Document:

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                                                                    EXHIBIT 10.1

                       AMENDMENT AND TERMINATION AGREEMENT

         AMENDMENT AND TERMINATION AGREEMENT (the "Agreement"), dated as of July
18, 2002, by and among Pemstar Inc., a Minnesota corporation, with headquarters
located at 3535 Technology Drive, N.W., Rochester, Minnesota 55901 (the
"Company"), and Smithfield Fiduciary LLC, a Cayman Islands limited liability
company, and Citadel Equity Fund Ltd., a Cayman Islands limited liability
company (individually, a "Buyer" and collectively, the "Buyers").

         WHEREAS:

         A. On May 3, 2002, the Company and each Buyer executed and delivered a
Securities Purchase Agreement (the "Securities Purchase Agreement") and a
Registration Rights Agreement (the "Registration Rights Agreement") relating to
the securities issuable according to the terms and conditions of the Securities
Purchase Agreement;

         B. On May 10, 2002, (i) the Company issued and sold (A) $5,000,000 in
convertible notes of the Company according to the terms and conditions of the
Securities Purchase Agreement (the "Initial A-1 Notes"), (B) warrants
exercisable for 788,312 shares of Common Stock according to the terms and
conditions of the Securities Purchase Agreement (the "Initial A-1 Warrants") and
(C) warrants exercisable for 1,000,000 shares of Common Stock (the "Ancillary
Warrants") according to the terms and conditions of a letter agreement dated May
8, 2002 between the Company and the Buyers (the "May 8 Letter Agreement");

         C. Upon the terms and conditions stated in this Agreement, the Company
and each Buyer wishes to terminate any and all obligations (i) to purchase and
sell any additional securities under the Securities Purchase Agreement, (ii) to
register any such additional securities and (iii) to obtain shareholder approval
of the issuance and sale of any securities issued or issuable under the
Securities Purchase Agreement; and

         D. Upon the terms and conditions stated in this Agreement and in
consideration for the termination of such obligations, the Company will (i)
issue to each of the Buyers a warrant (the "Termination Warrants") exercisable
for 125,000 shares of Common Stock per Buyer (as exercised, collectively the
"Termination Shares"), (ii) provide for certain registration rights relating to
the Termination Shares and (iii) provide certain rights to the Buyers to
participate in future offerings of equity securities of the Company.

         E. Terms used but not defined herein shall have the meaning used in the
Securities Purchase Agreement. NOW THEREFORE, the Company and each Buyer hereby
agree as follows:

         1. AMENDMENT OF SECURITIES PURCHASE AGREEMENT.

         (a) Termination of Obligations to Sell and Purchase Securities. Any and
all obligations of the Company to issue and sell to the Buyers, and any rights
of the Buyers to

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purchase from the Company, any securities of the Company on and after the date
hereof under the terms and conditions of the Securities Purchase Agreement,
including without limitation any obligations to issue, sell and purchase
Subsequent Notes, Subsequent Warrants, Additional Notes and Additional Warrants,
pursuant to Sections 1(a)(ii), 1(a)(iii), 1(a)(iv) of the Securities Purchase
Agreement or otherwise, are hereby terminated, and Sections 1(a)(ii), 1(a)(iii)
and 1(a)(iv) shall be deleted in their entirety from the Purchase Agreement.
From and after the date hereof, the Company shall have no obligation to issue
Pricing Period Notices, Limit Notices or Available Note Notices to any Buyer,
and Section 1(h) shall be deleted in its entirety from the Securities Purchase
Agreement.

         (b) Termination of Obligation to Solicit Shareholder Approval. Any and
all obligations of the Company to solicit shareholder approval of the issuance
of any securities issued or issuable under the Securities Purchase Agreement and
to cause the Board of Directors of the Company to recommend that they approve
such proposal pursuant to Section 4(n) of the Securities Purchase Agreement are
hereby terminated, and Section 4(n) shall be deleted in its entirety from the
Securities Purchase Agreement.

         2. AMENDMENT OF REGISTRATION RIGHTS AGREEMENT.

         (a) Termination of Certain Obligations to File Registration Statements.
Sections 2(a)(ii) and 2(a)(iii) of the Registration Rights Agreement shall be
deleted in their entirety.

