UNITED STATES DISTRICT COURT

DISTRICT OF MINNESOTA

MATT L. BRODY, On Behalf of Himself andAll Others Similarly Situated,

Plaintiff,

vs.

PEMSTAR, INC., ALLEN J. BERNING,WILLIAM B. LEARY, WILLIAM J.KULLBACK, ROBERT R. MURPHY, STEVEV. PETRACCA, KARL D. SHURSON,ROBERT D. AHMANN, HARGOPAL SINGH,GREGORY S. LEA, THOMAS A. BURTONand BRUCE M. JAFFE,

Defendants.

)))))))))))))))))

Civ. No.

CLASS ACTION

COMPLAINT FOR VIOLATION OF THEFEDERAL SECURITIES LAWS

DEMAND FOR JURY TRIAL

This writing/publication is a creative work fully protected by all applicable copyright laws, as well as by misappropriation,trade secret, unfair competition and other applicable laws. The authors of this work have added value to the underlying factualmaterials herein through one or more of the following: unique and original selection, coordination, expression, arrangement, andclassification of the information.

No copyright is claimed in the text of statutes, regulations, and any excerpts from analysts' reports quoted within this work.

Copyright © 2002 by William S. Lerach and Milberg Weiss Bershad Hynes & Lerach LLP. William S. Lerach and MilbergWeiss Bershad Hynes & Lerach LLP will vigorously defend all of their rights to this writing/publication.

All rights reserved – including the right to reproduce in whole or in part in any form. Any reproduction in any form byanyone of the material contained herein without the permission of William S. Lerach and Milberg Weiss Bershad Hynes & LerachLLP is prohibited.

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INTRODUCTION

1. This is a securities class action on behalf of purchasers of PEMSTAR, Inc.

("PEMSTAR" or the "Company") publicly traded securities during the period from June 8, 2001 to

May 3, 2002 (the "Class Period").

2. During the Class Period, defendants caused PEMSTAR's shares to trade at artificially

inflated levels through the issuance of false and misleading statements. The Registration Statement

and Prospectus for the June 8, 2001 Secondary Offering ("Secondary Offering") were materially

false and misleading when issued as they misrepresented and/or omitted one or more of the

following adverse facts which then existed and disclosure of which was necessary to make the

statements made not false and/or misleading, including, but not limited to:

(a) In order to attract and maintain the appearance of a diverse customer base,

PEMSTAR:

(i) executed orders from customers without industry track records or

acceptable financial conditions – in fact, several were on the brink of bankruptcy; and

(ii) had an extremely liberal policy of accepting and holding inventory for

and from existing and prospective customers (often without ever obtaining a written contract), the

result of which was that PEMSTAR significantly increased its costs of doing business and was

forced to write down obsolete inventory. In fact, a substantial amount of the Company's inventory

was already obsolete!

(b) Due to a lack of internal controls, reflected, but not acknowledged in

PEMSTAR's contracts with Datasweep:

(i) PEMSTAR's "cash conversion cycle," or the amount of time between

the purchase of inventory and the collection of payment, was dramatically lower than its

competitors', which resulted in PEMSTAR having to write down material amounts of accounts

receivables; and

(ii) PEMSTAR's "days sales outstanding," the number of days PEMSTAR

had to wait payment for sales, was dramatically lower than its competitors', which resulted in

PEMSTAR having to write down material amounts of accounts receivables.

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3. The true facts which were known to the defendants but concealed from the public

following the Secondary Offering were as follows:

(a) The Company was in violation of its financial loan covenants;

(b) The Company's inventory and accounts receivables valuations were grossly

overstated;

(c) Defendants needed to keep the Company's shares artificially inflated to

complete the Company's convertible offering;

(d) The Company was then experiencing lower than projected utilization rates

at the Company's higher cost locations which performed many of the Company's higher margin

services, including engineering, New Product Introduction ("NPI") and prototyping;

(e) The Company's customers were being devastated financially in the severe

"end-market" downturn;

(f) The Company was actually selling back its inventory to original equipment

manufacturers ("OEMs") because, unbeknownst to shareholders, the Company was actually

"holding" inventory from its OEMs without any written/binding agreement to perform; and

(g) As a result of (a)-(f) above, the defendants' projections for the Company's

third and fourth quarters of F02 were materially false and misleading.

4. On May 3, 2002, the Company issued a press release entitled, "PEMSTAR Revises

Estimates for Fourth Fiscal Quarter 2002 Results and Announces Private Placement of Up to $50

Million." The press release stated in part:

PEMSTAR, Inc., a leading provider of global engineering, manufacturing andfulfillment services to technology companies, today announced revised estimates forthe fourth quarter ended March 31, 2002. Based on information currently available,the Company believes that fourth quarter revenue and earnings will come in belowits previous expectations. For the fourth fiscal quarter the Company expects to reportnet sales of approximately $145 million and a GAAP basis net loss of between $8and $12 million, which on a per share basis equates to a loss range of $0.22 to $0.33.On a cash basis, which excludes the impact of tax effected amortization expense, aper share loss of between $0.21 and $0.32 is expected. The estimated loss for thequarter includes the impact of certain inventory write-downs and accounts receivablewrite-offs. The estimated loss excludes potential additional non-cash charges forwrite-offs of goodwill associated with acquisitions as well as impairment of certaintax assets. As the Company has yet to complete the audit process, it has notdetermined the amount, if any, of these additional non-cash charges.

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"While our quarterly results reflect the continued economic pressures facingvirtually all companies in the electronics manufacturing services industry,PEMSTAR has worked hard to adjust the current conditions through programstargeting improved productivity and efficiencies resulting in positive cash flow fromoperations in the fourth quarter," said Al Berning, PEMSTAR's chairman and chiefexecutive officer. "Although flat end-market demand is still a factor in many of ourbusiness units, the good news is that PEMSTAR continues to see strong levels ofnew bid activity and is winning customers at a similar rate to prior periods with avariety of new customer wins in recent months," said Berning. XteraCommunications, Tunable Photonics and Logitech all signed on with PEMSTAR fornew business programs during the fourth quarter. Additional new customer wins willbe announced in the first quarter.

New Financing

PEMSTAR also announced today that it has entered into a definitiveagreement with two institutional investors for the private placement of up to $50million of the Company's 6 1/2% convertible notes with attached warrants topurchase common stock.

5. On this news, the Company's share price plunged more than 60% to $2.84 on May

6, 2002 on trading of more than 4.5 million shares.

6. On May 8, 2002, Business Wire ran an article entitled, "PEMSTAR Postpones its 4th

Quarter Earnings Conference Call." The article stated in part:

PEMSTAR, Inc., a leading provider of engineering, manufacturing, distribution andaftermarket services to technology companies, today announced that it has postponedits 4th quarter earnings release and its investors conference call and Webcast for theCompany's fourth quarter 2002 earnings, previously scheduled to take place onWednesday, May 8, 2002. The conference call and Webcast will be rescheduled ata later date to be announced.

The Company is continuing to work to complete its determination and auditof reserves for accounts receivable and inventory, as well as potential charges forgoodwill impairment and valuation reserves for tax assets. The previouslyannounced guidance of GAAP basis net loss, which was provided net of tax benefit,may be adjusted as a result of any valuation reserves needed for tax assets and issubject to further adjustment in connection with the Company closing its books andcompletion of the audit.

7. Ultimately, the $50 million convertible note offering was terminated and to appease

the investors in the offering who were nearly defrauded out of tens of millions of dollars, the

Company gave the investors 250,000 warrants.

JURISDICTION AND VENUE

8. The claims asserted herein arise under §§10(b) and 20(a) of the Securities Exchange

Act of 1934 ("1934 Act"). Jurisdiction is conferred by §27 of the 1934 Act. Venue is proper

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pursuant to §27 of the 1934 Act as defendant PEMSTAR and/or the individual defendants conduct

business in and the wrongful conduct took place in this District.

