2000 STOCK PLAN (the "Plan")

                   STOCK OPTION AGREEMENT (the "Agreement")

Optionee:
--------

     Name: Kevin Ryan

     Employee Social Security #: ###-##-####

     You have been granted an option (the "Option") to purchase Common Stock of
the Company (the "Shares"), subject to the terms and conditions of the Plan
(which is incorporated herein by reference) and this Stock Option Agreement, as
follows:

<TABLE>
<S>                           <C>                   <C>                            <C>
Grant Number                  800                   Exercise Price per Share          $ 4.20

Date of Grant                 January 2, 2002       Total Exercise Price              $ 735,000.00

Vesting Commencement Date     January 1, 2002       Type of Option                  X Incentive Stock Option
                                                                                   ---

Option Shares Granted         175,000                   __ Nonstatutory Stock Option

Expiration Date               January 2, 2012
</TABLE>

Vesting Schedule:
----------------

     This Option is granted pursuant to Section 4(c) of the Employment
Agreement, dated as of January 10, 2002, by and between the Company and you (the
"Employment Agreement"), and may be exercised, in whole or in part, in
accordance with the following schedule:

                     Your Shares will vest over seven years, the first 1/7 on
                     the date of the first anniversary of the "Vesting
                     Commencement Date," with an additional 1/84/th/ of the
                     Shares vesting on each subsequent monthly anniversary of
                     the Vesting Commencement Date.

     Notwithstanding the foregoing, (x) all of the then unvested portion of the
Option shall become vested and exercisable immediately upon the earlier to occur
of the following events, so long as such event occurs within two years of the
Vesting Commencement Date: (i) such time as the closing sales price of the
Company's Common Stock on the Nasdaq National Market (or such other established
stock exchange or national market system on which the Company's Common Stock is

                                       16
<PAGE>

listed) exceeds $14.00 per share for 30 consecutive trading days or (ii) the
consummation of a Change of Control pursuant to which the holders of the
Company's Common Stock receive consideration having a fair market value (as
determined by the Board) of not less than $14.00 per share and (y) if, on or
within 12 months after January 1, 2002, your employment with the Company or your
status as Chairman of the Board terminates due to (i) a voluntary termination by
you for "Good Reason" (as defined below), where the grounds for the Good Reason
are not cured within 30 days following receipt of written notice from you
specifying the grounds, or (ii) an involuntary termination by the Company other
than for "Cause" (as defined below), death or "Disability" (as defined below),
then, subject to you executing and not revoking a standard form of mutual
release of claims with the Company, 1/7 of the Shares shall vest and become
immediately exercisable.

     For purposes of this Agreement, the following terms shall have the
following meanings:

          (i) Cause. "Cause" shall mean (i) any act of personal dishonesty taken
by you in connection with your responsibilities as an employee and intended to
result in personal enrichment of yourself or your associates at the expense of
the Company or its stockholders, (ii) committing an act of fraud against the
Company, (iii) conviction of, or plea of nolo contrendre to, a felony by you,
(iv) continued violations of your employment-related obligations which are
willful and deliberate after there has been delivered to you a written demand
from the Board regarding such activities or (v) willful refusal to carry out
legally permissible instructions from the Board after you have been given
written notice of a failure to carry out such instructions and a reasonable
opportunity to correct the situation.

          (j) Change of Control. A "Change of Control" shall mean (i) the sale,
lease, conveyance or other disposition of all or substantially all of the
Company's assets as an entirety or substantially as an entirety to any "person"
(as such term is used in Section 13(d) of the Securities Exchange Act of 1934,
as amended), entity or group of persons acting in concert; (ii) any "person"
becoming the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing 50% or more of
the total voting power represented by the Company's then outstanding voting
securities; (iii) a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation that would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity or its controlling entity) at
least 50% of the total voting power represented by the voting securities of the
Company or such surviving entity (or its controlling entity) outstanding
immediately after such merger or consolidation; (iv) a change in the composition
of the Board occurring within a two (2)-year period, such that a majority of the
then current Board members ceases to be comprised of individuals who either (a)
have been Board members continuously since the beginning of such period, or (b)
have been elected or nominated for election as Board members during such period
by at least a majority of the Board members described in clause (a) who were
still in office at the time such election or nomination was approved by the
Board.

          (k) Disability. A "Disability" shall mean your inability to
substantially perform your essential job functions as the result of a physical
or mental disability as determined by a qualified physician or incapacity for a
period of 180 days, consecutive or otherwise, in any 360-day period.

