10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED APRIL 30, 2001

OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-8141

NORSTAN, INC.
(Exact name of registrant as specified in its chapter)

Minnesota
(State of incorporation) 41-0835746
(I.R.S. Employer identification No.)

5101 Shady Oak Road, Minnetonka, Minnesota 55343
(Address of principal executive offices)

The Company’s phone number: 952-352-4000 The Company’s internet address: www.norstan.com

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:

Common Stock ($.10 par value per share)
Common Stock Purchase Rights
(Title of class)

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

      As of July 13, 2001, the aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the average high and low prices on such date as reported by the Nasdaq National Market System was approximately $36,715,000.

      As of July 13, 2001 there were outstanding 12,279,258 shares of the registrant’s common stock, par value $.10 per share, its only class of equity securities.

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the registrant’s definitive proxy statement to be filed within 120 days after the end of the fiscal year covered by this report are incorporated by reference into Part III hereof.

TABLE OF CONTENTS

PART I
	Item 1. Business.
		Summary
		Industry Overview
		The Norstan Solution
		Norstan’s Business Strategy
		Norstan’s Growth Strategy
		Products and Services
		Customers
		Strategic Alliances
		Sales and Marketing
		Customer Service
		Locations
		Employees
		Competition
		Intellectual Property Rights
		Government Regulation
		Backlog
	Item 2. Properties.
	Item 3. Legal Proceedings.
	Item 4. Submission of Matters to a Vote of Security Holders.
PART II
	Item 5. Market for the Company's Common Equity and Related Stockholder Matters.
	Item 6. Selected Consolidated Financial Data.
	Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
	Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
	Item 8. Financial Statements and Supplementary Data.
	Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.
PART III
	Item 10. Directors and Executive Officers of the Registrant.
	Item 11. Executive Compensation.
	Item 12. Security Ownership of Certain Beneficial Owners and Management.
	Item 13. Certain Relationships and Related Transactions.
PART IV
	Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
SIGNATURES
EX-10.(d)(1) First Amendment to Credit Agreement
EX-10.(d)(2) Second Amendment to Credit Agreement
EX-10.(d)(3) Third Amendment to Credit Agreement
EX-10.(d)(4) Fourth Amendment to Credit Agreement
EX-10.(d)(5) Fifth Amendment to Credit Agreement
EX-10.(I) Employment Agreement dated 10/27/00
EX-22 Subsidiaries of Norstan, Inc.
EX-23.(a) Consent - Independent Public Accountants

TABLE OF CONTENTS

			Page
PART I
	Item 1.	Business		1
		Summary		1
		Industry Overview		2
		The Norstan Solution		2
		Norstan’s Business Strategy		2
		Norstan’s Growth Strategy		3
		Products and Services		4
		Customers		5
		Strategic Alliances		5
		Sales and Marketing		5
		Customer Service		6
		Locations		6
		Employees		7
		Competition		7
		Intellectual Property Rights		7
		Government Regulation		7
		Backlog		7
	Item 2.	Properties		8
	Item 3.	Legal Proceedings		8
	Item 4.	Submission of Matters to a Vote of Security Holders		8
PART II
	Item 5.	Market for the Company’s Common Equity and Related Stockholder Matters		9
	Item 6.	Selected Consolidated Financial Data		10
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
	Item 7A.	Quantitative and Qualitative Disclosure About Market Risk		17
	Item 8.	Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and		19
	Item 9.	Financial Disclosure		41
PART III
	Item 10.	Directors and Executive Officers of the Registrant		41
	Item 11.	Executive Compensation		41
	Item 12.	Security Ownership of Certain Beneficial Owners and Management		41
	Item 13.	Certain Relationships and Related Transactions		41
PART IV
	Item 14.	Exhibits, Financial Statement Schedules and Reports on Form 8-K		42
SIGNATURES				43

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PART I

Item 1. Business.

BUSINESS

Summary

      Norstan is a full-service telecommunications solutions company that delivers voice and data technologies and services, and remanufactured equipment to select corporate end-users and channel partners. Norstan also offers a full range of technologies for call center design, messaging, infrastructure, conferencing, and mobility. The Company is headquartered in Minneapolis, Minnesota.

      Norstan drives its business by delivering legendary service through the installation of a broad array of technology platforms, software solutions and on-going system maintenance needs. The Company currently works with more than 18,000 customers, ranging from start-up organizations to large global enterprises, drawing its customers from the banking/finance, healthcare, manufacturing, retail, government, education and non-profit sectors. The Company derives significant revenue from technology service support sales to a broad channel of manufacturers, resellers and distributors and through partnerships with manufacturers offering best of breed technology. Norstan also maintains a direct sales effort focused on Fortune 1000 companies, and an inside sales force focused on smaller opportunities. The Company’s remanufactured equipment segment supports the Company’s customer base, channel partners, resellers and distributors with efficient and reliable resale services.

      To address the complex communication requirements of its customers, Norstan provides a broad range of products and services through four interrelated business segments: Communications Technology Solutions and Services, Resale, Network Services and Financial Services which accounted for 78.8%, 8.8%, 9.2% and 3.2% of Norstan’s fiscal year 2001 revenues, respectively. Solutions and Services provides best-of-breed technologies and services focused on selected end-user customers throughout North America and technology implementation and support services for network providers, manufacturers, integrators, and resellers. Resale Services provides refurbished and re-certified voice and data products to end users. Network Services provides multiple source local and long distance services including related consulting and professional services. Financial Services supports the sales process by providing customers with customized financing alternatives.

      The Company maintains 30 sales and service locations in 28 cities throughout the United States and Canada. Norstan has served more than 18,000 customers across a broad range of industries and focuses its marketing efforts on middle-market and Fortune 1000 companies with complex technology and communication requirements. Current customers include Charles Schwab, Best Buy, IBM, and Harley-Davidson. Norstan’s strong emphasis on customer satisfaction is evidenced by a fiscal year 2001 survey of Norstan’s communication customers that found an overall satisfaction rating of 95.6%. This dedication to customer service, together with the Company’s breadth of service offerings has resulted in Norstan becoming the fourth largest communications services provider in North America. The Company believes that its outstanding customer service will enable Norstan to capture a greater portion of each customer’s communication budgets in the future as well as provide other growth opportunities through multi-channel marketing (see Norstan’s Growth Strategy).

      Norstan provides leading-edge technologies in its Solutions and Services and Resale segments. The Company has established strategic alliances with leading communication companies that enhance Norstan’s ability to offer best of breed solutions to its customers. Strategic partners include Siemens, VTEL, PictureTel, Latitude, Ericsson, Aspect, Blue Pumpkin, Nuance, Cisco Systems, Sprint, Lucent Technologies (formerly Octel), Captaris, Rockwell, SpeechWorks, Alcatel, Comdial and SpectraLink.

      During fiscal 2001, the Company divested its IT consulting business in order to focus on its core competencies of providing communications technology services and solutions to channel partners and direct enterprise customers. The two units that made up the Company’s IT consulting business, Connaissance Consulting and Norstan Consulting, were sold on February 7 and April 30, 2001, respectively. In addition to refocusing the Company’s strategy, lack of realized synergies between the Company’s communications and consulting businesses and recurring losses within the consulting businesses contributed to the decision to divest of this non-strategic business segment.

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Industry Overview

      Until recently, intense global competition and accelerating technological change have driven businesses to depend on technology-based solutions to enhance their competitive position, and to improve productivity and the quality of their products and services. The current economic conditions, however, have significantly slowed that trend. Companies that have traditionally relied on technology-based solutions as strategic business tools are frequently postponing or curtailing technology decisions. This has had a significant effect on both the business climate and the telecommunications industry.

      The effect of the economic slowdown on the telecommunications industry has been a slowing in the rate of technological change. As technology spending has decreased, the highly leveraged Competitive Local Exchange Carriers (CLECs) segment has become a casualty of an overabundance of network bandwidth. The decline of the dot-com industry has also contributed to the situation now where technology equipment manufacturers have excess inventories and bad debt write-offs.

      While customers continue to rely heavily on technology to reduce transaction costs by increasing operational efficiencies, the bias toward software-centric solutions in lieu of hardware continues. Notwithstanding the slow economic conditions, growth continues to occur in such areas as customer contact solutions, CTI (computer telephony integration), unified media, convergence (IP telephony), and mobility.

      Current financial pressures also are making it increasingly difficult for communications equipment manufacturers to support a direct distribution model. Most independent distribution channels lack an adequate geographic footprint, infrastructure, processes, and resources to effectively fulfill the manufacturer’s need to deploy complex high-end technology solutions. This has resulted in the need for systems integration and support services through third-party providers. A key competency being driven by the market is the ability to effectively integrate disparate technology platforms into enterprise-wide applications solutions.

      As a result of these factors, demand for communication services and products has been relatively flat. For calendar year 2000, Phillips InfoTech (InfoTech), a market research firm specializing in telecommunications market information, estimates that the U.S. market for voice and converged solutions peaked at $4.9 billion in 1999, and remained stable in 2000; various forecasting firms, including Phillips, Frost & Sullivan, Data Communications and Vertical Systems group, project that PBX system spending will decline through 2002, with a potential increase in 2003. New PBX systems shipments decreased 15.8% in 2000 over 1999. This decline in PBX spending is attributed to the development of combined voice and data technology in the form of IP Telephony. Accelerated growth in IP Telephony is expected to take hold in 2002 and to reach equal market share with PBX systems by 2004. Recent slowdowns in technology spending may delay this development, however. Field maintenance and repair is the largest, but slowest growing segment in services associated with the voice marketplace. This includes the maintenance and repair of PBX, Key/Hybrid, Voice Processing: IVR, CTI, ACD, and fax. Growth in 2000 was estimated by Blumberg & Associates at 0.7%, to $6.0 billion, with projected compound annual growth of approximately 3.3% through 2004. Growth in advanced or unified messaging is expected to grow at a compound annual rate of 75.0% through 2004, to $13.5 billion in annual revenue from $1.2 billion in spending in 2000. Spending in video conferencing totaled an estimated $1.5 billion in 2000, and is projected to grow at a compound rate of 20.8% through 2004, while the audio and data conferencing market is projected to grow to $3.0 billion in 2006 from $1.3 billion in 1999.

The Norstan Solution

      Norstan is a single-source provider of a wide range of communication software, services and equipment that enable its customers to compete and succeed in the global marketplace. The Company has leveraged its established reputation as a provider of premier communication products and services to deliver complex, high-end technology solutions to middle-market and Fortune 1000 companies. This broad range of offerings enables Norstan to serve as a single-source provider of communication solutions throughout the entire life cycle of a project. Norstan’s ability to serve as a single-source provider results in closer integration, reduced risk and greater management control for the customer. The Company believes that its customer relationships, its geographic reach and size, and its expertise in providing communication solutions will enable it to capitalize on the continuing growth and convergence of the hardware and software needs of middle-market and Fortune 1000 companies.

Norstan’s Business Strategy

      The Company’s objective is to become the leading provider of communications technology services to the enterprise market in North America. Key to the achievement of this objective are the following elements:

      Capitalize on the trend of “dis-integrating” by manufacturers and distributors in the converged communications and information technology areas. Equipment and software providers are increasingly outsourcing functions that are not core competencies. This trend has led to the rapid development of outsourced manufacturing, installation and ongoing services rather than the use of limited resources to maintain North American-wide installation and servicing organizations. Norstan is the largest, product independent, communications technology services organization targeting the enterprise customer in North America.

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      Focus on delivering integrated solutions to a select number of direct customers. Enterprise level customers are increasingly demanding integrated solutions that require providers to offer consulting, leading-edge technology and ongoing service to build and maintain complex communication systems. This requires expertise in selected practice areas, best of breed product independence and a servicing capability that spans a wide geography. Norstan specializes in attracting and retaining high value customers who demand a broad spectrum of expertise, including call centers, conferencing, converged communications, and infrastructure development.

      Capitalize on the growth and consolidation of the secondary market for re-sale and re-manufacture of voice and data equipment. The secondary market for telecommunications continues to grow and continues to be fragmented. The one exception to this fragmentation is the Norstan/Siemens operation which controls nearly 70% of the resale and re-manufacture of Siemens equipment in North America. Through its wholly-owned subsidiary, Vibes Technologies, Inc. (Vibes), Norstan believes it can provide a new level of integrated direct and web-based service to the secondary market for such products as those manufactured by Cisco, Avaya and Nortel.

      Provide superior customer service.   The Company’s dedication to providing service beyond its customers’ expectations has produced many favorable customer relationships and resulted in increased exposure to potential new customers. Norstan’s emphasis on customer satisfaction is evidenced by a fiscal year 2001 survey of Norstan’s customers, in which Norstan received an overall satisfaction rating of 95.6%. The Company believes that its reputation for superior service will lead to opportunities in its multi-channel marketing and cross-selling strategy designed to expand the products and services it sells to its customer base.

      Attract, develop and retain highly skilled professionals. The Company will continue to attract, develop and retain the highest caliber of personnel by providing a rewarding work environment, competitive pay and benefits, and opportunities for individual growth and development. Norstan has had a long history of creating a values-based culture that emphasizes ethical actions and respect for the individual.

Norstan’s Growth Strategy

      The Company expects growth from each of its three primary and inter-related business groups. Norstan’s Direct Solutions and Services business provides best-of-breed technologies and services focused on selected end-user customers throughout North America, its Channel Partner Services function specializes in technology implementation and support services for network providers, manufacturers, integrators, and resellers; and its Resale Services unit provides refurbished and re-certified voice and data products to end users.

      The largest of these units is the Company’s Direct Solutions and Services business, which has been organized into specific practice areas designed to provide opportunities for increased revenues from both new and existing customers. The Company has defined these practice areas as its Voice and Converged Solutions, Collaboration Solutions, Customer Contact Solutions, and Infrastructure and Services Solutions. Within each practice area the Company offers consulting, best-of-breed technologies and legendary customer service.

      Norstan has successfully developed new channel partnerships with Ericsson and Alcatel. In addition to the Company’s current direct enterprise marketing activities, Norstan is focused on marketing its industry-leading professional, consulting and traditional support services through a broad spectrum of enterprise solution providers. Such enterprise solution providers include CLECs, Incumbent Local Exchange Carriers (ILECs), Internet Service Providers (ISPs), and Applications Services Providers (ASPs) as well as other channel partners, such as Value-Added Resellers (VARs), Systems Integrators, and Manufacturer Direct channels.

      Services offered to these multi-channel partners include a complete spectrum of capabilities from applications planning through solution implementation, network monitoring, installation, support, upgrades and maintenance. According to industry studies by InfoTech, the combined markets for these services are projected to be $28.0 billion by 2004 and expected to grow at an average annual growth rate of nearly 40.0% between 2000 and 2004. InfoTech participated with Norstan in the development of the Company’s growth strategy.

      Finally, Norstan expects the re-sale of used telecommunication and data equipment to continue to grow and the segment to consolidate. Vibes is uniquely positioned to take advantage of this growth and consolidation with its state-of-the-art e-commerce web site. The combination of this web based approach and Norstan’s premier knowledge of the secondary market will provide the bases for growth in this business group.

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Products and Services

      Norstan provides customers with a broad range of communication and IT products and services to design, develop and implement technology solutions in a variety of customer environments. These products and services are delivered through the Company’s four business segments; Communications Technology Solutions and Services, Resale, Network Services and Financial Services:

      Communications Technology Solutions and Services & Resale

      Within its core Communications Technology segments are three interrelated business units:

• Direct Solutions and Services. Provides best-of-breed technologies and services focused on selected end-user customers throughout North America.

• Channel Partner Services. Technology implementation and support services for network providers, manufacturers, integrators, and resellers.

• Resale Services. Provides refurbished and re-certified voice and data products to end users.

      Norstan’s product and service offerings are centered around four Practice Areas:

• Voice and Converged Solutions

o                 PBX Systems

o                 IP Telephony

o                 Wireless LANs

• Collaboration Solutions

o                 Video Conferencing

o                 Audio Conferencing

o                 Data Collaboration

o                 Unified Messaging

o                 Voice Messaging

• Customer Contact Solutions

o                 Call Center Switching Platforms

o                 Interactive Voice Response

o                 Speech Recognition

o                 CTI (Computer Telephony Integration)

o                 Workforce Management

o                 Quality Monitoring

o                 Intelligent Call Routing

o                 Media Blending / Web Enablement

• Infrastructure and Services Solutions

o                 Structured Cabling

o                 Optical Networks

o                 Multimedia Solutions

o                 Remote System Monitoring & Diagnostic Analysis

o                 System Modifications (Moves, Adds, and Changes)

o                 Managed Communication Services

o                 24 x 7 Customer Support

      Within each Practice Area Norstan provides world class communications consulting services, leading edge technologies, and legendary implementation and support services.

4

      Network Services

      Norstan Network Services provides multiple source local and long distance services and related consulting and professional services. Through strategic relationships with world class business partners, Network Services is able to deliver custom, flexible and unique solutions to the Company’s customers.

      Financial Services

      Norstan Financial Services provides Norstan customers with creative and flexible financial solutions for technology and business essential equipment acquisitions. These financial alternatives are offered under a private label leasing program through the partnership between Fidelity Leasing and Norstan Financial Services.

Customers

      Norstan focuses its marketing efforts on middle-market and Fortune 1000 companies with complex communication requirements. Norstan has served over 18,000 customers across a broad range of industries over the last three fiscal years. No single customer accounted for more than 5% of Norstan’s total revenue during any of the last three fiscal years.

A sample of current premier customers of the Company include the following:

ADC Telecommunications	Alltel Corp.
American Freightways	Best Buy
Canadian Imperial Bank of Commerce	Charles Schwab
Data Listing Service, L.P.	Harley-Davidson
IBM	Marquette University
US Bancorp	United Parcel Service Of America, Inc.

Strategic Alliances

      The Company believes that its relationships with a wide range of leading technology companies enhance Norstan’s ability to deliver the appropriate solution to each customer. Strategic alliance partners include Siemens, VTEL, PictureTel, Latitude, Ericsson, Alcatel, Aspect, Blue Pumpkin, Nuance, Cisco Systems, Sprint, Lucent Technologies (formerly Octel), Captaris, Rockwell, SpeechWorks and SpectraLink. In addition, the Company distributes complimentary communication products that fit specific segments of the marketplace. These include hybrid switching systems, personal computer-based voice processing and video conferencing systems, as well as data communication products from Novell, Newbridge and others.

      Norstan has been a distributor of Siemens communication equipment since 1976 and is Siemens’ largest independent distributor in North America. The term of the current distributor agreement with Siemens, signed in January 1999, is five years. Norstan and Siemens have also renewed an agreement through July 27, 2003 under which Norstan is an authorized agent for the refurbishment and sale of previously owned Siemens equipment.

Sales and Marketing

      Throughout the United States and Canada, Norstan’s product and services offerings are brought to market through four separate but complimentary distribution channels. These include Direct Solutions Sales, Telesales, Channel Account Sales, and Web-based e-business Sales. These distribution channels are reflected in the Company’s core business units as follows:

Core Business Unit	Distribution Channels
Direct Solutions and Services	•	Direct enterprise sales focused on selected end user accounts.
	•	Telesales sales people focused on mid-tier and below accounts.
Channel Partner Services	•	Direct sales people and channel account managers focused on manufacturers, network providers, integrators, and resellers.
Resale Services	•	Telesales sales people focused on enterprise end-users of voice and data equipment.
	•	Web-based e-business through Norstan’s industry leading www.Vibestech.com website.

5

      This multi-channel distribution model uses the most cost-effective sales channels to bring the Company’s products and service offerings to market. Each channel is staffed with Sales Specialists who are highly focused in one of the four Norstan Practice Areas. In addition to having a comprehensive understanding of their specialty, these Specialists also have a sound understanding of all Norstan’s product and services offerings to recognize additional sales opportunities and maximize account share. Each Sales Specialist uses a comprehensive approach to evaluate each customer’s technology needs. The Sales Specialist begins with a detailed analysis of the customer’s current and future communication and IT systems requirements. After determining the customer’s needs, the Sales Specialist, together with a Norstan Solutions Engineer, develop a solution that satisfies current and anticipated requirements. Norstan’s operations team then works with the customer to plan the delivery and implementation of the solution and to identify required training. By planning the precise requirements of each phase of the solution delivery, Norstan’s specialists are able to minimize service interruption for the customer. Norstan also provides an ongoing support program tailored to meet the customer’s specific application requirements that incorporates remote diagnostics, in-field service and support, additional training and help desk support from Norstan’s customer support representatives.

      Norstan’s marketing strategy is designed to capture the maximum possible portion of Norstan’s existing customers’ communication and IT budgets and to identify and develop new customer relationships. Norstan has developed a team of highly trained Enterprise Account Managers (EAM) to focus on the Company’s largest and most strategic accounts. These EAMs work with the client’s senior level management to gain a comprehensive understanding of their business needs and to ensure the most effective deployment of Norstan’s resources relative to the account strategy. Norstan believes the use of EAMs will provide high quality sales and customer service and support Norstan’s ongoing marketing efforts, as satisfied customers are more likely to choose Norstan to supply additional communication and IT products and services.

Customer Service

      Norstan believes that providing exceptional customer service is an important element of its ability to compete effectively in the communication marketplace. Norstan has invested heavily in new technology designed to help resolve a substantial portion of customer support and service issues quickly and remotely. Norstan coordinates its customer service response through four remote diagnostics and dispatch centers located in the Minneapolis, Cleveland, Los Angeles, and Montreal areas. In fiscal year 2001, these centers handled more than 360,000 customer calls with approximately 60% of the service-related calls addressed remotely. By comparison, only 18% of customer calls were resolved remotely in fiscal year 1994. For calls requiring immediate on-site service and support, Norstan maintains a force of highly trained service technicians, design engineers and customer support representatives.

      Norstan has approximately 160 employees in its four remote diagnostics and dispatch centers devoted primarily to providing customer service, and has more than 400 service technicians in the field. With Norstan’s remote problem resolution capability and its staff of highly trained technicians, the Company is able to promptly resolve customer support requests. Norstan’s commitment to customer service is evidenced by a fiscal year 2001 survey of Norstan’s communication customers that found an overall satisfaction rating of 95.6%.

Locations

      The Company currently supports its clients with 30 sales and service locations in 28 cities within the United States and Canada, including the following:

Albuquerque, NM
Appleton, WI
Birmingham, AL
Brea, CA
Calgary, Alberta
Cedar Rapids, IA
Cincinnati, OH
Cleveland, OH
Columbus, OH
Davenport, IA Des Moines, IA
Las Vegas, NV
Lexington, KY
Louisville, KY
Madison, WI
Milford, MA
Milwaukee, WI
Minneapolis, MN
Montreal, Quebec
New Orleans, LA Oklahoma City, OK
Omaha, NE
Phoenix, AZ
Riverside, CA
Toledo, OH
Toronto, Ontario
Tulsa, OK
Vancouver, British Columbia

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Employees

      The Company’s U.S. operations had a total of 1,406 employees as of April 30, 2001 consisting of 294 sales and marketing personnel, 703 operations, service and installation employees, 36 consulting employees and 373 administrative employees. Of these employees, approximately 89 were covered by collective bargaining agreements. The Company considers relations with its employees to be good and has not experienced any work stoppages.

      The Company’s Canadian operations had a total of 145 employees as of April 30, 2001, consisting of 39 sales and consulting personnel, 85 operations, service and installation employees, and 21 administrative personnel. The Company considers relations with the Canadian employees to be good and has not experienced any work stoppages.

Competition

      Norstan’s marketing strategy is designed to capture a larger portion of existing customers’ communication and IT budgets and to identify and develop new customer relationships. The Company competes with its customers’ internal resources, particularly when these resources represent a fixed cost to the customer. Such competition may impose additional pricing pressures on the Company. Subject to this competitive environment, the Company competes on the basis of: the depth and breadth of services and products offered; the ability to integrate IT and communication systems as the related technologies continue to converge; its reputation for providing superior customer service; and the number and strength of customer relationships.

      The Company also competes in its markets with Nortel Networks, of Brampton, Ontario; Avaya Communications, of Basking Ridge, NJ; Aspect Communications, of San Jose, CA, and Wiltel Communications, of Norcross, GA.

Intellectual Property Rights

      The Company relies upon a combination of nondisclosure and other contractual arrangements with certain key employees and business partners, and trade secret, copyright and trademark laws to protect its proprietary rights and the proprietary rights of third parties from whom the Company licenses intellectual property. Norstan enters into confidentiality agreements with certain of its employees and business partners and limits the distribution of proprietary information.

Government Regulation

      Except for the sale of long distance service, the Company is not subject to any government regulations that have a material impact on its operations. Effective May 1, 1992, the Company became a direct reseller of long distance network services and became subject to certain state tariff regulations throughout the United States. The Company is currently registered and certified to provide interstate services in all 50 states and intrastate services in 49 states. The Company is also subject to FCC regulations, which require the filing of federal tariffs.

Backlog

      As of April 30, 2001, the Company had signed contracts for telecommunications products aggregating approximately $18.9 million, substantially all of which are expected to be fulfilled by the end of fiscal 2002. As of April 30, 2000, the Company had signed contracts aggregating approximately $35.9 million, substantially all of which were fulfilled by the end of fiscal 2001. The usual time period between the execution of a contract and the completion of the installation is three to twelve months, depending on the size and complexity of the system.

7

Item 2. Properties.

      The executive offices of the Company are located in Minnetonka, Minnesota, where the Company leases approximately 165,000 square feet of office space. The Company also has area headquarters in Brecksville, Ohio, and Phoenix, Arizona, where the Company leases approximately 42,750 and 34,400 square feet of office space, respectively. In addition to the space above, the Company leases sales and service offices in 21 other cities within the United States. In Canada, the Company leases approximately 28,800 square feet of office space in Toronto, Ontario, which serves as its Canadian headquarters. The Company also leases sales and service offices in three other cities within the Canadian provinces of Alberta, Quebec and British Columbia. The Company believes that the above-mentioned facilities are adequate and suitable for its current needs.

Item 3. Legal Proceedings.

      The Company is involved in legal actions in the ordinary course of its business. Although the outcomes of any such legal actions cannot be predicted, in the opinion of management there is no legal proceeding pending against or involving the Company for which the outcome is likely to have a material adverse effect upon the business, operating results and financial condition of the Company.

      The Company is pursuing various claims before the American Arbitration Association against the former owner of PRIMA Consulting (“PRIMA”) and certain former employees of PRIMA, which claims arise out of the Company’s September 1997 acquisition of PRIMA. The Company alleges that the respondents breached various covenants contained in agreements entered into in connection with the purchase transaction, aided and abetted tortious interference with those contracts and misappropriated trade secrets resulting in a substantial deterioration in the value of the acquired business. The Company further alleges an alternative claim of fraud in the inducement based on the former owner’s voiding of non-competes prior to Norstan’s acquisition of PRIMA. In addition, the Company has asserted claims in North Carolina federal district court against the new company established by the former owner of PRIMA, for tortious interference with contracts and misappropriation of trade secrets.

      The Company is seeking to recover compensatory damages of approximately $22.5 million, together with punitive damages. Although management believes the Company’s claims are meritorious, there can be no assurance that the Company will prevail in the arbitration proceeding, or in the event that the Company does prevail in the arbitration proceeding, the amount of any damages that may be awarded to the Company. Further, there can be no assurance that the respondents will have sufficient assets to satisfy any award received by the Company pursuant to the arbitration proceeding.

      In May 2000, Norstan was sued in the U.S. District Court for the District of Minnesota by a former sales representative who claims he is owed $458,675 in additional commissions. Norstan denies that the former sales representative is entitled to any additional commissions. Norstan filed a counterclaim, seeking reimbursement of overpayments that had been made to the sales representative. On July 26, 2001, the U.S. District Court entered summary judgment in favor of the former sales representative and against Norstan. The Company believes the ruling is in error and intends to file an appeal. However, there can be no assurance that the Company will be successful in its appeal. Management believes that the April 30, 2001 consolidated financial statements adequately reflect the Company’s exposure under this lawsuit.

Item 4. Submission of Matters to a Vote of Security Holders.

      The Company did not submit any matters to a vote of security holders during the last quarter of the fiscal year covered by this report.

8

PART II

Item 5. Market for the Company’s Common Equity and Related Stockholder Matters.

Price Range of Common Stock

      The Company’s common stock is traded on the National Over-the-Counter market and is listed on the national market system of the National Association of Securities Dealers’ Automated Quotations System (“NASDAQ”) under the symbol “NRRD”. The following table sets forth the high and low sale prices for the Company’s common stock as reported by NASDAQ for each quarterly period during the two most recent fiscal years:

	High		Low
Fiscal year ended April 30, 2001:
First Quarter	$	6.563	$	3.250
Second Quarter		5.500		2.688
Third Quarter		4.000		0.688
Fourth Quarter		2.250		0.906
Fiscal year ended April 30, 2000:
First Quarter	$	14.250	$	9.250
Second Quarter		12.875		7.000
Third Quarter		11.375		5.125
Fourth Quarter		9.875		5.125

      The quotations reflect prices between dealers and do not include retail mark-ups, mark-downs or commissions, and do not necessarily represent actual transactions.

      As of July 13, 2001, there were 3,004 holders of record of the Company’s common stock.

NASDAQ Listing Requirements

      Norstan’s common stock is currently listed on the NASDAQ National Market. NASDAQ imposes on its member companies certain continued listing requirements, including the maintenance of a minimum of $4.0 million in net tangible assets. As of April 30, 2001, the Company had net tangible assets of $4.2 million. In the event that Norstan’s net tangible assets fall below $4.0 million, Norstan may be delisted and may be required to reapply for listing of its common stock for either the National Market or the NASDAQ SmallCap Market. The Company is currently developing plans to maintain compliance; however, there can be no assurance that these plans will be successful.

Restrictions on the Payment of Dividends

      The Company has not recently declared or paid any cash dividends on the common stock and does not intend to pay cash dividends on the common stock in the foreseeable future. The Company currently expects to retain earnings to finance the operations and the expansion of its business. In addition, the Company’s current revolving long-term credit agreement prohibits the payment of cash dividends without the prior written consent of the lenders thereunder.

9

Item 6. Selected Consolidated Financial Data.

      The selected consolidated financial data set forth below as of and for each of the fiscal years in the five-year period ended April 30, 2001 have been derived from the Company’s consolidated financial statements, which have been audited by Arthur Andersen LLP, independent public accountants. The selected consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the notes thereto included elsewhere in this report.

					Fiscal Years Ended April 30,
					2001			2000			1999			1998			1997
					(In Thousands, Except Per Share Data)
Statements of Operations Data:
REVENUES					$	297,700		$	331,217		$	367,370		$	393,364		$	364,535
COST OF SALES						214,920			254,963			262,521			285,762			264,754
GROSS MARGIN						82,780			76,254			104,849			107,602			99,781
Selling, general and administrative expenses						92,805			102,438			92,563			87,405			81,942
Restructuring charges						1,183			—			1,419			14,204			—
OPERATING INCOME (LOSS)						(11,208	)		(26,184	)		10,867			5,993			17,839
Interest expense						(7,988	)		(6,315	)		(4,782	)		(3,823	)		(1,753	)
Other income (expense), net						(1,147	)		(80	)		387			30			(22	)
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES						(20,343	)		(32,579	)		6,472			2,200			16,064
		Income tax provision (benefit)				—			(10,345	)		2,815			924			6,586
INCOME (LOSS) FROM CONTINUING OPERATIONS						(20,343	)		(22,234	)		3,657			1,276			9,478
DISCONTINUED OPERATIONS:
	INCOME (LOSS) FROM DISCONTINUED OPERATIONS					(11,889	)		(46,715	)		2,233			2,579			739
	LOSS ON SALE OF DISCONTINUED OPERATIONS					(4,038	)		—			—			—			—
NET INCOME (LOSS)					$	(36,270	)	$	(68,949	)	$	5,890		$	3,855		$	10,217
NET INCOME (LOSS) PER COMMON SHARE:
	BASIC — Continuing Operations				$	(1.79	)	$	(2.05	)	$	0.35		$	0.13		$	1.04
			Discontinued Operations			(1.40	)		(4.32	)		0.21			0.26			0.08
				BASIC EPS	$	(3.19	)	$	(6.37	)	$	0.56		$	0.39		$	1.12
	DILUTED — Continuing Operations				$	(1.79	)	$	(2.05	)	$	0.35		$	0.13		$	1.00
			Discontinued Operations			(1.40	)		(4.32	)		0.21			0.26			0.08
				DILUTED EPS	$	(3.19	)	$	(6.37	)	$	0.56		$	0.39		$	1.08
WEIGHTED AVERAGE COMMON SHARES:
	BASIC					11,373			10,818			10,473			9,719			9,140
	DILUTED					11,373			10,818			10,537			9,917			9,418

	As of April 30,
	2001			2000		1999		1998		1997
Balance Sheet Data:
Working capital	$	(24,342	)	$	31,133	$	78,239	$	58,568	$	37,484
Total assets		169,839			236,906		308,516		275,608		224,173
Long-term debt, net of current maturities		38,200			67,257		61,411		52,440		18,284
Discounted lease rentals, net of current maturities		13,552			24,285		32,604		20,883		24,043
Shareholders’ equity		8,085			42,489		109,335		97,671		84,370
Cash dividends declared and paid		—			—		—		—		—

10

Unaudited Quarterly Results

      The following table sets forth certain unaudited quarterly operating information for each of the eight quarters in the two year period ending April 30, 2001. This data includes, in the opinion of management, all normal recurring adjustments necessary for the fair presentation of the information for the periods presented when read in conjunction with the Company’s Consolidated Financial Statements and related Notes thereto. Results for any previous fiscal quarter are not necessarily indicative of results for the full year or for any future quarter.