THE PARTIES

9. Plaintiff Matt L. Brody purchased PEMSTAR publicly traded securities as detailed

in the attached certification and was damaged thereby.

10. PEMSTAR is a rapidly growing provider of electronics manufacturing services to

OEMs in the communications, computing, data storage, industrial and medical equipment markets.

The Company provides a comprehensive range of engineering, manufacturing and fulfillment

services to its customers on a global basis through 15 facilities located in North America, Asia,

Europe and South America.

11. Defendant Allen J. Berning ("Berning") is, and at all times relevant to the allegations

raised herein was, PEMSTAR's Chairman of the Board of Directors, Chief Executive Officer and

President. Defendant Berning sold 35,000 shares of PEMSTAR common stock in the Secondary

Offering for proceeds of $472,500.

12. Defendant William B. Leary ("Leary") was, during the Class Period, an Executive

Vice President and director of PEMSTAR.

13. Defendant William Kullback ("Kullback) is, and at all times relevant to the

allegations raised herein was, an Executive Vice President and Chief Financial Officer of

PEMSTAR

14. Defendant Robert R. Murphy ("Murphy") is, and at all times relevant to the

allegations raised herein was, an Executive Vice President and director of PEMSTAR. Defendant

Murphy sold 100,000 shares of PEMSTAR common stock in the Secondary Offering for proceeds

of $1.35 million.

15. Defendant Steve V. Petracca ("Petracca") is, and at all times relevant to the

allegations raised herein was, an Executive Vice President and director of PEMSTAR. Defendant

Petracca sold 61,423 shares of PEMSTAR common stock in the Secondary Offering for proceeds

of $829,211. In addition, defendant Petracca sold 188,577 shares during the Class Period at prices

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between $12.93 and $17.82 per share, receiving proceeds of more than $2.9 million and reducing

his equity interest in PEMSTAR by more than 75%.

16. Defendant Karl D. Shurson ("Shurson") is, and at all times relevant to the allegations

raised herein was, an Executive Vice President and director of PEMSTAR. Defendant Shurson sold

100,000 shares of PEMSTAR common stock in the Secondary Offering for proceeds of $1.35

million.

17. Defendant Robert D. Ahmann ("Ahmann") is, and at all times relevant to the

allegations raised herein was, an Executive Vice President and director of PEMSTAR. Defendant

Ahmann sold 50,000 shares of PEMSTAR common stock in the Secondary Offering for proceeds

of $675,000.

18. Defendant Hargopal Singh ("Singh") at all times relevant to the allegations raised

herein was an Executive Vice President and director of PEMSTAR. Defendant Singh sold 100,000

shares of PEMSTAR common stock in the Secondary Offering for proceeds of $1.35 million.

19. Defendant Gregory S. Lea ("Lea") is, and at all times relevant to the allegations

raised herein was, a director of PEMSTAR.

20. Defendant Thomas A. Burton ("Burton") is, and at all times relevant to the allegations

raised herein was, a director of PEMSTAR.

21. Defendant Bruce M. Jaffe ("Jaffe") is, and at all times relevant to the allegations

raised herein was, a director of PEMSTAR.

22. Defendants Berning, Leary, Kullback, Murphy, Petracca, Shurson, Ahmann, Burton,

Singh, Lea, and Jaffe are referred to herein, collectively, as the "Individual Defendants."

23. Defendants Berning, Murphy, Petracca, Shurson, Ahmann and Singh are referred to

herein, collectively, as the "Selling Defendants."

24. During the Class Period, the Individual Defendants, as senior executive officers

and/or directors of PEMSTAR, were privy to confidential and proprietary information concerning

PEMSTAR, its operations, finances, financial condition, and present and future business prospects.

The Individual Defendants also had access to material adverse non-public information concerning

PEMSTAR, as discussed in detail below. Because of their positions with PEMSTAR, the Individual

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Defendants had access to non-public information about its business, finances, products, markets and

present and future business prospects via access to internal corporate documents, conversations and

connections with other corporate officers and employees, attendance at management and board of

directors meetings and committees thereof and via reports and other information provided to them

in connection therewith. Because of their possession of such information, the Individual Defendants

knew or recklessly disregarded the that the adverse facts specified herein had not been disclosed to,

and were being concealed from, the investing public.

25. The Individual Defendants are liable as direct participants in, and co-conspirators

with respect to, the wrongs complained of herein. In addition, the Individual Defendants, by reason

of their status as senior executive officers and/or directors, were "controlling persons" within the

meaning of §20 of the 1934 Act and had the power and influence to cause the Company to engage

in the unlawful conduct complained of herein. Because of their positions with the Company, the

Individual Defendants were able to and did, directly or indirectly, control the conduct of

PEMSTAR's business.

26. The Individual Defendants, because of their positions with the Company, controlled

and/or possessed the authority to control the contents of its reports, press releases and presentations

to securities analysts and through them, to the investing public. The Individual Defendants were

provided with copies of the Company's reports and press releases alleged herein to be misleading,

prior to or shortly after their issuance and had the ability and opportunity to prevent their issuance

or cause them to be corrected. Thus, the Individual Defendants had the opportunity to commit the

fraudulent acts alleged herein.

27. As senior executive officers and/or directors and as controlling persons of a publicly

traded company whose common stock was, and is, registered with the SEC pursuant to the 1934 Act,

and was traded on the Nasdaq National Market ("Nasdaq") and governed by the federal securities

laws, the Individual Defendants had a duty to promptly disseminate accurate and truthful

information with respect to PEMSTAR's financial condition and performance, growth, operations,

financial statements, business products, markets, management, earnings and present and future

business prospects, and to correct any previously issued statements that had become materially

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misleading or untrue, so that the market price of PEMSTAR's publicly traded securities would be

based upon truthful and accurate information. The Individual Defendants' misrepresentations and

omissions during the Class Period violated these specific requirements and obligations.

FRAUDULENT SCHEME AND COURSE OF BUSINESS

28. Each defendant is liable for (i) making false statements, or (ii) failing to disclose

adverse facts known to him about PEMSTAR. Defendants' fraudulent scheme and course of

business that operated as a fraud or deceit on purchasers of PEMSTAR publicly traded securities

was a success, as it (i) deceived the investing public regarding PEMSTAR's prospects and business;

(ii) artificially inflated the prices of PEMSTAR's publicly traded securities; (iii) allowed certain of

the defendants to sell more than 635,000 shares of their PEMSTAR stock, recouping over $8.9

million in illegal insider trading proceeds; and (iv) caused plaintiff and other members of the Class

to purchase PEMSTAR publicly traded securities at inflated prices.

BACKGROUND

29. As with all electronics manufacturing services ("EMS") companies, a certain amount

of business is derived from smaller, developing companies, especially communications and telecom

companies that were funded during the Internet boom. The casualty rate among companies that were

clients of PEMSTAR during the Class Period was extremely high.

30. However, during the Class Period there was an enormous disparity between

consensus EPS estimates and the Company's internal estimates – the difference was the result of

inflated projections and the impact of certain inventory write-downs and accounts receivable write-

offs. The size of the Company's inventory write-downs and accounts receivable write-offs were

highly unusual in the EMS industry. The fundamental deterioration is the result of PEMSTAR's

high exposure to small emerging technology OEMs like ONI, Efficient, Western Multiplex, Diva

Systems, Dataplay, SANCastle, Pluris, and Brix Networks. Furthermore, weakness at IBM, which

was 27% of sales, had hurt the Company's growth prospects.