                                       17
<PAGE>

          (l) Good Reason. Resignation for "Good Reason" shall mean any of the
following without your written consent: (i) any material diminution or material
adverse change in your position with the Company, duties, responsibilities or
the positions that report directly to you, (ii) a reduction by the Company in
your Base Salary (as defined in the Employment Agreement), (iii) a material
reduction in the aggregate program of employee benefits and perquisites to which
you are entitled, (iv) the conviction of, or plea of nolo contendere to, a
felony by the Company, except where you have knowingly participated in such
felony, (v) the failure of the Company to maintain an effective Directors and
Officers indemnification insurance policy that includes you under its coverage,
or (vi) continued violations of the Company's employment-related obligations to
you which are willful and deliberate after there has been delivered to the Board
a written demand from you regarding such activities.

Termination Period:
------------------

     This Option may be exercised for three months after Optionee ceases to be a
Service Provider as defined in the Plan. Upon the death or Disability of the
Optionee, this Option may be exercised for twelve months after Optionee ceases
to be a Service Provider. In no event shall this Option be exercised later than
the Expiration Date.

Exercise:
--------

     This Option is exercisable by delivery of an "Exercise Notice" to the
Company's CFO. The Exercise Notice shall be accompanied by payment. Payment of
the aggregate Exercise Price shall be by any of the following, or a combination
thereof, at the election of the Optionee: cash; check; consideration received by
the Company under a cashless option exercise program; surrender of Company
common stock which in the case of shares acquired upon exercise of an option,
have been owned by the Optionee for more than six (6) months on the date of
surrender; or with the Plan Administrator's consent, delivery of Optionee's
promissory note in a form agreeable to the Plan Administrator.

OPTIONEE SHOULD CONSULT A TAX ADVISOR BEFORE EXERCISING THIS OPTION OR DISPOSING
OF THE SHARES.

General:

     This Option may not be transferred in any manner otherwise than by will or
by the laws of descent or distribution and may be exercised during the lifetime
of Optionee only by the Optionee. The terms of the Plan and this Agreement shall
be binding upon the executors, administrators, heirs, successors and assigns of
the Optionee.

     The Plan, this Agreement and the Employment Agreement constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede
in their entirety all prior undertakings and agreements of the Company and
Optionee with respect to the subject matter hereof.

     In the event of a conflict between the terms and conditions of the Plan and
the terms and conditions of this Agreement, the terms and conditions of the Plan
shall prevail; provided, however,

                                       18
<PAGE>

that the definitions set forth under "Vesting Schedule" of this Agreement shall
be used in lieu of any directly conflicting definition set forth in the Plan.

     If designated as an Incentive Stock Option ("ISO"), this Option is intended
to qualify as an Incentive Stock Option under Section 422 of the Code. However,
if this Option is intended to be an Incentive Stock Option, to the extent that
it exceeds the $100,000 rule of Code Section 422(d) it shall be treated as a
Nonstatutory Stock Option ("NSO").

OPTIONEE ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT DOES NOT CONSTITUTE AN
EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER AND
SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE
OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT
CAUSE.

OPTIONEE:
                                   SONIC INNOVATIONS, INC.

/s/ Kevin Ryan
--------------
                                   By: /s/ Andrew G. Raguskus
                                       ----------------------

Kevin Ryan
----------
            Andrew Raguskus, President & CEO
            --------------------------------
Print Name
                                   Name and Title

                                       19<PAGE>

                                                                    Exhibit 10.1

                               FIRST AMENDMENT TO
                           LOAN AND SECURITY AGREEMENT

         THIS FIRST AMENDMENT, dated as of December 20, 2001, amends and
modifies a certain Loan and Security Agreement, dated as of June 28, 2001 (the
"Credit Agreement"), between PEMSTAR INC. (the "Borrower") and U.S. BANK
NATIONAL ASSOCIATION (the "Lender"). Terms not otherwise expressly defined
herein shall have the meanings set forth in the Credit Agreement.

         FOR VALUE RECEIVED, the Borrower and the Lender agree that the Credit
Agreement is amended as follows:

                  ARTICLE I - AMENDMENTS TO THE CREDIT AGREEMENT

         1.1 Release of Security Interest. The Lender acknowledges that it has
released certain security interest pursuant to a letter in the form of Exhibit A
attached hereto, and agrees that it shall enter into an amendment of the IBM
Intercreditor Agreement, in form and substance mutually satisfactory to the
Lender, the Borrower and IBM Credit, to confirm such release to IBM Credit.