         (b) Inclusion of Securities Issuable Pursuant to the Termination
Warrants. The Company and the Buyers agree that (i) the shares of Common Stock
issued or issuable upon exercise of the Termination Warrants and (ii) any shares
of capital stock issued or issuable with respect to such shares of Common Stock
or the Termination Warrants as a result of any stock split, stock dividend,
recapitalization, exchange or similar event or otherwise, without regard to any
limitation on exercise of the Termination Warrants (the "Termination
Securities") shall be General Registrable Securities as that term is defined in
the Registration Rights Agreement, and the definition of General Registrable
Securities in the Registration Rights Agreement is hereby amended to include
such securities in addition to the securities currently within the definition of
General Registrable Securities. The Company and the Buyers agree that the
definition of Initial Registrable Securities in the Registration Rights
Agreement is hereby amended to included the General Registrable Securities (as
that term is amended by this Agreement) relating to the Termination Warrants
issued on or prior to the trading day immediately preceding the date the Initial
Registration Statement is initially filed with the SEC.

         3. ISSUANCE OF WARRANTS AND REPRESENTATIONS AND WARRANTIES.

         (a) Issuance of Warrants. The Company hereby agrees to issue the
Termination Warrants on the date of this Agreement. The Termination Warrants
will be evidenced by a warrant agreement in substantially the form of Exhibit I
to the Securities Purchase Agreement, except that (a) the exercise price of the
Warrants will equal $1.62 per Termination Share (as appropriately adjusted for
any stock splits, stock dividends, stock

                                       -2-

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combinations and other similar transactions of the Common Stock which occur
after the date of this Agreement) and (b) each Buyer's Termination Warrant will
be exercisable for an aggregate of 125,000 shares of Common Stock.

         (b) Representations and Warranties of the Company. The Company hereby
represents and warrants to each Buyer as follows:

         (i) Organization. The Company is duly organized and validly existing in
         good standing under the laws of the jurisdiction of its organization.
         The Company has full power and authority to own, operate and occupy its
         properties and to conduct its business as presently conducted and is
         registered or qualified to do business and in good standing in each
         jurisdiction where the failure to be so qualified or be in good
         standing would have a material adverse effect on the business,
         properties, assets, operations, results of operations, financial
         condition or prospects of the Company and its Subsidiaries, if any,
         taken as a whole, or on the transactions contemplated hereby or by the
         agreements and instruments to be entered into in connection herewith,
         or on the authority or ability of the Company to perform its
         obligations under this Agreement and the Termination Warrants.

         (ii) Authorization; Enforcement; Validity. The Company has all
         requisite power and authority to execute, deliver and perform the
         Agreement and the Termination Warrants and to issue the Termination
         Shares in accordance with the terms thereof. The Agreement and the
         Termination Warrants have been duly authorized and validly executed and
         delivered by the Company and constitute legal, valid and binding
         obligations of the Company enforceable against the Company in
         accordance with its terms, except as enforceability may be limited by
         applicable bankruptcy, insolvency, reorganization, moratorium,
         liquidation and similar laws relating to creditors' rights generally
         and except as enforceability may be limited by general principles of
         equity (regardless of whether such enforceability is considered in a
         proceeding in equity or at law).

         (iii) Issuance of Securities. A number of shares of Common Stock has
         been duly authorized and reserved for issuance which equals 100% of the
         number of shares of Common Stock issuable upon exercise of the
         Termination Warrants (subject to adjustment pursuant to the Company
         covenants set forth in the Termination Warrants). Upon exercise in
         accordance with the Termination Warrants, the Termination Shares will
         be duly and validly issued, fully paid and nonassessable and free from
         all taxes, liens and charges with respect to the issue thereof, with
         the holders being entitled to all rights accorded to a holder of Common
         Stock. Subject to the accuracy as to factual matters of the Buyers'
         representations in Section 3(c), the issuance by the Company of the
         Termination Warrants and the Termination Shares is exempt from
         registration under the 1933 Act.

         (iv) No Conflicts. The execution, delivery and performance of this
         Agreement and the Termination Warrants by the Company and the
         consummation by the Company of the transactions contemplated hereby and
         thereby (including, without limitation, the reservation for issuance
         and issuance of the Termination Shares) will not (i) result in a

                                       -3-

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         violation of the Articles of Incorporation, any Certificate of
         Designations, Preferences and Rights of any outstanding series of
         preferred stock of the Company or the Bylaws, (ii) conflict with, or
         constitute a default (or an event which with notice or lapse of time or
         both would become a default) under, or give to others any rights of
         termination, amendment, acceleration or cancellation of, any material
         agreement, indenture or instrument to which the Company or any of its
         Subsidiaries is a party, or (iii) result in a violation of any law,
         rule, regulation, order, judgment or decree (including federal and
         state securities laws and regulations and the rules and regulations of
         the Principal Market) applicable to the Company or any of its
         Subsidiaries or by which any property or asset of the Company or any of
         its Subsidiaries is bound or affected.