31. Defendants had proclaimed that one of PEMSTAR's key differentiating

characteristics was its engineering expertise. With the recent acquisition of Pacific Consultants,

PEMSTAR had 750 engineers. Engineering and design continued to grow as a percentage of

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revenues and accounted for 9% of the Company's revenues in the third quarter F01 (without Pacific)

versus only 5% of the Company's revenues in the third quarter F00. The Company claimed it had

benefitted from OEMs using more engineering and design services as a result of the economic

downturn so that it had added 55 new engineering customers in the first two quarters of F02.

Engineering revenues carry gross margins between 20%-28%, which is more than twice the margin

of the Company's core EMS business, and over time the Company represented that this would drive

overall margins higher. PEMSTAR's purported strategy was to leverage these engineering wins into

volume manufacturing programs, which it claimed occur 70%-80% of the time.

32. This was the Company's purported strategy. In truth, the Company's true strategy was

to keep up the "appearance" of a thriving company until its financings had been completed. The

Company was in the process of raising badly needed capital. The Company's ability to raise this

capital was directly tied to its ability to keep the Company's stock price inflated. The Secondary

Offering and the Company's convertible debt financing, which was structured into six separate

tranches of minimum conversion prices, were the life blood of the Company.

33. Defendants were highly motivated to keep the price of PEMSTAR's shares inflated

– at least until the last round of financing (convertible offering) had been consummated.

FALSE AND MISLEADING STATEMENTSDURING THE CLASS PERIOD

34. On June 8, 2001, PEMSTAR and the Selling Defendants commenced the Secondary

Offering of 6.9 million shares (including the underwriters' exercise of their over-allotment option

with respect to 900,000 shares) of common stock at the offering price of $13.50 per share, pursuant

to an effective Registration Statement on Form S-1 (the "Registration Statement"), and the

Prospectus included therein (the "Prospectus"). PEMSTAR received proceeds of more than $6.6

million in the Secondary Offering. In the press release dated June 8, 2001, accompanying the

commencement of the Secondary Offering, PEMSTAR stated: "Net proceeds of the offering

received by PEMSTAR will be used to repay indebtedness under existing credit facilities."

35. The Prospectus included the following representations regarding PEMSTAR's

internal controls, practices and strategies with regard to its management of inventory for customers.

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We are a rapidly growing provider of electronics manufacturing services tooriginal equipment manufacturers in the communications, computing, data storage,industrial and medical equipment markets. Electronics manufacturing servicesinclude:

• Manufacturing services, including the assembly of electrical andmechanical components and products;

• Engineering, design and test services, including the development ofproduct specifications, manufacturing processes and equipment, andproduct testing systems;

• Supply chain management, including material procurement,identification of suppliers and inventory management; and

• Fulfillment services, including delivery of completed products andcomponents to end users and repair and replacement services formanufactured products and components.

* * *

In addition, if we fail to manage our inventory effectively, we may bear therisk of fluctuations in materials costs, scraps and excess inventory, all of whichadversely affect our business, financial condition and results of operations. We arerequired to forecast our future inventory needs based upon the anticipated demandof our customers. Inaccuracies in making these forecasts or estimates could resultin a shortage or an excess of materials. A shortage of materials could lengthenproduction schedules and increase costs. An excess of materials may increase thecosts of maintaining inventory and may increase the risk of inventoryobsolescence, both of which may increase expenses and decrease our profitmargins and operating income.

* * *

Our future success depends in part on our ability to rapidly respond tochanging customer needs by scaling operations to meet customer requirements, shiftcapacity in response to product demand fluctuations, procure materials atadvantageous prices, manage inventory and effectively distribute products to ourcustomers. In order to continue to meet these customer requirements, we havedeveloped a Web-based supply chain management system that enables us tocollaborate with our customers on product contend and to process engineeringchanges. We are currently implementing an enhanced version of our existingsystem, which will include real-time communications between our customersacross all of our facilities. Our inability to expand this Web-based system, ordelays or defects in such expansion could negatively impact our ability to manageour supply chain in an efficient and timely manner to meet customer demands,which could adversely affect our competitive position and negatively affect ourability to be competitive in the electronics manufacturing services industry.

* * *

Our production volumes are based on purchase orders for the delivery ofproducts. These orders typically do not commit firm production schedules for morethan thirty to ninety days in advance. We work to minimize the risk relative to ourinventory by ordering materials and components only to the extent necessary to

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satisfy existing customer orders. To the extent our orders of materials andcomponents for specific jobs exceed our customers' orders, we may incur a chargefor inventory obsolescence for a portion of the inventory cost, which in most cases,we negotiate with the customer to recover some or all of this inventory cost. In fiscal2001, inventory obsolescence reserves increased by $1.6 million. We believe we arelargely protected from the risk of inventory cost fluctuations because we generallypass these costs through to our customers.

* * *

Provide Superior Supply Chain Management. We are committed tomaintaining a leadership position in supply chain management to reduce ourcustomers' total costs and time to market and increase our flexibility to respond tochanging customer requirements. We have developed Web-based collaborationinterfaces, based on leading supply chain software products from AGILE SoftwareCorporation and i2 Technologies, which allow us to communicate with our supplychain partners, both customers and vendors, to provide them real-time informationon specific orders, product demand, inventory and component lead times. We willcontinue to utilize and develop enhanced electronic data interchange and Web-based e-busines systems to manage all aspects of the engineering, manufacturingand fulfillment processes and streamline the supply chain system for ourcustomers.

* * *

Product Configuration and Distribution. We provide our customers withproduct configuration and global distribution services that complement ourengineering and manufacturing services and enable our customers to be responsiveto changing market demands and reduce time to market. We have developed a Web-based collaboration interface that enables real-time communication with ourcustomers. We utilize sophisticated software that allows us to customize productruns to configure the products made to the specifications in our customers' orders.Our global distribution capabilities allow us to distribute products to customers,distributors and end-users around the world. We provide inventory programs thatallow our customers to manage the shipment and delivery of products. As part ofthese inventory programs, a customer may request that its inventory be stored ata site closer to the customer prior to distribution, which streamlines thedistribution process and decreases delivery times.

* * *

We utilize a full complement of electronic data interchange transactions, orEDI, with our suppliers to coordinate forecasts, orders, reschedules, inventory andcomponent lead times. We also have developed a Web-based collaberation [sic]interface that utilizes products from AGILE Software Corporation and i2Technologies to collaborate with our supply chain partners in real-time on productcontent and engineering change management. We are in the process ofimplementing our Web-based interfaces and real-time supply chain managementsoftware products across all of our facilities to enhance our ability to rapidly scaleoperations to meet customer needs, shift capacity in response to product demandfluctuations, reduce material costs and effectively distribute products to ourcustomers on their end-customers.

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36. The Prospectus included the following representations regarding PEMSTAR's

internal controls, practices and strategies with respect to its customer orders and its general policies

regarding customers.

Our customers include industry leading original equipment manufacturerssuch as Diva Systems, Efficient Networks, Fluke Corporation, Fijitsu, Honeywell,IBM, Motorola, Pinnacle, RSA and Seagate. We also have capitalized on ourexpertise in the optical and wireless components and systems markets to developstrong relationships with a number of emerging optical and wireless componentsand systems original equipment manufacturers, including Interwave, ONI System,Optical Solutions, Qlogic, Repeater Technologies, Terayon and Western Multiplex.

* * *

Our key growth initiatives have been the opening of a few facilities in Austin, Texas,Guadalajara, Mexico, Tianjin, China, Navan, Ireland, Singapore, Hortolandia, Brazil,Yokohama, Japan and Bangkok, Thialand and the acquisition of establishedbusinesses in Almelo, the Netherlands, San Jose, California, Dunseith, North Dakotaand Taunton, Massachusetts. These growth initiatives have given us:

• Expanded geographic presence in established and emerging markets andstrengthened our presence in target markets;

• Enhanced our product and service offerings while allowing us to offer cost-effective manufacturing and engineering capabilities;

• Access to new customers; and

• Specialized test and process equipment design, manufacturing and servicecapabilities.