		For the Quarters Ended
		April 30,			January 27,			October 28,			July 29,			April 30,			January 29,			October 30,			July 31,
		2001			2001			2000			2000			2000			2000			1999			1999
Revenues		$	71,254		$	70,242		$	77,418		$	78,786		$	79,354		$	76,398		$	88,257		$	87,208
Cost of Sales			49,156			50,696			56,646			58,422			62,178			58,402			72,594			61,789
Gross Margin			22,098			19,546			20,772			20,364			17,176			17,996			15,663			25,419
SG&A Expenses			24,214			23,176			23,325			22,091			29,701			23,752			26,013			22,973
Restructuring Charges			1,183			—			—						—			—			—			—
Operating Income (Loss)			(3,299	)		(3,630	)		(2,553	)		(1,727	)		(12,525	)		(5,756	)		(10,350	)		2,446
Interest Expense			(1,709	)		(2,084	)		(2,112	)		(2,083	)		(1,753	)		(1,735	)		(1,395	)		(1,432	)
Other Income (Expense), net			(114	)		(5	)		(1,019	)		(8	)		104			(28	)		64			(220	)
Income (Loss) Before Taxes			(5,122	)		(5,719	)		(5,684	)		(3,818	)		(14,174	)		(7,519	)		(11,681	)		794
Income Tax (Benefit) Provision			—			—			—						(5,889	)		(2,622	)		(2,200	)		365
Net Income (Loss) from Continuing Operations			(5,122	)		(5,719	)		(5,684	)		(3,818	)		(8,285	)		(4,897	)		(9,481	)		429
Income (Loss) from Discontinued Operations			(3,535	)		(2,585	)		(2,047	)		(3,722	)		(37,559	)		(6,875	)		(2,734	)		453
Loss on Disposal of Discontinued Operations			(4,038	)		—			—						—			—			—			—
Net Income (Loss)		$	(12,695	)	$	(8,304	)	$	(7,731	)	$	(7,540	)	$	(45,844	)	$	(11,772	)	$	(12,215	)	$	882
Net Income (Loss) Per Share:
	Continuing Operations	$	(0.44	)	$	(0.50	)	$	(0.51	)	$	(0.35	)	$	(0.76	)	$	(0.45	)	$	(0.88	)	$	0.04
	Discontinued Operations		(0.64	)		(0.23	)		(0.18	)		(0.34	)		(3.43	)		(0.63	)		(0.25	)		0.04
Net Income (Loss) Per Share		$	(1.08	)	$	(0.73	)	$	(0.69	)	$	(0.69	)	$	(4.19	)	$	(1.08	)	$	(1.13	)	$	0.08
Weighted Average Shares			11,765			11,425			11,183			10,916			10,944			10,855			10,763			10,726

11

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

General

      Norstan is a full service telecommunications company that delivers voice and data technologies and services, and remanufactured equipment to businesses and channel partners of all sizes. The Company delivers its products and services through four business segments, Communications Technology Solutions and Services, Resale, Network Services and Financial Services, which accounted for 78.8%, 8.8%, 9.2% and 3.2% of Norstan’s fiscal year 2001 revenues, respectively. Communications Technology Solutions offerings include customer contact-call centers, collaboration-conferencing and messaging, converged communication – IP telephony and PBX systems, infrastructure cabling, wiring, sound and signal and mobile business networking. Communications Technology Services offerings include project consulting, project management, installation, system monitoring and support services maintenance. Resale offers refurbished and re-certified voice and data products. Network Services offers multiple source local and long distance services and Financial Services supports the sales process by providing customized financing alternatives.

      In fiscal year 2001, the Company changed its reportable operating segments to reflect how it evaluates its operating performance and allocates resources. Prior to fiscal year 2001, the Company’s reportable segments included Consulting, Communications and Financial Services. As of April 30, 2001, the Company divested its IT consulting business. Accordingly, the net assets and operating results have been separately reported as discontinued operations.

Results of Operations

      The following table sets forth certain items from the Company’s consolidated statements of operations expressed as a percentage of total revenues:

				Years Ended April 30,
				2001			2000			1999
Revenues
	Communications Technology:
		Solutions and Services			78.8	%		79.3	%		83.2	%
		Resale			8.8			7.8			7.2
	Network Services				9.2			10.2			7.4
	Financial Services				3.2			2.7			2.2
			Total Revenues		100.0	%		100.0	%		100.0	%
Cost of sales					72.2			77.0			71.5
Gross margin					27.8			23.0			28.5
Selling, general and administrative expenses					31.2			30.9			25.2
Restructuring charges					0.4			—			0.4
Operating income (loss)					(3.8	)%		(7.9	)%		2.9	%
Net income (loss) — continuing operations					(6.8	)%		(6.7	)%		1.0	%
Net income (loss) — discontinued operations					(5.4	)%		(14.1	)%		0.6	%
Net income (loss)					(12.2	)%		(20.8	)%		1.6	%

      The following table sets forth the gross margin percentages for each of the Company’s business segments (continuing operations):

		Years Ended April 30,
		2001			2000			1999
Communications Technology:
	Solutions and Services		25.5	%		19.8	%		26.8	%
	Resale		37.5			34.7			40.3
Network Services			23.6			26.6			26.9
Financial Services			69.8			69.5			62.7

12

Fiscal 2001 Compared to Fiscal 2000

      Revenues.   Total revenues from continuing operations decreased 10.1% to $297.7 million in fiscal year 2001 from $331.2 million in fiscal year 2000.

      Revenues within the Communications Technology segment of Solutions and Services decreased 10.7% to $234.6 million in fiscal year 2001 from $262.6 million in fiscal year 2000. This decrease was the result of lower revenues in Solutions’ practice areas including, call centers, PBX systems, and conferencing and messaging. In addition, revenues from Services’ moves, adds and changes were down year-to-year. These decreases were somewhat offset by increased revenues in convergence and from the inclusion of revenues from the Company’s channel partners. In addition, the Company’s service contract revenue increased year-to-year.

      Resale revenues increased 1.1% to $26.3 million in fiscal 2001 as compared to $26.0 million in fiscal 2000. Revenues from Network Services were down 19.1% to $27.3 million in fiscal 2001 from $33.7 million in fiscal 2000 as a result of decreased emphasis on pursuing additional Network Services’ revenue. Financial Services’ fiscal 2001 revenue of $9.6 million was up 7.5% from $8.9 million in fiscal 2000.

      Gross Margin.   The Company’s gross margin was $82.8 million and $76.3 million for the fiscal years ended April 30, 2001 and 2000, respectively, an increase of 8.6%. As a percent of total revenues, gross margin was 27.8% for fiscal year 2001 compared to 23.0% for fiscal year 2000.

      Gross margin as a percent of revenues for Communications Technology Solutions and Services improved to 25.5% in fiscal 2001 as compared to 19.8% in fiscal 2000. This improvement was the result of increased margins in install, service, moves, adds and changes and other infrastructure practices.

      Resale’s gross margin improved to 37.5% of revenues in fiscal 2001 as compared to 34.7% in fiscal 2000. Network Services fiscal 2001 gross margin was 23.6% of revenues down from 26.6% in fiscal 2000. Gross margin for Financial Services were relatively flat between fiscal 2001 and 2000 at 69.8% and 69.5%, respectively.

      Selling, General and Administrative Expenses.   The Company’s selling, general and administrative expenses decreased $9.6 million or 9.4% during fiscal 2001 to $92.8 million as compared to $102.4 million in fiscal 2000. As a percent of revenues, selling, general and administrative expenses were relatively flat year-to-year at 31.2% and 30.9% for fiscal 2001 and fiscal 2000, respectively. The Company has taken measures to remove a significant amount of costs from its business over the past year including headcount reductions and closure of certain leased facilities. The Company continues to monitor expenditures and is pursuing aggressive cost control measures.

      Restructuring Charge.   During the fourth quarter of fiscal year 2001, the Company recorded a restructuring charge of approximately $1.2 million relating to a workforce reduction and closure of certain facilities. This charge included the costs of severance ($683,000) and lease terminations and other facility costs ($500,000) related to non-strategic businesses, including Network Services and Financial Services, and for continued cost reductions in the Communications Technology businesses.

      Interest Expense.   Interest expense was $8.0 million for fiscal year 2001 as compared to $6.3 million for fiscal year 2000. Interest expense is incurred primarily in connection with the Company’s revolving credit line used for working capital purposes. Average month-end borrowings outstanding under the Company’s revolving long-term credit agreements were $68.9 million for fiscal year 2001 and $74.0 million for fiscal year 2000. Weighted average interest rates under the Company’s revolving long-term credit agreements were 11.7% for fiscal year 2001 as compared to 7.1% for fiscal year 2000.

      Other Income (Expense).   Net other expense of $1.1 million was incurred in fiscal 2001 as compared to $0.1 million in fiscal 2000. The increase in reported expense was primarily due to the write-off of $1.1 million in financing fees related to an unconsummated financing transaction that occurred in the second quarter of fiscal 2001.

      Income Taxes.   The Company provided no tax benefit on the loss in fiscal 2001, while the effective income tax rate was 20.0% for fiscal year 2000 and 43.5% for fiscal year 1999. The Company’s effective tax rate differs from the federal statutory rate primarily due to state income taxes and the effect of nondeductible goodwill amortization, the impact of the fiscal 2000 goodwill writedown discussed below, as well as the impact of net operating loss carry forwards.

13

      Net (Loss) from Continuing Operations.   A net loss of $20.3 million or $1.79 per basic and diluted share was incurred in fiscal year 2001, as compared to a net loss of $22.2 million or $2.05 per share in fiscal year 2000.

      Discontinued Operations.   During fiscal 2001, the Company divested its IT consulting business in order to focus on its core competencies of providing communications technology services and solutions to channel partners and direct enterprise customers. In addition to refocusing the Company’s strategy, lack of realized synergies between the Company’s communications and consulting businesses and recurring losses within the consulting businesses contributed to the decision to divest of this non-strategic business segment.

      Divestiture of the IT consulting business began on February 7, 2001 with the sale of the Company’s 75% interest in Connaissance Consulting to Connaissance’s founder for up to $16.0 million. Terms of the sale required the payment of $3.0 million in cash at closing and delivery of promissory notes drawn in favor of the Company with an aggregate face amount of $13.0 million maturing on various dates commencing on April 30, 2001 and ending December 31, 2005.

      The divestiture concluded with the sale of Norstan Consulting on April 30, 2001 to a management group led by Norstan Consulting’s former President and the Company’s former Vice Chairman. Terms of the sale required the payment of $500,000 in cash at closing and delivery of a promissory note drawn in favor of the Company in the face amount of $1.5 million maturing on August 28, 2001. In addition, as part of the transaction, the Company retained its rights to certain assets and assumed certain liabilities of Norstan Consulting.

      The results of these two business units have historically been reported as the Company’s “Consulting” business segment. With these sales, Consulting’s results are reported as discontinued operations at April 30, 2001, and the consolidated financial statements have been restated to report separately the net assets and operating results of the discontinued businesses for all periods presented.

The results of operations from discontinued operations include the following charges:

      Restructuring Charge.   During the second quarter of fiscal 2000, the Company recorded a restructuring charge of approximately $2.0 million related to its Consulting business. The $2.0 million charge consisted of noncancelable lease obligations for branch offices to be closed ($1.0 million), software and other asset write-offs ($800,000), and severance costs ($200,000).

      Writedown of Goodwill.   During the fourth quarter of fiscal year 2000, the Company recorded a charge of $32.2 million to write down goodwill created in connection with its consulting business acquisitions, principally as a result of significant operating losses and negative cash flows incurred in the Consulting business segment during fiscal 2000.

Summary operating results of the discontinued operations are as follows (in thousands):

	Years Ended April 30,
	2001			2000			1999
Revenues	$	39,410		$	87,304		$	115,339
Cost of sales		31,558			65,826			75,149
Gross margin		7,852			21,478			40,190
Selling, general and administrative expenses		19,667			41,388			36,101
Restructuring charge		—			1,969			103
Writedown of goodwill		—			32,244			—
Operating income (loss)		(11,815	)		(54,123	)		3,986
Other income (expense), net		(74	)		677			(33	)
Net income (loss) before taxes		(11,889	)		(53,446	)		3,953
Tax provision (benefit)		—			(6,731	)		1,720
Net income (loss) from discontinued operations	$	(11,889	)	$	(46,715	)	$	2,233

      Net (Loss).   For fiscal 2001, the Company reported a net loss of $36.3 million or $3.19 per basic and diluted share as compared to $68.9 million or $6.37 per share for fiscal 2000.

14

Fiscal 2000 Compared to Fiscal 1999

      Revenues.   Total revenues from continuing operations decreased 9.8% to $331.2 million in fiscal year 2000 from $367.4 million in fiscal year 1999.

      Communications Technology Solutions and Services revenues decreased 14.1% to $262.6 million in fiscal year 2000 from $305.5 million in fiscal 1999. Solutions revenues decreased as a result of weaker sales in most product lines including Siemens PBX, voice processing and conferencing. Also within this segment, Services revenues decreased on a year-to-year basis. Maintenance service contract revenues were flat while revenues from moves, adds and changes and cabling services were down as compared to fiscal 1999. Overall, performance in the Solutions and Services segment was negatively affected by significant management and organizational changes occurring during the fiscal year. In addition, customer concerns about the Year 2000 issue resulted in depleted budgets, postponed equipment purchases and installations and delayed communications and IT projects until after January 1, 2000.

      Revenues from Resale decreased 2.0% to $26.0 million in fiscal 2000 as compared to $26.5 million in fiscal 1999. Network Services revenues increased 23.2% to $33.7 million in fiscal 2000 from $27.4 million in fiscal year 1999. Revenues from Financial Services increased 11.8% to $8.9 million in fiscal 2000 from $8.0 million in fiscal year 1999. This increase was primarily attributable to the increased size of the Company’s leasing base.

      Gross Margin.   The Company’s gross margin was $76.3 million and $104.8 million for the fiscal years ended April 30, 2000 and 1999, respectively. As a percent of total revenues, gross margin was 23.0% for fiscal year 2000 compared to 28.5% for fiscal year 1999.

      Gross margin as a percent of revenues for Solutions and Services was 19.8% for fiscal year 2000 as compared to 26.8% for fiscal year 1999. This decreases was the result of staffing for higher volumes of revenues which did not materialize, charges associated with project cost overruns and revaluations of inventory which were recorded during the fiscal year. In addition, gross margin continues to be adversely affected by competitive price pressure on communication equipment and by increased product costs.

      Resale gross margin decreased $1.7 million from 40.3% of revenues in fiscal 1999 to 34.7% during fiscal 2000. Network Services gross margin as a percent of revenues was relatively level year-to-year at 26.6% and 26.9% for fiscal 2000 and fiscal 1999, respectively. Gross margin as a percent of revenues for Financial Services was 69.5% for fiscal year 2000 as compared to 62.7% for fiscal year 1999.

      Selling, General and Administrative Expenses.   Selling, general and administrative expenses increased 10.7% to $102.4 million in fiscal year 2000 from $92.6 million in fiscal year 1999. As a percent of revenues, selling, general and administrative expenses increased to 30.9% for fiscal year 2000, as compared to 25.2% for fiscal year 1999. The percentage increase was primarily due to the lower than planned sales volume in the Solutions and Services business segments. The Company budgeted for, staffed and built the infrastructure to support higher revenue levels which did not materialize during the fiscal year.

      Restructuring Charge.   During fiscal year 1999, the Company recorded a restructuring charge of $1.5 million relating to a workforce reduction. This resource reduction, primarily in the communications business, was made to bring the Company’s expense structure in line with anticipated growth. The restructuring charge related to the costs of severance and other employment termination benefits.

      Interest Expense.   Interest expense was $6.3 million for fiscal year 2000 as compared to $4.8 million for fiscal year 1999. Interest expense is incurred primarily in connection with the Company’s revolving credit line used for working capital purposes. Average month-end borrowings outstanding under the Company’s revolving long-term credit agreements were $74.0 million for fiscal year 2000 and $64.9 million for fiscal year 1999. Weighted average interest rates under the Company’s revolving long-term credit agreements were 7.1% for fiscal year 2000 as compared to 6.5% for fiscal year 1999.

      Income Taxes.   The Company’s effective income tax rate was 20.0% for fiscal year 2000 and 43.5% for fiscal year 1999. The Company’s effective tax rate differs from the federal statutory rate primarily due to state income taxes and the effect of nondeductible goodwill amortization, as well as the impact of the fiscal 2000 goodwill writedown discussed below in “Discontinued Operations”.

      Income from Continuing Operations.   Continuing operations incurred a net loss of $22.2 million or $2.05 per basic and diluted share in fiscal 2000, as compared to net income of $3.7 million or $0.35 per share in fiscal 1999.

      Discontinued Operations.   The results of operations from discontinued operations include the following charges:

15

      Restructuring Charge.   During the second quarter of fiscal 2000, the Company recorded a restructuring charge of approximately $2.0 million related to its IT consulting business. The $2.0 million charge consisted of noncancelable lease obligations for branch offices to be closed ($1.0 million), software and other asset write-offs ($800,000), and severance costs ($200,000).

      Writedown of Goodwill.   During the fourth quarter of fiscal year 2000, the Company recorded a charge of $32.2 million to write down goodwill created in connection with its consulting business acquisitions, principally as a result of significant operating losses and negative cash flows incurred in the Company’s IT consulting businesses during fiscal 2000.

      Net Income (Loss).   A net loss of $68.9 million or $6.37 per basic and diluted share was incurred in fiscal year 2000, as compared to net income of $5.9 million or $0.56 per diluted share in fiscal year 1999.

Liquidity and Capital Resources

      During the fiscal years ended April 30, 2001 and 2000, the Company incurred significant net losses. Additionally, the Company has a working capital deficit of $24,342 at April 30, 2001. As discussed elsewhere in this section, the Company has taken numerous actions in efforts to conserve cash including the disposition of its unprofitable IT consulting operations and reducing costs in its continuing businesses. Furthermore, the Company has entered into a new banking agreement effective June 29, 2001. Management believes that these measures will provide sufficient operational improvements and liquidity to allow the Company to meet its cash flow needs through at least April 30, 2002. However, there can be no assurance that the Company will be successful in achieving these goals.

      Cash Flows.   Continuing operations provided net cash from operations of $32.5 million, $23.8 million and $7.5 million during fiscal 2001, 2000 and 1999, respectively. This improved operating performance was the result of aggressive asset management especially relating to accounts receivable, inventory and work-in-process. Net cash of $5.2 million was provided by investing activities in fiscal 2001, an improvement over $15.3 million and $34.5 million used for investing activities in fiscal 2000 and 1999, respectively. The decrease in net cash used for investing activities is the result of a significant reduction in capital expenditures and investment in lease contracts and an increase in collections from lease contracts. Financing activities utilized net cash of $25.3 million and $2.9 million in fiscal 2001 and 2000, respectively. Fiscal 1999 financing activities provided cash of $33.6 million. The high level of cash used for financing activities in fiscal 2001 was due to repayment of bank debt and discounted lease rentals. In addition, there were minimal discounted lease rental borrowings during fiscal 2001.

      Capital Expenditures.   The Company used $7.8 million for capital expenditures during fiscal year 2001 as compared to $10.1 million in fiscal year 2000 and $22.2 million in fiscal year 1999. These expenditures were primarily for capitalized costs incurred in connection with obtaining or developing internal use software and computer equipment.

      Investment in Lease Contracts.   During fiscal 2001, the Company continued to make investments in lease contracts with its customers. The additional investment made in lease contracts in fiscal year 2001 totaled $26.4 million as compared to $32.5 million in fiscal 2000 and $35.6 million in fiscal 1999. Net lease receivables decreased to $55.9 million at April 30, 2001 from $67.7 million at April 30, 2000. The Company utilizes its lease receivables and corresponding underlying equipment to borrow funds from financial institutions on a nonrecourse basis by discounting the stream of future lease payments. Proceeds from discounting are presented on the consolidated balance sheet as discounted lease rentals. Discounted lease rentals totaled $26.8 million at April 30, 2001 as compared to $44.8 million at April 30, 2000. Interest rates on these credit agreements at April 30, 2001 ranged from 6.0% to 10.0%, while payments are due in varying monthly installments through November 2005. Payments due to financial institutions are made from monthly collections of lease receivables from customers. Financial Services offers competitive lease and equipment purchase financing through arrangements with outside financing sources.

      Capital Resources.   As of April 30, 2001, the Company had a $78.0 million credit agreement with certain banks. In December 2000, the Company entered into a restructured credit facility with the banks which consisted of the following components; A) $15.0 million term loan, B) $15.0 million term loan, C) $18.0 million term loan, and D) up to $30.0 million revolving line of credit based on the Company’s level of receivables and inventory. All components of this facility were to mature no later than June 29, 2001. The term loans bore interest at the banks’ reference rate plus 3.5% to 4.5% (11.0% to 12.0% at April 30, 2001) and the revolving facility bore interest at the banks’ reference rate plus 2.5% (10.0% at April 30, 2001). Certain portions of the borrowings under this facility have been classified as long-term as of April 30, 2001 as a result of the credit facility restructuring discussed below.

16

      On June 29, 2001, the Company entered into an agreement with the banks restructuring its existing senior debt facility. The new credit facility consists of the following components; A) $20.0 million term loan (“Term Loan A”) with various monthly principal payments due beginning on August 31, 2001 and maturing on June 28, 2002, B) $15.4 million term loan (“Term Loan B”) with various principal payments due beginning on July 31, 2002, or earlier if Term Loan A is paid off early, and maturing on December 31, 2002, and C) up to a $30.0 million revolving line of credit based on the Company’s level of receivables and inventory. The revolving facility and Term Loan A bear interest at the banks’ reference rate plus 2.5%, while Term Loan B bears interest at the banks’ reference rate plus 4.0%.

      Annual commitment fees on the unused portions of the credit facility are 0.25%. Under the terms and conditions of the credit agreement, the Company is required to maintain minimum levels of EBITDA and achieve certain other financial ratios. The Company was out of compliance with certain of these requirements as of April 30, 2001. However, these matters were remedied as a result of the above mentioned restructuring.

      Under the terms of the December 2000 and June 2001 restructured credit agreements, the banks are entitled to warrants to purchase shares of the Company’s common stock. As of April 30, 2001, 389,545 warrants had been issued to the banks at various prices between $0.94 and $1.13 per share. These warrants were recorded at their estimated fair value at the date of issuance, with the resulting costs (approximately $323,000) charged to expense over the term of the related agreements. In addition, on June 29, 2001, 100,000 warrants were issued at $2.80 per share.

      The Company has implemented a restructuring plan developed with its investment advisor to address the Company’s future liquidity and capital resource requirements. Management of the Company believes that a combination of A) cash expected to be generated from operations, B) borrowing capacity available under the financing arrangements discussed above, C) other debt facilities, D) issuance of debt or equity securities, E) lease financing, and F) cash to be generated from the sale or divestiture of certain assets of the Company, will be adequate to meet the anticipated liquidity and capital resource requirements of its business through at least April 30, 2002. However, there can be no assurance that these plans will be successful.

Forward-Looking Statements

      From time to time, the Company may publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, technological developments, new products and services, and other similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements including those made in this document. In order to comply with the terms of the Private Securities Litigation Reform Act, the Company notes that a variety of factors could cause the Company’s actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company’s forward-looking statements. The risks and uncertainties that may affect the operations, performance, developments and results of the Company’s business include the following: national and regional economic conditions; pending and future legislation affecting the telecommunications industries; the Company’s business in Canada; stability of foreign governments; market acceptance of the Company’s products and services; the Company’s continued ability to provide integrated communication solutions for customers in a dynamic industry; and other competitive factors. Because these and other factors could affect the Company’s operating results, past financial performance should not necessarily be considered as a reliable indicator of future performance, and investors should not use historical trends to anticipate future period results.

Item 7A. Quantitative and Qualitative Disclosure About Market Risk.

General

      Market risk represents the risk of changes in value of a financial instrument, derivative or non-derivative, caused by fluctuations in interest rates, foreign exchange rates and equity prices. Changes in these factors could cause fluctuations in the results of the Company’s operations and cash flows. In the ordinary course of business, the Company is exposed to foreign currency and interest rate risks. These risks primarily relate to the sale of products and services to foreign customers and changes in interest rates on the Company’s long-term debt obligations, discounted lease rentals, capital leases and other long-term debt obligations.

Interest Rate Risk

      For fixed rate debt, changes in interest rates generally affect the fair market value of the debt instrument, but not results of operations or cash flows. The Company does not have an obligation to prepay any fixed rate debt prior to maturity, and therefore, interest rate risk and changes in the fair market value of fixed rate debt will not have an effect on results of operations or cash flows until the Company decides, or is required, to refinance such debt.

17

      For variable rate debt, changes in interest rates generally do not affect the fair market value of the debt instrument, but does affect future results of operations and cash flows. The Company has variable rate debt of $57.0 million outstanding at April 30, 2001 with a weighted average interest rate of 9.6%. Assuming that the Company’s balance of variable rate debt remains constant at $57.0 million, each one-percent increase in interest rates would result in an annual increase in interest expense, and a corresponding decrease in cash flows of $570,000. Conversely, each one-percent decrease in interest rates would result in an annual decrease in interest expense, and a corresponding increase in cash flows of $570,000.

      The Company periodically finances customer equipment purchases with fixed rate, sales-type leases. The resulting stream of future lease payments is, in turn, used to borrow funds from financial institutions at fixed rates on a nonrecourse basis. The Company is not exposed to interest rate risk in connection with these arrangements because: (i) both the leases and the debt are at fixed interest rates; and (ii) Norstan typically enters into lending arrangements shortly after execution of the related leases.

      The table appearing below presents principal amounts by year of anticipated maturity for the Company’s debt obligations and related average interest rates based on the weighted average interest rates at the end of the period. Variable interest rates disclosed do not attempt to project future interest rates. This information should be read in conjunction with Notes 7 and 8 of the Notes to Consolidated Financial Statements.

			Years Ending April 30,
			2002		2003		2004		2005		2006		Total		Fair Value
Revolving credit facility
	(variable: currently 9.25%)		$	—	$	19.8	$	—	$	—	$	—	$	19.8	$	19.8
																9.25	%
Term loan A
	(variable: currently 9.25%)			17.0		3.0		—		—		—		20.0		20.0
																9.25	%
Term loan B
	(variable: currently 10.75%)			—		15.4		—		—		—		15.4		15.4
																10.75	%
Other long-term debt
	(variable: currently 7.0%)			1.8		—		—		—		—		1.8		1.8
																7.00	%
Capital lease obligations
	(fixed: currently 6.2%)			2.2		—		—		—		—		2.2		2.2
																9.00	%
Discounted lease rentals
	(fixed: currently 7.35%)			13.2		7.3		3.7		2.2		0.4		26.8		23.9
																9.00	%
		Total debt obligations	$	34.2	$	45.5	$	3.7	$	2.2	$	0.4	$	86.0	$	83.1

Foreign Currency Risk

      The Company is exposed to foreign currency rate risk. Substantially all foreign exchange exposure is the Canadian dollar. In general, with a net asset exposure, a weakening of the Canadian dollar relative to the U.S. dollar has a negative translation effect. Conversely, with a net asset exposure, a strengthening of the Canadian dollar would have the opposite effect. The average exchange rates for the Canadian dollar against the U.S. dollar during the year ended April 30, 2001 remained relatively unchanged.

      Assets and liabilities outside the United States are located primarily in Canada. The Company’s investments in foreign subsidiaries with a functional currency other than the U.S. dollar are not hedged. The potential loss in fair value resulting from a hypothetical 10% adverse change in the Canadian dollar exchange rate would not materially affect the Company’s consolidated financial position, results of operations or cash flows. Any gain or loss in fair value, associated with the Canadian dollar, in the Consolidated Balance Sheets of the Company would be recorded as a separate component of shareholders’ equity.

      During the years ended April 30, 2001, 2000 and 1999, the average exchange rates for the Canadian dollar strengthened (weakened) against the U.S. dollar as follows:

	Years Ended April 30,
	2001			2000			1999
Increase (Decrease)		(.0190	)		.0162			(.0473	)
		(2.8	)%		2.4	%		(6.6	)%

Derivative Financial Instruments

      The Company currently does not have any derivative financial instruments in place to manage interest costs, but may consider utilizing such instruments in the future as a means to manage interest rate risk.

18

Item 8. Financial Statements and Supplementary Data.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE

	Page
Consolidated Financial Statements:
Report of Independent Public Accountants		20
Consolidated Statements of Operations for the years ended April 30, 2001, 2000 and 1999		21
Consolidated Balance Sheets as of April 30, 2001 and 2000		22
Consolidated Statements of Shareholders’ Equity for the years ended April 30, 2001, 2000 and 1999		23
Consolidated Statements of Cash Flows for the years ended April 30, 2001, 2000 and 1999		24
Notes to Consolidated Financial Statements		25
Financial Statement Schedule:
Schedule II – Valuation and Qualifying Accounts		40

19

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Norstan, Inc.:

      We have audited the accompanying consolidated balance sheets of Norstan, Inc. (a Minnesota corporation) and Subsidiaries as of April 30, 2001 and 2000, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the three years in the period ended April 30, 2001. These financial statements and the schedule referred to below are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

      We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Norstan, Inc. and Subsidiaries as of April 30, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended April 30, 2001 in conformity with accounting principles generally accepted in the United States.

      Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The Schedule of Valuation and Qualifying Accounts is presented for purposes of complying with the Securities and Exchange Commission’s rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.

Arthur Andersen LLP

Minneapolis, Minnesota
June 29, 2001

20

NORSTAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)

					Years Ended April 30,
					2001			2000			1999
REVENUES
Communications Technology:
			Solutions and Services		$	234,560		$	262,594		$	305,523
			Resale			26,250			25,971			26,491
Network Services						27,320			33,748			27,394
Financial Services						9,570			8,904			7,962
				Total Revenues		297,700			331,217			367,370
COST OF SALES
Communications Technology:
			Solutions and Services			174,742			210,524			223,713
			Resale			16,408			16,955			15,810
Network Services						20,877			24,772			20,029
Financial Services						2,893			2,712			2,969
				Total Cost of Sales		214,920			254,963			262,521
GROSS MARGIN
Communications Technology:
			Solutions and Services			59,818			52,070			81,810
			Resale			9,842			9,016			10,681
Network Services						6,443			8,976			7,365
Financial Services						6,677			6,192			4,993
				Total Gross Margin		82,780			76,254			104,849
	Selling, general and administrative expenses					92,805			102,438			92,563
	Restructuring charges (Note 5)					1,183			—			1,419
OPERATING INCOME (LOSS)						(11,208	)		(26,184	)		10,867
	Interest expense					(7,988	)		(6,315	)		(4,782	)
	Other income (expense), net					(1,147	)		(80	)		387
INCOME (LOSS) FROM CONTINUING OPERATIONS
	BEFORE INCOME TAXES					(20,343	)		(32,579	)		6,472
	Income tax provision (benefit)					—			(10,345	)		2,815
INCOME (LOSS) FROM CONTINUING OPERATIONS						(20,343	)		(22,234	)		3,657
DISCONTINUED OPERATIONS:
	Income (loss) from operations of discontinued segment, net of tax benefit of $6,731 in 2000 and provision of $1,720 in 1999					(11,889	)		(46,715	)		2,233
	Loss on disposal of business segment					(4,038	)		—			—
NET INCOME (LOSS)					$	(36,270	)	$	(68,949	)	$	5,890
NET INCOME (LOSS) PER SHARE (BASIC & DILUTED):
			CONTINUING OPERATIONS		$	(1.79	)	$	(2.05	)	$	0.35
			DISCONTINUED OPERATIONS			(1.40	)		(4.32	)		0.21
EARNINGS PER SHARE					$	(3.19	)	$	(6.37	)	$	0.56
WEIGHTED AVERAGE SHARES OUTSTANDING:
		BASIC				11,373			10,818			10,473
		DILUTED				11,373			10,818			10,537

The accompanying notes are an integral part of these consolidated financial statements.

21

NORSTAN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Amounts)

					As of April 30,
					2001			2000
ASSETS
CURRENT ASSETS
	Cash				$	2,434		$	—
	Accounts receivable, net of allowances for doubtful accounts of $3,343 and $4,003					37,592			59,471
	Lease receivables					25,292			25,859
	Inventories					6,197			12,614
	Costs and estimated earnings in excess of billings of $4,583 and $14,986					8,231			15,252
	Prepaid expenses, deposits and other					5,594			10,698
	Net current assets of discontinued operations					320			10,114
				Total Current Assets		85,660			134,008
	Property and equipment					96,146			89,122
	Less — accumulated depreciation and amortization					(66,492	)		(52,486	)
			Net Property and Equipment			29,654			36,636
OTHER ASSETS
	Goodwill, net of accumulated amortization of $6,380 and $5,926					3,896			4,462
	Lease receivables, net of current portion					30,635			41,874
	Deferred income taxes					12,039			11,276
	Net non-current assets of discontinued operations					7,549			7,181
	Other					406			1,469
			Total Other Assets			54,525			66,262
TOTAL ASSETS					$	169,839		$	236,906
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
	Current maturities of long-term debt				$	21,015		$	1,049
	Current maturities of discounted lease rentals					13,242			20,550
	Accounts payable					31,219			31,718
	Deferred revenue					22,105			20,454
	Accrued liabilities:
			Salaries and wages			5,669			5,848
			Warranty costs			2,042			1,790
			Other liabilities			6,434			5,831
	Billings in excess of costs and estimated earnings of $11,812 and $20,624					8,276			15,635
				Total Current Liabilities		110,002			102,875
LONG-TERM DEBT, net of current maturities						38,200			67,257
DISCOUNTED LEASE RENTALS, net of current maturities						13,552			24,285
COMMITMENTS AND CONTINGENCIES (Note 12)
SHAREHOLDERS’ EQUITY
		Common stock — $.10 par value; 40,000,000 authorized shares; 12,220,907 and 11,239,113 shares issued and outstanding				1,222			1,124
	Capital in excess of par value					55,298			53,520
	Accumulated deficit					(44,952	)		(8,682	)
	Unamortized cost of stock					(1,438	)		(1,707	)
	Accumulated other comprehensive income (loss)					(2,045	)		(1,766	)
				Total Shareholders’ Equity		8,085			42,489
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY					$	169,839		$	236,906

The accompanying notes are an integral part of these consolidated balance sheets.

22

NORSTAN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In Thousands)

					Common Stock							Retained						Accumulated
									Capital in			Earnings/			Unamortized			Other
		Comprehensive			Shares				Excess of			(Accumulated			Cost of			Comprehensive
		Income (Loss)			Outstanding		Amount		Par Value			Deficit)			Stock			Income (Loss)			Total
Balance, April 30, 1998						9,964	$	996	$	44,741		$	54,048		$	(641	)	$	(1,473	)	$	97,671
Net income		$	5,890			—		—		—			5,890			—			—			5,890
Stock issued for employee benefit plans						379		38		6,291			—			(1,164	)		—			5,165
Related income tax benefit						—		—		316			—			—			—			316
Stock issued for acquisition						421		42		72			326			—			—			440
Foreign currency translation adjustments			(147	)		—		—		—			—			—			(147	)		(147	)
	Comprehensive income	$	5,743
Balance, April 30, 1999						10,764	$	1,076	$	51,420		$	60,264		$	(1,805	)	$	(1,620	)	$	109,335
Net loss		$	(68,949	)		—		—		—			(68,949	)		—			—			(68,949	)
Stock issued for employee benefit plans						475		48		1,945			3			98			—			2,094
Related income tax benefit						—		—		155			—			—			—			155
Foreign currency translation adjustments			(146	)		—		—		—			—			—			(146	)		(146	)
	Comprehensive loss	$	(69,095	)
Balance, April 30, 2000						11,239	$	1,124	$	53,520		$	(8,682	)	$	(1,707	)	$	(1,766	)	$	42,489
Net loss		$	(36,270	)		—		—		—			(36,270	)		—			—			(36,270	)
Stock issued for employee benefit plans						982		98		1,574			—			269			—			1,941
Related income tax cost						—		—		(119	)		—			—			—			(119	)
Issuance of stock warrants						—		—		323			—			—			—			323
Foreign currency translation adjustments			(279	)		—		—		—			—			—			(279	)		(279	)
	Comprehensive loss	$	(36,549	)
Balance, April 30, 2001						12,221	$	1,222	$	55,298		$	(44,952	)	$	(1,438	)	$	(2,045	)	$	8,085

The accompanying notes are an integral part of these consolidated financial statements.