         (v) No General Solicitation. Neither the Company, nor any of its
         affiliates, nor any Person acting on its or their behalf, has engaged
         in any form of general solicitation or general advertising (within the
         meaning of Regulation D) in connection with the offer of the
         Termination Warrants.

         (vi) No Integrated Offering. None of the Company, its Subsidiaries, any
         of their affiliates, and any Person acting on their behalf has,
         directly or indirectly, made any offers or sales of any security or
         solicited any offers to buy any security (other than securities offered
         or sold to the Buyers pursuant to the Securities Purchase Agreement and
         the May 8 Letter Agreement) under circumstances that would cause the
         offering of the Termination Warrants and Termination Shares to be
         integrated with prior offerings by the Company for purposes of any
         applicable shareholder approval provision, including, without
         limitation, under the rules and regulations of any exchange or
         automated quotation system on which any of the securities of the
         Company are listed or designated. None of the Company, its
         Subsidiaries, their affiliates and any Person acting on their behalf
         will take any action or steps referred to in the preceding sentence
         that would cause the offering of the Termination Securities to be
         integrated with other offerings for purposes of any such shareholder
         approval provision.

         (vii) Material Nonpublic Information. Other than the terms of this
         Agreement and the transactions contemplated by this Agreement, all of
         which shall be publicly disclosed in the 8-K Filing (as defined in
         Section 5(a)), neither the Company nor any of its Subsidiaries nor any
         of their officers, directors, employees or agents have provided the
         Buyers with any material, nonpublic information.

         (c) Representations and Warranties of Each Buyer. Each Buyer hereby
represents and warrants to the Company with respect to only itself as follows:

         (i) Authorization; Enforcement; Validity. Such Buyer is a validly
         existing corporation, partnership, limited liability company or other
         entity. Such Buyer has all requisite corporate, partnership, limited
         liability or other organizational power and authority to execute,
         deliver and perform its obligations under the Agreement in accordance
         with the terms hereof. The Agreement has been duly authorized and
         validly executed and delivered by such Buyer and constitutes the valid
         and binding obligations of such Buyer enforceable against such Buyer in
         accordance with its terms, except as

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         enforceability may be limited by applicable bankruptcy, insolvency,
         reorganization, moratorium, liquidation and similar laws relating to
         creditors' rights generally and except as enforceability may be limited
         by general principles of equity (regardless of whether such
         enforceability is considered in a proceeding in equity or at law).

         (ii) Exemption of Offering. Such Buyer is an "accredited investor" as
         that term is defined in Rule 501(a) of Regulation D. Such Buyer is
         acquiring the Termination Warrants and, upon exercise of the
         Termination Warrants (other than pursuant to a Cashless Exercise (as
         defined in Section 1(d) of the Termination Warrants)), will acquire the
         Termination Shares issuable upon exercise thereof, for its own account
         and not with a view towards, or resale in connection with, the public
         sale or distribution thereof, except pursuant to sales registered or
         exempted under the 1933 Act, provided, however, that by making the
         representations herein, such Buyer does not agree to hold any of the
         Termination Warrants or Termination Shares for any minimum or other
         specific term and reserves the right to dispose of the Termination
         Warrants or Termination Shares at any time in accordance with or
         pursuant to a registration statement or an exemption under the 1933
         Act.

         4. RIGHTS OF PARTICIPATION.

         (a) Offering of Additional Securities. If, during a period commencing
on the date hereof and ending on the date that is six months following the date
hereof, the Company should offer to sell additional equity securities of the
Company (or rights to purchase such equity securities or securities convertible
into such equity securities) other than Excluded Offers (collectively, the
"Offered Securities"), then following the determination of the purchase price of
such Offered Securities, the Company shall offer to sell to each Buyer, upon the
same terms and conditions as the Company offers to sell the Offered Securities,
a number of Offered Securities equal to 10% of the Offered Securities. Such
offer shall be made by written notice given to each Buyer, shall specify therein
the amount of the Offered Securities, the purchase price of the Offered
Securities and the other material terms of such offer and shall include a copy
of any agreements relating thereto. Each Buyer shall have a period of five (5)
Business Days from the date such notice is delivered within which to accept such
offer in whole or in part. Such offer may only be accepted by a Buyer by
providing the Company written notice within such five (5) Business Day period,
together with payment to the Company of the applicable purchase price; provided,
however, that a Buyer shall not be required to pay the applicable purchase price
prior to the closing of the offer of the Offered Securities with the purchasers
other than the Buyers. If a Buyer is unwilling to purchase such shares on the
same terms and conditions as the purchasers of the Offered Securities, the
Company shall have no obligation to sell any Offered Securities to such Buyer.
Without limitation to the foregoing and for the avoidance of doubt, the Company
may close on the offer of the Offered Securities prior to the offer of the
Offered Securities to the Buyers in accordance with this Section 4(a).