* * *

Our sales and marketing professionals target original equipmentmanufacturers that require a comprehensive outsourcing solution in thecommunications, computing, data storage, industrial and medical equipmentindustries and whose outsourcing requirements will utilize our global facilities andcapabilities. Our marketing strategy focuses on developing close workingrelationships with our customers early in the design phase and throughout thelifecycle of a product. To facilitate these relationships, a customer support teamis assigned to each customer to service all of the customer's needs throughout theoutsourcing process. Each customer support team consists of a dedicated programmanager, project buyer, production control planner, manufacturing engineer andquality engineer. The program manager serves as the customer's single point ofcontact for all of the customer's requirements on a worldwide basis and, with thesupport of the team, has responsibility for managing all aspects of the customer'sproject.

* * *

We believe that we are well positioned to compete against these larger competitorsdue to our worldwide engineering, product quality, flexibility and timeliness in

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responding to design and schedule changes, reliability in meeting product deliveryschedules, pricing, the provision of value-added services and geographic locations.

37. In signing the Registration Statement, the defendants made the following

representations with respect to the Registration Statement and the Prospectus included therein:

Pursuant to the requirements of the Securities Act of 1933, the registrantcertifies that it has reasonable grounds to believe that it meets the requirements forfiling on Form S-1 and has duly caused this registration statement to be signed onits behalf by the undersigned, thereunto duly authorized, in the City of Rochester,State of Minnesota, on May 14, 2001.

38. Contrary to the representations and statements contained in the Prospectus and those

referenced in ¶¶34-36 above, the Registration Statement and the Prospectus were materially false

and misleading when made as they misrepresented and/or omitted one or more of the following

adverse facts which then existed and disclosure of which was necessary to make the statements not

false and/or misleading, including, but not limited to:

(a) In order to attract and maintain the appearance of a diverse customer base,

PEMSTAR:

(i) executed orders from customers without industry track records or

acceptable financial conditions – in fact, several were on the brink of bankruptcy; and

(ii) had an extremely liberal policy of accepting and holding inventory for

and from existing and prospective customers (often without ever obtaining a written contract), the

result of which was that PEMSTAR significantly increased its costs of doing business and was

forced to write down obsolete inventory. In fact, a substantial amount of the Company's inventory

was already absolete!

(b) Due to a lack of internal controls, reflected, but not acknowledged in

PEMSTAR's contracts with Datasweep:

(i) PEMSTAR's "cash conversion cycle," or the amount of time between

the purchase of inventory and the collection of payment, was dramatically lower than its

competitors', the result of which was that PEMSTAR had to write down material amounts of

accounts receivables; and

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(ii) PEMSTAR's "days sales outstanding," the number of days PEMSTAR

had to wait for payment for sales, was dramatically lower than its competitors', the result of which

was that PEMSTAR had to write down material amounts of accounts receivables.

39. PEMSTAR would continue to materially misrepresent and misstate its problems with

accounts receivable, inventory controls and lax customer policies throughout the Class Period. On

July 17, 2001, PEMSTAR announced that it had been selected to provide engineering design and

product information support for Texas Instruments ("TI") customers using the Optical Wireless

Solutions reference design, a new technology from TI. PEMSTAR lauded its selection as a "great

opportunity for us to utilize and strengthen our expertise in optical product development."

40. On July 25, 2001, PEMSTAR released its financial results for the first fiscal quarter

ened June 30, 2001. The press release stated, in pertinent part, as follows:

"We also are encouraged by our follow-on stock offering, considering theday-to-day volatility of the markets. The fact that we were able to increase the sizeof our offering due to strong demand confirms the investment community's beliefin PEMSTAR and our strategy," continued Berning. PEMSTAR successfullypriced a follow-on offering of 6.3 million shares of its common stock on June 7,2001, raising $80 million. The offering was expanded from its initial size of 4.5million shares. PEMSTAR is using the proceeds to pay down debt, resulting inexpanded borrowing capacity available to fund internal growth, as well as externalexpansion opportunities.

* * *

PEMSTAR's strength in engineering design, precision process andautomation, and optical manufacturing helped attract marquee customer RLXTechnologies, Inc., who is developing a new class of high-density, low-power serverproducts. During the quarter, the company announced an agreement to provide RLXwith manufacturing, testing and custom configuration for its new servers.

Other recent new-customer wins include Texas Instruments (TI). PEMSTARwas recently selected to provide engineering design and product information supportfor TI customers using the Optical Wireless Solutions reference design – a new TItechnology that delivers data rates 100 times faster than currently available wirelesssystems. PEMSTAR and TI will work together to help customers deliver totalproduct solutions based on TI's optical technology, with PEMSTAR providingproduct development and manufacturing support for TI customers.

In addition, PEMSTAR was selected to manufacture Pluris' line of fabric andcontrol cards for its TeraPlex core router – the backbone anchoring the next-generation Internet. Pluris' TeraPlex product line provides the industry's first multi-chassis router based on an optical technology called TeraConnect. PEMSTAR'sexpertise in handling highly complex, large form factor printed circuit boardassembly and testing made the company an ideal partner for Pluris, the leadingdeveloper of scalable, fault-tolerant routers for the Internet core.

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* * *

On June 30, 2001, PEMSTAR successfully closed a $160 million creditagreement with IBM Global Finance and US Bancorp, significantly increasing thecompany's borrowing capacity. With this new facility PEMSTAR is well positionedto fund continued organic growth and future acquisitions.

"We continue to see strong growth in the emerging optical opportunity, aswell as in our established industry segments such as data storage, communicationsand medical," said Berning. "In particular, there is increasing demand for projectdesign and technology development, which are proven PEMSTAR strengths."

41. PEMSTAR's aggressive representations regarding future prospects had the dramatic

effect of increasing the price of PEMSTAR common stock from a close of $14.70 on July 25, 2001

to a Class Period high of $18.18 on July 31, 2001, or an increase of more than 23%.

42. Between August 1, 2001 and August 2, 2001, defendant Petracca sold 80,000 shares

of PEMSTAR common stock at near-Class Period highs of between $17.64 and $17.82, reaping

proceeds of more than $1.4 million.

43. On September 24, 2001, PEMSTAR announced the completion of its acquisition of

Pacific Consultants LLC. The press release stated, in pertinent part, as follows:

"This acquisition is a major step forward in our strategic plan to be theleading provider of concept-to-customer services," said Allen J. Berning, Presidentand CEO of PEMSTAR. "The team at Pacific Consultants has demonstrated world-class product engineering and analysis skills, recognized by a broad spectrum of keycustomers in our focus industries. The synergy between our engineering teams andour strategic vision will enable a smooth transition to PEMSTAR PacificConsultants."

44. On October 2, 2001, PEMSTAR entered into an agreement to provide manufacturing

services for electronic assemblies to MTS Systems Corporation ("MTS"), a global supplier of

computer-based testing and simulation systems for determining the mechanical behavior of

materials, products, and structures, and measurement and control instrumentation products for the

automation of the manufacturing processes. In addition to the supply agreement, PEMSTAR

announced that it had agreed to purchase MTS operations located in Chaska, Minnesota, anticipating

that such operations would continue to provide manufacturing services for MTS, as well as

PEMSTAR customers in the Minneapolis-St. Paul area.

45. On October 23, 2001, PEMSTAR released its financial results for the second quarter

ended September 30, 2001. The press release stated, in pertinent part, as follows:

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"Once again, we delivered positive financial performance in what has beena challenging marketplace," said Allen Berning, PEMSTAR's chairman, presidentand CEO. "Our diverse customer base and engineering expertise are spread acrossseveral key markets and have enabled PEMSTAR to continue to grow. In addition,our focus on a horizontal business model has helped us to more quickly realigncapacity during the technology downturn."