23

NORSTAN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)

				Years Ended April 30,
				2001			2000			1999
OPERATING ACTIVITIES
	Net income (loss) from continuing operations			$	(20,343	)	$	(22,234	)	$	3,657
	Adjustments to reconcile net income (loss) from continuing operations to net cash provided by continuing operating activities:
			Restructuring charges		1,183			—			1,419
			Restructuring costs paid		(502	)		(2,029	)		(4,006	)
			Depreciation and amortization		15,806			18,577			12,528
			Deferred income taxes		—			(10,093	)		3,036
			Changes in operating items, net of acquisition effects:
			Accounts receivable		21,124			10,638			13,907
			Inventories		6,366			3,936			(6,503	)
			Costs and estimated earnings in excess of billings		6,885			9,076			(5,272	)
			Prepaid expenses, deposits and other		873			(773	)		(4,018	)
			Accounts payable		255			5,456			3,771
			Deferred revenue		1,756			(16	)		375
			Accrued liabilities		2,820			3,238			(10,862	)
			Income taxes payable/receivable		3,514			1,298			(64	)
			Billings in excess of costs and estimated earnings		(7,269	)		6,739			(515	)
			Net cash provided by continuing operating activities		32,468			23,813			7,453
INVESTING ACTIVITIES
	Additions to property and equipment, net				(7,754	)		(10,097	)		(22,189	)
	Investment in lease contracts				(26,387	)		(32,462	)		(35,569	)
	Proceeds from lease contracts				37,878			27,707			26,234
	Other, net				1,426			(434	)		(2,989	)
			Net cash provided by (used for) investing activities		5,163			(15,286	)		(34,513	)
FINANCING ACTIVITIES
	Borrowings on long-term debt				246,716			252,860			282,380
	Repayments of long-term debt				(255,743	)		(248,412	)		(273,646	)
	Borrowings on discounted lease rentals				3,951			12,190			36,773
	Repayments of discounted lease rentals				(21,883	)		(21,493	)		(18,249	)
	Proceeds from sale of common stock				1,672			1,993			6,329
			Net cash (used for) provided by financing activities		(25,287	)		(2,862	)		33,587
EFFECT OF EXCHANGE RATE CHANGES ON CASH					33			8			(5	)
NET INCREASE (DECREASE) IN CASH FROM
CONTINUING OPERATIONS					12,377			5,673			6,522
NET CASH FLOW FROM
		DISCONTINUED OPERATIONS			(9,943	)		(5,921	)		(7,917	)
CASH, BEGINNING OF YEAR					—			248			1,643
CASH, END OF YEAR				$	2,434		$	—		$	248

The accompanying notes are an integral part of these consolidated financial statements.

24

NORSTAN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 — Nature of Business:

      Norstan, Inc. (“Norstan” or the “Company”) is a full-service telecommunications solutions company that delivers voice and data technologies and services, and remanufactured equipment to select corporate end-users and channel partners. Norstan also offers a full range of technologies for call center design, messaging, infrastructure, conferencing, and mobility. Norstan manages the operations of its subsidiaries, Norstan Communications, Inc. (“NCI”), Norstan Canada, Ltd. (“NCDA”), Norstan Financial Services, Inc. (“NFS”), Norstan Network Services, Inc. (“NNS”), Norstan International, Inc. (“NII”), and Norstan-UK Limited (“NUK”). The Company is headquartered in Minneapolis, Minnesota, with sales and service offices in 30 locations in the United States and Canada.

      During the fiscal years ended April 30, 2001 and 2000, the Company incurred significant net losses. Additionally, the Company has a working capital deficit of $24,342 at April 30, 2001. The Company has taken numerous actions in efforts to conserve cash including the disposition of its unprofitable Consulting operations (see Note 2) and reducing costs in its continuing businesses. Furthermore, the Company has entered into a new banking agreement effective June 29, 2001 (see Note 7). Management believes that these measures will provide sufficient operational improvements and liquidity to allow the Company to meet its cash flow needs through at least April 30, 2002. However, there can be no assurance that the Company will be successful in achieving these goals.

Note 2 — Discontinued Operations

      During fiscal 2001, the Company divested its IT consulting business in order to focus on its core competencies of providing communications technology services and solutions to channel partners and direct enterprise customers. In addition to refocusing the Company’s strategy, lack of realized synergies between the Company’s communications and IT consulting businesses and recurring losses within the consulting business contributed to the decision to divest of this non-strategic business segment.

      Divestiture of the IT consulting business began on February 7, 2001 with the sale of the Company’s 75% interest in Connaissance Consulting to Connaissance’s founder for up to $16.0 million. Terms of the sale required the payment of $3.0 million in cash at closing and delivery of promissory notes drawn in favor of the Company with an aggregate face amount of $13.0 million maturing on various dates, commencing on April 30, 2001 and ending December 31, 2005.

      The divestiture concluded with the sale of Norstan Consulting on April 30, 2001 to a management group led by Norstan Consulting’s former President and the Company’s former Vice Chairman. Terms of the sale required the payment of $500,000 in cash at closing and delivery of a promissory note drawn in favor of the Company in the face amount of $1.5 million maturing on August 28, 2001. In addition, as part of the transaction, the Company retained its rights to certain assets and assumed certain liabilities of Norstan Consulting.

      The results of these two business units have historically been reported as the Company’s “Consulting” business segment. With these sales, Consulting’s results are reported as discontinued operations at April 30, 2001, and the consolidated financial statements have been restated to report separately the net assets and operating results of the discontinued businesses for all periods presented.

      Net assets of discontinued operations include the following (in thousands):

			As of April 30,
			2001			2000
Assets:
	Cash, accounts receivable and inventories		$	500		$	14,849
	Net property and equipment			—			5,547
	Notes receivable, prepaids and other assets			10,809			4,553
Liabilities:
	Accounts payable			(652	)		(744	)
	Accrued -
		Salaries & wages		(1,367	)		(2,484	)
		Future lease obligations		(1,000	)		—
		Other liabilities		(421	)		(4,426	)
Net assets of discontinued operations				7,869			17,295
Less: Current portion				(320	)		(10,114	)
			$	7,549		$	7,181

25

Summary operating results of the discontinued operations are as follows (in thousands):

	Years Ended April 30,
	2001			2000			1999
Revenues	$	39,410		$	87,304		$	115,339
Cost of sales		31,558			65,826			75,149
Gross margin		7,852			21,478			40,190
Selling, general and administrative expenses		19,667			41,388			36,101
Restructuring charges		—			1,969			103
Writedown of goodwill		—			32,244			—
Operating income (loss)		(11,815	)		(54,123	)		3,986
Other income (expense), net		(74	)		677			(33	)
Net income (loss) before taxes		(11,889	)		(53,446	)		3,953
Income tax provision (benefit)		—			(6,731	)		1,720
Net income (loss) from discontinued operations	$	(11,889	)	$	(46,715	)	$	2,233

Note 3 — Summary of Significant Accounting Policies:

Principles of Consolidation:

      The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates:

      The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements. Estimates also affect the reported amounts of revenues and expenses during the periods presented. Estimates are used for such items as allowances for doubtful accounts, inventory reserves, depreciable lives of property and equipment, warranty reserves and others. Ultimate results could differ from those estimates.

Revenue Recognition:

      Within the Communications Technologies segment, Solutions’ revenues from the sale and installation of products and systems are recognized under the percentage-of-completion method of accounting for long-term contracts and Services’ revenues from maintenance service contracts, moves, adds, and changes, and network integration services, are recognized as the services are provided. Resale revenues generated from the secondary equipment market are recognized upon performance of contractual obligations, which is generally upon installation or shipment. Revenues from Network Services generated from the resale of long distance services are recognized as services are provided. Financial Services’ revenues are recognized over the life of the related lease receivables using the effective interest method. In addition, Norstan grants credit to customers and generally does not require collateral or any other security to support amounts due, other than equipment originally leased.

Fair Value of Financial Instruments:

      Fair values of financial instruments, including long-term obligations, lease receivables and trade receivables, approximated their carrying values at April 30, 2001 and 2000.

Inventories:

      Inventories include purchased parts and equipment and are stated at the lower of cost, determined on a first-in, first-out basis, or realizable market value.

26

NORSTAN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Property and Equipment:

      Property and equipment are stated at cost and include expenditures that increase the useful lives of existing property and equipment. Maintenance, repairs and minor renewals are charged to operations as incurred. Generally, when property and equipment are disposed of, the related cost and accumulated depreciation are removed from the respective accounts and any gain or loss is reflected in operations. Property and equipment is depreciated over the estimated useful lives of two to ten years under the straight-line method for financial reporting purposes. Accelerated methods of depreciation are used for income tax reporting.

      Pursuant to the requirements of Statement of Financial Accounting Standards No. 121 (“SFAS No. 121”), “Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of,” in determining whether an impairment has occurred, the Company’s policy is to evaluate, at each balance sheet date, whether events and circumstances have taken place to indicate that the book value of the assets may not be recoverable. If such indicators were present, impairment would be assessed using estimates of undiscounted cash flows attributable to the assets. In the event such cash flows are not expected to be sufficient to recover the book values of the assets, the assets would be written down to their estimated fair values. There were no such writedowns in fiscal 2001, 2000 or 1999.

Goodwill:

      Goodwill is being amortized on a straight-line basis over 15-20 years. Pursuant to the requirements of SFAS No. 121 and Accounting Principles Board Opinion No. 17 (“APB No. 17”), “Intangible Assets”, in determining whether an impairment has occurred, the Company’s policy is to evaluate, at each balance sheet date, whether events and circumstances have taken place to indicate that the remaining book value of the goodwill may not be recoverable. If such indicators were present, impairment would be assessed under SFAS No. 121 using estimates of undiscounted cash flows attributable to the assets. In the event such cash flows are not expected to be sufficient to recover the book values of the assets, the assets would be written down to their estimated fair values. After this assessment, any remaining goodwill would be subject to a recoverability analysis at the enterprise level under APB No. 17, based on estimated fair values determined using discounted cash flows or other valuation techniques. See Note 5 for discussion regarding the fiscal year 2000 writedown of goodwill related to the Consulting operations.

Foreign Currency:

      For the Company’s foreign operations, assets and liabilities are translated at year-end exchange rates, and revenues and expenses are translated at average exchange rates prevailing during the year. Translation adjustments are recorded as a separate component of shareholders’ equity.

Income Taxes:

      Deferred income taxes are provided for differences between the financial reporting basis and tax basis of the Company’s assets and liabilities at currently enacted tax rates.

27

NORSTAN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Earnings Per Share Data:

      The Company reports net income (loss) per share pursuant to the requirements of the Statement of Financial Accounting Standards No. 128 “Earnings per Share” (“SFAS No. 128”). SFAS No. 128 requires presentation of basic and diluted earnings (loss) per share (EPS). Basic EPS is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted EPS reflects potential dilution from outstanding stock options and other securities using the treasury stock method.

      A reconciliation of EPS calculations under SFAS No. 128 is as follows (in thousands, except per share amounts):

		Years Ended April 30,
		2001			2000			1999
Net income (loss)		$	(36,270	)	$	(68,949	)	$	5,890
Weighted average common shares outstanding — Basic			11,373			10,818			10,473
Dilutive effect of stock option plans			—			—			64
Weighted average common shares outstanding — Diluted			11,373			10,818			10,537
Net income (loss) per share:
	Basic	$	(3.19	)	$	(6.37	)	$	0.56
	Diluted	$	(3.19	)	$	(6.37	)	$	0.56

      For the fiscal years ended April 30, 2001 and 2000, approximately 55,000 and 61,000 in-the-money dilutive common shares have been excluded from the computation of diluted earnings per share, as required under SFAS No. 128, as the effect of their inclusion would be anti-dilutive.

Comprehensive Income:

      The Company reports comprehensive income and its components pursuant to the requirements of SFAS No. 130, “Reporting Comprehensive Income”. This statement establishes standards for the reporting of comprehensive income and its components. For the Company, comprehensive income consists of net income (loss) adjusted for foreign currency translation adjustments and is presented in the Consolidated Statements of Shareholders’ Equity.

Supplemental Cash Flow Information:

      Supplemental disclosure of cash flow information is as follows (in thousands):

		Years Ended April 30,
		2001		2000		1999
Cash paid for:
	Interest	$	11,576	$	8,073	$	7,910
	Income taxes	$	149	$	1,483	$	1,641
Non-cash investing and financing activities:
	Stock issued for acquisitions	$	—	$	—	$	114

28

NORSTAN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Recently Issued Accounting Standards:

      Statement of Financial Accounting Standards No. 133 (SFAS No. 133), “Accounting for Derivative Instruments and Hedging Activities”, was issued in June 1998 and amended by SFAS No. 137, “Accounting for Derivative Instruments and Hedging Activities – Deferral of the Effective Date of SFAS No. 133” to require adoption at the beginning of the Company’s fiscal year ending April 30, 2002. The standard requires every derivative to be recorded on the balance sheet as either an asset or liability measured at fair value with changes in the derivative’s fair value recognized in earnings unless specific hedge accounting criteria are met. The adoption of SFAS No. 133 on May 1, 2001 did not have a material effect on the Company’s financial position or results of operations.

      In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, “Revenue Recognition” (SAB No. 101), which provides guidance on the recognition, presentation and disclosure of revenue in financial statements. SAB No. 101 is effective for the Company’s fiscal quarter ending April 30, 2001. The adoption of SAB No. 101 did not have a material effect on the Company’s financial position or results of operations.

      On June 29, 2001, the Financial Accounting Standards Board approved two new statements, SFAS No. 141, “Business Combinations,” (“SFAS No. 141”) and SFAS No. 142 “Goodwill and Other Intangible Assets” (“SFAS No. 142”). Under SFAS No. 141, all business combinations will be accounted for under the purchase method beginning June 30, 2001. SFAS No. 142 includes requirements to test goodwill for impairment using a fair value approach, rather than amortizing each period. As a result, amortization of goodwill, including goodwill recorded in past business combinations, will cease upon adoption of this standard. As permitted by SFAS No. 142, the Company will early adopt this standard in the first quarter of its fiscal year ending April 30, 2002. The Company’s current annual goodwill amortization is approximately $450,000, which will cease effective May 1, 2001 under the new rules. The Company is currently evaluating the impairment testing provisions of SFAS No. 142, and has not yet determined the impact on its consolidated financial position and results of operations.

Note 4 — Acquisitions:

      On June 4, 1996, the Company acquired Connect Computer Company (Connect) in a transaction accounted for under the purchase method. Connect was a provider of consulting, design and implementation services for local and wide area networks, Internets and intranets, client/server applications and workgroup computing. The acquisition consideration totaled approximately $15.0 million, consisting of $12.0 million in cash, $2.0 million of Norstan common stock and $1.0 million payable to certain members of Connect management under non-compete agreements. In addition, the Company paid $4.0 million in contingent consideration over a three-year period ending April 30, 1999. This transaction resulted in the recording of $18.4 million in goodwill and other intangible assets (see Note 5).

      On September 30, 1997, the Company acquired PRIMA Consulting (PRIMA) in a transaction accounted for under the purchase method. PRIMA provided IT consulting services, including information systems planning and development, consulting and programming services for collaborative computing solutions and ERP integration services. The acquisition consideration totaled approximately $27.5 million, consisting of $19.5 million in cash, $6.3 million of Norstan common stock and $1.7 million paid to certain members of PRIMA management under non-compete agreements. This transaction resulted in the recording of $24.9 million in goodwill and other intangible assets (see Note 5).

      On June 19, 1998, the Company acquired Wordlink, Inc. (Wordlink) in a transaction accounted for under the pooling-of-interests method. Wordlink delivered network integration, groupware messaging, Internet/intranet/e-commerce and education solutions to business clients operating in a multi-vendor network environment. The merger agreement called for all shares of Wordlink common stock and all vested stock options issued and outstanding to be converted into 420,539 shares of Norstan common stock valued at approximately $10.3 million. All outstanding Wordlink unvested stock options were converted into the equivalent value of Norstan stock options. Wordlink’s shareholders’ equity and operating results were not material in relation to the Company’s financial statements. As such, the Company recorded the combination without restating prior periods’ financial statements.

      The results of operations for Connect, PRIMA and Wordlink have historically been included in the Company’s Consulting business segment. As of April 30, 2001, and for all periods presented, the results of operations and net assets for this segment have been reported separately as discontinued operations.

29

NORSTAN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 5 — Restructuring Charges and Goodwill Writedown:

Restructuring Charges:

      During the fourth quarter of fiscal year 2001, the Company recorded a restructuring charge of approximately $1.2 million relating to a workforce reduction and closure of certain facilities. This charge included the costs of severance ($683,000) and lease terminations and other facility costs ($500,000) related to non-strategic businesses including Network Services and Financial Services and for continued cost reductions in the Communications Technology businesses.

      During the second quarter of fiscal year 2000, the Company recorded a restructuring charge of approximately $2.0 million related to its IT consulting business. The charge consisted of noncancelable lease obligations for branch offices which were closed ($1.0 million), software and other asset write-offs ($800,000), and severance costs ($200,000).

      During fiscal year 1999, the Company recorded a restructuring charge of $1.5 million relating to a workforce reduction. This resource reduction, primarily in the communications business, was made to bring the Company’s expense structure in line with anticipated growth. The restructuring charge related to the costs of severance and other employment termination benefits.

      During fiscal years 2001, 2000 and 1999, payments totaling $500,000, $2.0 million and $4.5 million, respectively, were charged against the restructuring reserves which were established as part of the above-described restructuring charges. At April 30, 2001, a reserve of approximately $1.3 million remained for future payments to be made related to the most recent restructuring charges.

Goodwill Writedown:

      In the fourth quarter of fiscal 2000, the Company recorded a charge of $32.2 million, or $2.38 per diluted share, for the write-down of goodwill related to the 1996 purchase of Connect Computer Company and the 1997 purchase of PRIMA Consulting. Yearly amortization of such goodwill was approximately $2.7 million.

      This writedown resulted from management’s consideration of factors related to the recent performance of the Consulting segment, including operating losses and negative cash flows. Based on these considerations, the Company updated its operating and cash flow projections for the Consulting business. An analysis of the projected undiscounted future cash flows indicated that future recoverability of goodwill related to the Consulting operations was uncertain. Accordingly, an impairment charge was recorded.

      As discussed in Note 2, the Company divested its Consulting business as of April 30, 2001. The writedown of goodwill and related amortization is included in discontinued operations.

30

NORSTAN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 6 — Lease Receivables:

      The Company financed customer equipment purchases in the amounts of $26.4 million, $32.5 million, and $35.6 million during the fiscal years ended April 30, 2001, 2000 and 1999, respectively. Leases are primarily accounted for as sales-type leases for financial reporting purposes.

      The components of lease receivables outstanding are summarized as follows (in thousands):

		As of April 30,
		2001			2000
Gross lease receivables		$	60,340		$	75,794
Residual values			7,971			9,202
Less:
	Unearned income		(10,536	)		(15,852	)
	Allowance for financing losses		(1,848	)		(1,411	)
Total lease receivables — net			55,927			67,733
Less — current maturities			(25,292	)		(25,859	)
Long-term lease receivables		$	30,635		$	41,874

      The aggregate amount of gross lease receivables maturing in each of the five years following April 30, 2001 is as follows (in thousands):

Years Ending April 30,	Amount
2002	$	28,295
2003		16,886
2004		8,591
2005		4,979
2006 and thereafter		1,589
	$	60,340

Note 7 — Debt Obligations:

Long-Term Debt:

      Long-term debt consists of the following (in thousands):

		As of April 30,
		2001			2000
Bank financing:
	Revolving credit facility	$	16,745		$	3,400
	Term loans		38,455			—
	Certificates of deposit and commercial paper		—			63,400
	Capital lease obligations and other long-term debt		4,015			1,506
Total long-term debt			59,215			68,306
Less — current maturities			(21,015	)		(1,049	)
		$	38,200		$	67,257

31

NORSTAN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Bank Financing:

      As of April 30, 2001, the Company had a $78.0 million credit agreement with certain banks. In December 2000, the Company entered into a restructured credit facility with the banks which consisted of the following components; A) $15.0 million term loan, B) $15.0 million term loan, C) $18.0 million term loan, and D) up to $30.0 million revolving line of credit based on the Company’s level of receivables and inventory. All components of this facility were to mature no later than June 29, 2001. The term loans bore interest at the banks’ reference rate plus 3.5% to 4.5% (11.0% to 12.0% at April 30, 2001) and the revolving facility bore interest at the banks’ reference rate plus 2.5% (10.0% at April 30, 2001). Certain portions of the borrowings under this facility have been classified as long-term as of April 30, 2001 as a result of the credit facility restructuring discussed below.

      On June 29, 2001, the Company entered into an agreement with the banks restructuring its existing senior debt facility. The new credit facility consists of the following components; A) $20.0 million term loan (“Term Loan A”) with various monthly principal payments due beginning on August 31, 2001 and maturing on June 28, 2002, B) $15.4 million term loan (“Term Loan B”) with various principal payments due beginning on July 31, 2002, or earlier if Term Loan A is paid off early, and maturing on December 31, 2002, and C) up to a $30.0 million revolving line of credit based on the Company’s level of receivables and inventory. The revolving facility and Term Loan A bear interest at the banks’ reference rate plus 2.5%, while Term Loan B bears interest at the banks’ reference rate plus 4.0%.

      Annual commitment fees on the unused portions of the credit facility are 0.25%. Under the terms and conditions of the credit agreement, the Company is required to maintain minimum levels of EBITDA and achieve certain other financial ratios. The Company was out of compliance with certain of these requirements as of April 30, 2001. However, these matters were remedied as a result of the above mentioned restructuring.

      Under the terms of the December 2000 and June 2001 restructured credit agreements, the banks are entitled to warrants to purchase shares of the Company’s common stock. As of April 30, 2001, 389,545 warrants had been issued to the banks at various prices between $0.94 and $1.13 per share. These warrants were recorded at their estimated fair value at the date of issuance, with the resulting costs (approximately $323,000) charged to expense over the term of the related agreements. In addition, on June 29, 2001, 100,000 warrants were issued at $2.80 per share.

      The Company has implemented a restructuring plan developed with its investment advisor to address the Company’s future liquidity and capital resource requirements. Management of the Company believes that a combination of A) cash expected to be generated from operations, B) borrowing capacity available under the financing arrangements discussed above, C) other debt facilities, D) issuance of debt or equity securities, E) lease financing, and F) cash to be generated from the sale or divestiture of certain assets of the Company, will be adequate to meet the anticipated liquidity and capital resource requirements of its business through at least April 30, 2002. However, there can be no assurance that these plans will be successful.

Note 8 — Discounted Lease Rentals:

      NFS and NCDA utilize their lease receivables and corresponding underlying equipment to borrow funds from financial institutions at fixed rates on a nonrecourse basis by discounting the stream of future lease payments. Proceeds from discounting are recorded on the consolidated balance sheet as discounted lease rentals. Interest rates on these credit agreements range from 6% to 10% and payments are generally due in varying monthly installments through November 2005.

      Discounted lease rentals consisted of the following (in thousands):

	As of April 30,
	2001			2000
Total discounted lease rentals	$	26,794		$	44,835
Less — current maturities		(13,242	)		(20,550	)
	$	13,552		$	24,285

32

NORSTAN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Aggregate maturities of discounted lease rentals as of April 30, 2001 are as follows (in thousands):

Years Ending April 30,	Amount
2002	$	13,242
2003		7,245
2004		3,729
2005		2,167
2006 and thereafter		411
	$	26,794

Note 9 — Income Taxes:

      The domestic and foreign components of income (loss) from continuing operations before the provision (benefit) for income taxes are as follows (in thousands):

	Years Ended April 30,
	2001			2000			1999
Domestic	$	(18,637	)	$	(27,866	)	$	6,896
Foreign		(1,706	)		(4,713	)		(424	)
	$	(20,343	)	$	(32,579	)	$	6,472

      The provision (benefit) for income taxes consisted of the following (in thousands):

		Years Ended April 30,
		2001		2000			1999
Current
	Domestic	$	—	$	(254	)	$	2,865
	Foreign		—		—			(1,200	)
					(254	)		1,665
Deferred
	Domestic		—		(16,020	)		2,201
	Foreign		—		(802	)		670
			—		(16,822	)		2,871
Provision (benefit) for income taxes		$	—	$	(17,076	)	$	4,536

      The differences between the effective tax rate and income taxes computed using the federal statutory rate were as follows:

	Years Ended April 30,
	2001			2000			1999
Federal statutory rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal tax benefit		5.0			5.0			5.0
Goodwill and other, net		—			(20.0	)		3.5
Valuation allowance		(40.0	)		—			—
		0.0	%		20.0	%		43.5	%

      The tax effects of significant temporary differences representing deferred tax assets and liabilities are as follows as of April 30 (in thousands):

		2001			2000
Accelerated depreciation		$	(55,540	)	$	(49,501	)
Capital and operating leases			48,790			41,282
Reserves and allowances			5,992			5,023
Net operating loss carryforwards			22,077			11,042
Valuation allowance			(11,302	)		—
Other, net			2,022			3,430
	Net deferred taxes	$	12,039		$	11,276

33

NORSTAN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Realization of the net deferred tax asset is dependent on the Company’s ability to generate sufficient future taxable income. Although realization is not assured, the Company believes that it is more likely than not that the recorded asset will be realized. Should the Company’s operating strategies fail to produce sufficient taxable income in the future, the Company would record an additional valuation allowance in the appropriate future reporting period, as required by generally accepted accounting principles.

Note 10 — Stock Options and Stock Plans:

      The 1986 Long-Term Incentive Plan of Norstan, Inc. (“1986 Plan”) provided for the granting of non-qualified stock options, incentive stock options and restricted stock. The 1986 Plan, as amended in fiscal year 1994, provided for a maximum of 1,600,000 shares to be granted to key employees in the form of stock options or restricted stock. As of September 20, 1995, with the adoption of a successor plan, no additional grants will be issued under the 1986 Plan.

      The Norstan, Inc. 1995 Long-Term Incentive Plan (“1995 Plan”) permits the granting of non-qualified stock options, incentive stock options, stock appreciation rights and restricted stock, providing for a maximum of 2,900,000 shares to be granted as performance awards and other stock-based awards. Stock options are granted at a price equal to the market price on the date of grant, are generally exercisable at 33% per year and expire after ten years. At April 30, 2001, 386,708 shares were available for future grants.

      The Restated Non-Employee Directors’ Stock Plan (“Directors’ Plan”) provides for a maximum of 400,000 shares to be granted. As determined by the Board of Directors, options for 20,000 shares are to be granted to each non-employee director of the Company upon election and are generally exercisable over 4 years. Additional discretionary stock options may be awarded upon board approval and are generally exercisable immediately. All options are granted at a price equal to the market price on the date of grant and expire after ten years. In addition, the Directors’ Plan provides for the payment of an annual retainer to each non-employee director on the date of each annual meeting of shareholders. As of April 30, 2001, 43,510 shares had been issued as annual retainers and 33,990 shares were available for future grant/payment under the Directors’ Plan.

      Shares subject to option are summarized as follows:

		1995 Plan					1986 Plan					Directors' Plan
					Weighted					Weighted				Weighted
		Stock			Average		Stock			Average		Stock		Average
		Options			Exercise Price		Options			Exercise Price		Options		Exercise Price
Balance — April 30, 1998			837,300		$	17.06		120,200		$	10.92		65,500	$	13.96
	Options granted		854,043		$	20.57		—			—		5,000	$	18.31
	Options canceled		(435,966	)	$	18.97		(33,160	)	$	11.38		—		—
	Options exercised		(36,600	)	$	14.95		(32,240	)	$	10.88		—		—
Balance — April 30, 1999			1,218,777		$	18.91		54,800		$	10.66		70,500	$	14.27
	Options granted		1,198,400		$	7.94		—			—		24,000	$	8.10
	Options canceled		(1,045,217	)	$	14.97		(6,000	)	$	6.88		—		—
	Options exercised		(2,300	)	$	5.62		(4,800	)	$	4.25		—		—
Balance — April 30, 2000			1,369,660		$	12.34		44,000		$	11.88		94,500	$	12.70
	Options granted		1,191,950		$	2.04		—			—		100,000	$	3.86
	Options canceled		(637,585	)	$	9.12		(4,000	)	$	11.88		—		—
	Options exercised		(1,150	)	$	1.11		—			—		—		—
Balance — April 30, 2001			1,922,875		$	7.04		40,000		$	11.88		194,500	$	8.15
Options exercisable at:
	April 30, 1999		147,070		$	16.75		26,400		$	11.19		51,833	$	12.76
	April 30, 2000		332,668		$	14.35		34,000		$	11.88		82,500	$	11.63
	April 30, 2001		852,034		$	7.97		40,000		$	11.88		154,500	$	8.14

34

NORSTAN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Additional information regarding options outstanding/exercisable at April 30, 2001 is as follows:

	Number of				Weighted		Weighted Average		Number of		Weighted
	Options		Exercise		Average		Remaining		Options		Average
	Outstanding		Price Range		Exercise Price		Contractual Life		Exercisable		Exercise Price
1995 Plan		650,200		$1.11 - $1.95	$	1.13		9.88 years		336,450	$	1.11
		420,800		$2.03 - $5.62	$	3.80		9.27 years		112,350	$	4.66
		470,000		$5.73 - $15.00	$	7.73		8.09 years		194,280	$	9.07
		381,875		$15.47 - $28.25	$	19.84		6.86 years		208,954	$	19.77
		1,922,875		$1.11 - $28.25	$	7.04		8.71 years		852,034	$	7.97
1986 Plan		40,000		$11.88	$	11.88		4.11 years		40,000	$	11.88
Directors’ Plan		60,000		$1.11 - $4.77	$	2.94		9.64 years		60,000	$	2.94
		72,000		$5.09 - $7.63	$	6.23		6.98 years		40,000	$	7.02
		62,500		$9.00 - $20.06	$	15.38		6.22 years		54,500	$	14.69
		194,500		$1.11 - $20.06	$	8.15		7.56 years		154,500	$	8.14

      The Company has awarded restricted stock grants to selected employees under the 1986 Plan and the 1995 Plan. Recipients of restricted stock awards under these plans were not required to make any payments for the stock or provide consideration other than the rendering of services. Shares of stock awarded under the plans are subject to certain restrictions on transfer and all or part of the shares awarded to an employee may be subject to forfeiture upon the occurrence of certain events, including termination of employment. Through April 30, 2001, 140,706 shares and 899,716 shares have been awarded under the 1986 Plan and the 1995 Plan, respectively. The fair market value of the shares granted under these plans is generally amortized over a three-year period. Amortization of $669,000, $104,500, and $544,200 has been charged to operations in 2001, 2000 and 1999, respectively.

      The Company also had an Employee Stock Purchase Plan (the “1990 Employee Stock Plan”) that allowed employees to set aside up to 10% of their earnings for the purchase of shares of the Company’s common stock. The 1990 Employee Stock Plan was amended effective July 1998 to allow shares to be purchased quarterly rather than annually at a price equal to 85% of the low market price on the last day of the quarter rather than the last day of the calendar year. As of January 1, 2000, with the adoption of a successor plan, no additional shares will be issued under the 1990 Employee Stock Plan.

      The Company has an Employee Stock Purchase Plan (the “2000 Employee Stock Plan”) that allows employees to set aside up to 10% of their earnings for the purchase of shares of the Company’s common stock. Effective January 1, 2000, the 2000 Employee Stock Plan allows for quarterly share purchases at a price equal to the lesser of the closing market price of the Company’s stock on the first or last day of each calendar quarter. During fiscal 2001, 722,168 shares were issued under this plan and at April 30, 2001, 6,202 shares were available for future issuance. This plan was suspended as of April 1, 2001 due to lack of available shares. The Company intends for the plan to be reinstated as of October 1, 2001 contingent upon shareholder approval of additional shares being made available for the 2000 Employee Stock Plan.

35

NORSTAN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The Company applies APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for its stock option plans. Accordingly, no compensation cost has been recognized in the accompanying statements of operations. Had compensation cost been recognized based on the fair values of options at the grant dates consistent with the provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” the Company’s net income (loss) (in thousands) and net income (loss) per common share would have decreased to the following pro forma amounts:

			Years Ended April 30,
			2001			2000			1999
Net income (loss):
	As reported		$	(36,270	)	$	(68,949	)	$	5,890
	Pro forma		$	(38,014	)	$	(69,444	)	$	3,050
Net income (loss) per common share:
	As reported
		Basic	$	(3.19	)	$	(6.37	)	$	0.56
		Diluted	$	(3.19	)	$	(6.37	)	$	0.56
	Pro forma
		Basic	$	(3.34	)	$	(6.42	)	$	0.29
		Diluted	$	(3.34	)	$	(6.42	)	$	0.29

      Because the SFAS No. 123 method of accounting has not been applied to options granted prior to May 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years.

      The weighted average fair values of options granted and Employee Stock Plan shares were as follows:

					Directors'		Employee
	1995 Plan		1986 Plan		Plan		Stock Plan
Fiscal 1999 grants	$	9.36		N/A	$	7.54	$	4.32
Fiscal 2000 grants	$	3.77		N/A	$	3.91	$	2.69
Fiscal 2001 grants	$	2.04		N/A	$	3.86	$	1.63

      The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the weighted-average assumptions used for grants in each fiscal year as follows:

	Years Ended April 30,
	2001			2000			1999
Risk-free interest rate		5.29	%		5.87	%		5.00	%
Expected life of options		7 years			7 years			7 years
Expected life of Employee Stock Plan shares		1 year			1 year			1 year
Expected volatility		66	%		44	%		37	%
Expected dividend yield		N/A			N/A			N/A

Note 11 — 401(k) Plans:

      The Company has 401(k) profit-sharing plans (the “401(k) Plans”) covering substantially all full-time employees. Eligible employees may elect to defer up to 15% of their eligible compensation. The Company may make discretionary matching contributions on a portion of this deferral and/or qualified nonelective contributions to employee accounts. Company contributions to the 401(k) Plans were $2,208,000, $2,771,000, and $3,582,000 for the years ended April 30, 2001, 2000 and 1999, respectively.

Note 12 — Commitments and Contingencies:

Legal Proceedings:

      The Company is involved in legal actions in the ordinary course of its business. Although the outcomes of any such legal actions cannot be predicted, in the opinion of management there is no legal proceeding pending against or involving the Company for which the outcome is likely to have a material adverse effect upon the consolidated financial position or results of operations of the Company.

36

NORSTAN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The Company is pursuing various claims before the American Arbitration Association against the former owner of PRIMA Consulting (“PRIMA”) and certain former employees of PRIMA, which claims arise out of the Company’s September 1997 acquisition of PRIMA. The Company alleges that the respondents breached various covenants contained in agreements entered into in connection with the purchase transaction, aided and abetted tortious interference with those contracts and misappropriated trade secrets resulting in a substantial deterioration in the value of the acquired business. The Company further alleges an alternative claim of fraud in the inducement based on the former owner’s voiding of non-competes prior to Norstan’s acquisition of PRIMA. In addition, the Company has asserted claims in North Carolina federal district court against the new company established by the former owner of PRIMA, for tortious interference with contracts and misappropriation of trade secrets.