         1.2 US Bank Account Debtors. Upon written consent to such Amendment by
IBM Credit, Schedule 1.1(b) shall be amended to be in the form of Schedule
1.1(b) attached hereto.

         1.3 Applicable Margin. The definition of "Applicable Margin" in Section
1.1 is amended to read as follows:

                  "'Applicable Margin' shall mean 3.25% per annum for Eurodollar
         Advances and 1.00% per annum for Prime Rate Advances, provided, that
         the Applicable Margin was adjusted 90 days after closing of this
         Agreement based on the Borrower's annual audited financial statements
         for its fiscal year ending March 31, 2001, and shall be adjusted based
         on the Borrower's quarterly (for the fiscal quarters ending the last
         day of June, September or December of each fiscal year) or annual
         financial statements for each period ending December 31, 2001, and
         thereafter so that the Applicable Margin shall equal the following
         percentages, calculated with reference to the Leverage Ratio determined
         under such financial statements:

<TABLE>
<CAPTION>
                                                                         Applicable Margin
                   Leverage Ratio:                           Prime Rate Advances: Eurodollar Advances:
                   --------------                            -------------------  -------------------

<S>                                                          <C>                             <C>
         Greater than 4.50 to 1.00                            1.00%                           3.25%

         Less than or equal to 4.50 to 1.00                   0.50%                           2.85%
         but greater than 3.50 to 1.00
</TABLE>

                                       1

<PAGE>

<TABLE>
<CAPTION>
         <S>                                                  <C>                             <C>
         Less than or equal to 3.50 to 1.00                   0.25%                           2.60%
         but greater than 2.50 to 1.00

         Less than or equal to 2.50 to 1.00                    0%                             2.25%
</TABLE>

         The Applicable Margin shall be determined by the Lender based upon the
         information set forth in the quarterly or annual consolidated financial
         statements of the Borrower and the Subsidiaries furnished to Lender
         pursuant to Section 7.1(a) or (c) as of the last day of the relevant
         fiscal quarter or fiscal year. Any change in the Applicable Margin
         shall affect all outstanding and future Loans and shall take effect on
         the first day of the month following the date of Lender's receipt of
         the applicable financial statement. Upon any failure of the Borrower to
         deliver to the Lender the financial statements within the time provided
         by Section 7.1(a) or (c), the Applicable Margin shall be the highest
         Applicable Margin set forth above and such Applicable Margin shall
         remain in effect until the first day following the date Lender receives
         the applicable financial statements requiring a lower Applicable
         Margin."

         1.4 Letter of Credit Sublimit. The definition of "Letter of Credit
Sublimit" in Section 1.1 is amended by deleting "$10,000,000" and inserting
"$15,000,000" in place thereof.

         1.5 Indebtedness. Section 8.4 is amended by deleting "; and " at the
end of subsection (g), adding "; and" at the end of subsection (h), and adding
the following subsection (g):

                  "(g) Indebtedness consisting of guaranties permitted under
         Section 8.5(b)."

         1.6 Contingent Liabilities. Section 8.5 is amended to read as follows:

                  "Section 8.5 Contingent Liabilities. Guarantee, endorse or
         otherwise in any way become or be responsible for obligations of any
         other Person, whether by agreement to purchase the indebtedness of such
         Person or through the purchase of goods, supplies or services, or
         maintenance of working capital or other balance sheet covenants or
         conditions, or by way of stock purchase, capital contribution, advance
         or loan for the purpose of paying or discharging any indebtedness or
         obligation of such Person or otherwise, except: (a) as permitted under
         Section 8.4, (b) for guaranties of Indebtedness of Subsidiaries,
         provided, that the amount of such guarantied Indebtedness is limited to
         $20,000,000 in the aggregate or, alternatively, the amount which may be
         recovered under such guaranties is otherwise limited to $20,000,000, in
         the aggregate, and (c) for endorsements of negotiable instruments for
         collection in the ordinary course of business;."

         1.7 Construction. All references in the Credit Agreement to "this
Agreement", "herein" and similar references shall be deemed to refer to the
Credit Agreement as amended by this Amendment.