* * *

In addition, PEMSTAR signed an agreement to provide manufacturingservices for electronic assemblies to MTS Systems Corporation of Eden Prairie,Minn. MTS is a global supplier of computer-based testing and simulation servicesfor determining the mechanical behavior of materials, products and structures, andmeasurement and control instrumentation products for the automation ofmanufacturing processes. Additionally, the company will purchase MTS' operationsin Chaska, Minn.

* * *

PEMSTAR also added Given Imaging, Ltd, an Israel-based manufacturerof wireless gastrointestinal imaging systems, as a new customer.

* * *

Fiscal Third-Quarter Outlook

PEMSTAR currently expects to meet the analysts' consensus estimate forits third-fiscal quarter ending December 31, 2001.

46. On or about November 6, 2001, analysts and investment bankers had a meeting with

the Company's CFO (defendant Kullback) in the New York Offices of Lehman Brothers. At the

meeting, defendant Kullback assured analysts that the Company was on track to achieve December

31, 2001 revenues of $180 million and EPS of $0.11 for the Company's third quarter:

• IBM (22% of its revenues): The Company is manufacturing optical components forIBM out of their Guadalajara, Mexico and Rochester, MN facilities and is asignificant program for PEMSTAR. IBM has consistently been a 20% customerand the relationship remains strong.

• Top customers in the optical space include Texas Instruments (optical wireless), IBM(components), ONI Systems (boards), QLogic (boards), Dataplay (components),Pluris (modules), and SANcastle (modules). The company is actively pursuing anumber of new programs in this area.

47. On December 17, 2001, the Company issued a press release entitled, "PEMSTAR

Files With SEC to Sell $200 Mln of Securities Over Time." The press release stated in part:

PEMSTAR, Inc., a provider of electronics manufacturing and design services,filed to raise as much as $200 million through the sale of securities. The Rochester,Minnesota-based company filed with the Securities and Exchange Commission toregister the securities in advance and sell them when financing needs arise or market

- 16 -

conditions become favorable. Under the filing, the company can sell common andpreferred stock, debt securities, depositary shares, warrants and units.

Proceeds from the sale of securities have been earmarked for working capitaland other general corporate purposes, according to the filing.

48. On January 17, 2002, the Company announced "PEMSTAR, Inc. Updates Fiscal

Third Quarter Guidance," in a press release which stated, in part:

PEMSTAR, Inc., a leading provider of engineering, manufacturing, distribution andaftermarket services to the electronics industry, today announced that it will takeafter-tax charges of approximately $16 million, or $0.42 per share, in the fiscal thirdquarter which ended December 31, 2001. These charges primarily reflect non-recurring activities including restructuring and certain inventory and receivable assetwrite-downs. In addition, certain third quarter charges were incurred related to theintegration of several acquisitions which were completed in recent months.Acquisitions in the current fiscal year included the May 2001 purchase of certainassets of U.S. Assemblies in Taunton, Mass., the September 2001 acquisition ofPacific Consultants LLC, Mountain View, California, and most recently theacquisition of the Chaska, Minn., operations of MTS Systems Corp. in November2001.

Revenue for the third quarter is expected to be approximately $170 million,which falls within the range of analysts' estimates of $160 million to $183 million.On a GAAP basis, fiscal third quarter cash EPS is expected to be a loss ofapproximately $0.32 per share. Excluding the non-recurring charges, fiscal thirdquarter cash basis EPS is expected to meet the analysts' consensus estimates of $0.10per share.

PEMSTAR expects to provide fiscal fourth quarter guidance when it reportsfiscal third quarter results on January 29, 2002. Detailed conference call andWebcast information will be provided in advance of the call.

"Our prospects remain strong as we continue to see an unsurpassed levelof new business activity in both our engineering and manufacturing groups,"stated Al Berning, CEO of PEMSTAR. "Combined with on-going cost-reductionefforts and a strong balance sheet, these new business initiatives position theCompany to effectively manage through the current recessionary period and tocapitalize on demand for our services as the economy recovers."

49. On January 29, 2002, the Company announced "PEMSTAR Reports Fiscal 2002

Third-Quarter Results," in a press release which stated, in part:

PEMSTAR, Inc., a leading provider of engineering, manufacturing and fulfillmentservices to the electronics industry, today reported financial results for its fiscal 2002third quarter ended December 31, 2001.

* * *

Financial Results

PEMSTAR reported net sales of $171.2 million for the fiscal third quarter,compared to $184.4 million in the prior-year period. Third-quarter revenues

- 17 -

included approximately $11.0 million in inventory sales as the company focused onreducing inventory in concert with lower sales levels to certain customers.PEMSTAR reported a net loss of $12.5 million, or $0.34 per diluted share, on aGAAP basis, compared to net income of $2.6 million, or $0.09 per diluted share, forlast year's fiscal third quarter. On a cash basis, the company's net loss totaled $12.2million, or $0.33 per diluted share, versus net income of $3.0 million, or $0.10 perdiluted share, in the year-ago period.

As reported on January 17, 2002, PEMSTAR incurred expenses in the fiscalthird quarter which totaled approximately $16.0 million on an after-tax basis relatedto restructuring of operations, integration of acquisitions and certain inventory andreceivable asset write-downs. Restructuring expenses incurred in the quarterincluded employee severance costs, as well as charges related to shifting certainmanufacturing programs from higher-cost to lower-cost facilities to boost operatingmargins and meet customer requirements. In addition, certain third-quarter expenseswere incurred to integrate several acquisitions that were completed in recent months.The company believes these charges will better position PEMSTAR to maintain itscompetitive position and to better utilize resources to increase margins by reducingits cost structure.

* * *

"PEMSTAR has held up well during the technology downturn because of ourbroad client base and emphasis on engineering services," said Allen Berning,PEMSTAR's chairman, president and CEO. "Business with our primary customersremains solid and we continue to see many emerging opportunities around theworld."

* * *

Cash flow from operations for the fiscal third quarter was a positive $5.0million. December 31, 2001, net inventory of $101.3 million was down $23.7million from September 30, resulting in an improved turn rate of 6.7 times, comparedto 5.1 times at September 30. Accounts receivable increased $7.0 million in thequarter with day sales outstanding rising from 64 days at September 30, to 69 daysat December 31. Bank debt, including capitalized lease obligations, as of December31, 2001, was $99.7 million, compared to $91.0 million at September 30. Debt tototal capital at December 31, 2001, was 29.1 percent. As a result of theapproximately $16.0 million in charges recorded in the third fiscal quarter,PEMSTAR fell out of compliance with certain bank covenants with IBM CreditCorporation and U.S. Bancorp. PEMSTAR management is currently in discussionwith its banks and expects to have the appropriate covenant waivers in place by earlyFebruary.

50. On February 14, 2002, the Company announced "PEMSTAR Obtains Waivers

Relating to December 31, 2001, Bank Covenants," in a press release which stated, in part:

PEMSTAR, Inc., a leading provider of engineering, manufacturing and fulfillmentservices to the electronics industry, has reached agreements with IBM CreditCorporation and U.S. Bancorp. These agreements, which are effective today,provide for a waiver of relevant financial covenants as of December 31, 2001.

"We are pleased to have worked out these arrangements with our lenders,"said William Kullback, PEMSTAR's CFO. "Our strong relationships with IBM

- 18 -

Credit Corporation and U.S. Bancorp provide a solid financial foundation forPEMSTAR to continue to grow and expand."

51. On April 1, 2002, the Company issued a press release entitled, "PEMSTAR, Inc.

Announces Amended Credit Facilities." The press release stated in part:

PEMSTAR, Inc., a leading provider of global engineering, manufacturing andfulfillment services to technology companies, reported today that it has successfullyreached agreements with its senior secured lenders to amend its credit facilitieseffective March 31, 2002.