      The Company is seeking to recover compensatory damages of approximately $22.5 million, together with punitive damages. Although management believes the Company’s claims are meritorious, there can be no assurance that the Company will prevail in the arbitration proceeding, or in the event that the Company does prevail in the arbitration proceeding, the amount of any damages that may be awarded to the Company. Further, there can be no assurance that the respondents will have sufficient assets to satisfy any award received by the Company pursuant to the arbitration proceeding.

      In May 2000, Norstan was sued in the U.S. District Court for the District of Minnesota by a former sales representative who claims he is owed $458,675 in additional commissions. Norstan denies that the former sales representative is entitled to any additional commissions. Norstan filed a counterclaim, seeking reimbursement of overpayments that had been made to the sales representative. On July 26, 2001, the U.S. District Court entered summary judgment in favor of the former sales representative and against Norstan. The Company believes the ruling is in error and intends to file an appeal. However, there can be no assurance that the Company will be successful in its appeal. Management believes that the April 30, 2001 consolidated financial statements adequately reflect the Company’s exposure under this lawsuit.

Operating Lease Commitments:

      The Company and its subsidiaries conduct a portion of their operations in leased facilities. Most of the leases require payment of maintenance, insurance, taxes and other expenses in addition to the minimum annual rentals. Lease expense, as recorded in the accompanying consolidated statements of operations, was $8,170,000, $12,890,000, and $13,415,000 in fiscal years 2001, 2000, and 1999, respectively.

      Future minimum lease payments under noncancelable leases with initial or remaining terms of one year or more were as follows at April 30, 2001 (in thousands):

Years Ending April 30,	Amount
2002	$	7,456
2003		6,574
2004		4,886
2005		4,007
2006 and thereafter		15,657
	$	38,580

Vendor Agreements:

      Norstan has been a distributor of Siemens communication equipment since 1976 and is Siemens’ largest independent distributor in North America. The term of the current distributor agreement with Siemens, signed in January 1999, is five years. Norstan and Siemens have also renewed an agreement through July 27, 2003 under which Norstan is an authorized agent for the refurbishment and sale of previously owned Siemens equipment.

Shareholder Rights Plan:

      The Company has a shareholder rights plan, as amended in March 2001 (the “Plan”), which expires in 2008. Under the Plan, shareholders are deemed the owners of “Rights” attaching to each share of common stock. Generally, upon any person (an “Acquiring Person”) becoming the owner of 15% or more of the issued and outstanding shares of the Company’s common stock (a “Stock Acquisition Date”), each Right will enable the holder to purchase an additional share of the Company’s common stock at a price equal to 50% of the then current market price. In the event that the Company is acquired in a merger or other business combination transaction where the Company is not the surviving corporation or 50% or more of the Company’s assets or earnings power is sold, each Right entitles the holder to receive, upon exercise of the Right at the then current purchase price of the Right, common stock of the acquiring entity that has a value of two times the purchase price of the Right. The Plan also authorizes the Company, under certain circumstances, to redeem the Rights at a redemption price of $0.01 per Right and, following any Stock Acquisition Date, to exchange one share of the Company’s common stock for each Right held by a shareholder other than an Acquiring Person.

37

NORSTAN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 13 — Business Segments and Geographic Areas:

      The Company delivers its products and services through four business units, Communications Technology Solutions and Services, Resale, Network Services and Financial Services, which accounted for 78.8%, 8.8%, 9.2% and 3.2% of Norstan’s fiscal year 2001 revenues, respectively. Communications Technology Solutions offerings include customer contact-call centers, collaboration-conferencing and messaging, converged communication – IP telephony and PBX systems, infrastructure — cabling, wiring, sound and signal, and mobility. Communications Technology Services offerings include project consulting, project management, installation, system monitoring and support services maintenance. Resale offers remanufactured communications and data equipment. Network Services offers multiple source local and long distance services and Financial Services supports the sales process by providing customized financing alternatives.

      In fiscal year 2001, the Company changed its reportable operating segments to reflect how it evaluates its operating performance and allocates resources. Prior to fiscal year 2001, the Company’s reportable segments included Consulting, Communications and Financial Services. As of April 30, 2001, the Company divested its IT consulting business (see Note 2). Accordingly, the net assets and operating results have been separately reported as discontinued operations.

      The Company’s disclosures under the requirements of SFAS No. 131, “Disclosure about Segments of an Enterprise and Related Information,” are as follows (see Note 2 for additional information regarding discontinued operations):

	Communications Technology
	Solutions and						Network			Financial					Discontinued
	Services			Resale			Services			Services			Corporate		Operations		Total
2001:
Revenue	$	234,560		$	26,250		$	27,320		$	9,570		$	—	$	—	$	297,700
Operating income (loss)		(14,316	)		1,914			(946	)		2,140			—		—		(11,208	)
Depreciation and amortization		10,338			455			305			10			5,092		—		16,200
Identifiable assets		65,566			11,236			2,964			52,224			29,980		7,869		169,839
Capital expenditures		3,853			1,739			278			(14	)		1,898		—		7,754
2000:
Revenue	$	262,594		$	25,971		$	33,748		$	8,904		$	—	$	—	$	331,217
Operating income (loss)		(32,580	)		3,299			(151	)		3,248			—		—		(26,184	)
Depreciation and amortization		12,301			98			117			9			6,059		—		18,584
Identifiable assets		93,328			6,950			8,348			65,997			44,988		17,295		236,906
Capital expenditures		5,994			84			1,053			13			2,953		—		10,097
1999:
Revenue	$	305,523		$	26,491		$	27,394		$	7,962		$	—	$	—	$	367,370
Operating income (loss)		175			6,403			1,037			3,252			—		—		10,867
Depreciation and amortization		9,454			108			5			14			4,656		—		14,237
Identifiable assets		148,564			6,466			5,944			63,187			73,174		11,181		308,516
Capital expenditures		14,857			(15	)		29			—			7,318		—		22,189

38

NORSTAN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The following table sets forth the Company’s operations and related asset information by geographic area (continuing operations) as of and for the years ended April 30 (in thousands):

		2001			2000			1999
Revenues:
	United States	$	266,497		$	299,593		$	330,486
	Canada		31,203			31,624			36,884
		$	297,700		$	331,217		$	367,370
Net Income (Loss):
	United States	$	(34,564	)	$	(64,236	)	$	6,129
	Canada		(1,706	)		(4,713	)		(239	)
		$	(36,270	)	$	(68,949	)	$	5,890
Assets:
	United States	$	155,922		$	216,266		$	287,316
	Canada		13,917			20,640			21,200
		$	169,839		$	236,906		$	308,516

39

SCHEDULE II

NORSTAN, INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

		Balance at		Charged to
		Beginning of		Costs and					Balance at
(In thousands)		Year		Expenses		Deductions			End of Year
For the year ended April 30, 2001
	Allowance for doubtful accounts	$	5,628	$	2,411	$	(4,696	)	$	3,343
	Allowance for financing losses	$	1,411	$	437	$	—		$	1,848
	Restructuring reserves	$	637	$	1,183	$	(502	)	$	1,318
	Discontinued operations reserve	$	—	$	1,248	$	—		$	1,248
For the year ended April 30, 2000
	Allowance for doubtful accounts	$	1,437	$	7,344	$	(3,153	)	$	5,628
	Allowance for financing losses	$	1,361	$	50	$	—		$	1,411
	Restructuring reserves	$	697	$	1,969	$	(2,029	)	$	637
For the year ended April 30, 1999
	Allowance for doubtful accounts	$	1,171	$	480	$	(214	)	$	1,437
	Allowance for financing losses	$	1,645	$	—	$	(284	)	$	1,361
	Restructuring reserves	$	3,644	$	1,522	$	(4,469	)	$	697

40

Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.

      No changes in or disagreements with accountants which required reporting on Form 8-K have occurred within the two-year period ended April 30, 2001.

PART III

Item 10. Directors and Executive Officers of the Registrant.

      Information with respect to the directors and executive officers of the Company, set forth under “Information Concerning Directors, Nominees and Executive Officers” and under “Compliance with Section 16 (a)” in the Company’s definitive proxy statement for the annual meeting of shareholders to be held September 13, 2001, is incorporated herein by reference.

Item 11. Executive Compensation.

      Information with respect to Executive Compensation set forth under “Executive Compensation” in the Company’s definitive proxy statement for the annual meeting of shareholders to be held September 13, 2001, other than the subsections captioned “Report of the Compensation and Stock Option Committee” and “Performance Graph”, is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

      Information with respect to security ownership of certain beneficial owners and management, set forth under “Beneficial Ownership of Principal Shareholders and Management” in the Company’s definitive proxy statement for the annual meeting of shareholders to be held September 13, 2001, is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions.

      Information with respect to certain relationships and related transactions, set forth under “Information Concerning Directors, Nominees and Executive Officers” in the Company’s definitive proxy statement for the annual meeting of shareholders to be held September 13, 2001, is incorporated herein by reference.

41

PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

      (a)   Financial Statements, Financial Statement Schedules and Exhibits.

1.	Financial Statements
	See Index to Consolidated Financial Statements and Financial Statement Schedules on page 19 of this report.
2.	Financial Statement Schedules
	All schedules to the Consolidated Financial Statements normally required by the applicable accounting regulations are included in Item 8 or are not applicable.
3.	Exhibits
	See Index to Exhibits on page 44 of this report.

      (b)   Reports on Forms 8-K.

      No reports on Form 8-K were filed by the Company during the last quarter of the fiscal year covered by this report.

42

SIGNATURES

      Pursuant to the requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: July 30, 2001

NORSTAN, INC. Registrant
By	/s/ James C. Granger
	James C. Granger Chief Executive Officer and President (Principal Executive Officer)
By	/s/ Scott G. Christian
	Scott G. Christian Chief Financial Officer (Principal Financial and Accounting Officer)

      Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Date
/s/ Paul Baszucki	July 30, 2001
Paul Baszucki Chairman of the Board
/s/ James C. Granger	July 30, 2001
James C. Granger Director
/s/ Jagdish N. Sheth	July 30, 2001
Dr. Jagdish N. Sheth Director
/s/ Connie M. Levi	July 30, 2001
Connie M. Levi Director
/s/ Alan L. Mendelson	July 30, 2001
Alan L. Mendelson Director
/s/ Gerald D. Pint	July 30, 2001
Gerald D. Pint Director
/s/ Herbert F. Trader	July 30, 2001
Herbert F. Trader Director
Mercedes Walton Director

43

EXHIBIT INDEX

Exhibit No.	Description
3(a)	Restated Articles of Incorporation of the Company, as amended [filed as Exhibit 3(a) to the Company’s Annual Report on Form 10-K for the year ended April 30, 1988 and incorporated herein by reference]; Amendments adopted September 9, 1993 and June 20, 1996 [filed as Exhibit 3(a) to the Company’s Annual Report on Form 10-K for the year ended April 30, 1996 and incorporated herein by reference]
3(b)	Bylaws of the Company [filed as Exhibit 3(b) to the Company’s Annual Report on Form 10-K for the year ended April 30, 1993 and Incorporated herein by reference]; Amendments adopted August 8, 1995 [filed as Exhibit 3(b) to the Company’s Annual Report on Form 10-K for the year ended April 30, 1996 and incorporated herein by reference]; Amendments adopted September 20, 1995, July 30, 1996 and April 9, 1997 [filed as Exhibit 3(b) to the Company’s Annual Report on Form 10-K for the year ended April 30, 1998 and incorporated herein by reference]
3(c)	Rights Agreement dated May 17, 1988 between Norstan, Inc. and Norwest Bank Minnesota, N.A. [filed as Exhibit 1 to the Company’s Registration Statement on Form 8-A and incorporated herein by reference]; Amended and Restated Rights Agreement dated April 1, 1998 [filed as Exhibit 1 to the Company’s Registration Statement on Form 8-A/A (Amendment No. 1) dated April 1, 1998 and incorporated herein by reference]; First Amendment to Amended and Restated Rights Agreement dated February 28, 1999 [filed as Exhibit 4.1 to the Company’s Registration Statement on Form 8-A/A (Amendment No. 2) dated April 21, 1999 and incorporated herein by reference]
10(a)	Agreement for ROLM Authorized Distributors, effective July 27, 1993, between Norstan Communications, Inc. and ROLM Company [filed as Exhibit 10(a) to the Company’s Annual Report on Form 10-K for the year ended April 30, 1993 and incorporated herein by reference]
10(b)	Norstan, Inc. Restated Non-Employee Directors’ Stock Plan, [filed as Exhibit 28.1 to the Company’s Registration Statement on Form S-8 dated September 27, 1995 and incorporated herein by reference]
10(c)	Norstan, Inc. 1995 Long-Term Incentive Plan [filed as Exhibit 28.1 to the Company’s Registration Statement on Form S-8 dated September 27, 1995 and incorporated herein by reference]; Amendment adopted July 30, 1996 [filed as Exhibit 10(g) to the Company’s Annual Report on Form 10-K for the year ended April 30, 1996 and incorporated herein by reference]; Amendment adopted August 16, 1996 [filed as Exhibit 10(g)(1) to the Company’s Annual Report on Form 10-K for the year ended April 30, 1998 and incorporated herein by reference]
10(d)	Amended and Restated Credit Agreement, dated as of December 20, 2000, by and among the Company, certain banks as signatories thereto (the “Banks”) and US Bank National Association, as one of the Banks and as agent for the Banks [filed as Exhibit 10(a) to the Company’s Quarterly Report on Form 10-Q for the period ended January 27, 2001 and incorporated herein by reference]

44

Exhibit No.	Description
10(d)(1)	First Amendment to the Credit Agreement, dated as of March 19, 2001, by and among the Company, certain banks as signatories thereto (the “Banks”) and US Bank National Association, as one of the Banks and as agent for the Banks
10(d)(2)	Second Amendment to the Credit Agreement, dated as of March 30, 2001, by and among the Company, certain banks as signatories thereto (the “Banks”) and US Bank National Association, as one of the Banks and as agent for the Banks
10(d)(3)	Third Amendment to the Credit Agreement, dated as of April 4, 2001, by and among the Company, certain banks as signatories thereto (the “Banks”) and US Bank National Association, as one of the Banks and as agent for the Banks
10(d)(4)	Fourth Amendment to the Credit Agreement, dated as of May 15, 2001, by and among the Company, certain banks as signatories thereto (the “Banks”) and US Bank National Association, as one of the Banks and as agent for the Banks
10(d)(5)	Fifth Amendment to the Credit Agreement, dated as of June 29, 2001, by and among the Company, certain banks as signatories thereto (the “Banks”) and US Bank National Association, as one of the Banks and as agent for the Banks
10(e)	Lease Agreement, dated December 23, 1997, by and between Thomas Edward Limited Partnership and the Company [filed as Exhibit 10(m) to the Company’s Annual Report on Form 10-K for the year ended April 30, 1998 and incorporated herein by reference]
10(f)	Employment Agreement dated October 27, 2000 between James C. Granger and the Company [filed as Exhibit 10 to the Company’s Quarterly Report on Form 10-Q for the period ended October 28, 2000 and incorporated herein by reference]
10(g)	Amended and Restated Asset Purchase Agreement dated December 31, 2000, by and between Norstan Communications, Inc. and Ericsson, Inc. [filed as Exhibit 10(b) to the Company’s Quarterly Report on Form 10-Q for the period ended January 27, 2001 and incorporated herein by reference]
10(h)	Purchase agreement among Jeffrey A. Lusenhop and Norstan Communications, Inc. and Norstan, Inc. dated January 1, 2001. [filed as Exhibit 10(b) to the Company’s Quarterly Report on Form 10-Q for the period ended January 27, 2001 and incorporated herein by reference]
10(I)	Stock purchase agreement, dated as of April 30, 2001, by and among Norstan, Inc. and Synchromesh Consulting, Inc.
22	Subsidiaries of Norstan, Inc.
23(a)	Consent of Independent Public Accountants

A copy of any of the exhibits listed or referred to above will be furnished at a reasonable cost to any shareholder of the Company, upon receipt of a written request from such person for any such exhibit. Such request should be sent to Norstan, Inc., 5101 Shady Oak Road, Minnetonka, Minnesota 55343, Attention: Investor Relations.

(1) Items that are management contracts or compensatory plans or arrangements required to be filed as an exhibit pursuant to Item 14(c) of this Form 10-K.

45 EX-10.(D)(1) 3 c63940ex10-d1.txt EX-10.(D)(1) FIRST AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 10D(1) FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT is dated as of March 19, 2001 ("this Amendment"), by and among NORSTAN, INC., a Minnesota corporation (the "Borrower"), the banks which are signatories hereto (each individually, a "Bank," and collectively, the "Banks"), and U.S. BANK NATIONAL ASSOCIATION, a national banking association, one of the Banks, as agent for the Banks (in such capacity, the "Agent"). RECITALS A. The Borrower, the Banks and the Agent are parties to an Amended and Restated Credit Agreement dated as of December 20, 2000 (the "Credit Agreement"). B. The Borrower, NCI and Jeffrey A. Lusenhop ("Lusenhop") have entered into, and consummated the transactions contemplated by, that certain Purchase Agreement dated as of January 1, 2001 among them (the "Connaissance Sale Agreement") whereunder, among other things, NCI has sold to Lusenhop all of its member interests in Connaissance Consulting, LLC, a Minnesota limited liability company ("Connaissance"). C. Prior to the date of this Amendment, (i) the Agent has received the sum of $3,000,000 from the proceeds of the transactions consummated pursuant to the Connaissance Sale Agreement, which amount the Agent has applied in the manner set forth in Section 2.6(c) of the Credit Agreement and (ii) the Agent has executed and delivered to the Borrower UCC-3 financing statements (A) terminating the UCC-1 financing statements filed by the Agent with respect to Connaissance and (B) amending the UCC-1 financing statement filed by the Agent with respect to NCI's Pledge Agreement to release the Agent's security interest in the member interests in Connaissance pledged by NCI thereunder. D. NCI and Ericsson, Inc. ("Ericsson") have entered into, and consummated the transactions contemplated by, the following documents among them, each dated as of December 29, 2000 (the "Ericsson Purchase Documents"): (i) Amended and Restated Asset Purchase Agreement, (ii) Administrative and Back Office Service Agreement, (iii) MD110 Contracts Back-to-Back Agreement and (iv) Shared Office Rental Agreement. Further, NCI has executed and delivered to Ericsson its Promissory Note in the amount of $1,981,384 dated as of December 29, 2000 (the "Ericsson Note") and an Amended and Restated Security Agreement dated as of January 16, 2001 (collectively with the Ericsson Note and the Ericsson Purchase Documents, the "Ericsson Documents"). Under the Ericsson Documents, NCI purchased certain assets from Ericsson and agreed to grant to Ericsson a security interest in certain of such assets to secure a loan by Ericsson to NCI to finance a portion of the purchase price thereof. E. The Borrower has requested that the Banks (i) consent to the Connaissance Sale Agreement and the transactions consummated thereby, (ii) consent to the Ericsson Documents and the transactions consummated thereby and (iii) agree to amend certain provisions of, and waive certain Events of Default under, the Credit Agreement as set forth in this Amendment. 2 NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: Section 1. Definitions. Capitalized terms used herein and not otherwise defined herein, but which are defined in the Credit Agreement, shall have the meanings ascribed to such terms in the Credit Agreement unless the context otherwise requires. Section 2. Amendments to Credit Agreement. Subject to Section 5 hereof, the Credit Agreement is hereby amended as follows: (a) Amended Definitions. Section 1.1 of the Credit Agreement is amended by deleting the definitions of "Guarantors" and "Security Documents" as they appear therein and substituting in lieu thereof the following definitions in the appropriate alphabetical order: "Connaissance Notes": Collectively, (a) that certain Promissory Note dated January 31, 2001 made by Jeffrey A. Lusenhop in favor of NCI in the amount of $1,000,000, and (b) that certain Promissory Note dated January 31, 2001 made by Jeffrey A. Lusenhop in favor of NCI in the amount of $12,000,000. "Connaissance Note Collateral": Collectively, (a) the Connaissance Notes and the instruments and other agreements evidencing the Connaissance Notes, and all interest, cash, instruments, agreements and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Connaissance Notes, (b) any and all collateral security (including the Subordinated Connaissance Note) now or hereafter securing all or any items of the Connaissance Notes, and all agreements granting such security, and all rights, remedies, powers and privileges of NCI under all of the foregoing, and (c) all proceeds of any and all of the foregoing (including proceeds that constitute property of types described above in this definition). "Connaissance": Connaissance Consulting, LLC, a Minnesota limited liability company. "Guarantors": Norstan Financial Services, Inc., a Minnesota corporation; Norstan Communications, Inc., a Minnesota corporation; Norstan Network Services, Inc., a Minnesota corporation; Norstan International, Inc., a Minnesota corporation; Norstan-UK Limited, a corporation incorporated in London, England; Norstan Consulting Holding Company, a Minnesota corporation; Norstan Consulting, Inc., a Minnesota corporation; Norstan Canada, Ltd., a Canadian corporation; Vibes Technologies, Inc., a Minnesota corporation; Norstan Canada, Inc. a Minnesota corporation; Norstan Information Systems, Inc., a Minnesota corporation; and Norstan Network Services of New Hampshire, Inc., a New Hampshire corporation. "Pledge Agreements": Collectively, the separate Pledge Agreements of the Borrower, Norstan Canada, NCI, Norstan Network Services, Inc. and Norstan -2- 3 Consulting Holding Company pursuant to which the Agent has been granted, for the benefit of the Banks, a security interest in the capital stock (or the equivalent) of certain direct and indirect Subsidiaries of the Borrower, as any of the same may be amended, supplemented, extended, restated or otherwise modified from time to time. "Security Documents": The Guaranties, the Security Agreements, the Pledge Agreements, any collateral assignment documents executed and delivered by the Borrower or any Subsidiary under Section 3.1(a)(xv) and any other documents or instruments executed and delivered in connection with any of the forgoing. "Subordinated Connaissance Note": Senior Subordinated Promissory Note made by Connaissance in favor of NCI in the amount of $9,953,931.00. (b) Connaissance Note Collateral. The following new Section 5.16 of the Credit Agreement is added immediately following Section 5.15 of the Credit Agreement: Section 5.16 Connaissance Note Collateral. (a) The Borrower acknowledges and confirms, and shall cause NCI to acknowledge and confirm, that the Connaissance Note Collateral constitutes "Collateral" under and within the meaning of NCI's Security Agreement. Except as the Agent may otherwise agree, the Borrower shall cause all certificates, instruments and other agreements representing or evidencing Connaissance Note Collateral received by the Borrower or any Subsidiary to be delivered to the Agent promptly upon receipt thereof. All such certificates, instruments and agreements shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Agent. Neither the Borrower nor any Subsidiary shall forgive, cancel, compromise, modify, amend or extend the time for payment of, or waive any default under, any of the Connaissance Note Collateral, or modify or amend, or waive any default under any agreement with respect to the Connaissance Note Collateral, or consent to or acquiesce in any of the foregoing, without in each case the prior written consent of the Banks. (b) Notwithstanding whether an Event of Default has occurred, any and all cash paid, payable or otherwise distributed in respect of principal of, or in exchange for, any Connaissance Note Collateral, shall be applied, and shall be forthwith delivered to the Agent to apply, to the Obligations in the manner set forth in Section 2.6(c) hereof and shall, if received by the Borrower or any Subsidiary, be received in trust for the benefit of the Agent, be segregated from the other property or funds of the Borrower or such Subsidiary, and be forthwith delivered to the Agent in the same form as so received (with any necessary endorsement or -3- 4 assignment). Notwithstanding the forgoing, upon the occurrence of an Event of Default and at any time during the continuance thereof, the Agent may take any action with respect to the Connaissance Note Collateral specified in Section 20 of NCI's Security Agreement or otherwise. (c) The provisions of this Section 5.16 shall supplement, and be cumulative of, NCI's Security Agreement. (c) Sales of Assets. Sections 6.2(d) and 6.2(e) of the Credit Agreement are each amended by (i) deleting the references to the clause "Section 6.13(d)" as they appear therein and replacing each such reference with the clause "Section 6.13(b)" and (2) inserting the clause ", and the residual interest of the equipment leased under," immediately following the clause "total present value of the rental streams under" as such clause appears in each such section. (d) Investments. The following new Section 6.10(r) of the Credit Agreement is added immediately following Section 6.10(q) of the Credit Agreement: (r) The Connaissance Notes. (e) Liens. Section 6.12(l) of the Credit Agreement is deleted in its entirety and the following is substituted in lieu thereof: (l) Purchase money Liens granted by NCI to Ericsson, Inc. against inventory sold by Ericsson, Inc. to NCI pursuant to the Ericsson Acquisition Documents, provided that that certain Intercreditor Agreement dated as of the date of the First Amendment hereto between Ericsson, Inc. and the Agent remains unmodified and in full force and effect and has not been repudiated by NCI or Ericsson, Inc. (m) Purchase money Liens granted by NCI to Ericsson Webcom, Inc. against inventory sold by Ericsson Webcom, Inc. to NCI, provided that that certain Intercreditor Agreement dated as of the date of the First Amendment hereto between Ericsson Webcom, Inc. and the Agent remains unmodified and in full force and effect and has not been repudiated by NCI or Ericsson Webcom, Inc. (f) Events of Default. Section 7.1(c) of the Credit Agreement is amended by deleting the clause "or 5.15" as it appears therein and substituting in lieu thereof the clause ", 5.15 or 5.16". Section 3. Consent; Waiver of Events of Default and Termination of Connaissance Security Documents. Upon the satisfaction of the conditions set forth in Section 5 below: (a) Each Bank and the Agent (i) hereby consents to the execution and delivery by the Borrower and NCI of the Connaissance Sale Agreement and the consummation of the transactions contemplated thereby and (ii) hereby waives any default or Event of -4- 5 Default arising under Sections 4.10, 4.19, 6.1, 6.2, 6.10, 6.14, 7.1(k), 7.1(m) or 7.1(o) of the Credit Agreement (the "Existing Connaissance Defaults") due to the matters specified in the forgoing clause (i). Further, each Bank and the Agent (x) hereby consents to the execution and delivery by NCI of the Ericsson Documents and the consummation of the transactions contemplated thereby, (y) hereby waives any default or Event of Default arising under Sections 6.10(q), 6.11(l) or 6.12(l) of the Credit Agreement (collectively with the Existing Connaissance Defaults, the "Existing Defaults") due to the matters specified in the foregoing clause (x) and (z) agrees that the purchase price paid by NCI in connection with the Ericsson Documents shall not constitute a "Capital Expenditure" for purposes of Section 6.8 of the Credit Agreement. The Banks' and the Agent's consents and waivers set forth in the forgoing two sentences are limited to the specific terms thereof, and nothing herein shall be deemed a waiver by the Banks or the Agent of any other term, condition, representation or covenant applicable to the Borrower or any Guarantor under the Loan Documents (including but not limited to any future occurrence similar to the Existing Defaults). The waivers by the Banks and the Agent set forth this subparagraph shall not constitute a waiver by the Banks or the Agent of any other Default or Event of Default, if any, under any Loan Document, and shall not be, and shall not be deemed to be, a course of action with respect thereto upon which the Borrower may rely in the future, and the Borrower hereby expressly waives any claim to such effect. (b) The Guaranty of Connaissance and the Security Agreement of Connaissance are each hereby terminated for all purposes. (c) Schedule I attached to NCI's Pledge Agreement is hereby amended to read as set forth on Exhibit A to this Amendment. Except as amended by this Amendment, NCI's Pledge Agreement shall remain unmodified and in full force and effect. (d) The Borrower acknowledges that the Ericsson Documents constitute the "Ericsson Acquisition Documents" under and within the meaning of that term set forth in the Credit Agreement. Section 4. Representations and Warranties of the Borrower. To induce the Banks and the Agent to execute and deliver this Amendment (which representations and warranties shall survive the execution and delivery of this Amendment), the Borrower represents and warrants to the Agent and the Banks that: (a) this Amendment has been duly authorized, executed and delivered by it and this Amendment constitutes the legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms, subject to limitations as to enforceability which might result from bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally; (b) the Credit Agreement, as amended by this Amendment, constitutes the legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms, subject to limitations as to enforceability which might result -5- 6 from bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally; (c) the execution, delivery and performance by the Borrower of the Amendment (i) have been duly authorized by all requisite corporate action and, if required, shareholder action, (ii) do not require the consent or approval of any governmental or regulatory body or agency, and (iii) will not (A) violate (1) any provision of law, statute, rule or regulation or its certificate of incorporation or bylaws, (2) any order of any court or any rule, regulation or order of any other agency or government binding upon it, or (3) any provision of any material indenture, agreement or other instrument to which it is a party or by which any of its properties or assets are or may be bound, or (B) result in a breach of or constitute (alone or with due notice or lapse of time or both) a default under any indenture, agreement or other instrument referred to in clause (iii)(A)(3) of this Section 4(c); (d) as of the date hereof, no Default or Event of Default has occurred which either (a) is continuing or (b) has not been waived by the Agent and the Banks as set forth in Section 3 of this Amendment; and (e) all the representations and warranties contained in Article IV of the Credit Agreement are true and correct in all material respects with the same force and effect as if made by the Borrower on and as of the date hereof. (f) (i) the Borrower has furnished to the Agent true, complete and accurate copies of the Connaissance Sale Agreement, the Connaissance Note Collateral, and all exhibits, schedules and ancillary documents related thereto, (ii) the documents specified in the forgoing clause (i), (A) constitute the entire agreement between the Borrower, NCI and the other parties thereto with respect to the subject matter thereof and (B) have not been amended, terminated or otherwise modified and remain in full force and effect and (iii) the transactions contemplated by the Connaissance Sale Agreement have been consummated. Section 5. Conditions to Effectiveness of this Amendment. This Amendment shall become effective as of January 31, 2001 when each and every one of the following conditions shall have been satisfied: (a) The Agent shall have received executed counterparts of this Amendment, duly executed by the Borrower and each of the Banks. (b) The Agent shall have received from the Guarantors a Consent and Agreement of Guarantors in the form of Exhibit B hereto (the "Guarantor Agreements") duly completed and executed by each Guarantor. (c) The Agent shall have received the Intercreditor Agreement in the form of Exhibit C hereto, duly completed and executed by Ericsson and NCI. (d) The Agent shall have received the Intercreditor Agreement in the form of Exhibit D hereto, duly completed and executed by Ericsson Webcom, Inc. -6- 7 (e) The Agent shall have received all certificates, instruments and other agreements representing or evidencing the Connaissance Note Collateral, together with duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Agent. (f) The Agent shall have received a Guaranty and a Security Agreement for Norstan Information Systems, Inc. ("NIS") in the form prescribed by the Agent, each duly executed by NIS. (g) The Agent shall have received a complete copy of the Bylaws of each of Norstan Communications, Inc., Norstan Consulting Holding Company and Norstan Canada, Inc. (h) The Agent shall have received such other documents or instruments reasonably deemed necessary by the Agent. Section 6. Affirmation; Reaffirmation. The Agent, each Bank and the Borrower each acknowledge and affirm that the Credit Agreement, as hereby amended, is hereby ratified and confirmed in all respects and all terms, conditions and provisions of the Credit Agreement, except as amended by this Amendment, shall remain unmodified and in full force and effect. All references in any document or instrument to the Credit Agreement are hereby amended and shall refer to the Credit Agreement as amended by this Amendment. The Borrower confirms to the Agent and each Bank that the Obligations are and continue to be secured by the security interest granted by the Borrower in favor of the Agent under the Borrower's Security Agreement and all of the terms, conditions, provisions, agreements, requirements, promises, obligations, duties, covenants and representations of the Borrower under such documents and any and all other documents and agreements entered into with respect to the Obligations are incorporated herein by reference and are hereby ratified and affirmed in all respects by the Borrower. Section 7. General. (a) The Borrower agrees to reimburse the Agent upon demand for all reasonable expenses (including reasonable attorneys fees and legal expenses) incurred by the Agent in the preparation, negotiation and execution of this Amendment and any other document required to be furnished herewith, and to pay and save the Agent harmless from all liability for any stamp or other taxes which may be payable with respect to the execution or delivery of this Amendment, which obligations of the Borrower shall survive any termination of the Credit Agreement. (b) This Amendment may be executed in as many counterparts as may be deemed necessary or convenient, and by the different parties hereto on separate counterparts, each of which, when so executed, shall be deemed an original but all such counterparts shall constitute but one and the same instrument. (c) Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or affecting the validity or enforceability of such provisions in any other jurisdiction. -7- 8 (d) This Amendment shall be governed by, and construed in accordance with, the internal law, and not the law of conflicts, of the State of Minnesota, but giving effect to federal laws applicable to national banks. (e) This Amendment shall be binding upon the Borrower, the Agent and the Banks and their respective successors and assigns, and shall inure to the benefit of the Borrower, the Agent and the Banks and the successors and assigns of the Agent and the Banks. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] -8- 9 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the day and year first above written. NORSTAN, INC. By /s/ Robert J. Vold --------------------------------------- Its Treasurer U.S. BANK NATIONAL ASSOCIATION, as a Bank and as Agent By /s/ David C. Larsen --------------------------------------- Its VP HARRIS TRUST AND SAVINGS BANK By /s/ Lauren M. Powers --------------------------------------- Its Officer M&I MARSHALL & ILSLEY BANK By /s/ John W. Howard --------------------------------------- Its VP By /s/ Jeffrey P. Norton --------------------------------------- Its VP WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION By /s/ William J. Kennedy --------------------------------------- Its VP [Signature Page to First Amendment to Amended and Restated Credit Agreement] S-1 EX-10.(D)(2) 4 c63940ex10-d2.txt EX-10.(D)(2) SECOND AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 10D(2) SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT THIS SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT is dated as of March 30, 2001 ("this Amendment"), by and among NORSTAN, INC., a Minnesota corporation (the "Borrower"), the banks which are signatories hereto (each individually, a "Bank," and collectively, the "Banks"), and U.S. BANK NATIONAL ASSOCIATION, a national banking association, one of the Banks, as agent for the Banks (in such capacity, the "Agent"). RECITALS A. The Borrower, the Banks and the Agent are parties to an Amended and Restated Credit Agreement dated as of December 20, 2000, as amended by a First Amendment to Amended and Restated Credit Agreement dated as of March 19, 2001 (as amended, the "Credit Agreement"). B. The Borrower has advised the Banks that (i) it will be unable to make the principal payments due upon Term Loan A and Term Loan B of the Credit Agreement due on March 30, 2001 and (ii) it has violated certain financial covenants contained in the Credit Agreement. C. The Borrower has requested that the Banks agree to extend the times for the payments due under Term Loan A and Term Loan B under the Credit Agreement on the terms set forth in this Agreement and agree to forbear from exercising their remedies pursuant to the Borrower's events of default due to the Borrower's failure to meet its financial covenants. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: DEFINITIONS. CAPITALIZED TERMS USED HEREIN AND NOT OTHERWISE DEFINED HEREIN, BUT WHICH ARE DEFINED IN THE CREDIT AGREEMENT, SHALL HAVE THE MEANINGS ASCRIBED TO SUCH TERMS IN THE CREDIT AGREEMENT UNLESS THE CONTEXT OTHERWISE REQUIRES. AMENDMENTS TO CREDIT AGREEMENT. SUBJECT TO SECTION 5 HEREOF, THE CREDIT AGREEMENT IS HEREBY AMENDED AS FOLLOWS: TERM LOAN PAYMENTS. SECTIONS 2.5(B) AND 2.5(C) OF THE CREDIT AGREEMENT ARE DELETED IN THEIR ENTIRETIES AND THE FOLLOWING IS SUBSTITUTED IN LIEU THEREOF: (b) Term A Loan. The unpaid balance of the Term A Loan, and all accrued and unpaid interest thereon, shall be due and payable on April 4, 2001; 2 (c) Term B Loan. The unpaid balance of the Term B Loan, and all accrued and unpaid interest thereon, shall be due and payable on April 4, 2001; FORBEARANCE FROM OF EVENTS OF DEFAULT. THE BORROWER HAS INFORMED THE BANKS AS FOLLOWS: (a) that it was not in compliance with its covenant under Section 6.16 of the Credit Agreement for the period ended February 28, 2001, in that its actual EBITDA for the fiscal month ended on that date was ($2,179,000), which amount is the less than the minimum EBITDA of $2,195,000 required by that Section for that period; (b) that it was not in compliance with its covenant under Section 6.18 of the Credit Agreement for the fiscal month ended February 28, 2001, in that the Adjusted Leverage Ratio as of that date was 16.9 to 1.0, which amount is greater than the maximum Adjusted Leverage Ratio of 13.7 to 1.0 required by that Section for that period; and, (c) that it was not in compliance with its covenant under Section 6.19 of the Credit Agreement for the fiscal month ended February 28, 2001, in that the Interest Coverage Ratio as of that date was (3.2) to 1.0, which amount is less than the minimum Interest Coverage Ratio of 3.9 to 1.0 required by that Section for that period; Each such instance of noncompliance constitutes a Default or Event of Default under the Credit Agreement (collectively, the "Existing Defaults"). Upon the satisfaction of the conditions set forth in Section 5 below, each Bank and the Agent shall, until the Forbearance Termination Date (defined below), forbear from exercising their enforcement remedies under the Loan Documents arising from the Existing Defaults. For purposes of this letter, the "Forbearance Termination Date" shall mean the earlier to occur of April 4, 2001 or the date on which any additional Event of Default occurs. The Banks' and the Agent's agreement to forbear is limited to the express terms thereof, and nothing herein shall be deemed a waiver or forbearance by the Banks or the Agent of any other term, condition, representation or covenant applicable to the Borrower or any Guarantor under the Loan Documents (including but not limited to any future occurrence similar to the Existing Defaults). The forbearance by the Banks and the Agent set forth herein shall not constitute a waiver or forbearance by the Banks or the Agent of any other Default or Event of Default, if any, under any Loan Document, and shall not be, and shall not be deemed to be, a course of action with respect thereto upon which the Borrower may rely in the future, and the Borrower hereby expressly waives any claim to such effect. -2- 3 REPRESENTATIONS AND WARRANTIES OF THE BORROWER. TO INDUCE THE BANKS AND THE AGENT TO EXECUTE AND DELIVER THIS AMENDMENT (WHICH REPRESENTATIONS AND WARRANTIES SHALL SURVIVE THE EXECUTION AND DELIVERY OF THIS AMENDMENT), THE BORROWER REPRESENTS AND WARRANTS TO THE AGENT AND THE BANKS THAT: THIS AMENDMENT HAS BEEN DULY AUTHORIZED, EXECUTED AND DELIVERED BY IT AND THIS AMENDMENT CONSTITUTES THE LEGAL, VALID AND BINDING OBLIGATION OF THE BORROWER ENFORCEABLE AGAINST THE BORROWER IN ACCORDANCE WITH ITS TERMS, SUBJECT TO LIMITATIONS AS TO ENFORCEABILITY WHICH MIGHT RESULT FROM BANKRUPTCY, INSOLVENCY, REORGANIZATION, MORATORIUM OR SIMILAR LAWS OR EQUITABLE PRINCIPLES RELATING TO OR LIMITING CREDITORS' RIGHTS GENERALLY; THE CREDIT AGREEMENT, AS AMENDED BY THIS AMENDMENT, CONSTITUTES THE LEGAL, VALID AND BINDING OBLIGATION OF THE BORROWER ENFORCEABLE AGAINST THE BORROWER IN ACCORDANCE WITH ITS TERMS, SUBJECT TO LIMITATIONS AS TO ENFORCEABILITY WHICH MIGHT RESULT FROM BANKRUPTCY, INSOLVENCY, REORGANIZATION, MORATORIUM OR SIMILAR LAWS OR EQUITABLE PRINCIPLES RELATING TO OR LIMITING CREDITORS' RIGHTS GENERALLY; THE EXECUTION, DELIVERY AND PERFORMANCE BY THE BORROWER OF THE AMENDMENT (I) HAVE BEEN DULY AUTHORIZED BY ALL REQUISITE CORPORATE ACTION AND, IF REQUIRED, SHAREHOLDER ACTION, (II) DO NOT REQUIRE THE CONSENT OR APPROVAL OF ANY GOVERNMENTAL OR REGULATORY BODY OR AGENCY, AND (III) WILL NOT (A) VIOLATE (1) ANY PROVISION OF LAW, STATUTE, RULE OR REGULATION OR ITS CERTIFICATE OF INCORPORATION OR BYLAWS, (2) ANY ORDER OF ANY COURT OR ANY RULE, REGULATION OR ORDER OF ANY OTHER AGENCY OR GOVERNMENT BINDING UPON IT, OR (3) ANY PROVISION OF ANY MATERIAL INDENTURE, AGREEMENT OR OTHER INSTRUMENT TO WHICH IT IS A PARTY OR BY WHICH ANY OF ITS PROPERTIES OR ASSETS ARE OR MAY BE BOUND, OR (B) RESULT IN A BREACH OF OR CONSTITUTE (ALONE OR WITH DUE NOTICE OR LAPSE OF TIME OR BOTH) A DEFAULT UNDER ANY INDENTURE, AGREEMENT OR OTHER INSTRUMENT REFERRED TO IN CLAUSE (III)(A)(3) OF THIS SECTION 4(C); AS OF THE DATE HEREOF, NO DEFAULT OR EVENT OF DEFAULT HAS OCCURRED WHICH EITHER (A) IS CONTINUING OR (B) PURSUANT TO WHICH THE AGENT AND THE BANKS HAVE NOT AGREED TO FORBEAR FROM EXERCISING THEIR REMEDIES AS SET FORTH IN SECTION 3 OF THIS AMENDMENT; AND ALL THE REPRESENTATIONS AND WARRANTIES CONTAINED IN ARTICLE IV OF THE CREDIT AGREEMENT ARE TRUE AND CORRECT IN ALL MATERIAL RESPECTS WITH THE SAME FORCE AND EFFECT AS IF MADE BY THE BORROWER ON AND AS OF THE DATE HEREOF. CONDITIONS TO EFFECTIVENESS OF THIS AMENDMENT. THIS AMENDMENT SHALL BECOME EFFECTIVE AS OF THE DATE FIRST ABOVE WRITTEN WHEN EACH AND EVERY ONE OF THE FOLLOWING CONDITIONS SHALL HAVE BEEN SATISFIED: THE AGENT SHALL HAVE RECEIVED EXECUTED COUNTERPARTS OF THIS AMENDMENT, DULY EXECUTED BY THE BORROWER AND EACH OF THE BANKS. -3- 4 THE AGENT SHALL HAVE RECEIVED FROM THE GUARANTORS A CONSENT AND AGREEMENT OF GUARANTORS IN THE FORM OF EXHIBIT A HERETO (THE "GUARANTOR AGREEMENTS") DULY COMPLETED AND EXECUTED BY EACH GUARANTOR. THE BORROWER SHALL HAVE SATISFIED ALL OF THE CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF THE FIRST AMENDMENT TO THE CREDIT AGREEMENT. THE AGENT SHALL HAVE RECEIVED SUCH OTHER DOCUMENTS OR INSTRUMENTS REASONABLY DEEMED NECESSARY BY THE AGENT. AFFIRMATION; REAFFIRMATION. THE AGENT, EACH BANK AND THE BORROWER EACH ACKNOWLEDGE AND AFFIRM THAT THE CREDIT AGREEMENT, AS HEREBY AMENDED, IS HEREBY RATIFIED AND CONFIRMED IN ALL RESPECTS AND ALL TERMS, CONDITIONS AND PROVISIONS OF THE CREDIT AGREEMENT, EXCEPT AS AMENDED BY THIS AMENDMENT, SHALL REMAIN UNMODIFIED AND IN FULL FORCE AND EFFECT. ALL REFERENCES IN ANY DOCUMENT OR INSTRUMENT TO THE CREDIT AGREEMENT ARE HEREBY AMENDED AND SHALL REFER TO THE CREDIT AGREEMENT AS AMENDED BY THIS AMENDMENT. THE BORROWER CONFIRMS TO THE AGENT AND EACH BANK THAT THE OBLIGATIONS ARE AND CONTINUE TO BE SECURED BY THE SECURITY INTEREST GRANTED BY THE BORROWER IN FAVOR OF THE AGENT UNDER THE BORROWER'S SECURITY AGREEMENT AND ALL OF THE TERMS, CONDITIONS, PROVISIONS, AGREEMENTS, REQUIREMENTS, PROMISES, OBLIGATIONS, DUTIES, COVENANTS AND REPRESENTATIONS OF THE BORROWER UNDER SUCH DOCUMENTS AND ANY AND ALL OTHER DOCUMENTS AND AGREEMENTS ENTERED INTO WITH RESPECT TO THE OBLIGATIONS ARE INCORPORATED HEREIN BY REFERENCE AND ARE HEREBY RATIFIED AND AFFIRMED IN ALLRESPECTS BY THE BORROWER. GENERAL. THE BORROWER AGREES TO REIMBURSE THE AGENT UPON DEMAND FOR ALL REASONABLE EXPENSES (INCLUDING REASONABLE ATTORNEYS FEES AND LEGAL EXPENSES) INCURRED BY THE AGENT IN THE PREPARATION, NEGOTIATION AND EXECUTION OF THIS AMENDMENT AND ANY OTHER DOCUMENT REQUIRED TO BE FURNISHED HEREWITH, AND TO PAY AND SAVE THE AGENT HARMLESS FROM ALL LIABILITY FOR ANY STAMP OR OTHER TAXES WHICH MAY BE PAYABLE WITH RESPECT TO THE EXECUTION OR DELIVERY OF THIS AMENDMENT, WHICH OBLIGATIONS OF THE BORROWER SHALL SURVIVE ANY TERMINATION OF THE CREDIT AGREEMENT. THIS AMENDMENT MAY BE EXECUTED IN AS MANY COUNTERPARTS AS MAY BE DEEMED NECESSARY OR CONVENIENT, AND BY THE DIFFERENT PARTIES HERETO ON SEPARATE COUNTERPARTS, EACH OF WHICH, WHEN SO EXECUTED, SHALL BE DEEMED AN ORIGINAL BUT ALL SUCH COUNTERPARTS SHALL CONSTITUTE BUT ONE AND THE SAME INSTRUMENT. ANY PROVISION OF THIS AMENDMENT WHICH IS PROHIBITED OR UNENFORCEABLE IN ANY JURISDICTION SHALL, AS TO SUCH JURISDICTION, BE INEFFECTIVE TO THE EXTENT OF SUCH PROHIBITION OR UNENFORCEABILITY WITHOUT INVALIDATING THE REMAINING PORTIONS HEREOF OR AFFECTING THE VALIDITY OR ENFORCEABILITY OF SUCH PROVISIONS IN ANY OTHER JURISDICTION. -4- 5 THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAW, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF MINNESOTA, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. THIS AMENDMENT SHALL BE BINDING UPON THE BORROWER, THE AGENT AND THE BANKS AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS, AND SHALL INURE TO THE BENEFIT OF THE BORROWER, THE AGENT AND THE BANKS AND THE SUCCESSORS AND ASSIGNS OF THE AGENT AND THE BANKS. [The remainder of this page is intentionally left blank] -5- 6 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the day and year first above written. NORSTAN, INC. By /s/ Robert J. Vold --------------------------------------- Its Treasurer U.S. BANK NATIONAL ASSOCIATION, as a Bank and as Agent By /s/ David C. Larsen --------------------------------------- Its VP HARRIS TRUST AND SAVINGS BANK By /s/ Lauren M. Powers --------------------------------------- Its VP M&I MARSHALL & ILSLEY BANK By /s/ John W. Howard --------------------------------------- Its VP By /s/ Doug Pudvah --------------------------------------- Its VP WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION By /s/ William J. Kennedy --------------------------------------- Its VP [Signature Page to Second Amendment to Amended and Restated Credit Agreement] S-1 EX-10.(D)(3) 5 c63940ex10-d3.txt EX-10.(D)(3) THIRD AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 10D(3) THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT THIS THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT is dated as of April 4, 2001 ("this Amendment"), by and among NORSTAN, INC., a Minnesota corporation (the "Borrower"), the banks which are signatories hereto (each individually, a "Bank," and collectively, the "Banks"), and U.S. BANK NATIONAL ASSOCIATION, a national banking association, one of the Banks, as agent for the Banks (in such capacity, the "Agent"). RECITALS A. The Borrower, the Banks and the Agent are parties to an Amended and Restated Credit Agreement dated as of December 20, 2000, as amended by a First Amendment to Amended and Restated Credit Agreement dated as of March 19, 2001 (the "First Amendment") and as amended by a Second Amendment to Amended and Restated Credit Agreement (the "Second Amendment") dated as of March 30, 2001 (as amended, the "Credit Agreement"). B. The Borrower has advised the Banks that (i) it will be unable to make the principal payments due upon Term Loan A and Term Loan B of the Credit Agreement due on April 4, 2001, (ii) it has violated certain financial covenants contained in the Credit Agreement and (iii) it expects to be in violation of certain financial covenants contained in the Credit Agreement for the month ended March 31, 2001 and for future reporting periods. C. The Borrower has requested that the Banks agree to extend the due dates for the payments due under Term Loan A and Term Loan B under the Credit Agreement on the terms set forth in this Agreement, to waive the Borrower's events of default due to the Borrower's failure to meet its financial covenants and to modify the Borrower's financial covenants on the terms set forth in this Amendment. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: Section 1. Definitions. Capitalized terms used herein and not otherwise defined herein, but which are defined in the Credit Agreement, shall have the meanings ascribed to such terms in the Credit Agreement unless the context otherwise requires. Section 2. Amendments to Credit Agreement. Subject to Section 5 hereof, the Credit Agreement is hereby amended as follows: (a) Amended Definitions. Sections 2.5(b) and 2.5(c) of the Credit Agreement are deleted in their entireties and the following is substituted in lieu thereof: (b) Term A Loan. The Term A Loan shall be payable as follows (i) one installment of principal in the amount of $500,000 shall be due and payable on April 16, 2001, (ii) two installments of principal in the amount of $1,000,000 each shall be due and payable on May 15, 2001 and 2 June 15, 2001 and (iii) an installment equal to the unpaid balance of Term Loan A, and all accrued and unpaid interest thereon, shall be due and payable on June 29, 2001; (c) Term B Loan. The unpaid balance of the Term B Loan, and all accrued and unpaid interest thereon, shall be due and payable on June 29, 2001; (b) Mandatory Prepayments. The second sentence of Section 2.6(c) of the Credit Agreement is deleted in its entirety and the following is substituted in lieu thereof: Any such prepayments shall be applied, in the following order by the Agent to the Loans ratably to each Bank according to its Revolving Commitment Percentage, Term A Loan Percentage, Term B Loan Percentage or Term C Loan Percentage, as applicable: (i) first, to unpaid principal balance of the Term A Loan, in inverse order of the maturities of the installments thereon (or, in the case of prepayments due to sale or transfers of the type specified in clause (A) of the forgoing sentence, in order of the maturities of the installments thereon), (ii) second, to the unpaid principal balance of the Term B Loan, (iii) third, to the unpaid principal balance of the Term C Loan, (iv) fourth, to the unpaid principal balance of the Revolving Loans (other than the reimbursement obligations with respect to the Existing Letter of Credit) and (v) fifth, to the Holding Account in the amount of the aggregate face amount of the Existing Letter of Credit. (c) Financial Reporting. Sections 5.1(c) and (d) of the Credit Agreement are each amended by deleting the clause "45 days" as it appears in each such Section and substituting in lieu thereof the clause "30 days". Section 5.1(d) of the Credit Agreement is amended by deleting the clause "Sections 6.8, 6.16, 6.18 and 6.19" as it appears therein and substituting in lieu thereof the clause "Sections 6.8, 6.16 and 6.18". (d) Ericsson Intercreditor Agreements. The following new Section 5.17 is added immediately following Section 5.16 of the Credit Agreement: Section 5.17 ERICSSON INTERCREDITOR AGREEMENTS. By April 19, 2001, the Borrower shall furnish to the Agent the Intercreditor Agreements substantially in the form of those attached as Exhibits C and D to the First Amendment hereto, duly executed by the NCI, Ericsson, Inc. or Ericsson Webcom, Inc., as applicable. (e) Amendments to Financial Covenants. Sections 6.15, 6.16, 6.17, 6.18 and 6.19 of the Credit Agreement are deleted in their respective entireties and the following is substituted in lieu thereof: Section 6.15 [RESERVED]. Section 6.16 MINIMUM EBITDA. The Borrower will not permit EBITDA, as of the last day of the Borrower's fiscal months ended on or about the -2- 3 following dates for such fiscal month, to be less than the following indicated amounts:

Fiscal Month Ended On or About Minimum EBITDA ------------------------------ -------------- March 31, 2001 ($900,000) April 30, 2001 $1,400,000 May 31, 2001 $900,000 June 30, 2001 $1,300,000

Section 6.17 [RESERVED]. Section 6.18 ADJUSTED LEVERAGE RATIO. The Borrower will not permit the Adjusted Leverage Ratio, as of the last day of the Borrower's fiscal months ended on or about the following dates for such fiscal month, to be greater than the following indicated amounts:

Fiscal Month Ended On or About Maximum Adjusted Leverage Ratio ------------------------------ ------------------------------- March 31, 2001 24.0 to 1.0 April 30, 2001 22.0 to 1.0 May 31, 2001 24.9 to 1.0 June 30, 2001 25.0 to 1.0

Section 6.19 [RESERVED]. (f) Schedule to Borrower's Pledge Agreement. The Borrower's Pledge Agreement is amended by deleting the text following the subheading "Part II, Foreign Shares" as it appears therein and substituting in lieu thereof the clause "None". (g) Amendment to First Amendment. The First Amendment is amended by deleting the text of Sections 5(c) and (d) and substituting in lieu of such text the clause "[Reserved]". (h) Amendment of Second Amendment. Section 3(a) of the Second Amendment is amended by deleting the clause "($2,179,000), which amount is" as it appearing therein. Section 3(b) of the Second Amendment is amended by deleting the clause "16.9 to 1.0, which amount is" as it appears therein. Section 3(c) of the Second Amendment is amended by deleting the clause "(3.2) to 1.0, which amount is" as it appears therein. Section 3. Waiver of Events of Default. The Borrower has informed the Banks as follows: (a) that it was not in compliance with its covenant under Section 6.16 of the Credit Agreement (as it existed prior to the effectiveness of this Amendment) for the period ended February 28, 2001, in that its actual EBITDA for the fiscal month ended on -3- 4 that date was the less than the minimum EBITDA of $2,195,000 required by that Section for that period; (b) that it was not in compliance with its covenant under Section 6.18 of the Credit Agreement (as it existed prior to the effectiveness of this Amendment) for the fiscal month ended February 28, 2001, in that the Adjusted Leverage Ratio as of that date was greater than the maximum Adjusted Leverage Ratio of 13.7 to 1.0 required by that Section for that period; and, (c) that it was not in compliance with its covenant under Section 6.19 of the Credit Agreement (as it existed prior to the effectiveness of this Amendment) for the fiscal month ended February 28, 2001, in that the Interest Coverage Ratio as of that date was less than the minimum Interest Coverage Ratio of 3.9 to 1.0 required by that Section for that period; Each such instance of noncompliance constitutes a Default or Event of Default under the Credit Agreement (collectively, the "Existing Defaults"). Upon the satisfaction of the conditions set forth in Section 4 below, each Bank waives the Existing Defaults. The Banks' agreement to waive the Existing Defaults is limited to the express terms thereof, and nothing herein shall be deemed a waiver by the Banks of any other term, condition, representation or covenant applicable to the Borrower under the Loan Documents (including but not limited to any future occurrence similar to the Existing Defaults). The waiver by the Banks set forth herein shall not constitute a waiver by the Banks of any other Default or Event of Default, if any, under any Loan Document, and shall not be, and shall not be deemed to be, a course of action with respect thereto upon which the Borrower may rely in the future, and the Borrower hereby expressly waives any claim to such effect. Section 4. Representations and Warranties of the Borrower. To induce the Banks and the Agent to execute and deliver this Amendment (which representations and warranties shall survive the execution and delivery of this Amendment), the Borrower represents and warrants to the Agent and the Banks that: (a) this Amendment has been duly authorized, executed and delivered by it and this Amendment constitutes the legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms, subject to limitations as to enforceability which might result from bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally; (b) the Credit Agreement, as amended by this Amendment, constitutes the legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms, subject to limitations as to enforceability which might result from bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally; (c) the execution, delivery and performance by the Borrower of the Amendment (i) have been duly authorized by all requisite corporate action and, if -4- 5 required, shareholder action, (ii) do not require the consent or approval of any governmental or regulatory body or agency, and (iii) will not (A) violate (1) any provision of law, statute, rule or regulation or its certificate of incorporation or bylaws, (2) any order of any court or any rule, regulation or order of any other agency or government binding upon it, or (3) any provision of any material indenture, agreement or other instrument to which it is a party or by which any of its properties or assets are or may be bound, or (B) result in a breach of or constitute (alone or with due notice or lapse of time or both) a default under any indenture, agreement or other instrument referred to in clause (iii)(A)(3) of this Section 4(c); (d) as of the date hereof, no Default or Event of Default has occurred which either (a) is continuing or (b) has not been waived by the Agent and the Banks as set forth in Section 3 of this Amendment; and (e) all the representations and warranties contained in Article IV of the Credit Agreement are true and correct in all material respects with the same force and effect as if made by the Borrower on and as of the date hereof. Section 5. Conditions to Effectiveness of this Amendment. This Amendment shall become effective as of the date first above written when each and every one of the following conditions shall have been satisfied: (a) The Agent shall have received executed counterparts of this Amendment, duly executed by the Borrower and each of the Banks. (b) The Agent shall have received from the Guarantors a Consent and Agreement of Guarantors in the form of Exhibit A hereto (the "Guarantor Agreements") duly completed and executed by each Guarantor. (c) The Agent shall have received a Pledge Agreement executed by Norstan International, Inc. covering 65% of its capital stock in Norstan UK, Ltd., together with financing statements and stock powers in the form prescribed by the Agent, each duly executed by Norstan International, Inc. (d) The Agent shall have received such other documents or instruments reasonably deemed necessary by the Agent. Section 6. Affirmation; Reaffirmation. The Agent, each Bank and the Borrower each acknowledge and affirm that the Credit Agreement, as hereby amended, is hereby ratified and confirmed in all respects and all terms, conditions and provisions of the Credit Agreement, except as amended by this Amendment, shall remain unmodified and in full force and effect. All references in any document or instrument to the Credit Agreement are hereby amended and shall refer to the Credit Agreement as amended by this Amendment. The Borrower confirms to the Agent and each Bank that the Obligations are and continue to be secured by the security interest granted by the Borrower in favor of the Agent under the Borrower's Security Agreement and all of the terms, conditions, provisions, agreements, requirements, promises, obligations, duties, covenants and representations of the Borrower under such documents and any and all other -5- 6 documents and agreements entered into with respect to the Obligations are incorporated herein by reference and are hereby ratified and affirmed in all respects by the Borrower. Section 7. General Release. The Borrower hereby releases and discharges the Agent and each Bank, and each of their officers, directors, employees, agents and attorneys, from any and all claims, actions and liabilities of any kind or nature that it or any one claiming through or under the Borrower ever had or may now have, whether now known or hereafter discovered, arising out of or in any way relating to: (i) any lending relationship or loan commitment between the Agent, the Banks and the Borrower prior to the date of this Amendment; (ii) the Loan Documents; or (iii) the negotiations preceding the execution and delivery of this Agreement. Section 8. General. (a) The Borrower agrees to reimburse the Agent upon demand for all reasonable expenses (including reasonable attorneys fees and legal expenses) incurred by the Agent in the preparation, negotiation and execution of this Amendment and any other document required to be furnished herewith, and to pay and save the Agent harmless from all liability for any stamp or other taxes which may be payable with respect to the execution or delivery of this Amendment, which obligations of the Borrower shall survive any termination of the Credit Agreement. (b) This Amendment may be executed in as many counterparts as may be deemed necessary or convenient, and by the different parties hereto on separate counterparts, each of which, when so executed, shall be deemed an original but all such counterparts shall constitute but one and the same instrument. (c) Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or affecting the validity or enforceability of such provisions in any other jurisdiction. (d) This Amendment shall be governed by, and construed in accordance with, the internal law, and not the law of conflicts, of the State of Minnesota, but giving effect to federal laws applicable to national banks. (e) This Amendment shall be binding upon the Borrower, the Agent and the Banks and their respective successors and assigns, and shall inure to the benefit of the Borrower, the Agent and the Banks and the successors and assigns of the Agent and the Banks. [Remainder of this page intentionally left blank.] -6- 7 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the day and year first above written. NORSTAN, INC. By /s/ Robert J. Vold --------------------------------------- Its Treasurer U.S. BANK NATIONAL ASSOCIATION, as a Bank and as Agent By /s/ David C. Larsen --------------------------------------- Its VP HARRIS TRUST AND SAVINGS BANK By /s/ Lawrence Mizera --------------------------------------- Its VP M&I MARSHALL & ILSLEY BANK By /s/ Robert A. Nielsen --------------------------------------- Its VP By /s/ Mark R. Hogan --------------------------------------- Its SVP WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION By /s/ William J. Kennedy --------------------------------------- Its VP [Signature Page to Third Amendment to Amended and Restated Credit Agreement] S-1 EX-10.(D)(4) 6 c63940ex10-d4.txt EX-10.(D)(4) FOURTH AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 10D(4) FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT THIS FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT is dated as of May 15, 2001 ("this Amendment"), by and among NORSTAN, INC., a Minnesota corporation (the "Borrower"), the banks which are signatories hereto (each individually, a "Bank," and collectively, the "Banks"), and U.S. BANK NATIONAL ASSOCIATION, a national banking association, one of the Banks, as agent for the Banks (in such capacity, the "Agent"). RECITALS A. The Borrower, the Banks and the Agent are parties to an Amended and Restated Credit Agreement dated as of December 20, 2000, as amended by a First Amendment to Amended and Restated Credit Agreement dated as of March 19, 2001, as amended by a Second Amendment to Amended and Restated Credit Agreement dated as of March 30, 2001 and as amended by a Third Amendment to Amended and Restated Credit Agreement dated as of April 4, 2001 (as amended, the "Credit Agreement"). B. The Borrower, Syncromesh Consulting, Inc. ("Syncromesh"), and (solely with respect to Article V thereof) Barry R. Rubin have entered into, and consummated the transactions contemplated by, that certain Stock Purchase Agreement dated as of April 30, 2001 among them (the "Consulting Sale Agreement") whereunder, among other things, the Borrower has sold to Syncromesh all of the issued and outstanding common stock in Norstan Consulting Holding Company, a Minnesota corporation ("NCHC"). NCHC owns all of the issued and outstanding common stock in Norstan Consulting, Inc., a Minnesota corporation ("Consulting"). C. The Borrower has requested that the Banks (i) consent to the Consulting Sale Agreement and the transactions consummated thereby, and (ii) agree to amend certain provisions of, and waive certain Events of Default under, the Credit Agreement as set forth in this Amendment. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: Section 1. Definitions. Capitalized terms used herein and not otherwise defined herein, but which are defined in the Credit Agreement, shall have the meanings ascribed to such terms in the Credit Agreement unless the context otherwise requires. Section 2. Amendments to Credit Agreement. Subject to Section 5 hereof, the Credit Agreement is hereby amended as follows: (a) Amended Definitions. Section 1.1 of the Credit Agreement is amended by deleting the definitions of "Guarantors" and "Pledge Agreements" as they appear therein 2 and substituting in lieu thereof the following definitions in the appropriate alphabetical order: "Consulting": Norstan Consulting, Inc., a Minnesota corporation. "Consulting Cash Portion": The initial payment of $500,000 payable by Syncromesh, Inc. to the Borrower pursuant to Section I(B) of the Consulting Sale Agreement. "Consulting Note Documents": Collectively, (a) that certain promissory note dated April 30, 2001 made by Syncromesh, Inc. in favor of the Borrower in the amount of $1,500,000 (the "Consulting Purchaser Note"), (b) that certain promissory note dated October 28, 1999 made by TechSkills.com, Inc. in favor of Consulting in the original principal amount of $1,801,943.01, (c) that certain promissory note dated January 22, 2001 made by Substance Abuse Management, Inc. in favor of Consulting in the original principal amount of $1,500,000, (d) that certain guaranty dated January 22, 2001 made by Henry Goldberg in favor of Consulting whereunder such individual has guaranteed payment of the note specified in the forgoing subparagraph (c), and (e) that certain assignment agreement dated as of April 30, 2001 whereunder Consulting has absolutely and irrevocably assigned to the Borrower the notes and guaranty specified in the forgoing subparagraphs (b), (c) and (d). "Consulting Purchaser Note": As defined in the definition of "Consulting Note Documents" contained in Section 1.1 hereof. "Consulting Sale Agreement": That certain Stock Purchase Agreement dated as of April 30, 2001 between Syncromesh, Inc., the Borrower and (solely with respect to Article V of such agreement) Barry R. Rubin. "Consulting Sale Collateral": Collectively, (a) the Consulting Note Documents and the Consulting Sale Agreement and the instruments and other agreements evidencing the Consulting Note Documents or the Consulting Sale Agreement, and all interest, cash, instruments, agreements and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Consulting Note Documents or the Consulting Sale Agreement, (b) any and all collateral security and guaranties now or hereafter securing or guarantying all or any items of the Consulting Note Documents or the Consulting Sale Agreement, and all agreements granting such security or guaranties, and all rights, remedies, powers and privileges of the Borrower under all of the foregoing, and (c) all proceeds of any and all of the foregoing (including proceeds that constitute property of types described above in this definition). "Guarantors": Norstan Financial Services, Inc., a Minnesota corporation; Norstan Communications, Inc., a Minnesota corporation; Norstan Network Services, Inc., a Minnesota corporation; Norstan International, Inc., a Minnesota corporation; Norstan-UK Limited, a corporation incorporated in London, -2- 3 England; Norstan Canada, Ltd., a Canadian corporation; Vibes Technologies, Inc., a Minnesota corporation; Norstan Canada, Inc. a Minnesota corporation; Norstan Information Systems, Inc., a Minnesota corporation; and Norstan Network Services of New Hampshire, Inc., a New Hampshire corporation "Net Proceeds": With respect to the sale or disposition of property, sale of capital stock and offering of debt securities by the Borrower or a Subsidiary, or other non-recurring event, an amount equal to (a) the cash (including deferred cash proceeds and all amounts received from time to time upon the Consulting Sale Collateral) and other consideration received by the Borrower or a Subsidiary in connection with such transaction or event, minus (b) the sum of (i) the unpaid principal balance on the date of any such sale or offering of any Indebtedness that is secured by a Lien not proscribed by Section 6.12 and affecting such property, and which is required to be repaid on the date of such sale or offering, (ii) any closing costs or selling costs payable upon the consummation such sale or offering (other than Permitted Consulting Sale Costs), (iii) any sales or income tax paid or payable by the Borrower in connection with such transaction or event (excluding any tax for which the Borrower is reimbursed by the purchaser) and (iv) in the case of the amounts received upon the Consulting Cash Portion and the Consulting Purchaser Note (and not in the case of any amounts received upon any other Consulting Sale Collateral), the Permitted Consulting Sale Costs. "Permitted Consulting Sale Costs": As of any date of any determination, the following amounts: (a) all amounts payable on or before such date upon Consulting's trade accounts payable and accrued payroll obligations (other than severance obligations specified in SectionV(B) of the Consulting Sale Agreement) assumed by the Borrower pursuant to Section I(B) of the Consulting Sale Agreement and (b) all other amounts payable on or before such date under the Consulting Sale Agreement (including severance costs incurred under Section V(B) of the Consulting Sale Agreement, but excluding any indemnification obligations under Sections V(B) or X(A) of the Consulting Sale Agreement or otherwise), provided that the "Permitted Consulting Sale Costs" shall not include (i) any amounts payable in excess of (A) $2,000,000, in the case of amounts specified in clause (a) of this definition and (B) $600,000, in the case of amounts specified in clause (b) of this definition and (ii) any amounts which, prior to such determination, have been deducted from the proceeds of Consulting Sale Collateral in determining whether any Net Proceeds derive therefrom. "Pledge Agreements": Collectively, the separate Pledge Agreements of the Borrower, Norstan Canada, NCI, Norstan Network Services, Inc. and Norstan International, Inc. pursuant to which the Agent has been granted, for the benefit of the Banks, a security interest in the capital stock (or the equivalent) of certain direct and indirect Subsidiaries of the Borrower, as any of the same may be amended, supplemented, extended, restated or otherwise modified from time to time. -3- 4 "Security Documents": The Guaranties, the Security Agreements, the Pledge Agreements, any collateral assignment documents executed and delivered by the Borrower or any Subsidiary under Section 3.1(a)(xv) and any other documents or instruments executed and delivered in connection with any of the forgoing. (b) Connaissance Note Collateral. Section 5.16(b) of the Credit Agreement is amended by adding the following new sentence at the end thereof: Notwithstanding anything to the contrary in NCI's Security Agreement, NCI will not, without the Agent's prior written consent, agree to any modifications, amendments, subordinations, cancellations or terminations of the obligations of any Account Debtor (as defined in the Borrower's Security Agreement) upon any Connaissance Note Collateral. (c) Consulting Sale Collateral. Section 5.17 of the Credit Agreement is deleted in its entirety and the following is substituted in lieu thereof Section 5.17 Ericsson Intercreditor Agreements. By May 30, 2001, the Borrower shall furnish to the Agent the Intercreditor Agreements substantially in the form of those attached as Exhibits C and D to the First Amendment hereto, duly executed by the NCI, Ericsson, Inc. or Ericsson Webcom, Inc., as applicable. Section 5.18 Consulting Sale Collateral. (a) The Borrower acknowledges and confirms that the Consulting Sale Collateral constitutes "Collateral" under and within the meaning of the Borrower's Security Agreement. Except as the Agent may otherwise agree, the Borrower shall cause all certificates, instruments and other agreements representing or evidencing Consulting Sale Collateral received by the Borrower or any Subsidiary to be delivered to the Agent promptly upon receipt thereof. All such certificates, instruments and agreements shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Agent. Neither the Borrower nor any Subsidiary shall forgive, cancel, compromise, modify, amend or extend the time for payment of, or waive any default under, any of the Consulting Sale Collateral, or modify or amend, or waive any default under, any agreement with respect to the Consulting Sale Collateral, or consent to or acquiesce in any of the foregoing, without in each case the prior written consent of the Banks. (b) Subject to paragraph (c) of this Section 5.18, the Borrower shall be entitled to exercise or refrain from exercising any and all voting and other consensual rights -4- 5 pertaining to the Persus Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement or the Borrower's Security Agreement, provided, however, that the Borrower shall not exercise or refrain from exercising any such right if such action could reasonably be expected to be inconsistent with the terms of this Agreement or the Security Agreement, including without limitation, Pledgor's voting at any time to increase the number of member interests of authorized and/or issued member interests of Persus, except in a manner consistent with the terms of Section ___ of this Section 5.18, or voting at any time to sell any assets of such company. (c) Subject to paragraph (e) of this Section 5.18, the Borrower shall be entitled to receive, retain, and use in any manner not prohibited by this Agreement any and all dividends and other distributions paid in respect of the Persus Collateral; provided, however, that any and all (i) dividends and other distributions paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any Collateral, (ii) dividends and other distributions paid or payable in cash in respect of any Collateral in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in-surplus, and (iii) cash paid, payable or otherwise distributed in redemption of, or in exchange for, any Collateral, shall be, and shall be forthwith delivered to the Bank to hold as, Collateral and shall, if received by the Borrower, be received in trust for the benefit of the Bank, be segregated from the other property or funds of the Borrower, and be forthwith delivered to the Bank as Collateral in the same form as so received (with any necessary indorsement or assignment). The Borrower shall, upon request by the Bank, promptly execute all such documents and do all such acts as may be necessary or desirable to give effect to the provisions of this Section 5.18(c). (d) Upon the occurrence and during the continuance of any Event of Default, the Bank shall have the right in its sole discretion, and the Borrower shall execute and deliver all such proxies and other instruments as may be necessary or appropriate to give effect to such right, to terminate all rights of the Borrower to exercise or refrain from exercising the voting and other consensual rights that it would otherwise be entitled to exercise pursuant to Section 5.18(b) hereof, and all such rights shall thereupon become vested in the Bank who shall thereupon have the sole right to exercise or refrain from exercising such voting and other consensual rights; provided, however, that the Bank shall not be deemed to possess or have control over any voting rights with respect to any Collateral unless and until the Bank has given written notice to the Borrower that any further exercise of such voting rights by the Borrower is prohibited and that the Bank and/or its assigns will henceforth exercise such voting rights; and provided, further, that neither the registration of any item of Collateral in the Bank's name nor the exercise of any voting -5- 6 rights with respect thereto shall be deemed to constitute a retention by the Bank of any such Collateral in satisfaction of the Obligations or any part thereof. (e) Upon the occurrence and during the continuance of any Event of Default: (i) all rights of the Borrower to receive the dividends and other distributions that it would otherwise be authorized to receive and retain pursuant to Section 6(c) hereof shall cease, and all such rights shall thereupon become vested in the Bank who shall thereupon have the sole right to receive and hold such dividends and other distributions as Collateral under the Borrower's Security Agreement, and (ii) all payments of dividends and other distributions that are received by the Borrower contrary to the provisions of paragraph (i) of this Section 5.18(e) shall be received in trust for the benefit of the Bank, shall be segregated from other funds of the Borrower and shall be forthwith paid over to the Bank as Collateral under the Borrower's Security Agreement in the same form as so received (with any necessary indorsement). (f) The Borrower agrees that it will not (i) sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, any of the Persus Collateral. (g) The Pledgor agrees that it will (i) cause Persus not to issue any stock, member interests or other securities in addition to or in substitution for the Persus Collateral, except to the Pledgor and except for the 700 voting interests and 3750 nonvoting interests in Persus issued in favor of the "Partners", as specified in the Master Agreement and (ii) pledge under the Borrower's Security Agreement, immediately upon its acquisition (directly or indirectly) thereof, any and all additional member interests, stock or other securities of Persus issued in favor of the Borrower (b) Notwithstanding whether an Event of Default has occurred, any and all Net Proceeds paid, payable or otherwise distributed in respect of, or in exchange for, any Consulting Sale Collateral, shall be applied, and shall be forthwith delivered to the Agent to apply, to the Obligations in the manner set forth in Section 2.6(c) hereof and shall, if received by the Borrower or any Subsidiary, be received in trust for the benefit of the Agent, be segregated from the other property or funds of the Borrower or such Subsidiary, and be forthwith delivered to the Agent in the same form as so received (with any necessary endorsement or assignment). Notwithstanding the forgoing, upon the occurrence of an Event of Default and at any time during the continuance thereof, the Agent may take any action with respect to the Consulting Sale Collateral specified in Section 20 of the Borrower's Security Agreement or otherwise. Notwithstanding anything to the contrary in the Borrower's Security Agreement, the Borrower will not, without the Agent's prior written consent, agree to any modifications, -6- 7 amendments, subordinations, cancellations or terminations of the obligations of any Account Debtor (as defined in the Borrower's Security Agreement) upon any Consulting Sale Collateral. Within 10 days of any request therefor made by the Agent from time to time, the Borrower shall furnish to the Agent a written accounting of all amounts received on or prior to the date of such request by the Borrower or any Subsidiary upon the Consulting Sale Collateral and the Net Proceeds derived therefrom, which accounting shall be certified by the chief financial officer of the Borrower and shall be in form and substance reasonably acceptable to the Agent. (c) The provisions of this Section 5.18 shall supplement, and be cumulative of, the Borrower's Security Agreement. (d) Investments. The following new Section 6.10(s) of the Credit Agreement is added immediately following Section 6.10(r) of the Credit Agreement: (s) Investments comprising the Consulting Sale Collateral. (e) Events of Default. Section 7.1(c) of the Credit Agreement is amended by deleting the clause "5.15 or 5.16" as it appears therein and substituting in lieu thereof the clause "5.15, 5.16, 5.17 or 5.18". Section 3. Consent; Waiver of Events of Default; Termination of Consulting Security Documents; Delivery of Instruments. Upon the satisfaction of the conditions set forth in Section 5 below: (a) Each Bank and the Agent (i) hereby consents to the execution and delivery by the Borrower of the Consulting Sale Agreement and the consummation of the transactions contemplated thereby, (ii) hereby waives any default or Event of Default arising under Sections 4.10, 4.19, 6.1, 6.2, 6.10, 6.14, 7.1(k), 7.1(m) or 7.1(o) of the Credit Agreement due to the matters specified in the forgoing clause (i) and (iii) hereby waives any default or Event of Default arising under Section 5.17 of the Credit Agreement (as it existed prior to the date of this Amendment) arising due to the failure of the Borrower to timely furnish to the Agent the documents specified therein. The Banks' and the Agent's consents and waivers set forth in the forgoing sentence are limited to the specific terms thereof, and nothing herein shall be deemed a waiver by the Banks or the Agent of any other term, condition, representation or covenant applicable to the Borrower or any Guarantor under the Loan Documents (including but not limited to any future occurrence similar to the Existing Defaults). The waivers by the Banks and the Agent set forth this subparagraph shall not constitute a waiver by the Banks or the Agent of any other Default or Event of Default, if any, under any Loan Document, and shall not be, and shall not be deemed to be, a course of action with respect thereto upon which the Borrower may rely in the future, and the Borrower hereby expressly waives any claim to such effect. (b) The following documents are each hereby terminated for all purposes: (i) the Guaranty of NCHC, (ii) the Pledge Agreement of NCHC, (iii) the Security -7- 8 Agreement of NCHC, (iv) the Guaranty of Consulting and (v) the Security Agreement of Consulting (c) Schedule I attached to the Borrower's Pledge Agreement is hereby amended to read as set forth on Exhibit A to this Amendment. Except as amended by this Amendment, the Borrower's Pledge Agreement shall remain unmodified and in full force and effect. (d) The Agent shall execute and deliver to the Borrower's counsel the following: (i) UCC-3 financing statements terminating the UCC-1 financing statements filed by the Agent with respect to the Security Agreements executed by NCHC and Consulting and the Pledge Agreement executed by NCHC, (ii) UCC-3 financing statements amending the UCC-1 financing statement filed by the Agent with respect to the Borrower's Pledge Agreement to delete from the collateral description set forth therein the common stock of NCHC pledged by the Borrower thereunder, (iii) the share certificates representing the common stock of NCHC and Consulting held by the Agent and the corresponding stock powers held by the Agent. Section 4. Representations and Warranties of the Borrower. To induce the Banks and the Agent to execute and deliver this Amendment (which representations and warranties shall survive the execution and delivery of this Amendment), the Borrower represents and warrants to the Agent and the Banks that: (a) this Amendment has been duly authorized, executed and delivered by it and this Amendment constitutes the legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms, subject to limitations as to enforceability which might result from bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally; (b) the Credit Agreement, as amended by this Amendment, constitutes the legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms, subject to limitations as to enforceability which might result from bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally; (c) the execution, delivery and performance by the Borrower of the Amendment (i) have been duly authorized by all requisite corporate action and, if required, shareholder action, (ii) do not require the consent or approval of any governmental or regulatory body or agency, and (iii) will not (A) violate (1) any provision of law, statute, rule or regulation or its certificate of incorporation or bylaws, (2) any order of any court or any rule, regulation or order of any other agency or government binding upon it, or (3) any provision of any material indenture, agreement or other instrument to which it is a party or by which any of its properties or assets are or may be bound, or (B) result in a breach of or constitute (alone or with due notice or lapse of time or both) a default under any indenture, agreement or other instrument referred to in clause (iii)(A)(3) of this Section 4(c); -8- 9 (d) as of the date hereof, no Default or Event of Default has occurred which either (a) is continuing or (b) has not been waived by the Agent and the Banks as set forth in Section 3 of this Amendment; and (e) all the representations and warranties contained in Article IV of the Credit Agreement are true and correct in all material respects with the same force and effect as if made by the Borrower on and as of the date hereof. (f) (i) the Borrower has furnished to the Agent true, complete and accurate copies of the Consulting Sale Agreement, the Consulting Note Documents, and all exhibits, schedules and ancillary documents related thereto, (ii) the documents specified in the forgoing clause (i), (A) constitute the entire agreement between the Borrower and the other parties thereto with respect to the subject matter thereof and (B) have not been amended, terminated or otherwise modified and remain in full force and effect and (iii) the transactions contemplated by the Consulting Sale Agreement have been consummated. Section 5. Conditions to Effectiveness of this Amendment. This Amendment shall become effective as of April 30, 2001 when each and every one of the following conditions shall have been satisfied: (a) The Agent shall have received executed counterparts of this Amendment, duly executed by the Borrower and each of the Banks. (b) The Agent shall have received from the Guarantors a Consent and Agreement of Guarantors in the form of Exhibit B hereto (the "Guarantor Agreements") duly completed and executed by each Guarantor. (c) The Agent shall have received all certificates, instruments and other agreements representing or evidencing the Consulting Sale Collateral, together with duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Agent. (d) The Agent shall have received Warrants properly completed for each Bank and dated as of the First Determination Date and Second Determination Date (each as defined in the Warrant Issuance Agreement), duly executed by the Borrower. (e) The Agent shall have received such other documents or instruments reasonably deemed necessary by the Agent. Section 6. Affirmation; Reaffirmation. The Agent, each Bank and the Borrower each acknowledge and affirm that the Credit Agreement, as hereby amended, is hereby ratified and confirmed in all respects and all terms, conditions and provisions of the Credit Agreement, except as amended by this Amendment, shall remain unmodified and in full force and effect. All references in any document or instrument to the Credit Agreement are hereby amended and shall refer to the Credit Agreement as amended by this Amendment. The Borrower confirms to the Agent and each Bank that the Obligations are and continue to be secured by the security interest granted by the Borrower in favor of the Agent under the Borrower's Security Agreement and all -9- 10 of the terms, conditions, provisions, agreements, requirements, promises, obligations, duties, covenants and representations of the Borrower under such documents and any and all other documents and agreements entered into with respect to the Obligations are incorporated herein by reference and are hereby ratified and affirmed in all respects by the Borrower. Section 7. General. (a) The Borrower agrees to reimburse the Agent upon demand for all reasonable expenses (including reasonable attorneys fees and legal expenses) incurred by the Agent in the preparation, negotiation and execution of this Amendment and any other document required to be furnished herewith, and to pay and save the Agent harmless from all liability for any stamp or other taxes which may be payable with respect to the execution or delivery of this Amendment, which obligations of the Borrower shall survive any termination of the Credit Agreement. (b) This Amendment may be executed in as many counterparts as may be deemed necessary or convenient, and by the different parties hereto on separate counterparts, each of which, when so executed, shall be deemed an original but all such counterparts shall constitute but one and the same instrument. (c) Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or affecting the validity or enforceability of such provisions in any other jurisdiction. (d) This Amendment shall be governed by, and construed in accordance with, the internal law, and not the law of conflicts, of the State of Minnesota, but giving effect to federal laws applicable to national banks. (e) This Amendment shall be binding upon the Borrower, the Agent and the Banks and their respective successors and assigns, and shall inure to the benefit of the Borrower, the Agent and the Banks and the successors and assigns of the Agent and the Banks. Section 8. General Release. The Borrower hereby releases and discharges the Agent and each Bank, and each of their officers, directors, employees, agents and attorneys, from any and all claims, actions and liabilities of any kind or nature that it or any one claiming through or under the Borrower ever had or may now have, whether now known or hereafter discovered, arising out of or in any way relating to: (i) any lending relationship or loan commitment between the Agent, the Banks and the Borrower prior to the date of this Amendment; (ii) the Loan Documents; or (iii) the negotiations preceding the execution and delivery of this Amendment. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] -10- 11 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the day and year first above written. NORSTAN, INC. By /s/ Robert J. Vold --------------------------------------- Its Treasurer U.S. BANK NATIONAL ASSOCIATION, as a Bank and as Agent By /s/ David C. Larsen --------------------------------------- Its VP HARRIS TRUST AND SAVINGS BANK By /s/ Lawrence A. Mizera --------------------------------------- Its VP M&I MARSHALL & ILSLEY BANK By /s/ John W. Howard --------------------------------------- Its VP By /s/ Doug Pudvah --------------------------------------- Its VP WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION By /s/ William J. Kennedy --------------------------------------- Its VP [Signature Page to Fourth Amendment to Amended and Restated Credit Agreement] S-1 EX-10.(D)(5) 7 c63940ex10-d5.txt EX-10.(D)(5) FIFTH AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 10D(5) FIFTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT THIS FIFTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT is dated as of June 29, 2001 ("this Amendment"), by and among NORSTAN, INC., a Minnesota corporation (the "Borrower"), the banks which are signatories hereto (each individually, a "Bank," and collectively, the "Banks"), and U.S. BANK NATIONAL ASSOCIATION, a national banking association, one of the Banks, as agent for the Banks (in such capacity, the "Agent"). RECITALS A. The Borrower, the Banks and the Agent are parties to an Amended and Restated Credit Agreement dated as of December 20, 2000, as amended by a First Amendment to Amended and Restated Credit Agreement dated as of March 19, 2001, as amended by a Second Amendment to Amended and Restated Credit Agreement dated as of March 30, 2001, as amended by a Third Amendment to Amended and Restated Credit Agreement dated as of April 4, 2001 and as amended by a Fourth Amendment to Amended and Restated Credit Agreement dated as of May 15, 2001 (as amended, the "Credit Agreement"). B. The Borrower has requested that the Banks agree to amend certain provisions of the Credit Agreement as set forth in this Amendment. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: Section 1. Definitions. Capitalized terms used herein and not otherwise defined herein, but which are defined in the Credit Agreement, shall have the meanings ascribed to such terms in the Credit Agreement unless the context otherwise requires. Section 2. Amendments to Credit Agreement. Subject to Section 5 hereof, the Credit Agreement is hereby amended as follows: (a) Amended Definitions. Section 1.1 of the Credit Agreement is amended by deleting the definitions of "Applicable Margin", "Borrowing Base Supplement", "Excess Cash Flow", "Existing Letter of Credit", "Holding Account", "Loan", "Note", "Obligations", "Revolving Commitment Amount", "Revolving Outstandings", "Term C Loan", "Term C Loan Commitment Amount", "Term Loan C Percentage", "Term C Note", "Total Percentage" and "Warrant Documents" as they appear therein and by inserting in such Section 1.1 the following definitions in the appropriate alphabetical order: 2 "Additional Letter of Credit": Any irrevocable letter of credit (other than the Existing Letter of Credit) issued by the Agent pursuant to this Agreement for the account of the Borrower. "Average Monthly Revolver Availability": with respect to any calendar month, (a) the sum of the amount, if any, by which the lesser of the Aggregate Revolving Commitment Amounts or the Borrowing Base, exceeds the Aggregate Revolving Outstandings, in each case calculated as of the close of business on each Friday contained in such month, divided by (b) the number of Fridays contained in such month. "Applicable Margin": With respect to: (a) the Revolving Loans - 2.50%; (b) the Term A Loans - 2.50%; and (c) the Term B Loans - 4.00%; provided that, from and after the date on which the Term A Loans have been paid in full, the Applicable Margin for the Term B Loans shall be permanently reduced to 2.50%. "Bonus Payments": For any period of determination, Employee bonuses under the Borrower's annual incentive plan paid to management employees by the Borrower or any Subsidiary. "Borrowing Base Supplement": $7,500,000, provided that (a) such amount shall be permanently reduced to an amount not less than $5,000,000 by the aggregate amount of prepayments applied to the Revolving Loans in accordance with Sections 2.6(d), 5.16(b) and 5.18(b) and (b) if such amount has not been earlier reduced to $5,000,000 pursuant to the forgoing clause (a), such amount shall be permanently reduced to $5,000,000 on and after October 15, 2001. "Excess Cash Flow": As of the end of any fiscal year of the Borrower, determined for such fiscal year on a consolidated basis for the Borrower and its Subsidiaries in accordance with GAAP, the remainder of (a) the sum, without duplication, of (i) EBITDA for such period, and (ii) extraordinary cash income, if any, business interruption insurance proceeds, if any, and cash gains attributable to sales of assets outside the ordinary course of business (but net of taxes, expenses and reserves for indemnification, and exclusive of any gains realized in connection with any transaction contemplated by Section 2.6(c) so long as the Net Proceeds of such transaction are applied in the manner set forth in Section 2.6(d)), if any, during such period to the extent that any such extraordinary cash income, such insurance proceeds or such cash gain is not included in EBITDA for such period, minus -2- 3 (b) the sum, without duplication, of (i) income taxes paid in cash or accrued by the Borrower or any Subsidiary during such period, (ii) the aggregate amount of Capital Expenditures, if any (but only to the extent such Capital Expenditures were permissible under Section 6.8 during such period) minus Indebtedness incurred to finance such Capital Expenditures and secured solely by Liens on the property acquired, and (iii) Interest Expense and (iv) any payments made upon the Term A Loans or the Term B Loans (other than prepayments applied to the Term A Loans or the Term B Loans pursuant to Section 2.6(d)). "Existing Letter of Credit": Letter of Credit No. 76528 in the original face amount of $3,500,000 issued by U.S. Bank for the account of the Borrower in favor of Bank of Montreal. "Holding Account": A deposit account belonging to the Agent for the benefit of the Banks into which the Borrower may be required to make deposits pursuant to the provisions of this Agreement, such account to be under the sole dominion and control of the Agent and not subject to withdrawal by the Borrower, with any amounts therein to be held for application toward any drawings made under any Letter of Credit. The Holding Account shall be a money market savings account or substantial equivalent (or other appropriate investment medium as the Borrower may from time to time request and to which the Agent in its sole discretion shall have consented) and shall bear interest in accordance with the terms of similar accounts held by the Agent for its customers. "Letter of Credit": The Existing Letter of Credit and any Additional Letter of Credit. "Loan": A Revolving Loan, a Term A Loan or a Term B Loan. "Note": A Term A Note, a Term B Note or a Revolving Note. "Obligations": The Borrower's obligations in respect of the due and punctual payment of principal and interest (including, without limitation and to the extent permitted by law, interest accruing after the commencement of a case by or against the Borrower under the United States Bankruptcy Code) on the Notes and Unpaid Drawings when and as due, whether by acceleration or otherwise and all fees (including Unused Revolving Commitment Fees and Letter of Credit Fees), expenses, indemnities, reimbursement and other obligations of the Borrower under this Agreement, any other Borrower Loan Document, and any letter of credit application and reimbursement agreement executed and delivered by the Borrower to U.S. Bank in connection with the issuance of any Letter of Credit, in all cases whether now existing or hereafter arising or incurred. "Ratably": With respect to any unpaid installment upon the Term A Loan or the Term B Loan, as applicable, the amount equal to (a) the aggregate amount of any prepayment to be applied pursuant to this Agreement to the Term A Loan -3- 4 or the Term B Loan, as applicable, multiplied by (b) a fraction, the numerator of which is the unpaid principal balance of such installment payment and the denominator of which is the aggregate unpaid principal balance of Term A Loan or the Term B Loan, as applicable. "Revolving Commitment Amount": With respect to a Bank, initially the amount set opposite such Bank's name on Schedule 1.1B hereto (as such Schedule may from time to time be amended) as its Revolving Commitment Amount, but as the same may be from time to time increased or reduced as provided Section 2.8. "Revolving Outstandings": As of any date of determination with respect to any Bank, the sum of (a) the aggregate unpaid principal balance of Advances outstanding under such Bank's Revolving Note on such date, (b) an amount equal to the aggregate stated amount of each Letter of Credit multiplied by such Bank's Revolving Commitment Percentage, and (c) an amount equal to the aggregate amount of Unpaid Drawings on such date (after applying any funds held in the Holding Account to the payment thereof) multiplied by such Bank's Revolving Commitment Percentage. "Stock": All shares, interests, participation or other equivalents, however designated, of or in a corporation or a limited liability company, whether or not voting, including but not limited to common stock, member interests, warrants, preferred stock, convertible debentures, and all agreements, instruments and documents convertible, in whole or in part, into any one or more or all of the foregoing. "Subsequent Warrants": Warrants for the purchase of 100,000 shares of the Borrower's common stock issued upon the effectiveness of the Fifth Amendment hereto ratably to the Banks in accordance with their Revolving Commitment Percentages. "Subsequent Warrant Issuance Agreement": Second Round Warrant Issuance Agreement dated as of the date of the Fifth Amendment hereto between the Borrower and the Banks, as the same may be amended, restated or otherwise modified from time to time. "Total Percentage": With respect to any Bank, the percentage equivalent of a fraction, the numerator of which is the sum of the Revolving Commitment Amount of such Bank (or, if the Revolving Commitments have been terminated, the Revolving Outstandings of such Bank), the outstanding Term A Loans and Term B Loans of such Bank and the denominator of which is the sum of the Aggregate Revolving Commitment Amounts (or, if the Revolving Commitments have terminated, the Aggregate Revolving Outstandings) and the outstanding Term A Loans and Term B Loans of all the Banks. -4- 5 "Warrant Documents": The Warrant Registration Agreement, the Warrant Issuance Agreement, the Warrants, the Subsequent Warrant Issuance Agreement and the Subsequent Warrants. (b) Term Loans. Sections 2.1(b), (c) and (d) of the Credit Agreement are deleted in their respective entireties and the following is substituted in lieu thereof: (c) Term A Loans. Upon the Fifth Amendment Effective Date, each Bank shall continue its ratable portion of $20,000,000 of the Banks' existing term loans to the Borrower as a term loan in an amount by such Bank equal to its Term A Loan Commitment Amount (each being a "Term A Loan" and, collectively, the "Term A Loans"). (d) Term B Loans. Upon the Fifth Amendment Effective Date, each Bank shall continue its ratable portion of $15,430,004.50 of the Banks' existing term loans to the Borrower as a term loan in an amount by such Bank equal to its Term B Loan Commitment Amount (each being a "Term B Loan" and, collectively, the "Term B Loans"). (c) Notes. Section 2.3 of the Credit Agreement is deleted in its entirety and the following is substituted in lieu thereof: Section 2.3 Notes. The Revolving Loans of each Bank shall be evidenced by a single Revolving Note payable to the order of such Bank in a principal amount equal to such Bank's Revolving Commitment Amount originally in effect. The Term A Loan of each Bank shall be evidenced by a Term A Note payable to the order of such Bank in the principal amount equal to such Bank's Term A Loan Commitment Amount. The Term B Loan of each Bank shall be evidenced by a Term B Note payable to the order of such Bank in the principal amount equal to such Bank's Term B Loan Commitment Amount. Each Bank shall enter in its ledgers and records the amount of its Term A Loan, its Term B Loan, and each Revolving Loan, the various Advances made and the payments made thereon, and each Bank is authorized by the Borrower to enter on a schedule attached to its Term A Note, Term B Note, or Revolving Note, as appropriate, a record of such Term A Loan, Term B Loan, Revolving Loans, Advances and payments; provided, however that the failure by any Bank to make any such entry or any error in making such entry shall not limit or otherwise affect the obligation of the Borrower hereunder and on the Notes, and, in all events (a) the principal amounts owing by the Borrower in respect of the Revolving Notes shall be the aggregate amount of all Revolving Loans made by the Banks less all payments of principal thereof made by the Borrower, (b) the principal amount owing by the Borrower in respect of the Term A Notes shall be the aggregate amount of all Term A Loans made by the Banks less all payments of principal thereof made by the Borrower, and (c) the principal amount owing by the Borrower in respect of the Term B Notes shall be the aggregate amount of all Term B Loans made by the Banks less all payments of principal thereof made by the Borrower. -5- 6 (d) Repayments. Section 2.5 of the Credit Agreement is deleted in its entirety and the following is substituted in lieu thereof: Section 2.5 Repayment; Payment to Holding Account. (a) Revolving Loans. The Revolving Loans, together with all accrued and unpaid interest thereon, shall be due and payable on the Termination Date. (b) Term A Loan. The principal of the Term A Loan shall be due and payable as follows: (i) an installment of $2,000,000 due and payable on August 31, 2001; (ii) two equal installments of $1,000,000 due and payable on each of September 28, 2001 and October 31, 2001; (iii) five equal installments of $2,000,000 due and payable on each of November 30, 2001, December 31, 2001, January 31, 2002, February 28, 2002 and March 29, 2002; (iv) an installment of $3,000,000 due and payable on April 30, 2002; (v) an installment of $1,000,000 due and payable on May 31, 2002; and (vi) an installment of $2,000,000 due and payable on June 28, 2002; provided, however, that (y) any installment of principal due on any date specified in the table above shall be reduced by any prepayments of principal applied to such installment pursuant to this Agreement and (z) if the aggregate principal amount outstanding under the Term A Loans as of the date any principal payment is due is less than the amount specified for such date in the table above, then the principal amount payable on such date shall be such amount outstanding. (c) Term B Loan. The principal of the Term B Loan shall be due and payable as follows: (i) an installment of $2,000,000 due and payable on the earlier of (A) July 31, 2002 and (B) the last Business Day of the first month following the month in which the Term A Loans have been paid in full; -6- 7 (ii) an installment of $1,000,000 due and payable on the earlier of (A) August 31, 2002 and (B) the last Business Day of the second month following the month in which the Term A Loans have been paid in full; (iii) an installment of $1,500,000 due and payable on the earlier of (A) September 30, 2002 and (B) the last Business Day of the third month following the month in which the Term A Loans have been paid in full; (iv) an installment of $2,000,000 due and payable on the earlier of (A) October 31, 2002 and (B) the last Business Day of the fourth month following the month in which the Term A Loans have been paid in full; (v) an installment of $2,000,000 due and payable on the earlier of (A) November 29, 2002 and (B) the last Business Day of the fifth month following the month in which the Term A Loans have been paid in full; and (vi) an installment of $6,569,995.50 due and payable on the earlier of (A) December 31, 2002 and (B) the last Business Day of the sixth month following the month in which the Term A Loans have been paid in full; provided, however, that (x) any installment of principal due on any date specified in the table above shall be reduced by any prepayments applied to such installment pursuant to this Agreement, (y) if the aggregate principal amount outstanding under the Term B Loans as of the date any principal payment is due is less than the amount specified for such date in the table above, then the principal amount payable on such date shall be such amount outstanding and (z) if the Term A Loan is paid in full on or prior to May 30, 2002, the Banks will consider in good faith any proposal by the Borrower based upon its projections of cash available for debt service to modify the installment payments which would come due prior to July 31, 2002 pursuant to the table above (provided that no Bank shall be obligated to consider any such proposal for more than 10 days beyond the Borrower's initial written proposal and no Bank shall be obligated to agree to modify such installment payments, which modification shall be subject to the prior written approval of each Bank in its sole discretion). (d) Payment to Holding Account. The Borrower shall pay to the Holding Account on the Termination Date an amount equal to the aggregate face amount of the Letters of Credit. (e) Prepayments. Section 2.6 of the Credit Agreement is deleted in its entirety and the following is substituted in lieu thereof: -7- 8 Section 2.6 Mandatory and Optional Prepayments. (a) Optional Prepayments. The Borrower may prepay Loans, in whole or in part, at any time, without premium or penalty. Amounts paid (unless following an acceleration or upon termination of the Revolving Commitments in whole) or prepaid on Revolving Loans under this Section 2.6 may be reborrowed upon the terms and subject to the conditions and limitations of this Agreement. Amounts paid or prepaid on the Term A Loans or the Term B Loans may not be reborrowed. Amounts paid or prepaid on the Loans under this Section 2.6 shall be for the account of each Bank in proportion to its share of Loans being prepaid. (b) Mandatory Prepayment of Revolving Loans. (i) If at any time the Aggregate Revolving Outstandings exceed the Aggregate Revolving Commitment Amounts (including but not limited to any excess caused by a reduction in the Revolving Commitment Amounts pursuant to Section 2.8 hereof), the Borrower shall repay the Revolving Notes in an aggregate amount equal to such excess, which prepayment shall be apportioned among the Banks' Revolving Notes in accordance with their respective Revolving Outstandings Percentages. (ii) Prepayments on Revolving Loans shall be made in accordance with the provisions of Section 2.17(b). (c) Mandatory Prepayments Due to Certain Transactions. Immediately upon the receipt thereof by the Borrower or any Subsidiary, the Borrower shall prepay the Loans in an aggregate amount of 100% of the Net Proceeds received in cash by the Borrower or any Subsidiary as a result of any of the following events: (i) sales or other transfers of NFS Lease Accounts and Norstan Canada Lease Accounts (other than NFS Lease Accounts and Norstan Canada Lease Accounts that, from and after the date of the Fifth Amendment hereto, have been, substantially contemporaneously upon the creation of such Account, financed in the ordinary course of business by a financer other than the Borrower or any Subsidiary), and the related leases and equipment that are authorized by Sections 6.2(d) and (e); (ii) sales of any assets of the Borrower or any Subsidiary, other than sales of inventory in the ordinary course of business or sales of obsolete or worn-out equipment (but this subsection 2.6(c) does not authorize any such sales, which are subject to Section 6.2 hereof) and other than sales of assets of the type specified in the forgoing clause (i); or (iii) any public or private sale or offering by the Borrower of its capital stock or debt securities (but this subsection 2.6(c) does not authorize any such issuances, which are subject to Sections 6.11 and 6.24 hereof). -8- 9 (d) Application of Prepayments Under Section 2.6(c). Any prepayments made pursuant to Section 2.6(c) shall be applied in the following order by the Agent to the Loans ratably to each Bank according to its Revolving Commitment Percentage, Term A Loan Percentage or Term B Loan Percentage, as applicable: (i) with respect to Net Proceeds of transactions of the type specified in the clauses (i) and (iii) of Section 2.6(c), (a) an amount equal to the lesser of 25% of such Net Proceeds and the unpaid balance of the Revolving Loans, shall be applied to the Revolving Loans (other than the reimbursement obligations with respect to the Letters of Credit), and (b) an amount equal to the greater of 75% of such Net Proceeds or the amount remaining of such Net Proceeds following payment in full of the Revolving Loans, shall be applied (w) first, Ratably to the unpaid installments upon Term A Loan, (x) second, Ratably to the unpaid installments upon the Term B Loan (y) third, to the unpaid principal balance of the Revolving Loans (other than reimbursement obligations with respect to letters of credit), and (z) fourth, to the Holding Account in the amount of the aggregate face amount of the Letters of Credit. (ii) with respect to Net Proceeds of transactions of the type specified in clause (ii) of Section 2.6(c), (a) an amount equal to the lesser of 75% of such Net Proceeds and the unpaid balance of the Term A Loans, shall be applied Ratably to the unpaid installments upon the Term A Loans, (b) an amount equal to the greater of 25% of such Net Proceeds and the amount remaining of such Net Proceeds following payment in full of the Term A Loans, shall be applied (x) first, Ratably to the unpaid installments upon the Term B Loan, (y) second, to the unpaid principal balance of the Revolving Loans (other than the reimbursement obligations with respect to the Letters of Credit), and (z) third, to the Holding Account in the amount of the aggregate face amount of the Letters of Credit. (e) Average Monthly Revolving Availability. If, for any calendar month (commencing with the calendar month ending on July 31, 2001), the Average Monthly Revolving Availability exceeds $10,000,000, then, on or before the 10th calendar day of the next following month, the Borrower shall prepay the Term A Loan and Term B Loan in the amount of such excess. Any such prepayments shall be applied (a) first, Ratably to the unpaid installments upon the Term A Loans and (b) second, Ratably to the unpaid installments upon the Term B Loans. (f) Borrowing Base Deficiency. If at any time a Borrowing Base Deficiency exists, the Borrower shall immediately pay on the -9- 10 principal of the Revolving Loans an amount equal to such Borrowing Base Deficiency. Amounts paid on the Revolving Loans under this Section 2.6(f) shall be for the account of each Bank in proportion to its share of outstanding Revolving Loans. If, after paying all outstanding Revolving Loans, a Borrowing Base Deficiency still exists, the Borrower shall pay into the Holding Account an amount equal to the amount of the remaining Borrowing Base Deficiency. (g) Excess Cash Flow. On or before 30 days after the end of each fiscal year of the Borrower (commencing with the fiscal year ending April 30, 2002), the Borrower shall prepay the Term B Loans in an amount equal to 50% of the Excess Cash Flow for such fiscal year. Amounts paid on the Term B Loans under this Section 2.6(g) shall applied to the unpaid installments upon the Term B Loans in inverse order of their maturities. (f) Additional Letters of Credit. Section 2.7(a) of the Credit Agreement is deleted in its entirety and the following is substituted in lieu thereof: (a) The Letters of Credit. The Existing Letter of Credit shall be deemed to be issued and outstanding under this Agreement on the Closing Date. Subject to Section 2.7(f) and the other terms and conditions of this Agreement, the Agent agrees to issue Additional Letters of Credit for the account of the Borrower from time to time prior to the Termination Date in such amounts as the Borrower shall request; provided, however, that: (i) No Additional Letter of Credit will be issued in any amount which, after giving effect to such issuance, would cause either (A) the Aggregate Revolving Outstandings to exceed the Aggregate Revolving Commitment Amounts or (ii) the sum of the Unpaid Drawings under the Letters of Credit plus the aggregate amount available to be drawn under the Letters of Credit (including such Additional Letter of Credit) to exceed $8,000,000; (ii) No Additional Letter of Credit shall have a stated available amount of less than $50,000; and (iii) Without the prior written consent of all of the Banks, no Additional Letter of Credit shall expire later than the earlier of (i) 365 days after the date of issuance thereof and (ii) the Business Day preceding the Revolving Commitment Ending Date. (g) Further Letter of Credit Amendments. Sections 2.7(b) and (e) of the Credit Agreement are each hereby amended by deleting each appearance of the term "the Existing Letter of Credit" contained therein and by substituting in lieu thereof the term "any Letter of Credit". Section 2.7(c) of the Credit Agreement is amended by deleting -10- 11 each appearance of the terms "the Existing Letter of Credit" and "the Existing Letters of Credit" contained therein and by substituting in lieu thereof the term "each Letter of Credit". Section 2.7(d) of the Credit Agreement is amended by deleting each appearance of the term "the Existing Letter of Credit" contained therein and by substituting in lieu thereof the term "any Letter of Credit." Section 2.7 of the Credit Agreement is further amended by adding the following new subsection (f) thereto: (f) Procedures for Additional Letters of Credit. Each request for an Additional Letter of Credit shall be made by the Borrower in writing, by facsimile transmission or electronic conveyance received by the Agent by 2:00 P.M., Minneapolis time, on a Business Day which is not less than one Business Day preceding the requested date of issuance (which shall also be a Business Day). Each request for an Additional Letter of Credit shall be deemed a representation by the Borrower that on the date of issuance of such Additional Letter of Credit and after giving effect thereto the applicable conditions specified in Article III have been and will be satisfied. The Agent may require that such request be made on such letter of credit application and reimbursement agreement form as the Agent may from time to time specify, along with satisfactory evidence of the authority and incumbency of the officers of the Borrower making such request. The Agent shall promptly notify the other Banks of the receipt of the request and the matters specified therein. On the date of each issuance of an Additional Letter of Credit the Agent shall send notice to the other Banks of such issuance, accompanied by a copy of the Additional Letter or Letters of Credit so issued. Additional Letters of Credit shall be issued in support of obligations of the Borrower and the Subsidiaries under performance and surety bond incurred in the ordinary course of business. Section 2.8 of the Credit Agreement is amended (1) by deleting the clause "the Existing Letters of Credit is no longer" as it appears therein and by substituting in lieu thereof the clause "no Letter of Credit is" and (2) by deleting the clause "the Existing Letter of Credit" as it appears in the last sentence thereof and by substituting in lieu thereof the clause "the Letters of Credit". Section 2.16 of the Credit Agreement is amended by deleting the clause "the Existing Letter of Credit" as it appears therein and by substituting in lieu thereof the clause "the Letters of Credit". Section 7.2 of the Credit Agreement is amended by deleting each reference to the phrase "the Existing Letters of Credit" appearing therein and by substituting in lieu thereof the phrase "each Letter of Credit". Section 9.1(g) is amended by deleting the clause "the Existing Letter of Credit" as it appears therein and by substituting in lieu thereof the clause "the Letters of Credit". (h) Letter of Credit Fees. Section 2.10 of the Credit Agreement is deleted in its entirety and the following is substituted in lieu thereof: Section 2.10 Letter of Credit Fees. For each Letter of Credit issued, the Borrower shall pay to the Agent for the ratable account of the Banks, in advance payable on the date of issuance, a fee (a "Letter of Credit Fee") in an amount equal to 2.5% of the original face amount of the Letter of Credit. Each Bank may set off any refund of the Letter of Credit Fees contemplated by the forgoing -11- 12 sentence against any amounts due and payable to such Bank on the date such refund is payable. The Borrower shall pay to U.S. Bank for its own account, on demand, all fees customarily charged by U.S. Bank with respect to the issuance, renewal, amendment, administration or payment of each Letter of Credit. (i) Revolving Commitment Ending Date. Section 2.14 is amended by deleting the clause "June 29, 2001" as it appears therein and by substituting in lieu thereof the clause "June 28, 2002". (j) Use of Proceeds. Section 2.15 of the Credit Agreement is amended by deleting the first sentence thereof and by substituting in lieu thereof the following: The Term A Loan and the Term B Loan shall each continue a portion (equal to the principal amount of such Loan) of the Borrower's existing term loan obligations to the Bank outstanding immediately prior to the consummation of the Fifth Amendment hereto. (k) Conditions Precedent to all Loans. Section 3.2 of the Credit Agreement is amended (1) by deleting the clause ", Term B Loans and Term C Loans" as it appears therein and by substituting in lieu thereof the clause "and Term B Loans", (2) by deleting each reference to the phrase "the renewal of the Existing Letter of Credit" and by substituting in lieu thereof the phrase "the issuance of any Additional Letter of Credit" and (3) by deleting the phrase "the Existing Letter of Credit is renewed" and by substituting in lieu thereof the phrase "any Letter of Credit is issued". (l) Preamble to Articles 5 and 6. The Preamble to each of Articles 5 and 6 of the Credit Agreement is deleted in its entirety and the following is substituted in lieu thereof: Until any obligation of the Banks hereunder to make the Loans, and any obligation of U.S. Bank to issue the Letters of Credit shall have expired or been terminated and the Notes and all of the other Obligations have been paid in full, and no amount is available to be drawn under the under the Letters of Credit, unless the Majority Banks shall otherwise consent in writing: (m) Connaissance Note Collateral. Section 5.16(b) of the Credit Agreement is deleted in its entirety and the following is substituted in lieu thereof: (b) Notwithstanding whether an Event of Default has occurred, any and all cash paid, payable or otherwise distributed in respect of principal of, or in exchange for, any Connaissance Note Collateral, shall be applied, and shall be forthwith delivered to the Agent to apply, to the Obligations as follows: (i) any such Net Proceeds constituting payment upon any regularly scheduled installment of principal upon the Connaissance Note Collateral shall be applied (a) first, to the unpaid installments upon the Term A Loans in order of their maturities, (b) second, the unpaid installments upon the Term B Loans in order of their maturities, (c) third, to the unpaid -12- 13 principal balance of the Revolving Loans (other than reimbursement obligations with respect to Letters of Credit) and (d) fourth, to the Holding Account in the amount of the aggregate face amount of the Letters of Credit; and, (ii) any such Net Proceeds other than as provided in the forgoing clause (i) (including any prepayments upon any Connaissance Note Collateral and any payments upon any Connaissance Note Collateral following any acceleration of the maturity dates of such Connassiance Note Collateral) shall be applied in the manner set forth in subclause (ii) of Section 2.6(d). Any Net Proceeds of Connaissance Note Collateral shall, if received by the Borrower or any Subsidiary, be received in trust for the benefit of the Agent, be segregated from the other property or funds of the Borrower or such Subsidiary, and be forthwith delivered to the Agent in the same form as so received (with any necessary endorsement or assignment). Notwithstanding anything to the contrary in this Agreement, upon the occurrence of an Event of Default and at any time during the continuance thereof, the Agent may take any action with respect to the Connaissance Note Collateral in accordance with Section 20 of NCI's Security Agreement or otherwise. (n) Ericsson Intercreditor Agreements. Section 5.17 of the Credit Agreement is amended by deleting the clause "May 30, 2001" as it appears therein and by substituting in lieu thereof the clause "July 15, 2001". (o) Consulting Sale Collateral. Section 5.18(b) of the Credit Agreement is deleted in its entirety and the following is substituted in lieu thereof: (b) Notwithstanding whether an Event of Default has occurred, any and all cash paid, payable or otherwise distributed in respect of principal of, or in exchange for, any Consulting Sale Collateral, shall be applied, and shall be forthwith delivered to the Agent to apply, to the Obligations as follows: (i) any such Net Proceeds constituting payment upon any regularly scheduled installment of principal upon the Consulting Sale Collateral shall be applied (a) first, to the unpaid installments upon the Term A Loans in order of their maturities, (b) second, the unpaid installments upon the Term B Loans in order of their maturities, (c) third, to the unpaid principal balance of the Revolving Loans (other than reimbursement obligations with respect to Letters of Credit) and (d) fourth, to the Holding Account in the amount of the aggregate face amount of the Letters of Credit; and, (ii) any such Net Proceeds other than as provided in the forgoing clause (i) (including any prepayments upon any Consulting Sale Collateral and any payments upon any Consulting Sale Collateral following any -13- 14 acceleration of the maturity dates of such Consulting Sale Collateral) shall be applied in the manner set forth in subclause (ii) of Section 2.6(d). Any Net Proceeds of Consulting Sale Collateral shall, if received by the Borrower or any Subsidiary, be received in trust for the benefit of the Agent, be segregated from the other property or funds of the Borrower or such Subsidiary, and be forthwith delivered to the Agent in the same form as so received (with any necessary endorsement or assignment). Notwithstanding anything to the contrary in this Agreement, upon the occurrence of an Event of Default and at any time during the continuance thereof, the Agent may take any action with respect to the Consulting Sale Collateral in accordance with Section 20 of NCI's Security Agreement or otherwise. (p) Sale of Assets. Sections 6.2(d) and (e) are amended be deleting the clause "applied pursuant to Section 2.6(c)" as such clause appears in each such Section and by substituting in lieu thereof the clause "paid to the Agent pursuant to Section 2.6(c) for application pursuant to Section 2.6(d)". (q) Capital Expenditures. Section 6.8 of the Credit Agreement is deleted in its entirety and the following is substituted in lieu thereof: Section 6.8 The Borrower will not, and will not permit any Subsidiary to, make Capital Expenditures in an amount exceeding, on a consolidated basis in the following amounts for the following period: (a) during the fiscal year ending April 30, 2002, $3,000,000, and (b) during the period from May 1, 2002 through December 31, 2002, $2,000,000. (r) Amendments to Financial Covenants. Sections 6.16, 6.17, 6.18 and 6.19 of the Credit Agreement are deleted in their respective entireties and the following is substituted in lieu thereof: Section 6.16 MINIMUM EBITDA. The Borrower will not permit EBITDA to be less than (a) $2,301,000 for the fiscal quarter ending on or about July 31, 2001, (b) $5,585,000 for the two fiscal quarters ending on or about October 31, 2001 and (c) $9,264,000 for the three fiscal quarters ending on or about January 31, 2002. Further, the Borrower will not permit EBITDA, as of the last day of the Borrower's fiscal quarters ending on or about the following dates for the four fiscal quarters ended on such date, to be less than the following indicated amounts:

Fiscal Quarter Ending On or About Minimum EBITDA --------------------------------- -------------- April 30, 2002 $13,858,000 July 31, 2002 $16,130,000 October 31, 2002 $17,754,000

Section 6.17 [RESERVED]. -14- 15 Section 6.18 ADJUSTED LEVERAGE RATIO. The Borrower will not permit the Adjusted Leverage Ratio, as of the last day of the Borrower's fiscal quarters ending on or about the following dates for such fiscal quarter, to be greater than the following indicated amounts:

Fiscal Quarter Ending On or About Maximum Adjusted Leverage Ratio --------------------------------- ------------------------------- July 31, 2001 69.7 to 1.0 October 31, 2001 69.9 to 1.0 January 31, 2002 44.3 to 1.0 April 30, 2002 24.8 to 1.0 July 31, 2002 15.7 to 1.0 October 31, 2002 10.5 to 1.0

Section 6.19 INTEREST COVERAGE RATIO. The Borrower will not permit the Interest Coverage Ratio to be less than (a) 1.6 to 1.0 for the fiscal quarter ending on or about July 31, 2001, (b) 1.9 to 1.0 for the two fiscal quarters ending on or about October 31, 2001 and (c) 2.2 to 1.0 for the three fiscal quarters ending on or about January 31, 2002. Further, the Borrower will not permit the Interest Coverage Ratio, as of the last day of the Borrower's fiscal quarters ending on or about the following dates for the four fiscal quarters ending on such date, to be less than the following indicated amounts:

Fiscal Quarter Ending On or About Minimum Interest Coverage Ratio --------------------------------- ------------------------------- April 30, 2002 2.6 to 1.0 July 31, 2002 3.4 to 1.0 October 31, 2002 4.3 to 1.0