         (b) Excluded Offers. "Excluded Offers" mean any offers to sell a
security of the Company (or rights to purchase such securities) (i) under the
terms of any Company employee, consultant or director stock option plan,
employee stock purchase plan or employee stock repurchase plan which has been
approved by the Board of Directors of the Company or (ii)

                                       -5-

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through a firm commitment underwritten public offering registered under the
Securities Act of 1933, as amended.

         5. COVENANTS.

         (a) Current Report on Form 8-K. At or before 8:30 a.m., New York Time,
on the first Business Day following the date of this Agreement, the Company
shall file a Current Report on Form 8-K describing the terms of this Agreement
in the form required by the 1934 Act, and attaching the Agreement as an exhibit
to such filing (the "8-K Filing").

         (b) Listing. The Company shall promptly secure the listing of all of
the Termination Securities upon each national securities exchange and automated
quotation system, if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance) and shall maintain, so long as any
other shares of Common Stock shall be so listed, such listing of all Termination
Securities from time to time issuable under the terms of the Termination
Warrants or the Agreement. The Company shall maintain the Common Stock's
authorization for quotation on the Nasdaq National Market or obtain a listing on
the NYSE. The Company shall pay all fees and expenses in connection with
satisfying its obligations under this Section 5(b).

         (c) Pledge of Securities. The Company acknowledges and agrees that the
Termination Securities may be pledged by an Investor (as defined in the
Registration Rights Agreement) in connection with a bona fide margin agreement
or other loan or financing arrangement that is secured by the Termination
Securities. The pledge of Termination Securities shall not be deemed to be a
transfer, sale or assignment of the Termination Securities hereunder, and no
Investor effecting a pledge of Termination Securities shall be required to
provide the Company with any notice thereof or otherwise make any delivery to
the Company pursuant to this Agreement or the Termination Warrants. At the
appropriate Investor's expense, the Company hereby agrees to execute and deliver
such reasonable documentation as a pledgee of the Termination Securities may
reasonably request in connection with a pledge of the Termination Securities to
such pledgee by an Investor.

         6. MISCELLANEOUS.

         (a) Status of Securities Purchase Agreement and Registration Rights
Agreement. Except as specifically amended or terminated by the terms of this
Agreement, all rights and obligations of the parties under, and all terms and
conditions of, the Securities Purchase Agreement and the Registration Rights
Agreement shall remain in full force and effect. This Agreement has no effect on
(i) the Initial A-1 Notes and Initial A-1 Warrants issued pursuant to the
Securities Purchase Agreement, (ii) the Ancillary Warrants, (iii) the May 8
Letter Agreement, (iv) the letter agreement dated May 10, 2002 between the
Company and the Buyers and (v) the Registration Rights Agreement dated as of May
10, 2002 between the Company and the Buyers (the "May 10 Registration Rights
Agreement"), and all of the foregoing shall remain in full force and effect,
including the obligation of the Company to issue shares of Common Stock upon
conversion or exercise, as the case may be, of the Initial A-1 Notes, the
Initial A-1 Warrants and the Ancillary Warrants.

                                       -6-

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

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

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

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

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

         If to the Company:

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<PAGE>

                  Pemstar Inc.
                  3535 Technology Drive N.W.
                  Rochester, Minnesota 55901
                  Telephone:        (507) 292-6941
                  Facsimile:        (507) 280-0838
                  Attention:        Linda U. Feuss, Executive Vice President,
                                    Legal and Human Resources

         With a copy to:

                  Dorsey & Whitney LLP
                  50 South Sixth Street
                  Minneapolis, Minnesota 55402

                  Telephone:         (612) 340-2600
                  Facsimile:         (612) 340-7800
                  Attention:         Jonathan Abram, Esq.