                                       2

<PAGE>

                  ARTICLE II - REPRESENTATIONS AND WARRANTIES

         To induce the Lender to enter into this Amendment and to make and
maintain the Loans under the Credit Agreement as amended hereby, the Borrower
hereby warrants and represents to the Lender that it is duly authorized to
execute and deliver this Amendment, and to perform its obligations under the
Credit Agreement as amended hereby, and that this Amendment constitutes the
legal, valid and binding obligation of the Borrower, enforceable in accordance
with its terms.

                       ARTICLE III - CONDITIONS PRECEDENT

         This Amendment shall become effective on the date first set forth
above, provided, however, that the effectiveness of this Amendment is subject to
the satisfaction of each of the following conditions precedent:

         3.1 Warranties. Before and after giving effect to this Amendment, the
representations and warranties in Article 6 of the Credit Agreement shall be
true and correct as though made on the date hereof, except for changes that are
permitted by the terms of the Credit Agreement. The execution by the Borrower of
this Amendment shall be deemed a representation that the Borrower has complied
with the foregoing condition.

         3.2 Defaults. Before and after giving effect to this Amendment, no
Default and no Event of Default shall have occurred and be continuing under the
Credit Agreement. The execution by the Borrower of this Amendment shall be
deemed a representation that the Borrower has complied with the foregoing
condition.

         3.3 Documents. This Amendment and the acknowledgment by the Guarantor
in the form attached hereto shall have been executed and delivered by the
appropriate parties.

                              ARTICLE IV - GENERAL

         4.1 Expenses. The Borrower agrees to reimburse the Lender upon demand
for all reasonable expenses (including reasonable attorneys' fees and legal
expenses) incurred by the Lender in the preparation, negotiation and execution
of this Amendment and any other document required to be furnished herewith, and
in enforcing the obligations of the Borrower hereunder, and to pay and save the
Lender harmless from all liability for, any stamp or other taxes which may be
payable with respect to the execution or delivery of this Amendment, which
obligations of the Borrower shall survive any termination of this Credit
Agreement.

         4.2 Counterparts. This Amendment may be executed in as many
counterparts as may be deemed necessary or convenient, and by the different
parties hereto on separate counterparts, each of which, when so executed, shall
be deemed an original but all such counterparts shall constitute but one and the
same instrument.

                                       3

<PAGE>

         4.3 Severability. Any provision of this Amendment which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining portions hereof or affecting the validity or
enforceability of such provisions in any other jurisdiction.

         4.4 Law. This Amendment shall be a contract made under the laws of the
State of Minnesota, which laws shall govern all the rights and duties hereunder.

         4.5 Successors Enforceability. This Amendment shall be binding upon the
Borrower and the Lender and their respective successors and assigns, and shall
inure to the benefit of the Borrower and the Lender and the successors and
assigns of the Lender. Except as hereby amended, the Credit Agreement shall
remain in full force and effect and is hereby ratified and confirmed in all
respects.

         IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed at Minneapolis, Minnesota by their respective officers thereunto duly
authorized as of the date first written above.

                                   U.S. BANK NATIONAL ASSOCIATION

                                   By: /s/ Christopher J. Schaaf
                                       -----------------------------------------
                                   Title: Vice President
                                          --------------------------------------

                                   PEMSTAR INC.

                                   By: /s/ William J. Kullback
                                       -----------------------------------------
                                   Title: EVP CFO
                                          --------------------------------------

                                       4

<PAGE>

                           GUARANTOR'S ACKNOWLEDGMENT

         The undersigned has guaranteed payment and performance of obligations
of PEMSTAR INC. (the "Borrower") to U.S. Bank National Association (the
"Lender") pursuant to the terms of a Guaranty, dated as of June 28, 2001 (the
"Guaranty"), which obligations include without limitation obligations under that
certain Loan and Security Agreement, dated as of June 28, 2001, between the
Borrower and the Lender (as amended, the "Credit Agreement"). The undersigned
acknowledges that it has received a copy of the proposed First Amendment to the
Credit Agreement, to be dated on or about December 20, 2001 (the "Amendment").
The undersigned agrees and acknowledges that the Amendment shall in way impair
or limit the right of the Lender under the Guaranty, and confirms that by the
Guaranty, the undersigned continues to guaranty payment and performance of the
obligations of the Borrower to the Lender, including without limitation
obligations under the Credit Agreement as amended pursuant to the Amendment. The
undersigned hereby confirms that the Guaranty remains in full force and effect,
enforceable against the undersigned in accordance with its terms.