The amendment provides PEMSTAR with financial covenant relief, subjectto modification under certain conditions, for the duration of the term of its loanagreements.

52. On May 3, 2002, the Company issued a press release entitled, "PEMSTAR Revises

Estimates for Fourth Fiscal Quarter 2002 Results and Announces Private Placement of Up to $50

Million." The press release stated in part:

PEMSTAR, Inc., a leading provider of global engineering, manufacturing andfulfillment services to technology companies, today announced revised estimates forthe fourth quarter ended March 31, 2002. Based on information currently available,the Company believes that fourth quarter revenue and earnings will come in belowits previous expectations. For the fourth fiscal quarter the Company expects to reportnet sales of approximately $145 million and a GAAP basis net loss of between $8and $12 million, which on a per share basis equates to a loss range of $0.22 to $0.33.On a cash basis, which excludes the impact of tax effected amortization expense, aper share loss of between $0.21 and $0.32 is expected. The estimated loss for thequarter includes the impact of certain inventory write-downs and accounts receivablewrite-offs. The estimated loss excludes potential additional non-cash charges forwrite-offs of goodwill associated with acquisitions as well as impairment of certaintax assets. As the Company has yet to complete the audit process, it has notdetermined the amount, if any, of these additional non-cash charges.

"While our quarterly results reflect the continued economic pressures facingvirtually all companies in the electronics manufacturing services industry,PEMSTAR has worked hard to adjust the current conditions through programstargeting improved productivity and efficiencies resulting in positive cash flow fromoperations in the fourth quarter," said Al Berning, PEMSTAR's chairman and chiefexecutive officer. "Although flat end-market demand is still a factor in many of ourbusiness units, the good news is that PEMSTAR continues to see strong levels ofnew bid activity and is winning customers at a similar rate to prior periods with avariety of new customer wins in recent months," said Berning. XteraCommunications, Tunable Photonics and Logitech all signed on with PEMSTAR fornew business programs during the fourth quarter. Additional new customer wins willbe announced in the first quarter.

New Financing

PEMSTAR also announced today that it has entered into a definitiveagreement with two institutional investors for the private placement of up to $50

- 19 -

million of the Company's 6 1/2% convertible notes with attached warrants topurchase common stock.

53. On this news, the Company's share price plunged more than 60% to $2.84 on trading

of more than 4.5 million shares.

POST CLASS PERIOD REVELATIONS

54. On May 8, 2002, Business Wire ran an article entitled, "PEMSTAR Postpones its 4th

Quarter Earnings Conference Call." The article stated in part:

PEMSTAR, Inc., a leading provider of engineering, manufacturing, distribution andaftermarket services to technology companies, today announced that it has postponedits 4th quarter earnings release and its investors conference call and Webcast for theCompany's fourth quarter 2002 earnings, previously scheduled to take place onWednesday, May 8, 2002. The conference call and Webcast will be rescheduled ata later date to be announced.

The Company is continuing to work to complete its determination and auditof reserves for accounts receivable and inventory, as well as potential charges forgoodwill impairment and valuation reserves for tax assets. The previouslyannounced guidance of GAAP basis net loss, which was provided net of tax benefit,may be adjusted as a result of any valuation reserves needed for tax assets and issubject to further adjustment in connection with the Company closing its books andcompletion of the audit.

55. On May 14, 2002, Business Wire ran an article entitled, "PEMSTAR Reports Fiscal

2002 Fourth-Quarter Results; Company Takes Charges, Was Cash Flow Positive." The article stated

in part:

PEMSTAR, Inc., a leading provider of global engineering, manufacturing andfulfillment services to technology companies, today reported financial results for itsfiscal 2002 fourth quarter and year ended March 31, 2002. As indicated in thecompany's May 8, 2002, pre-release, the results include certain charges related togoodwill impairment, valuation reserves for tax assets and reserves for accountsreceivable and inventory. PEMSTAR was cash flow positive for the thirdconsecutive quarter.

* * *

PEMSTAR reported net sales of $145.7 million for the fiscal fourth quarter,compared to $184.4 million in the prior-year comparable quarter. The companyreported a net loss of ($47 million), or ($1.28) per diluted share, on a GAAP basis,compared to net income of $2.8 million, or $0.09 per diluted share, for last year'sfiscal fourth quarter. On a cash basis, the loss totaled ($22.1 million), or ($0.60) perdiluted share, versus net income of $3.3 million, or $0.11 per diluted share, in theyear-ago period.

Fiscal fourth quarter GAAP basis results include the impact of posting certainreserves and adjustments for inventory and accounts receivable totalingapproximately $8.8 million, or $0.24 per diluted share. Goodwill impairment

- 20 -

charges totaling $24.2 million, or $0.66 per diluted share, and valuation reserves fortax assets totaling $6.1 million, or $0.17 per diluted share, stemmed primarily fromthe under-performance of certain acquired facilities. Excluding the impact of thesecharges and reserves, the company posted a pro forma loss of ($7.9 million), or($0.21) per diluted share, for the quarter. On a cash basis, fiscal fourth quarterresults of a loss of ($22.1 million), or ($.060) per diluted share, include the totalGAAP basis loss of $47.0 million minus the impact of amortization expense of $0.7million and minus charges related to the impairment of goodwill totaling $24.2million.

As a result of the factors that caused the charge for valuation reserves for taxassets, in the fiscal fourth quarter, the company was unable to realize anticipated taxbenefits which had been included in the company's proper estimates of net loss.

* * *

During the fiscal fourth quarter, PEMSTAR successfully reached agreementswith its senior secured lenders to amend its credit facilities. The amendmentsprovide PEMSTAR with modified financial covenants.

PEMSTAR recently announced that it has entered into an agreement with twoinstitutional investors for the private placement of up to $50 million on thecompany's 6 1/2% convertible notes with attached warrants to purchase commonstock. The first instalment, of $5 million, was funded on May 10, 2002. Thecompany's ability to receive additional installments of the private placement over thenext several months is subject to PEMSTAR's stock price returning to levels aboveminimum conversion prices. The company will use the proceeds for generalcorporate purposes including growth initiatives and capital expenditures.

56. On June 28, 2002, a story titled "PEMSTAR shifts inventory costs to customers"

appeared in the Minneapolis – St. Paul Business Journal, and contained the following additional

details regarding PEMSTAR's problems in the fourth quarter of F02.

After posting its weakest-ever quarter as a public company, Rochester-basedPemstar Inc. is turning to its customers for help.

The electronics-industry contract manufacturer had been carrying millionsof dollars in inventory costs for those customers in anticipation of future sales. Butunder financial pressure, Pemstar recently pushed $10 million worth of partsinventory in its warehouse back to a communications-industry customer, and moresuch moves could be in [the] works.

The change marks a turn by Pemstar away from an inventory practice manymanufacturers used to court customers in the technology sector, which left themvulnerable when that industry hit the skids. Officials also are trying to toughenPemstar's bill-collecting procedures, improving an accounts receivable performancethat had fallen below industry averages.

The steps are being taken as Pemstar tries to right itself after a disastrousfiscal fourth quarter in which the company recorded a net loss of $46.9 million, or$1.28 per share; analysts had expected a profit of 6 cents per share.

- 21 -

The company blamed much of the loss on posting reserves against inventoryand goodwill charges, along with troubles among some of its smaller customers.

Analysts, in particular, had criticized Pemstar management last quarter foraccepting too much inventory for prospective sales that never materialized, leavingPemstar – and not its customers – saddled with the costs.

At a technology conference held this month by Bear Stearns & Co. in NewYork, Pemstar Chief Financial Officer William Kullback said that Pemstar hadcarried the inventory to foster relations with customers, but acknowledged that achange might be coming.

We've been very accommodating" in holding inventory for clients, he said,"perhaps too accommodating, in some cases, with some customers."