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

         (g) Successors and Assigns. Subject to the consent provisions contained
in this Section 6(g), this Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and assigns, including
any purchasers of the Termination Warrants. The Company shall not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the holders of Termination Warrants representing a majority of the
aggregate number of shares of Common Stock issuable upon exercise of the
Termination Warrants then outstanding including by merger or consolidation,
except pursuant to an Organic Change (as defined in Section 4 of the Termination
Warrants) with respect to which the Company is in compliance with Section 4(b)
of the Termination Warrants. A Buyer may assign some or all of its rights
hereunder without the consent of the Company, in which event such assignee shall
be deemed to be a Buyer hereunder with respect to such assigned rights;
provided, however, that any such assignment shall not release such Buyer from
its obligations hereunder unless such obligations are assumed by such assignee
and the Company has consented to such assignment and assumption, which consent
shall not be unreasonably withheld or delayed. Notwithstanding the foregoing
sentence, a Buyer may not assign any of its rights under Section 4 hereof other
than to an affiliate of such Buyer without the prior written consent of the
Company.

                                       -8-

<PAGE>

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

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

         7. MUTUAL GENERAL RELEASE.

         (a) General Release of the Company. In further consideration of the
Company entering into this Agreement and the releases set forth in Section 7(b)
hereof, effective as of the date this Agreement, each Buyer, severally and not
jointly, on behalf of itself and its heirs, executors, administrators, devisees,
trustees, partners, directors, officers, shareholders, employees, consultants,
representatives, predecessors, principals, agents, parents, associates,
affiliates, subsidiaries, attorneys, accountants, successors,
successors-in-interest and assignees (collectively, the "Investor Releasing
Persons"), hereby waives and releases, to the fullest extent permitted by law,
but subject to Section (7)(c) below, any and all claims, rights and causes of
action, whether known or unknown (collectively, the "Investor Claims"), that any
of the Investor Releasing Persons had or currently has against (i) the Company,
(ii) any of the Company's current or former parents, shareholders, affiliates,
subsidiaries, predecessors or assigns, or (iii) any of the Company's or such
other persons' or entities' current or former officers, directors, employees,
agents, principals, investors, signatories, advisors, consultants, spouses,
heirs, estates, executors, attorneys, auditors and associates and members of
their immediate families (collectively, the "Company Released Persons"),
including, without limitation, any Investor Claims arising out of or relating to
the Securities Purchase Agreement and the Registration Rights Agreement
(collectively, the "Released Documents") other than Investor Claims arising
after the date of this Agreement.

         (b) General Release of the Buyers. In further consideration of the
Buyers entering into this Agreement and the releases set forth in Section 7(a)
hereof, effective as of the date of this Agreement, the Company on behalf of
itself and its heirs, executors, administrators, devisees, trustees, partners,
directors, officers, shareholders, employees, consultants, representatives,
predecessors, principals, agents, parents, associates, affiliates, subsidiaries,
attorneys, accountants, successors, successors-in-interest and assignees
(collectively, the "Company Releasing Persons"), hereby waives and releases, to
the fullest extent permitted by law, but subject to Section 7(c) below, any and
all claims, rights and causes of action, whether known or unknown (collectively,
the "Company Claims"), that any of the Company Releasing Persons had or
currently has against (i) the Buyers, (ii) any of the Buyers' respective current
or former parents, shareholders, affiliates, subsidiaries, predecessors or
assigns, or (iii) any of the Buyers' or such other persons' or entities' current
or former officers, directors, employees, agents, principals, investors,
signatories, advisors, consultants, spouses, heirs, estates, executors,
attorneys, auditors and associates and members of their immediate families
(collectively, the "Investor Released Persons"), including, without limitation,
any Company Claims arising out

                                       -9-

<PAGE>

of or relating to the Released Documents other than Company Claims arising after
the date of this Agreement.

         (c) Exception to the Mutual Release. The Company and each of the Buyers
acknowledge that the releases set forth in Sections 7(a) and 7(b) above do not
affect any claim which any Company Releasing Person or Investor Releasing Person
may have under this Agreement, Section 4(g) or Section 9(k) of the Securities
Purchase Agreement, Sections 5, 6 or 7 of the Registration Rights Agreement or
the May 10 Registration Rights Agreement or the Initial A-1 Notes, Initial A-1
Warrants or Ancillary Warrants relating to any Company Claims or Buyer Claims
arising, or performance thereunder, after the date of this Agreement.

                            [Signature Page Follows]

                                       -10-

<PAGE>

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

COMPANY:                                BUYERS:

PEMSTAR INC.                            SMITHFIELD FIDUCIARY LLC

By: /s/ Linda U. Feuss                  By: /s/ Adam J. Chill
    --------------------------------        -----------------------------------
    Name:  Linda U. Feuss                   Name:  Adam J. Chill
    Title: Executive Vice President,        Title: Authorized Signatory
           Legal and Human Resources

                                        CITADEL EQUITY FUND LTD.