                                   TURTLE MOUNTAIN CORPORATION

                                   By: /s/ Linda U. Feuss
                                       -----------------------------------------
                                   Title: Secretary
                                          --------------------------------------

                                   and

                                   By: /s/
                                       -----------------------------------------
                                   Title: VP Pemstar
                                          --------------------------------------

                                       5

<PAGE>

                                    Exhibit A

                                November 30, 2001

Pemstar Inc.
2535 Highway 14 West
Rochester, MN 55901
Attention:  Mr. Phillip Jemielita

         Re: Release of Security Interest

Dear Mr. Jemielita:

         Reference is made to the Loan and Security Agreement, dated as of June
28, 2001 (the "Credit Agreement"), between Pemstar Inc. (the "Borrower") and
U.S. Bank National Association (the "Lender"). Capitalized terms used herein
shall have the meanings set forth in the Credit Agreement.

         This letter will evidence the release of the security interest of the
Lender in the following:

         US Bank Account Debtors:        Interwave Communications Telco

         Security Interest Released:     All U.S. Bank Accounts owned by
                                         the two US Bank Account Debtors
                                         identified above that do not
                                         represent payment for Rochester
                                         Inventory or services performed
                                         by the Borrower at the Rochester
                                         Facilities.

         Security Interest Retained:     All security interests not expressly
                                         released, including without limitation
                                         all US Bank Accounts owed by such US
                                         Bank Account Debtors that represent
                                         payment for Rochester Inventory or
                                         services performed by the Borrower at
                                         the Rochester Facilities remain subject
                                         to the Lender's security interest.

The Bank hereby releases the security interest as described above, and agrees
that upon your request it will cause a partial termination of its UCC-1
Financing Statement to be filed respecting such release. The Credit Agreement
otherwise remains in full force and effect.

-

<PAGE>

Pemstar Inc.
November 30, 2001
Page 2

You are expressly authorized to disclose the release herein to IBM Credit
Corporation, and, notwithstanding any terms of the IBM Intercreditor Agreement
to the contrary, IBM Credit Corporation may obtain a first priority security
interest in the Accounts released, and may rely on such release if it shall
finance such Accounts.

                                            Very truly yours,

                                            U.S. Bank National Association

                                            By: /s/ Christopher J. Schaaf
                                                --------------------------------
                                                Christopher J. Schaaf
                                                Vice President

<PAGE>

                                   Schedule I
                                   ----------

        US Bank Debtor Listing
        ----------------------

Abbott Labs
Acc EDM & Tooling
ADC Telecommunications Inc.
Advanced MP Technology
Agcre Systems Inc.
American Medical Systems
Atlantic Semiconductor
Brady Service Company Corp.
Brix Networks Inc.
Bruckner Supply Company Inc.
COMPRO
Computer Science Corp.
Condux International Connect Tech International
Cordis Corporation
Creo Products Inc.
Cyberfone, Inc.
Data General Corp.
DataPlay Inc.
Domaille Engineering
ETMI
EGR Global Technology
Electronic Assembly
Flextronics International Inc.
Gandy Co.
Global Logistics, Inc.
Guidance Ireland Ltd.
Guidant Japan K.K.
Guidant Cardiac Pacemakers
Hewlett Packard De Mexico
Higher Dimension Research
HISCO
HTS Technologies
Hunt Technologies Inc.
International Compent Exchange
Integration Associations
Interwave Communications Inc.
Fasco Controls Corp.
Keurig Inc.
Kimball Electronics Group
Laser Design Inc.
Mendota Healthcare
Mayo Foundation
McNeilus Truck Manufacturing Co.
Medtronic Perfusion Systems
Medtronic Inc.
Mobile Sorage Technology
Monnex International, Inc.
Motorola, Inc.
Motorola de Mexico, SA
Motorola Industrial LTDA
Next Net Wireless

<PAGE>
Nevasonics Inc.
Optical Solutions
Qlogic Corp.
RLX Technologies
RSA Security Inc.
Seagate Technology LLC
Sheldahl, Inc.
Sienna Imaging Inc.
Sonic Innovation
Specialty Engineering Inc.
Storage Tek Corporation
Telco Inc.
Tetra Rex Packaging Systems
Three-Five Systems, Inc.
Ultracard, Inc.
Urologix
Urametrics
Varitronic
Wats International
Wavecrest Corporation

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