* * *

Other contract manufacturers carry inventory costs for their customers, forsimilar reasons, said David Miller, an analyst with Kaufman Brothers in New York.

Where Pemstar ran into problems, he said, was its emphasis on signing upnew, emerging tech firms as clients and keeping inventory for expected sales – andsticking with them during the tech downturn.

When some of those emerging companies eventually sank, Pemstar was leftholding useless inventory it then had to write off. The company had increased thevalue of inventory write-downs for three consecutive quarters, Miller said.

* * *

Customers' troubles also hurt Pemstar's accounts receivable and cash flow.Pemstar's allowance for bad debt and inventory writeoffs last quarter was $8.7million, up from $1.2 million for the previous-year period.

Miller noted that Pemstar's "cash conversion cycle," or the amount of timebetween the purchase of inventory and the collection of payment, was 85.5 dayslast quarter, in the bottom quartile of its sector.

"If they could improve that a little bit, it would make a difference," he said.

The company's "days sales outstanding," or DSO, which represents thenumber of days a company awaits payment for sales, worsened considerably lastyear; last quarter it reached 76 days, well above the industry average.

"We're working to bring that number down to industry metrics," Kullbacktold analysts.

The company has established a four-person team – bringing back co-founderGary Lingbeck, who retired last year – to work on improving Pemstar's receivables,he said at the conference.

- 22 -

57. On July 2, 2002, PEMSTAR announced yet more revisions to its prior guidance for

the quarter ended June 30, 2002, and disclosed a $4 to $6 million restructuring charge over the first

and second quarters of F03. The press release stated, in pertinent part, as follows:

PEMSTAR now anticipates that the loss, including restructuring charges, will be inthe range of $18 to $20 million. This loss includes additional reserves for inventoryand accounts receivable, some of which result from Diva Systems Corporation filingfor Chapter 11 bankruptcy protection. Diva was one of PEMSTAR's top 20customers by revenues last year. With these additional reserves, PEMSTAR hasimproved its receivables portfolio to better reflect current economic conditions.Based on current balances, less than 10 percent of PEMSTAR's outstanding accountsreceivable is owed by companies that were founded less than five years ago.PEMSTAR has initiated certain actions to provide over $20 million in improvedliquidity this quarter, including inventory sales of excess quantities of componentsfor specific customers and establishing additional credit facilities. As a result ofthese initiatives, PEMSTAR believes it has sufficient liquidity to fund operationsuntil June 30, 2003, without the need for additional issuance of notes under theconvertible debt transaction announced on May 3, 2002. The company's tangiblebook value per share was $4.32 at March 31, 2002.

Consistent with its May 14, 2002, news release, PEMSTAR is implementingits restructuring program. Once this program is fully implemented, the companyexpects to realize savings in excess of the range of $2 to $3 million per quarter itpreviously estimated. Restructuring charges for the June and September quarters areexpected to be consistent with prior guidance.

To date, PEMSTAR has taken the following steps as part of restructuring toreduce its costs:

– Reduced the company's workforce by approximately 350 peopleworldwide, which is above the numbers suggested in last quarter's earnings releaseWebcast;

– Taken steps to consolidate the engineering and manufacturing centers inSan Jose, which is expected to result in lower engineering overhead and greatermanufacturing capacity utilization;

– Combined its Thailand manufacturing facilities; and

– Consolidated the Boston manufacturing and engineering organizations.Additional restructuring actions are currently being assessed.

"We are in the midst of an electronic manufacturing services (EMS) industryrecession," stated Al Berning, PEMSTAR chairman, president and CEO. "Thesemeasures are designed to align the costs of running our business with the currentrevenue projections for the EMS industry. We expect additional efficiencies andother reductions on an ongoing basis." Berning continued, "On the revenue side, wecontinue to leverage our engineering strengths to build business with existingcustomers and attract new ones. By delivering value-added services to all ourcustomers, we expect to emerge from this downturn solidly positioned for long-termgrowth across several key industries, including medical devices."

- 23 -

58. Also on July 2, 2002, PEMSTAR disclosed "the resignation of William Kullback

from his position as Chief Financial Officer .... Kullback is leaving the company to pursue other

opportunities."

59. In addition, in the same press release, PEMSTAR disclosed the resignation of

defendant Singh from the Board of Directors in order to "accommodate the company's desire to

increase the number of outside directors on the Board. Michael Odrich, a managing director and

head of Lehman Brothers' Venture Capital Fund, who previously served as a PEMSTAR director

from 1998 until 2001, was appointed by the Board to fill the vacancy created by the planned

retirement of Robert Murphy, one of the founding directors of the company. PEMSTAR expects

to continue its efforts to add outside directors to its Board as suitable candidates are identified and

vacancies arise."

60. On July 19, 2002, Business Wire ran an article entitled, "PEMSTAR Terminates

Agreement to Issue Additional Convertible Notes." The article stated in part:

PEMSTAR, Inc., a leading provider of global engineering, manufacturing andfulfillment services to technology companies, today announced it has terminated itsagreement with two institutional investors for the private placement of up to $50million of the company's 6 ½ percent convertible notes with attached warrants topurchase common stock. The initial installment of $5 million of 6 ½ percentconvertible notes with attached warrants was issued in May 2002 and will remainoutstanding.

The amendment and termination agreement entered into today with theinvestors terminates PEMSTAR's obligations under the agreement to:

– issue and sell the remaining $45 million of convertible notes with attachedwarrants;

– register any such additional securities for resale; and

– obtain shareholder approval of the issuance and sale of any securities issuedor issuable under the agreement.

As part of the amendment and termination agreement PEMSTAR also agreedto:

– issue warrants to the investors exercisable for an aggregate of 250,000 sharesof common stock with an exercise price of $1.62 per share.

– register such shares for resale under the Securities Act of 1933; and

- 24 -

– provide the investors with certain rights to participate in any offering by thecompany of equity securities (or rights to purchase equity securities) duringthe next six months.

61. The true facts which were known to the defendants but concealed from the public

following the Secondary Offering were as follows:

(a) The Company's IBM-related business had become weak, driven by problems

in the optical ROSA/TOSA project;

(b) That the Company was in violation of its financial loan covenants;

(c) The Company's inventory and accounts receivables valuations were grossly

overstated;

(d) Defendants needed to keep the Company's shares artificially inflated to

complete the Company's convertible offering;

(e) The Company was selling virtually obsolete inventory to its own non-U.S.

facilities in order to keep the inventory out of the United States;

(f) The Company's integration of its U.S. Assemblies acquisition had become a

disaster;

(g) The Company had become extremely reckless with its payment terms with

problematic customers. The Company's payment terms were limited to 30 days. However, to inflate

revenue, the Company was granting payment terms of up to 90 days for near-defunct companies like

Diva Systems in order to inflate the Company's own revenue;

(h) The Company was then experiencing lower than projected utilization rates

at the Company's higher cost locations which performed many of the Company's higher margin

services, including engineering, NPI and prototyping;

(i) The Company's customers were being devastated financially in the severe

"end-market" down turn;

(j) The Company was actually selling back its inventory to OEMs because,

unbeknownst to shareholders, the Company was actually "holding" inventory from its OEMs

without any written/binding agreement to perform; and

- 25 -

(k) That as a result of (a)-(j) above, the defendants' projections for the Company's

third and fourth quarters of F02 were materially false and misleading.

PEMSTAR's FALSE FINANCIALREPORTING DURING THE CLASS PERIOD

62. The Company's financial statements and the statements about them were false and

misleading, as such financial information was not prepared in conformity with Generally Accepted

Accounting Principles ("GAAP"), nor was the financial information a fair presentation of the

Company's operations due to the Company's improper accounting for its assets in violation of GAAP

and SEC rules.