                                        By: /s/ Kenneth A. Simpler
                                            -----------------------------------
                                            Name:  Kenneth A. Simpler
                                            Title: Vice PresidentExhibit 4.01

THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE
COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO LIQUIDIX, INC., THAT SUCH REGISTRATION IS NOT REQUIRED.

                               CONVERTIBLE NOTE I
                               ------------------

          FOR VALUE RECEIVED, LIQUIDIX, INC., a Florida corporation (hereinafter
called the "Borrower"), hereby promises to pay to Kazi Management VI, Inc. (the
"Holder") on order, without demand, the sum of Three Hundred Thousand Dollars
($300,000), with simple interest accruing at the annual rate of 8%, on May 9,
2004 (the "Maturity Date").

                  The following terms shall apply to this Note:

                                    ARTICLE I

                           DEFAULT RELATED PROVISIONS

          1.1 Payment Grace Period. The Borrower shall have a five (5)
              --------------------
day grace period to pay any monetary amounts due under this Note, after which
grace period a default interest rate of fifteen percent (15%) per annum above
the then applicable interest rate hereunder shall apply to the amounts owed
hereunder.

          1.2 Conversion Privileges. The Conversion Privileges set forth in
              ---------------------
Article II shall remain in full force and effect immediately from the date
hereof and until the Note is paid in full.

          1.3 Interest Rate. Interest payable on this Note shall accrue at the
              -------------
annual rate of eight percent (8%) and be payable in arrears commencing June 30,
2002 and on the last day of each quarter thereafter, and on the Maturity Date,
accelerated or otherwise, when the principal and remaining accrued but unpaid
interest shall be due and payable, or sooner as described below.

<PAGE>

                                   ARTICLE II

                                CONVERSION RIGHTS

          At any time during the term of this Note, the Holder may deliver a
written notification (the "Notice of Conversion") to the Borrower setting forth
the portion of the principal amount of the Note and/or interest due and payable
(the "Investment Amount") that the Holder exercises its conversion rights with
respect thereto, subject to the terms and provisions set forth below.
Notwithstanding, Borrower may, at its option, pay interest due and payable on
the Note in cash or in freely tradable shares of Common Stock at the Conversion
Price.

<PAGE>

          2.1. Conversion into the Borrower's Common Stock.
               --------------------------------------------

          (a) The Holder shall have the right, but not the obligation, from and
after the Borrower's receipt of an Notice of Conversion or the occurrence of any
Event of Default, as the case may be, and then at any time until this Note is
fully paid, to convert the principal portion of this Note and/or interest due
and payable set forth in each such Notice of Conversion or the entire principal
portion of this Note and/or interest due and payable following the occurrence or
an Event of Default, as the case may be, into fully paid and nonassessable
shares of common stock of the Borrower as such stock exists on the date of
issuance of this Note, or any shares of capital stock of the Borrower into which
such stock shall hereafter be changed or reclassified (the "Common Stock") at
the conversion price as defined in Section 2.1(b) hereof (the "Conversion
Price"), determined as provided herein. Upon delivery to the Borrower of a
Notice of Conversion as described in Section 9 of the Subscription Agreement
entered into between the Borrower and certain persons who are signatories
thereto, including the Holder, relating to this Note (the "Purchase Agreement")
of the Holder's written request for conversion (the date of giving such notice
of conversion being a "Conversion Date"), the Borrower shall issue and deliver
to the Holder within three business days from the Conversion Date that number of
shares of Common Stock for the portion of the Note converted in accordance with
the foregoing. At the election of the Holder, the Borrower will deliver accrued
but unpaid interest on the Note through the Conversion Date directly to the
Holder on or before the Delivery Date (as defined in the Purchase Agreement).
The number of shares of Common Stock to be issued upon each conversion of this
Note shall be determined by dividing that portion of the principal of the Note
to be converted and interest, if any, by the Conversion Price.

          (b) Subject to adjustment as provided in Section 2.1(c) hereof, the
Conversion Price per share shall be the lower of (i) $0.73 ("Maximum Base
Price"); or (ii) sixty percent (60%) of the average of the three lowest closing
bid prices for the Common Stock on the NASD OTC Bulletin Board, NASDAQ SmallCap
Market, NASDAQ National Market System, American Stock Exchange, or New York
Stock Exchange (whichever of the foregoing is at the time the principal trading
exchange or market for the Common Stock, the "Principal Market"), or if not then
trading on a Principal Market, such other principal market or exchange where the
Common Stock is listed or traded, for the ten (10) trading days prior to but not
including Conversion Date.

          (c) The Conversion Price described above shall be subject to
adjustment from time to time upon the happening of certain events while this
conversion right remains outstanding, as follows:

<PAGE>

               A. Merger, Sale of Assets, etc. If the Borrower at any time shall
consolidate with or merge into or sell or convey all or substantially all its
assets to any other person or entity, this Note, as to the unpaid principal
portion thereof and accrued interest thereon, shall thereafter be deemed to
evidence the right to purchase such number and kind of shares or other
securities and property as would have been issuable or distributable on account
of such consolidation, merger, sale or conveyance, upon or with respect to the
securities subject to the conversion or purchase right immediately prior to such
consolidation, merger, sale or conveyance. The foregoing provision shall
similarly apply to successive transactions of a similar nature by any such
successor or purchaser. Without limiting the generality of the foregoing, the
anti-dilution provisions of this Section shall apply to such securities of such
successor or purchaser after any such consolidation, merger, sale or conveyance.

               B. Reclassification, etc. If the Borrower at any time shall, by
reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any class or classes, this Note, as to the
unpaid principal portion thereof and accrued interest thereon, shall thereafter
be deemed to evidence the right to purchase an adjusted number of such
securities and kind of securities as would have been issuable as the result of
such change with respect to the Common Stock immediately prior to such
reclassification or other change.

               C. Stock Splits, Combinations and Dividends. If the shares of
Common Stock are subdivided or combined into a greater or smaller number of
shares of Common Stock, or if a dividend is paid on the Common Stock in shares
of Common Stock, the Conversion Price shall be proportionately reduced in case
of subdivision of shares or stock dividend or proportionately increased in the
case of combination of shares, in each such case by the ratio which the total
number of shares of Common Stock outstanding immediately after such event bears
to the total number of shares of Common Stock outstanding immediately prior to
such event.

          (d) During the period the conversion right exists, the Borrower will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of Common Stock upon the full conversion of
this Note. The Borrower represents that upon issuance, such shares will be duly
and validly issued, fully paid and non-assessable. The Borrower agrees that its
issuance of this Note shall constitute full authority to its officers, agents,
and transfer agents who are charged with the duty of executing and issuing stock
certificates to execute and issue the necessary certificates for shares of
Common Stock upon the conversion of this Note.

          2.2 Method of Conversion. This Note may be converted by the Holder in
              --------------------
whole or in part as described in Section 2.1(a) hereof and the Subscription
Agreement. Upon partial conversion of this Note, a new Note containing the same
date and provisions of this Note shall, at the request of the Holder, be issued
by the Borrower to the Holder for the principal balance of this Note and
interest which shall not have been converted or paid.

                                   ARTICLE III

                                EVENT OF DEFAULT

          The occurrence of any of the following events of default ("Event of
Default") shall, at the option of the Holder hereof, make all sums of principal
and interest then remaining unpaid hereon and all other amounts payable
hereunder immediately due and payable, all without demand, presentment or
notice, or grace period, all of which hereby are expressly waived, except as set
forth below:

          3.1 Failure to Pay Principal or Interest. The Borrower fails to pay
              ------------------------------------
any installment of principal or interest hereon or on any other promissory note
issued pursuant to the Purchase Agreement, when due and such failure continues
for a period of five (5) days after the due date.

          3.2 Breach of Covenant. The Borrower breaches any material covenant or
              ------------------
other term or condition of this Note in any material respect and such breach, if
subject to cure, continues for a period of seven (7) days after written notice
to the Borrower from the Holder.

          3.3 Breach of Representations and Warranties. Any material
              ----------------------------------------
representation or warranty of the Borrower made herein, in the Purchase
Agreement, or in any agreement, statement or certificate given in writing
pursuant hereto or in connection therewith shall be false or misleading.

          3.4 Receiver or Trustee. The Borrower shall make an assignment for the
              -------------------
benefit of creditors, or apply for or consent to the appointment of a receiver
or trustee for it or for a substantial part of its property or business; or such
a receiver or trustee shall otherwise be appointed.

          3.5 Judgments. Any money judgment, writ or similar final process shall
              ---------
be entered or filed against the Borrower or any of its property or other assets
for more than $50,000, and shall remain unvacated, unbonded or unstayed for a
period of forty-five (45) days.

          3.6 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
              ----------
proceedings or other proceedings or relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Borrower.

          3.7 Delisting. Delisting of the Common Stock from the Principal Market
              ---------
or such other principal exchange on which the Common Stock is listed for
trading; the Borrower's failure to comply with the conditions for listing; or
notification that the Borrower is not in compliance with the conditions for such
continued listing.