63. GAAP are those principles recognized by the accounting profession as the

conventions, rules and procedures necessary to define accepted accounting practice at a particular

time. SEC Regulation S-X (17 C.F.R. §210.4-01(a)(1)) states that financial statements filed with

the SEC which are not prepared in compliance with GAAP are presumed to be misleading and

inaccurate, despite footnote or other disclosure. Regulation S-X requires that interim financial

statements must also comply with GAAP, with the exception that interim financial statements need

not include disclosure which would be duplicative of disclosures accompanying annual financial

statements. 17 C.F.R. §210.10-01(a).

64. Moreover, in order to inflate the price of PEMSTAR stock, defendants caused the

Company to falsely report its results through overstating the value of its inventory and receivables.

65. The results issued during the Class Period were included in Form 10-Qs filed with

the SEC. The results were also included in press releases disseminated to the public. These prior

financial statements were not a fair presentation of PEMSTAR's results and were presented in

violation of GAAP and SEC rules.

66. In PEMSTAR's 2001 Form 10-K, it represented that it recognized revenue in

accordance with GAAP.

67. Pursuant to GAAP, revenue should not be recognized unless there is persuasive

evidence of an agreement, collection is probable and delivery has occurred.

- 26 -

68. During the Class Period, PEMSTAR improperly recognized revenue even though

these conditions did not exist.

69. Due to these accounting improprieties, the Company presented its financial results

and statements in a manner which violated GAAP, including the following fundamental accounting

principles:

(a) The principle that interim financial reporting should be based upon the same

accounting principles and practices used to prepare annual financial statements was violated (APB

No. 28, ¶10);

(b) The principle that financial reporting should provide information that is useful

to present and potential investors and creditors and other users in making rational investment, credit

and similar decisions was violated (FASB Statement of Concepts No. 1, ¶34);

(c) The principle that financial reporting should provide information about the

economic resources of an enterprise, the claims to those resources, and effects of transactions, events

and circumstances that change resources and claims to those resources was violated (FASB

Statement of Concepts No. 1, ¶40);

(d) The principle that financial reporting should provide information about how

management of an enterprise has discharged its stewardship responsibility to owners (stockholders)

for the use of enterprise resources entrusted to it was violated. To the extent that management offers

securities of the enterprise to the public, it voluntarily accepts wider responsibilities for

accountability to prospective investors and to the public in general (FASB Statement of Concepts

No. 1, ¶50);

(e) The principle that financial reporting should provide information about an

enterprise's financial performance during a period was violated. Investors and creditors often use

information about the past to help in assessing the prospects of an enterprise. Thus, although

investment and credit decisions reflect investors' expectations about future enterprise performance,

those expectations are commonly based at least partly on evaluations of past enterprise performance

(FASB Statement of Concepts No. 1, ¶42);

- 27 -

(f) The principle that financial reporting should be reliable in that it represents

what it purports to represent was violated. That information should be reliable as well as relevant

is a notion that is central to accounting (FASB Statement of Concepts No. 2, ¶¶58-59);

(g) The principle of completeness, which means that nothing is left out of the

information that may be necessary to insure that it validly represents underlying events and

conditions was violated (FASB Statement of Concepts No. 2, ¶79); and

(h) The principle that conservatism be used as a prudent reaction to uncertainty

to try to ensure that uncertainties and risks inherent in business situations are adequately considered

was violated. The best way to avoid injury to investors is to try to ensure that what is reported

represents what it purports to represent (FASB Statement of Concepts No. 2, ¶¶95, 97).

70. Further, the undisclosed adverse information concealed by defendants during the

Class Period is the type of information which, because of SEC regulations, regulations of the

national stock exchanges and customary business practice, is expected by investors and securities

analysts to be disclosed and is known by corporate officials and their legal and financial advisors

to be the type of information which is expected to be and must be disclosed.

FIRST CLAIM FOR RELIEF

For Violation of Section 10(b) of the 1934 Actand Rule 10b-5 Against All Defendants

71. Plaintiff incorporates ¶¶1-70 by reference.

72. During the Class Period, defendants disseminated or approved the false statements

specified above, which they knew or recklessly disregarded were materially false and misleading

in that they contained material misrepresentations and failed to disclose material facts necessary in

order to make the statements made, in light of the circumstances under which they were made, not

misleading.

73. Defendants violated §10(b) of the 1934 Act and Rule 10b-5 in that they:

(a) Employed devices, schemes, and artifices to defraud;

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(b) Made untrue statements of material facts or omitted to state material facts

necessary in order to make statements made, in light of the circumstances under which they were

made not misleading; or

(c) Engaged in acts, practices, and a course of business that operated as a fraud

or deceit upon plaintiff and others similarly situated in connection with their purchases of

PEMSTAR publicly traded securities during the Class Period.

74. Plaintiff and the Class have suffered damages in that, in reliance on the integrity of

the market, they paid artificially inflated prices for PEMSTAR publicly traded securities. Plaintiff

and the Class would not have purchased PEMSTAR publicly traded securities at the prices they

paid, or at all, if they had been aware that the market prices had been artificially and falsely inflated

by defendants' misleading statements.

75. As a direct and proximate result of these defendants' wrongful conduct, plaintiff and

the other members of the Class suffered damages in connection with their purchases of PEMSTAR

publicly traded securities during the Class Period.

SECOND CLAIM FOR RELIEF

For Violation of Section 20(a) of the 1934 ActAgainst All Defendants

76. Plaintiff incorporates ¶¶1-75 by reference.

77. The executive officers of PEMSTAR prepared, or were responsible for preparing, the

Company's press releases and SEC filings. The Individual Defendants controlled other employees

of PEMSTAR. PEMSTAR controlled the Individual Defendants and each of its officers, executives

and all of its employees. By reason of such conduct, defendants are liable pursuant to §20(a) of the

1934 Act.

CLASS ACTION ALLEGATIONS

78. Plaintiff brings this action as a class action pursuant to Rule 23 of the Federal Rules

of Civil Procedure on behalf of all persons who purchased PEMSTAR publicly traded securities (the

"Class") on the open market during the Class Period. Excluded from the Class are defendants,

directors and officers of PEMSTAR and their families and affiliates.

- 29 -

79. The members of the Class are so numerous that joinder of all members is

impracticable. The disposition of their claims in a class action will provide substantial benefits to

the parties and the Court. During the Class Period, PEMSTAR had more than 36 million shares of

stock outstanding, owned by thousands of persons.

80. There is a well-defined community of interest in the questions of law and fact

involved in this case. Questions of law and fact common to the members of the Class which

predominate over questions which may affect individual Class members include:

(a) Whether the 1934 Act was violated by defendants;

(b) Whether defendants omitted and/or misrepresented material facts;

(c) Whether defendants' statements omitted material facts necessary to make the

statements made, in light of the circumstances under which they were made, not misleading; and

(d) Whether defendants knew or recklessly disregarded that their statements were

false and misleading.

PRAYER

WHEREFORE, plaintiff prays for judgment as follows: declaring this action to be a proper

class action; awarding damages, including interest; and such equitable/injunctive or other relief as

the Court may deem proper.

- 30 -

JURY DEMAND

Plaintiff demands a trial by jury.

DATED: July 24, 2002 REINHARDT & ANDERSONGARRETT D. BLANCHFIELD, JR.E-1000 First National Bank Building332 Minnesota StreetSt. Paul, MN 55101Telephone: 651/227-9990651/297-6543 (fax)

MILBERG WEISS BERSHAD HYNES & LERACH LLPWILLIAM S. LERACHDARREN J. ROBBINSRANDALL H. STEINMEYER Minnesota State Bar No. 270933

RANDALL H. STEINMEYER

401 B Street, Suite 1700San Diego, CA 92101Telephone: 619/231-1058619/231-7423 (fax)

Attorneys for Plaintiff