          3.8 Concession. A concession by the Borrower, after applicable notice
              ----------
and cure periods, under any one or more obligations in an aggregate monetary
amount in excess of $50,000.

          3.9 Stop Trade. An SEC stop trade order or Principal Market trading
              ----------
suspension.

          3.10 Failure to Deliver Common Stock or Replacement Note. The
               ---------------------------------------------------
Borrower's failure to timely deliver Common Stock to the Holder pursuant to and
in the form required by this Note and Section 9 of the Subscription Agreement,
or if required a replacement Note.

          3.11 Default Under Security. An Event of Default occurs under and as
               ----------------------
defined in the Security Agreement dated as of the date hereof between the
Borrower and the Holder as such agreement may be amended, modified and
supplemented from time to time, and such Event of Default is not cured during
any applicable cure or grace period.

                                   ARTICLE IV

                                  MISCELLANEOUS

          4.1 Failure or Indulgence Not Waiver. No failure or delay on the part
              --------------------------------
of the Holder hereof in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.

          4.2 Notices. Any notice herein required or permitted to be given shall
              -------
be in writing and shall be deemed effectively given: (a) upon personal delivery
to the party notified, (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day, (c) five days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (d) one day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the
Borrower at the address as set forth on the signature page to the Subscription
Agreement executed in connection herewith and to the Holder at the address set
forth on the signature page to the Subscription Agreement for such Holder, with
a copy to Gary L. Blum, Esq., Law Offices of Gary L. Blum, 3278 Wilshire Blvd.,
Suite 603, Los Angeles, CA 90010, Facsimile: 213-384-1035, or at such other
address as the Borrower or the Holder may designate by ten days advance written
notice to the other parties hereto. A Notice of Conversion shall be deemed given
when made to the Borrower pursuant to the Subscription Agreement.

          4.3 Amendment Provision. The term "Note" and all reference thereto, as
              -------------------
used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented.

          4.4 Assignability. This Note shall be binding upon the Borrower and
              -------------
its successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder.

          4.5 Cost of Collection. If default is made in the payment of this
              ------------------
Note, the Borrower shall pay the Holder hereof reasonable costs of collection,
including reasonable attorneys' fees.

<PAGE>

          4.6 Governing Law. This Note shall be governed by and construed in
              -------------
accordance with the laws of the State of California, without regard to
principles of conflicts of laws. Any action brought by either party against the
other concerning the transactions contemplated by this Agreement shall be
brought only in the state courts of or in the federal courts located in the
state of California. Both parties and the individual signing this Note on behalf
of the Borrower agree to submit to the jurisdiction of such courts. The
prevailing party shall be entitled to recover from the other party its
reasonable attorney's fees and costs. In the event that any provision of this
Note is invalid or unenforceable under any applicable statute or rule of law,
then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any such provision which may prove invalid or unenforceable under
any law shall not affect the validity or unenforceability of any other provision
of this Note.

          4.7 Maximum Payments. Nothing contained herein shall be deemed to
              ----------------
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.

          4.8 Prepayment. This Note may be paid (in whole or in part) prior to
              ----------
the Maturity Date without the consent of the Holder.

          4.9 Security Interest. The holder of this Note has been granted a
              -----------------
security interest in shares of common stock of the Borrower more fully described
in a Security Agreement.

          4.10 Construction. Each party acknowledges that its legal counsel
               ------------
participated in the preparation of this Note and, therefore, stipulates that the
rule of construction that ambiguities are to be resolved against the drafting
party shall not be applied in the interpretation of this Note to favor any party
against the other.

                      [THIS SPACE INTENTIONALLY LEFT BLANK]

<PAGE>

         IN WITNESS WHEREOF, the Borrower has caused this Note to be signed in
its name by its Chief Executive Officer on this 9th day of May 2002.

                          LIQUIDIX, INC.

                          By:
                             -----------------------------------

WITNESS:

-------------------------------

<PAGE>

                              NOTICE OF CONVERSION

(To be executed by the Holder in order to convert the Note)

         The undersigned hereby elects to convert $_________ of the principal
and $_________ of the interest due on the Note issued by LIQUIDIX, INC. on ?,
2002 into Shares of Common Stock of LIQUIDIX, INC. (the "Company") according to
the conditions set forth in such Note, as of the date written below.

Date of Conversion:
                   -------------------------------------------------------------

Conversion Price:
                   -------------------------------------------------------------

Shares To Be Delivered:
                   -------------------------------------------------------------

Signature:
                   -------------------------------------------------------------

Print Name:
                   -------------------------------------------------------------

Address:
                   -------------------------------------------------------------

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