(s) New Negative Covenant. Article 6 of the Credit Agreement is amended by adding the following new Sections 6.23 and 6.24 at the end thereof: 6.23 Employee Bonuses. The Borrower will not, and will not permit any Subsidiary to, make any payments under the Bonus Plan which are accrued and required to the paid during the fiscal year ending April 30, 2002 in an amount exceeding $2,000,000. 6.24 Issuance and Ownership of Stock. Except for issuing Stock of the Borrower or any Subsidiary, or options to purchase the same, issued in the ordinary course of business to the Borrower's or such Subsidiary's officers or employees pursuant to the Borrower's of such Subsidiary's officer or employee stock purchase or option agreements, the Borrower will not, nor will permit any Subsidiary to, take any action, or permit any Subsidiary to take any action, which would (a) result in a decrease in the Borrower's or any Subsidiary's ownership interest in any Subsidiary including, without limitation, decrease in the percentage of the shares of any class of stock owned or (b) result in the issuance by the -15- 16 Borrower of Stock other than (i) those issued and outstanding on the date of the Fifth Amendment hereto and (ii) the Warrants and the Subsequent Warrants and common stock of the Borrower necessary to satisfy the exercise of the Warrants or the Subsequent Warrants. The Borrower acknowledges that no Bank has any obligation to exercise the Warrants or the Subsequent Warrants and that any such exercise shall be in the sole discretion of such Bank. (t) Payments and Collections. Section 8.10 of the Credit Agreement is amended by deleting the third sentence thereof in its entirety. Section 8.10 of the Credit Agreement is further amended by deleting the clause "the Existing Letter of Credit" and substituting in lieu thereof the clause "the Letters of Credit". (u) New Borrowing Base Certificate. Exhibit A to the Credit Agreement is hereby amended and restated as set forth in Exhibit A to this Amendment, which Exhibit A is hereby made a part of the Credit Agreement as Exhibit A thereto. (v) New Term A Note. Exhibit C to the Credit Agreement is hereby amended and restated to read as set forth on Exhibit B to this Amendment, which Exhibit B is made a part of the Credit Agreement as Exhibit C thereto. (w) New Term B Note. Exhibit D to the Credit Agreement is hereby amended and restated to read as set forth on Exhibit C to this Amendment, which Exhibit C is made a part of the Credit Agreement as Exhibit D thereto. (x) Deletion of Term C Note. Exhibit E to the Credit Agreement is hereby deleted in its entirety. (y) New Schedule of Commitments. Schedule 1.1B of the Credit Agreement is hereby amended and restated to read as set forth on Exhibit D hereto, which Exhibit D is hereby made a part of the Credit Agreement as Schedule 1.1B thereof. (z) New Schedule of Subsidiaries. Schedule 4.19 of the Credit Agreement is hereby amended and restated to read as set forth on Exhibit E hereto, which Exhibit E is hereby made a part of the Credit Agreement as Schedule 4.19 thereof. Section 3. [Reserved] Section 4. Representations and Warranties of the Borrower. To induce the Banks and the Agent to execute and deliver this Amendment (which representations and warranties shall survive the execution and delivery of this Amendment), the Borrower represents and warrants to the Agent and the Banks that: (a) this Amendment and each Amendment Document (defined below) to which the Borrower is a party has been duly authorized, executed and delivered by it and each Amendment Document to which the Borrower is a party constitutes the legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms, subject to limitations as to enforceability which might result from -16- 17 bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally; (b) each Amendment Document to which the Borrower is a party constitutes the legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with its terms, subject to limitations as to enforceability which might result from bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally; (c) the execution, delivery and performance by the Borrower of the Amendment Documents to which it is a party (i) have been duly authorized by all requisite corporate action and, if required, shareholder action, (ii) do not require the consent or approval of any governmental or regulatory body or agency, and (iii) will not (A) violate (1) any provision of law, statute, rule or regulation or its certificate of incorporation or bylaws, (2) any order of any court or any rule, regulation or order of any other agency or government binding upon it, or (3) any provision of any material indenture, agreement or other instrument to which it is a party or by which any of its properties or assets are or may be bound, or (B) result in a breach of or constitute (alone or with due notice or lapse of time or both) a default under any indenture, agreement or other instrument referred to in clause (iii)(A)(3) of this Section 4(c); (d) as of the date hereof, no Default or Event of Default has occurred which either (a) is continuing or (b) has not been waived by the Agent and the Banks; and (e) all the representations and warranties contained in Article IV of the Credit Agreement are true and correct in all material respects with the same force and effect as if made by the Borrower on and as of the date hereof. Section 5. Conditions to Effectiveness of this Amendment. This Amendment shall become effective as of June 29, 2001 when each and every one of the following conditions shall have been satisfied: (a) The Agent shall have received executed counterparts of this Amendment, duly executed by the Borrower and each of the Banks. (b) The Agent shall have received an executed new Term A Note and a Term B Note for each Bank, properly completed for such Bank based upon its Term A Loan Commitment or Term B Loan Commitment, as applicable, and duly executed by the Borrower. (c) The Agent shall have received from the Guarantors a Consent and Agreement of Guarantors in the form of Exhibit F hereto (the "Guarantor Agreements") duly completed and executed by each Guarantor. (d) The Agent shall have received a copy of the resolutions of the Board of Directors of the Borrower authorizing the execution, delivery and performance by the Borrower of this Amendment, the new Term Note A and Term Note B and the other documents to be executed by the Borrower in connection herewith, together with a -17- 18 certificate of an officer of the Borrower certifying as to the incumbency and the true signatures of the officers authorized to execute such documents and certifying that the Articles of Incorporation and Bylaws of the Borrower have not been amended or otherwise modified since true and accurate copies of such documents were previously furnished to the Bank. (e) the Agent shall have received the favorable opinion of counsel to Borrower, in form and substance acceptable to the Agent and its counsel; (f) The Agent shall have received the Subsequent Warrant Registration Agreement, duly executed by the Borrower and the Banks. (g) The Agent shall have received Subsequent Warrants, properly completed for each Bank and duly executed by the Borrower and issued to the Banks ratably in accordance with their Revolving Commitment Percentages, containing an exercise price equal to the closing price per share of the Borrower's common stock on the recognized exchange on which such stock is traded at the close of trading on the date of this Amendment. (h) The Agent shall have received all certificates, instruments and other agreements representing or evidencing the Consulting Sale Collateral, together with duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Agent. (i) The Agent shall have received for the ratable benefit of the Banks a non-refundable restructuring fee in the amount of $163,750 (the "Restructuring Fee"). (j) The Borrower shall have satisfied such other conditions as specified by the Agent, including payment of all unpaid legal fees and expenses incurred by the Agent and the fees and expenses of Price Waterhouse Coopers, financial consultants to the Banks, in each case through the date of this Amendment in connection with the Credit Agreement, this Amendment and any and all other documents to be executed and delivered by any party in connection with this Amendment (the "Amendment Documents"). Upon the effectiveness of this amendment, the Agent shall distribute the Restructuring Fee to the Banks ratably in accordance with their Revolving Commitment Percentages. Section 6. Affirmation; Reaffirmation. The Agent, each Bank and the Borrower each acknowledge and affirm that the Credit Agreement, as hereby amended, is hereby ratified and confirmed in all respects and all terms, conditions and provisions of the Credit Agreement, except as amended by this Amendment, shall remain unmodified and in full force and effect. All references in any document or instrument to the Credit Agreement are hereby amended and shall refer to the Credit Agreement as amended by this Amendment. The Borrower confirms to the Agent and each Bank that the Obligations are and continue to be secured by the security interest granted by the Borrower in favor of the Agent under the Borrower's Security Agreement and all of the terms, conditions, provisions, agreements, requirements, promises, obligations, duties, covenants and representations of the Borrower under such documents and any and all other -18- 19 documents and agreements entered into with respect to the Obligations are incorporated herein by reference and are hereby ratified and affirmed in all respects by the Borrower. Section 7. General. (a) As provided in Section 9.2 of the Credit Agreement, the Borrower agrees to reimburse the Agent and each Bank, upon execution of this Amendment, for all reasonable out-of-pocket expenses (including attorney' fees and legal expenses of Dorsey & Whitney LLP, counsel for the Agent and the fees and expenses of PriceWaterhouse Coopers, financial consultants to the Banks) incurred in connection with the Credit Agreement, including in connection with the negotiation, preparation and execution of the Amendment Documents and all other documents negotiated, prepared and executed in connection with the Amendment Documents, and in enforcing the obligations of the Borrower under the Amendment Documents, and to pay and save the Agent and the Banks harmless from all liability for, any stamp or other taxes which may be payable with respect to the execution or delivery of the Amendment Documents, which obligations of the Borrower shall survive any termination of the Credit Agreement. (b) This Amendment may be executed in as many counterparts as may be deemed necessary or convenient, and by the different parties hereto on separate counterparts, each of which, when so executed, shall be deemed an original but all such counterparts shall constitute but one and the same instrument. (c) Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or affecting the validity or enforceability of such provisions in any other jurisdiction. (d) This Amendment shall be governed by, and construed in accordance with, the internal law, and not the law of conflicts, of the State of Minnesota, but giving effect to federal laws applicable to national banks. (e) This Amendment shall be binding upon the Borrower, the Agent and the Banks and their respective successors and assigns, and shall inure to the benefit of the Borrower, the Agent and the Banks and the successors and assigns of the Agent and the Banks. Section 8. General Release. The Borrower hereby releases and discharges the Agent and each Bank, and each of their officers, directors, employees, agents and attorneys, from any and all claims, actions and liabilities of any kind or nature that it or any one claiming through or under the Borrower ever had or may now have, whether now known or hereafter discovered, arising out of or in any way relating to: (i) any lending relationship or loan commitment between the Agent, the Banks and the Borrower prior to the date of this Amendment; (ii) the Loan Documents; or (iii) the negotiations preceding the execution and delivery of this Amendment. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] -19- 20 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the day and year first above written. NORSTAN, INC. By /s/ Robert J. Vold --------------------------------------- Its Treasurer U.S. BANK NATIONAL ASSOCIATION, as a Bank and as Agent By /s/ David C. Larsen --------------------------------------- Its VP HARRIS TRUST AND SAVINGS BANK By /s/ Lauren M. Powers --------------------------------------- Its VP M&I MARSHALL & ILSLEY BANK By /s/ John W. Howard --------------------------------------- Its VP By /s/ Doug Pudvah --------------------------------------- Its VP WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION By /s/ Calvin R. Emerson --------------------------------------- Its VP [Signature Page to Fifth Amendment to Amended and Restated Credit Agreement] S-1 EX-10.(I) 8 c63940ex10-i.txt EX-10.(I) EMPLOYMENT AGREEMENT DATED 10/27/00 1 EXHIBIT 10(I) STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (the "Agreement") is entered into effective as of April 30, 2001 (the "Effective Date") by and among Norstan, Inc., a corporation organized under the laws of the State of Minnesota ("Seller"), Synchromesh Consulting, Inc., a corporation organized under the laws of the State of Minnesota (the "Purchaser") and, solely with respect to Articles IV(E) and V hereof, Barry R. Rubin ("Rubin"), an individual residing in the State of Minnesota. W I T N E S S E T H: WHEREAS, Seller is the sole shareholder of Norstan Consulting Holding Company ("Holding"), a Minnesota corporation. WHEREAS, Holding is the sole shareholder of Norstan Consulting, Inc., a corporation organized under the laws of the State of Minnesota (the "Company"); WHEREAS, Rubin serves as the Chief Executive Officer of the Company; WHEREAS, Purchaser desires to purchase all of the issued and outstanding shares of Holding common stock (the "Shares"); and WHEREAS, Holding is willing to transfer and convey the Shares to Purchaser on the terms, and subject to the conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: A G R E E M E N T: I. Purchase and Sale of the Shares; Consideration; Closing. (A) Purchase and Sale of the Shares. At the Closing (as defined below), Seller shall sell, transfer, assign, set over, deliver and surrender the Shares to Purchaser, and Purchaser shall purchase and accept the Shares from Seller. (B) Purchase Price. As consideration for the Shares, Purchaser shall pay to Seller the sum of $5,301,934.01 (the "Purchase Price"), plus certain contingent consideration described in Section I(E) below. In addition, Seller agrees to unconditionally release the Company from all of the Company's indebtedness to Seller and Seller's subsidiaries, and to assume all of the Company's trade accounts payable (including obligations for which documentation may not be available on the Closing Date) and accrued payroll obligations (including without limitation accrued salaries, wages, bonuses, commissions and all related payroll taxes) reflected on the balance sheet of the Company on April 30, 2001, such balance sheet to be prepared in accordance with generally accepted accounting principles of the United 2 States on a basis consistent with accounting principles employed by the Company during the year ended April 30, 2001 ("GAAP"). The Purchase Price shall be paid in the form of: (i) $500,000 in immediately available funds (the "Cash Portion"); (ii) Purchaser's 120-day promissory note in the amount of $1.5 million, bearing interest at the weighted-average effective rate imposed on Seller pursuant to that certain Credit Agreement, dated as of July 23, 1996, by and among Seller, First Bank National Association, Harris Trust and Savings Bank and the Sumitomo Bank, Limited, Chicago Branch, as amended to date (the "Seller Credit Agreement"), or any replacement facility, adjustable monthly, secured by the accounts and notes receivable of the Company and substantially in the form attached hereto as Exhibit A (the "Purchaser Note"); and (iii) assignment by the Company to Seller of (a) that certain promissory note, dated October 28, 1999, issued by TechSkills.com, LLC in favor of the Company with an original unpaid principal balance of $1,861,164.64 and a current unpaid principal balance of $1,801,934.01 (the "TechSkills Note") and (b) that certain promissory note, dated January 22, 2001, issued by Substance Abuse Management Inc. ("SAMI") in favor of the Company with an original unpaid principal balance of $1,500,000 and a current unpaid principal balance of $1,412,284.31 and the related personal guarantee of Henry Goldberg dated January 22, 2001 (collectively, the "SAMI Note"); (the TechSkills Note and the SAMI Note shall be referred to herein collectively as the "Notes"). (C) Collection of Notes; Purchaser Guarantee. The Company's assignment of the Notes is without recourse to both the Company and Purchaser; provided, however, that: (1) if the SAMI Note is in payment default at any time during the three-year period following the Closing Date, Seller shall deliver written notice thereof to Purchaser, and if while the SAMI Note is in payment default Purchaser receives any payment from SAMI for services rendered or for any other purpose, Purchaser shall promptly remit the amount thereof to Seller, less any related travel and lodging expenses incurred by Purchaser and reimbursed by SAMI (which remittance by Purchaser shall be limited to the total amount of interest, principal and other charges due Seller under the SAMI Note); and (2) if as of the third anniversary of the Closing Date (the "Third Anniversary") Seller has collected less than $3,000,000 of the principal amount due and owing under the Notes as of the Closing Date (including principal payments received from Purchaser pursuant to clause (1) above), Purchaser shall then remit to Seller an amount equal to the lesser of: (i) $500,000 or (ii) the excess of (a) $3,000,000 over (b) the principal amount collected by Seller under the Notes as of the Third Anniversary. Within a reasonable period after the Third Anniversary, Seller shall deliver to Purchaser written notice, in reasonable detail, of the amount due and owing Seller under this Section I(C) (the "Purchaser Guarantee"), and Purchaser shall remit the same to Seller within 10 business days following receipt of such notice. In the event Purchaser does not make a full and timely payment of the Purchaser Guarantee, interest shall accrue on the unpaid balance at the weighted-average effective rate under the Seller Credit Agreement. Seller shall use its reasonable best efforts to collect the outstanding principal under the Notes in accordance with their respective terms. If, prior to the Third Anniversary, Seller reduces, discounts, or otherwise compromises its claim against the obligor under either or both of the Notes, Seller shall reduce the Purchaser Guarantee by 50 percent of the amount of such reduction. In the event that Seller collects additional principal amounts (a "Supplemental Recovery") under the Notes after the Third Anniversary, Seller shall promptly remit to Purchaser the amount of the excess, if any, of (i) the aggregate principal amount recovered by Seller under the Notes and the Purchaser Guarantee over (ii) $3,000,000, limited to the amount of the Purchaser Guarantee paid by Purchaser to Seller. -2- 3 (D) The Closing. The closing (the "Closing") of the transactions contemplated by this Agreement shall take place at the offices of Maslon Edelman Borman & Brand, LLP, 3300 Wells Fargo Center, Minneapolis, Minnesota 55402, on May 1, 2001 or on such other date as the parties may mutually agree (the "Closing Date"). Irrespective of the actual Closing Date, the transactions contemplated by this Agreement shall be deemed effective as of the close of business on April 30, 2001. At the Closing, Holding shall deliver to Purchaser one or more certificates representing the Shares, duly endorsed for transfer. Purchaser shall deliver to Seller: (i) the Cash Portion via wire transfer of immediately available funds to an account designated by Seller; (ii) the Purchaser Note; and (iii) originally executed instruments representing the TechSkills Note and the SAMI Note, accompanied by duly executed assignments separate from certificates. (E) Contingent Consideration. As additional consideration for the Shares, Purchaser shall pay to Seller an amount equal to 50 percent of Seller's earnings before income taxes, interest, depreciation and amortization ("EBITDA") for the 12-month period ending April 30, 2003 (the "Contingent Purchase Price") determined in conformity with GAAP. Purchaser shall provide Seller with written notice (the "EBITDA Notice") of Purchaser's determination of EBITDA in reasonable detail on or before June 30, 2003, together with copies of a similar computation with respect to Purchaser's EBITDA for the 12-month period ending April 30, 2002. Following Purchaser's delivery to Seller of the EBITDA Notice, Purchaser shall provide Seller's independent accountants and/or Seller's other agents and representatives with reasonable access to Purchaser's books, records and employees for the purpose of substantiating Purchaser's determination of EBITDA for the 12-month period ending April 30, 2003. Seller shall deliver to Purchaser, within 60 days following Seller's receipt of the EBITDA Notice, written notice of (i) Seller's concurrence with Purchaser's determination of EBITDA for the 12-month period ending April 30, 2003 ("Notice of Concurrence") or (ii) Seller's disagreement with such determination, accompanied by a detailed explanation of such disagreement. In the event of a disagreement, the parties shall endeavor for a period of at least 30 days to negotiate a settlement of their differences. If the parties are unable to reach agreement during such period, the parties shall engage Ernst & Young LLP (the "Independent Firm") to perform a determination of Purchaser's EBITDA for the 12-month period ending April 30, 2003 (the "Final Determination"), which determination shall be final and binding on each of the parties. The Independent Firm shall make its determination based solely on presentations by Purchaser and Seller, and not by independent review. In resolving any disputed item the Independent Firm may not assign a value to any item greater than the greatest value for such item claimed by either party or less than the smallest value for such item claimed by either party. Any fees and expenses of the Independent Firm shall be borne by: (i) Seller in the proportion that the aggregate dollar amount of such disputed items so submitted that are unsuccessfully disputed by Seller bears to the aggregate dollar amount of all disputed items and (ii) Purchaser in the proportion that the aggregate dollar amount of such disputed items so submitted that are successfully disputed by Seller bears to the aggregate dollar amount of all disputed items. Purchaser shall pay to Seller the Contingent Purchase Price within 10 business days following (i) Purchaser's receipt of the Notice of Concurrence; (ii) completion of the parties' negotiated settlement with respect to Purchaser's EBITDA for the 12-month period ending April 30, 2003; or (iii) the parties' receipt of the Final Determination, as applicable. -3- 4 II. Representations and Warranties of Seller Concerning the Transaction. Seller represents and warrants to Purchaser that, except as set forth in the disclosure schedules attached hereto as Exhibit B and incorporated by reference herein (the "Seller Disclosure Schedules"): (A) Organization of Seller. Seller is a corporation, validly existing and in good standing under the laws of the State of Minnesota, with the requisite corporate power and authority to own and use its properties and assets and to carry on its business as currently conducted. (B) Authorization; Enforcement. Seller has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and to otherwise carry out its obligations hereunder. The execution and delivery of this Agreement by Seller and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary action on the part of Seller. This Agreement has been duly executed by Seller and when delivered in accordance with the terms hereof shall constitute the legal, valid and binding obligation of Seller enforceable against Seller in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application. Seller is not in violation of any provision of its articles of incorporation, bylaws or other charter documents. (C) No Conflicts. The execution, delivery and performance of this Agreement by Seller and the consummation by Seller of the transactions contemplated hereby do not and will not (i) conflict with or violate any provision of its articles of incorporation, bylaws or other charter documents (each as amended through the date hereof), (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 agreement, indenture or instrument (evidencing a debt of Seller or otherwise) to which Seller is a party or by which any property or asset of Seller is bound or affected, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which Seller is subject, or by which any property or asset of Seller is bound or affected, except in the case of each of clauses (ii) and (iii), as could not, individually or in the aggregate, have or result in a Material Adverse Effect (as defined below) on Seller. Seller is not conducting its business in violation of any law, ordinance or regulation of any governmental authority, except for violations which, individually or in the aggregate, (x) do not and will not adversely affect the legality, validity or enforceability of this Agreement or (y) do not and will not adversely impair Seller's ability to perform fully on a timely basis its material obligations under this Agreement (a "Seller Material Adverse Effect"). (D) Ownership of the Shares; Ownership of Company Stock. Except for the lien in favor of U.S. Bancorp National Association pursuant to the Seller Credit Agreement, Seller owns of record and beneficially all of the Shares free and clear of any liens, claims, options, charges, or encumbrances of any nature whatsoever ("Encumbrances"), and free and clear of any restrictions on transfer. Other than pursuant to the Seller Credit Agreement, Seller has not previously sold, assigned or otherwise transferred any right or interest in the Shares, nor is Seller a party to any option, warrant, purchase right, or other contract or commitment that -4- 5 could require Seller to sell, transfer or otherwise dispose of any capital stock of Holding (other than this Agreement). Holding owns of record and beneficially all of the issued and outstanding capital stock of the Company (the "Company Stock") free and clear of any Encumbrances except for liens imposed pursuant to the Seller Credit Agreement, and free and clear of any restrictions on transfer, exclusive of restrictions imposed pursuant to the Seller Credit Agreement. Holding has not previously sold, assigned or otherwise transferred any right or interest in the Company Stock, nor is Holding a party to any option, warrant, purchase right, or other contract or commitment that could require Holding to sell, transfer or otherwise dispose of any Company Stock. (E) Litigation; Proceedings. There is no action, suit, notice of violation, proceeding or investigation pending or, to the knowledge of Seller, threatened against or affecting Seller or any of its properties before or by any court, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) which adversely affects or challenges the legality, validity or enforceability of this Agreement. (F) Status of Holding. The sole asset of Holding consists of 100 percent of the issued and outstanding capital stock of the Company; Holding has no liabilities. III. Representations and Warranties of Seller regarding the Company. Seller hereby represents and warrants to Purchaser that, except as set forth in the Seller Disclosure Schedules: (A) Organization and Qualification. Each of Holding and the Company is a corporation, validly existing and in good standing under the laws of the State of Minnesota, with the requisite corporate power and authority to own and use its properties and assets and to carry on its respective business as currently conducted. The Company is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not, individually or in the aggregate, have a material adverse effect on the results of operations, assets, or financial condition of the Company (a "Company Material Adverse Effect"). (B) Capitalization. Holding has 50,000,000 shares of authorized capital stock, consisting of 10,000,000 shares of common stock, $.01 par value per share, and 40,000,000 undesignated shares. Holding has 100 shares of common stock issued and outstanding, all of which are owned beneficially and of record by Seller. No other shares of Holding capital stock are issued or outstanding. The Company is authorized to issue 1,000,000 shares of capital stock with a par value of $.01 per share in the case of common stock and a par value as determined by its board of directors in the case of preferred stock. The Company has 100 shares of its common stock issued and outstanding, all of which are owned beneficially and of record by Holding. No other shares of the Company's capital stock are issued or outstanding. All of the Shares and the Company Stock have been duly authorized and are validly issued, fully paid and nonassessable. There are no outstanding or authorized options, warrants, purchase rights, subscription rights, conversion rights, exchange rights, or other contracts or commitments that could require either Holding or the Company to issue, sell, or otherwise cause to become outstanding any of its capital stock. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or similar rights with respect to Holding or the Company. There are no voting -5- 6 trusts, proxies, or other agreements or understandings with respect to the voting of the capital stock of either Holding or the Company. (C) No Conflicts. The consummation of the transactions contemplated hereby do not and will not: (i) conflict with or violate any provision of Holding or the Company's respective articles of incorporation, bylaws or other charter documents (each as amended through the date hereof), (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 agreement, indenture or instrument (evidencing a debt of Holding or the Company) to which Holding or the Company is a party or by which any property or asset of Holding or the Company is bound or affected, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which Holding or the Company is subject, or by which any property or asset of Holding or the Company is bound or affected, except in the case of each of clauses (ii) and (iii), as could not, individually or in the aggregate, have or result in a Company Material Adverse Effect. (D) Brokers and Finders. Neither Holding nor the Company has employed any broker, agent or finder or agreed to incur any liability for any brokerage fees, agents' commissions or finders' fees in connection with the transactions contemplated hereby. (E) Consents and Approvals. None of Seller, Holding or the Company is required to obtain any consent, waiver, authorization or order of, or make any filing or registration with, any court or other federal, state, local, foreign or other governmental authority or other Person (defined below) in connection with the execution, delivery and performance by the parties of this Agreement other than where the failure to obtain such consent, waiver, authorization or order, or to give or make such notice or filing, could not, individually or in the aggregate, have or result in a Company Material Adverse Effect. Seller shall deliver to Purchaser the Shares in the manner contemplated hereby free and clear of all Encumbrances. A "Person" means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind. (F) Litigation; Proceedings. There is no action, suit, notice of violation, proceeding or investigation pending or, to the knowledge of Seller, threatened against or affecting Holding or the Company or any of their respective properties before or by any court, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) which: (i) adversely affects or challenges the legality, validity or enforceability of this Agreement; or (ii) could, individually or in the aggregate, have or result in a Company Material Adverse Effect. (G) No Default or Violation. Neither Holding nor the Company: (i) is in default under or in violation of (and, to the knowledge of Seller, has not received notice of a claim that it is in default under or that it is in violation of) any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its respective properties is bound, (ii) is not in violation of any order of any court, arbitrator or governmental body, and (iii) is not in violation of any statute, rule or regulation of any -6- 7 governmental authority, except as could not individually or in the aggregate, have or result in, a Company Material Adverse Effect. (H) Books and Records. The books of account, minute books, stock record books and other records of both Holding and the Company, all of which have been made available to Purchaser, are true, complete and correct and have been maintained in accordance with sound business practices, including the maintenance of an adequate system of internal controls. The minute books of Holding and the Company contain accurate and complete records of all meetings held of corporate action taken by the shareholders, the boards of directors, and committees of the boards of directors of Holding and the Company, and no meeting of any such shareholders, boards of directors or committee has been held for which minutes have not been prepared and are not contained in such minute books. (I) Compliance with Law. Each of Holding and the Company has complied and is currently in compliance with all applicable laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and changes thereunder) of the federal government of the United States and state governments (and all agencies thereof) of the United States, asserting or claiming jurisdiction over it or over any part of its operations, and no proceedings or notices have been filed or, to the knowledge of Seller, commenced against Holding or the Company alleging any failure to comply, except where the failure to be in compliance has not had and is not reasonably expected to have a Company Material Adverse Effect. (J) Title to Assets. Each of Holding and the Company has good and marketable title to all of the assets used in or useful to its business, free and clear of all Encumbrances, other than Encumbrances existing under the Seller Credit Agreement. To the knowledge of Seller, none of the assets of Holding or the Company are in the possession of any person other than Holding or the Company, as applicable. (K) Employee Benefit Matters. (1) Compliance. With respect to each employee welfare benefit plan and employee pension benefit plan as defined in sections 3(l) and 3(2) of ERISA that has been or is sponsored by, participated in, or contributed to, by the Company (each, a "Plan"), through the date of Closing: (i) the plan is in compliance with ERISA in all material respects, including but not limited to all reporting and disclosure requirements of Part I of Subtitle B of Title I of ERISA; (ii) the appropriate Form 5500 has been timely filed, for each year of its existence; (iii) there has been no transaction described in sections 406 or 407 of ERISA or section 4975 of the Internal Revenue Code of 1986, as amended (the "Code") relating to the plan unless exempt under section 408 of ERISA or section 4975 of the Code, as applicable; (iv) the bonding requirements of section 412 of ERISA have been satisfied; and (v) all contributions required to have been made with respect to the plan have been timely made. There is no litigation, action, proceeding, investigation or claim asserted or, to the knowledge of Seller, threatened or contemplated, with respect to any Plan (other than the payment of benefits in the normal course) nor any issue if resolved adversely to the Company that may subject the Company to the payment of a penalty, interest, tax or other amount. -7- 8 (2) Certain Pension Plans. All Plans that are intended to qualify under section 401 (a) of the Code either (i) have been determined by the IRS to be qualified under section 401 (a) of the Code or (ii) have applicable remedial amendment periods that will not have ended before the Closing Date. (3) No Defined Benefit Pension Plans. Neither the Company nor any entity that has been treated as a single employer together with the Company under section 414 of the Code has maintained, had an obligation to contribute to, contributed to, or incurred any liability with respect to a plan that is or was a pension plan (as defined in section 3(2) of ERISA) that is or was subject to Title IV of ERISA. (4) Extended Medical Coverage. No employee welfare benefit plan (as defined in section 3(l) of ERISA) maintained by the Company provides medical, surgical, hospitalization or life insurance benefits (whether or not insured by a third party) for employees or former employees of the Company for periods extending beyond their terminations of employment, other than coverage mandated by the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"); and the Company has not made any commitment to provide retiree medical, surgical, hospitalization or life insurance coverage for any current or former employees or directors of the Company (except as required by COBRA). (5) Effect of this Transaction. Except as otherwise listed on the Seller Disclosure Schedules, the consummation of the transactions contemplated by this Agreement, either alone or in conjunction with another event (such as a termination of employment), will not (i) entitle any current or former employee or officer of the Company to severance pay from the Company, or any other payment under a Plan, (ii) accelerate the time of payment or vesting of benefits under a Plan, or (iii) increase the amount of compensation due any such employee or officer by the Company. (L) Taxes. (1) Affiliated Groups. The Company has not been a member of an affiliated group (within the meaning of Section 1504 of the Code) or similar group under state, local or other applicable law filing consolidated tax returns other than the group the parent of which is Norstan ("Affiliated Group"). (2) Filing of Returns. The Company and the Affiliated Group of which the Company is or has been a member have filed, or caused to be filed in a timely manner, all Tax Returns (as defined below) required to be filed for each taxable period in which the Company was a member of the group on or before the date of this Agreement (taking into account any and all extensions) and all of those Tax Returns are complete and correct. (3) Payment of Taxes. All Taxes (as defined below) due and payable or claimed to be due and payable from the Company have been timely paid in full or are not yet delinquent. (4) Withholding. The Company has complied with all applicable laws relating to the withholding of Taxes (including, without limitation, withholding of Taxes pursuant to Sections 1441 and 1442 of the Code or similar provisions under any foreign laws), -8- 9 has, within the time and in the manner prescribed by those laws, withheld and paid over to the proper governmental body all amounts required to be so withheld and paid over under all such applicable laws and has, within the time and in the manner prescribed by those laws, filed all Tax Returns with respect to withholding. (5) Encumbrances. Except for liens for ad valorem Taxes and real and personal property Taxes not yet delinquent, there are no Encumbrances for Taxes on the assets of the Company. (6) Third-Party Taxes. The Company has no liability for the Taxes of any other person by contract or as transferor or successor, or otherwise. (7) Tax Sharing. Except for: (i) Taxes in connection with leases of personal property by or to the Company; and (ii) a Tax sharing agreement by and among the Company, Seller and their affiliates which shall not be effective with respect to the Company after the Closing Date, the Company is not a party to, is not bound by, and has no obligation under, any contract, agreement or arrangement providing for the allocation or sharing of Taxes. (8) Definitions. For purposes of this Agreement, "Taxes" shall mean and include all taxes, charges, fees, duties, levies, penalties or other assessments proposed by any federal, state or local authority within the United States of America, including income, gross IMP receipts, excise, property, sales, gains, use, license, capital stock, transfer, franchise, payroll, withholding, social security or other taxes, including any interest, penalties or additions attributable thereto (whether or not disputed); and "Tax Returns" shall mean and include all federal, state, and local tax returns, declarations, statements, reports, schedules, forms or information returns or claims for refunds relating to Taxes or other written information required to be supplied to any taxing authority in connection with Taxes (including any amended Tax Returns). (M) Insurance. Seller has delivered to Purchaser a listing of all current insurance policies maintained by Seller with respect to Holding and the Company through the Closing Date. IV. Representations and Warranties of Purchaser. Purchaser hereby represents and warrants to Seller that, except as set forth in the disclosure schedules attached hereto as Exhibit C and incorporated by reference herein (the "Purchaser Disclosure Schedules"): (A) Authorization; Enforcement. Purchaser is a corporation validly existing and in good standing under the laws of the State of Minnesota. This Agreement has been duly executed and delivered by Purchaser constitutes the valid and legally binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application. Purchaser is not in violation of any provision of its articles of incorporation, bylaws or other charter documents. -9- 10 (B) Promissory Notes. The Notes and the Purchaser Note are valid receivables, are not subject to valid counterclaims or setoffs, and are collectible in accordance with their terms. (C) Investment Intent. Purchaser is acquiring the Shares for Purchaser's own account, for investment purposes only and not with a view to or for distributing or reselling the Shares or any part thereof or interest therein. (D) Purchaser's Status. At the date hereof, Purchaser is an "accredited investor" within the meaning of Rule 501(a)(3) promulgated under the Securities Act. (E) Access to Information. Purchaser acknowledges that as Chief Executive Officer of the Company, Rubin (and, by attribution, Purchaser) has been afforded (i) complete and unfettered access to the books, records and personnel of the Company; (ii) the opportunity to ask such questions as Rubin and/or Purchaser has deemed necessary of, and to receive answers from, representatives of Seller concerning the business and affairs of the Company; and (iii) the opportunity to obtain such additional information which Seller possesses or can acquire without unreasonable effort or expense that is necessary for Purchaser to make an informed investment decision with respect to the Shares. Neither such inquiries nor any other investigation conducted by or on behalf of Purchaser or Purchaser's representatives, agents or counsel shall modify, amend or affect Purchaser's right to rely on the truth, accuracy and completeness of Seller's representations and warranties contained herein; provided, however, that Seller's representations and warranties shall have no force or effect if, and to the extent that, Rubin has, at the Closing Date, actual knowledge that such representations and warranties are untrue. (F) Reliance. Purchaser understands and acknowledges that (i) the Shares are being offered and sold to Purchaser without registration under the Securities Act in a private placement that is exempt from the registration provisions of the Securities Act and (ii) the availability of such exemption, depends in part on, and Seller will rely upon the accuracy and truthfulness of, the foregoing representations and Purchaser hereby consents to such reliance. V. Covenants. (A) Conduct of Business. Each of Seller and Rubin covenant that, from and after the execution of this Agreement through the Closing, except as provided in Section V(B) below, the Company's business will be conducted in the ordinary course, consistent with past practice, including without limitation with respect to: solicitation of business, performance of, and billing for consulting engagements, collection of accounts receivable, hiring and retention of personnel, management of employee compensation and benefit matters, and payment of accounts payable, salaries and other obligations of the Company. (B) Reductions in Force. During the period from the date hereof through and including the Closing Date, Rubin and Seller shall jointly identify those employees of the Company whose services will not be required after the Closing. Rubin shall terminate the employment of such individuals (the "Terminated Employees") on or prior to the Closing Date, providing each of the Terminated Employees with the Company's standard severance arrangement. Seller agrees to bear the entire severance cost associated with the Terminated Employees and to indemnify Rubin, Purchaser and the Company with respect to such severance cost; provided, however, that the foregoing indemnification protection shall not apply if and to the extent that Purchaser incurs severance costs as a result of a misrepresentation of Seller's standard severance arrangement or other breach of this Section V(B). -10- 11 (C) Reasonable Best Efforts. Upon the terms and subject to the conditions hereof, each of the parties hereto agrees to use its reasonable best efforts promptly to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement. An undertaking of a party under this Agreement to use such party's reasonable best efforts shall not require such party to incur unreasonable expense or obligations in order to satisfy such undertaking. If at any time after the Closing any further action is necessary or desirable to carry out the purposes of this Agreement, each party hereto and its proper officers, directors or other representatives will promptly take such action. (D) Notification of Certain Matters. Purchaser, on the one hand, and Seller, on the other hand, will each give prompt notice to the other of (i) the occurrence, or failure to occur, of any event the occurrence or failure of which would reasonably be likely to cause any of their respective representations or warranties contained in this Agreement to be untrue or incorrect at any time from the date hereof to the Closing Date, and (ii) any failure on their respective parts or on the part of any of their respective officers, directors, partners, employees, representatives or agents, if any, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by each of them under this Agreement; provided, however, that no such notification will alter or otherwise affect such representations, warranties, covenants, conditions or agreements. (E) Performance on SAMI Consulting Projects. Purchaser agrees to use its reasonable best efforts to satisfactorily perform, in all material respects, Purchaser's obligations under any and all consulting and other projects in any way arising out of or relating to the origin of the SAMI Note. (F) Litigation Cooperation. From and after the Closing Date, Purchaser shall provide to Seller, at no cost to Seller (exclusive of Seller's obligation to reimburse Purchaser's reasonable travel expenses) such support as Seller shall require in connection with Seller's dispute with Michael Vadini and his affiliated entities. (G) Equipment Leases. Exhibit D hereto sets forth a listing of certain equipment leases under which Seller is the lessee and the related equipment is in the possession of: (i) the Company (the "Company Leases"); or (ii) third parties pursuant to sublease arrangements (the "Third Party Leases"). Each of Seller and Purchaser undertakes to put forth its reasonable best efforts to arrange for the assignment of the Company Leases from Seller to Purchaser on a basis without recourse to Seller. If and to the extent that Seller and Purchaser are unable to effect an assignment of the Company Leases, Purchaser covenants to perform, in all material respects, the lessee's duties and obligations arising thereunder. With respect to the Third Party Leases, Purchaser agrees to put forth its reasonable best efforts to invoice and collect the monthly payment obligations of such third parties in accordance with the payment schedule set forth in Exhibit D and to remit such payment to the equipment lessor, all in a manner -11- 12 consistent with past practice, until the expiration of the applicable equipment lease obligations. If and to the extent that Purchaser is unable to collect the monthly payment obligations from the third parties, Purchaser shall provide Seller with timely notice thereof and thereafter remit the appropriate payments to the equipment lessor following receipt of same from Seller. (H) Closed Facility Leases. Exhibit E hereto enumerates certain facilities leases to which the Company is a party and, as of the date of this Agreement, are not in use by the Company. Seller agrees to assume each of the leasehold obligations identified in Exhibit E (the "Closed Facility Leases") and to indemnify, defend and hold Purchaser harmless from and against and in respect of any and all liabilities, losses, damages, claims, costs and expenses arising from or relating in any manner to the Closed Facility Leases. VI. Transition Matters. (A) Shared Office Space. The parties acknowledge and agree that Seller and the Company currently occupy joint office facilities pursuant to leasehold interests held by Seller in the cities of Minnetonka, Minnesota, Milwaukee, Wisconsin, Des Moines, Iowa, Omaha, Nebraska, Cleveland, Ohio and Columbus, Ohio. During the 12-month period commencing on the Closing Date, subject to Seller's receipt of any and all third party consents required under the terms of Seller's lease agreements, Purchaser shall be permitted to occupy the space now occupied by the Company without cost to Purchaser, provided, however, that in the event Seller's occupancy of any such facility is terminated for any reason during such 12-month period, Purchaser's right to occupy the related facilities shall terminate simultaneously; and, provided further, that if Seller's occupancy is so terminated, Seller shall use its reasonable best efforts to provide Purchaser with reasonably prompt notice thereof. (B) Other Office Space; Office Equipment. Each of Purchaser and Seller agrees to put forth its reasonable best efforts to arrange for the assignment by Seller to Purchaser on a nonrecourse basis to Seller of Seller's leasehold interest in the Warren, New Jersey office facility and office machines and equipment currently utilized by the Company therein. In the event that the parties are unsuccessful with respect to any one or more of such lease assignments, Seller shall put forth its reasonable best efforts to enable Purchaser to obtain all rights and privileges associated with any such lease, subject to Seller's receipt of any and all third party consents required under the terms of Seller's lease agreements. Purchaser hereby undertakes to perform all of Seller's duties and satisfy all of Seller's other obligations under each agreement not assignable to Purchaser on a nonrecourse basis to Seller and Seller agrees not to extend or otherwise modify or amend its obligations under any such agreement without Purchaser's prior written consent. (C) Telephone and Switchboard Equipment. During the 12-month period commencing on the Closing Date, Purchaser shall be permitted to utilize Seller's telephone and switchboard equipment currently in the space now occupied by the Company without cost to Purchaser, provided, however, that in the event Seller's occupancy of any such facility is terminated for any reason during such 12-month period, Purchaser's right to utilize the related telephone and switchboard equipment shall terminate simultaneously. -12- 13 (D) Information System Support. During the 12-month period commencing on the Closing Date, Seller shall provide Purchaser with the information systems support services reasonably required by Purchaser at a price of $31.00 per hour, payable monthly upon receipt of Seller's invoice. Notwithstanding the preceding sentence, Seller shall provide Purchaser with labor support for Purchaser's Portera Software installation and transition without charge therefor for a period of three months following the Closing Date. (E) Corporate Software Systems. For a period of 90 days commencing on the Closing Date, Seller shall permit Purchaser to access all of Seller's corporate software applications currently utilized by the Company and Purchaser agrees to reimburse Seller for all direct costs incurred by Seller in connection therewith. During such 90-day period, Seller shall provide reasonable consulting assistance to Purchaser in connection with the selection, implementation, and conversion to a new financial and HR software system for the Company at no cost or expense to the Company. (F) Name Change. Purchaser acknowledges and agrees that on and after the Closing Date, Purchaser shall use its reasonable best efforts to discontinue, as soon as possible, all use of the name "Norstan" and any and all logos in any way similar to those currently maintained by Seller, and in no event shall Purchaser's use continue after 60 days following the Closing Date. Purchaser agrees to file an amendment of the Company's articles of incorporation with the office of the Minnesota Secretary of State to effect a change in the name of the Company within 30 days after the Closing Date. Purchaser further agrees to execute and deliver to Seller, upon Seller's request, any and all instruments required, in the reasonable judgment of Seller, to effect an assignment from the Company to Seller of any and all logos, trademarks, service marks, and other intellectual property identifiable with the name "Norstan" registered in the name of the Company with any federal state, or foreign government or agency thereof. Seller shall reimburse Purchaser for all costs incurred by Purchaser during the six-month period following the Closing Date for services provided by third parties to effect and advertise a name change for the Company, subject to a maximum reimbursement obligation of $100,000. Purchaser agrees to indemnify Seller for any and all losses or other damages Seller may incur in connection with, or in any way arising out of, Purchaser's use, after the Closing Date, of the name "Norstan" or any logo or other symbol maintained by, or otherwise identified with Seller. (G) Corporate Travel Programs. Purchaser may utilize Seller's corporate travel and American Express programs in a manner consistent with the Company's current use of same for a period of three months following the Closing Date; provided, however, that Purchaser shall pay for all expenses incurred by Purchaser or its employees under these programs and Purchaser agrees to indemnify Seller for all such expenses. (H) Human Resources and Payroll Processing. During the three-month period commencing on the Closing Date, Seller shall provide Purchaser with human resources support services, including human resources training, at no cost to Purchaser. During the same period, Seller shall process or cause Purchaser's payroll to be processed, provided, that: (i) Purchaser shall reimburse Seller for all third-party payroll processing charges and expenses incurred on Purchaser's behalf; and (ii) Purchaser shall deliver to Seller via cashier's check or wire transfer sufficient funds to cover each Purchaser payroll processed by Seller, prior to the processing thereof. -13- 14 (I) Consulting Opportunities. Seller agrees to put forth its reasonable best efforts to offer Purchaser a reasonable opportunity to bid on internal and external consulting projects reasonably deemed by Seller to be within Purchaser's expertise and availability of resources and identified by Seller during the 24-month period following the Closing Date. Such projects shall not include work Seller may substantially perform with internal resources. (J) Accounts Receivable Collections Support. During the 60-day period commencing on the Closing Date, Seller shall provide to Purchaser, at no cost to Purchaser, accounts receivable collections support on a level consistent with the services rendered by Seller to the Company immediately prior to the Closing Date. (K) 401(k) Plan Contributions. On or before January 31, 2002, Seller shall pay to Purchaser an amount equal to, and representing, a matching 401(k) contribution on a pro rata basis for amounts contributed by employees of the Company during the period from January 1, 2001 to the Closing Date who are continuously employed by the Company during the period from the Closing Date to and including December 31, 2001. (L) Release. Purchaser hereby grants to Seller and Seller's affiliates, together with their respective officers, directors, employees and other agents and representatives, an unconditional release of liability for any and all losses or damages that may be incurred by Purchaser and Purchaser's affiliates and their respective officers, directors, employees and other agents and representatives directly or indirectly resulting from, or in any arising out of, Seller's provision of services to Purchaser pursuant to this Article VI; provided, however, that the foregoing shall not apply in connection with any act of gross negligence or willful misconduct by Seller's officers, directors, employees, agents and representatives. VII. Conditions Precedent to the Closing. (A) Conditions Precedent to Purchaser's Obligation to Close. Notwithstanding any other provision herein, the obligation of Purchaser to consummate the transactions contemplated hereunder are, at the option of Purchaser, subject to the satisfaction of each of the conditions set forth below: (1) Agreements and Conditions. On or before the Closing Date, Seller shall have complied with and duly performed all agreements and conditions to be complied with or performed by Seller on or before the Closing Date pursuant to or in connection with this Agreement. (2) Representations and Warranties. The representations and warranties of Seller contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date with the same force and effect as though such representations and warranties had been restated and made on and as of the Closing Date, except for those representations and warranties which speak as of a specified date. (3) Opinion of Counsel. Purchaser shall have received an opinion of Maslon Edelman Borman & Brand, LLP, counsel for Seller, in form and substance reasonably satisfactory to Purchaser and its counsel. -14- 15 (4) No Legal Proceedings. No legal proceeding shall have been instituted or threatened which, in Purchaser's reasonable opinion, questions or reasonably appears to portend subsequent questioning of the validity or legality of this Agreement or the transactions contemplated hereby or seeks to restrict, limit, prohibit or enjoin (or to obtain damages as a result of) such transactions or may have a Company Material Adverse Effect. (5) Officer's Certificate. Purchaser shall have received a certificate dated the Closing Date and executed by the Chief Executive Officer or the Chief Financial Officer of Seller, certifying that the representations and warranties made by Seller in this Agreement are true and correct in all material respects at and as of the Closing Date (except for such representations and warranties which speak as of a specified date), and that Seller has fulfilled all conditions to the Closing provided for in this Agreement to be fulfilled by Seller. (6) Consents and Releases. All consents, approvals and releases, including but not limited to releases of any security interests in or to the Shares, required in connection with the transactions contemplated by this Agreement, all in form and substance reasonably satisfactory to Purchaser, shall have been obtained. (B) Conditions Precedent to Seller's Obligation to Close. Notwithstanding any other provision herein, the obligation of Seller to consummate the transactions contemplated hereunder are, at the option of Seller, subject to the satisfaction of each of the conditions set forth below: (1) Lender Consent. Seller shall have received from its lenders under the Seller Credit Agreement all consents required thereunder to effect and consummate the transactions contemplated by this Agreement and a full and complete release of all related security interests in the Shares, the capital stock of the Company and the assets of Holding and the Company. (2) Conversion of SAMI Accounts Receivable; Guarantee. The Company, acting through Rubin, shall have converted the Company's accounts receivable from Substance Abuse Management Inc. into the SAMI Note and obtained an unconditional personal guarantee of the SAMI Note from the sole shareholder of SAMI. (3) Assignment of Titan Litigation. The Company shall have assigned to Seller all of the Company's right, title to, and interest in, all claims the Company has or may have in the future, arising out of Seller's acquisition of Vadini Inc., the formation and operation of Titan Technology and all related matters, together with all litigation or arbitration conducted in connection therewith. (4) Agreements and Conditions. On or before the Closing Date, Purchaser shall have complied with and duly performed all agreements and conditions to be complied with or performed by Purchaser on or before the Closing Date pursuant to or in connection with this Agreement. (5) Representations and Warranties. The representations and warranties of Purchaser contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date with the same force and effect as though such -15- 16 representations and warranties had been restated and made on and as of the Closing Date, except for those representations and warranties which speak as of a specified date. (6) Opinion of Counsel. Purchaser shall have received an opinion of Lindquist & Vennum, PLLP, counsel for Purchaser, in form and substance reasonably satisfactory to Seller and its counsel. (7) No Legal Proceedings. No legal proceeding shall have been instituted or threatened which, in Seller's reasonable opinion, questions or reasonably appears to portend subsequent questioning of the validity or legality of this Agreement or the transactions contemplated hereby or seeks to restrict, limit, prohibit or enjoin (or to obtain damages as a result of) such transactions. (8) Officer's Certificate. Seller shall have received a certificate dated the Closing Date and executed by the Chief Executive Officer or the Chief Financial Officer of Purchaser, certifying that the representations and warranties made by Purchaser in this Agreement are true and correct in all material respects at and as of the Closing Date (except for such representations and warranties which speak as of a specified date), and that Purchaser has fulfilled all conditions to the Closing provided for in this Agreement to be fulfilled by Purchaser. (9) Employment Contract. Rubin shall have consented in writing to: (i) the assignment of his employment agreement with Seller, dated March 1, 2000, from Seller to the Company without further liability to Seller; or (ii) the termination of same without further liability to Seller. VIII. Termination of the Agreement. (A) Termination by Mutual Consent. This Agreement may be terminated at any time prior to the Closing Date by the mutual written consent of Purchaser and Seller. This Agreement shall automatically terminate if the Closing has not occurred on or before May 1, 2001 unless such date is extended by written consent of the parties hereto. (B) Termination by Purchaser. Purchaser may terminate this Agreement by written notice to Seller at any time prior to the Closing Date if: (1) a condition to the performance of Purchaser set forth herein shall not be fulfilled on or before the date specified for the fulfillment thereof, unless such failure is a result of acts or failures to act of the Purchaser; or (2) a material default under or a material breach of this Agreement or a material misrepresentation or a material breach of any representation, warranty or covenant of Seller set forth in this Agreement or in any instrument delivered by Seller pursuant hereto shall have occurred and be continuing unless the same is curable and is cured by Seller prior to the Closing Date. (C) Termination by Seller. Seller may terminate this Agreement by written notice to Purchaser at any time prior to the Closing Date if: -16- 17 (1) a condition to the performance of Seller set forth herein shall not be fulfilled on or before the date specified for the fulfillment thereof, unless such failure is a result of acts or failures to act of Seller; or (2) a material default under or a material breach of this Agreement or a material misrepresentation or a material breach of any representation, warranty or covenant of Purchaser set forth in this Agreement or in any instrument delivered by Purchaser pursuant hereto shall have occurred and be continuing unless the same is curable and is cured by Purchaser prior to the Closing Date. (D) Effect of Termination. In the event of the termination and abandonment hereof prior to the Closing Date pursuant to the provisions of this Section VIII, this Agreement shall become void and have no effect, and each party shall pay all of its own expenses incurred in connection herewith, without any liability on the part of any party or its partners, directors, officers or shareholders; provided, however, that if this Agreement is terminated and abandoned because either party has defaulted under or breached this Agreement or any representation, warranty or covenant set forth in this Agreement, then the party so electing to terminate this Agreement shall be entitled to pursue, exercise and enforce any and all other remedies, rights, powers and privileges available to it at law or in equity. IX. Survival. (A) Representations and Warranties. The representations and warranties of the parties in this Agreement shall survive the Closing and any investigations made by or on behalf of any of the parties hereto for the following periods, after which periods such representations and warranties shall be of no further force and effect unless written notice of a claim with respect to such representation and warranty shall have been given to the party responsible therefor prior to the expiration thereof: (1) The representations and warranties contained in Section III(K) shall survive, with respect to a particular tax period, until six months after the applicable limitations period (including waivers and extensions) shall have barred any assessment of tax deficiencies for such tax period or, if later, until six months after the final unappealable decision by a court of competent jurisdiction with respect to such tax. (2) All other representations and warranties of Seller shall survive the Closing for a period of one year. (B) Covenants. All covenants of any party hereto which are not fully performed as of the Closing shall survive the Closing for a period of one year following the expiration of the applicable performance period. X. Indemnification. (A) Indemnification by Seller. Without limiting any other substantive remedy Purchaser may expressly have hereunder, Seller hereby agrees to indemnify, defend and hold Purchaser harmless from and against and in respect of any and all liabilities, losses, damages, claims, costs and expenses, including reasonable attorneys' fees (collectively, "Claims"), arising -17- 18 from or relating in any manner to: (i) the breach of any representation or warranty of Seller contained herein; or (ii) the failure of Seller to perform any of its covenants contained herein. Seller's indemnification obligations shall apply whether the subject Claims arise from third party claims (including but not limited to claims made by shareholders of Seller) or not. In addition, Seller hereby agrees to assume, and bear all expenses incurred in connection with, Purchaser's defense against that certain action brought against the Company under a complaint filed on April 27, 2001 by TechSkills, LLC in the Circuit Court of Milwaukee County, Wisconsin, and to indemnify and hold Purchaser harmless from and against and in respect of any and all liabilities, losses, damages, claims, costs and expenses, including reasonable attorneys' fees, arising from or relating in any manner to the aforementioned complaint; provided, however, that such indemnification protection shall not apply in connection with any liabilities, losses, damages, claims, costs and expenses incurred by Purchaser as a result of any acts or omissions by the Company in relation to the subject matter of the complaint subsequent to April 30, 2000; and, provided further, that if any resolution of the TechSkills complaint unfavorable to Purchaser, whether by settlement or judgment, is limited to a reduction in the amount owed by TechSkills under the TechSkills Note, Purchaser shall not be entitled to any indemnification protection hereunder, but shall only be entitled to a reduction of the Purchaser Guarantee in accordance with the provisions of Section I(C) hereof. (B) Indemnification by Purchaser. Without limiting any other substantive remedy Seller may expressly have hereunder, Purchaser hereby agrees to indemnify, defend, and hold Seller harmless from and against and in respect of any and all liabilities, losses, damages, claims, costs and expenses, including reasonable attorneys' fees (collectively, "Claims"), arising from or relating in any manner to: (i) subject to the limitations set forth in Section I(C) hereof with respect to Purchaser's assignment of the Notes, the breach of any representation or warranty of Purchaser contained herein; or (ii) the failure of Purchaser to perform any of its covenants contained herein. Purchaser's indemnification obligations shall apply whether the subject Claims arise from third party claims or not. (C) Procedure for Claiming Indemnification. (1) The party seeking indemnification (the "Indemnitee") shall give the party from whom indemnification is sought (the "Indemnitor") notice of any claim or the commencement of action or proceeding promptly after the Indemnitee receives notice thereof; provided, however, that the failure of the Indemnitee to give notice shall not relieve the Indemnitor of its obligations hereunder, except to the extent the Indemnitor is actually prejudiced or harmed by such failure to give notice. The Indemnitor shall be permitted to assume the defense of any such claim or litigation resulting from such claim, with counsel reasonably satisfactory to the Indemnitee. The Indemnitor shall provide Indemnitee written notice of such assumption of defense within thirty (30) days of receipt by the Indemnitor of notice of the proceeding. (2) If the Indemnitor assumes the defense of any such claim or litigation resulting therefrom, the Indemnitor shall take all steps necessary in the defense or settlement of such claim or litigation resulting therefrom and hold the Indemnitee harmless from and against any and all losses, damages and liabilities caused by or arising out of any settlement approved by the Indemnitor or any judgment in connection with such claim or litigation resulting -18- 19 therefrom. The Indemnitee may participate, at its expense, in the defense of any such claim or litigation, provided that the Indemnitor shall direct and control the defense of such claim or litigation. Except with the written consent of the Indemnitee, the Indemnitor shall not, in the defense of such claim or any litigation resulting therefrom, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof, the giving by the claimant or the plaintiff to the Indemnitee of a release from all liability with respect to the claim or litigation. (3) If the Indemnitor shall not assume the defense of any such claim or litigation resulting therefrom, the Indemnitee may defend against such claim or litigation in such manner as it may deem appropriate and, unless the Indemnitor shall deposit with the Indemnitee a sum equivalent to the total amount demanded in such claim or litigation, or shall deliver to Indemnitee a surety bond in form and substance reasonably satisfactory to Indemnitee, Indemnitee may settle such claim or litigation on such terms as it may reasonably deem appropriate, and the Indemnitor shall promptly reimburse Indemnitee for the amount of all expenses, legal or otherwise, reasonably incurred by the Indemnitee in connection with the defense against or settlement of such claim or litigation, net of any related income tax benefit realized by the Indemnitee. If no settlement of such claim or litigation is made, the Indemnitor shall promptly reimburse the Indemnitee for the amount of any final judgment rendered with respect to such claim or in such litigation and for all reasonable expenses, legal or otherwise, incurred by the Indemnitee in the defense against such claim or litigation, but only to the extent that such amounts are actually paid. XI. Post-Closing Tax Covenants. (A) Taxes of Other Persons. Seller agrees to indemnify Purchaser and the Company from and against the entirety of any adverse consequences Purchaser or the Company may suffer resulting from, arising out of, relating to, in the nature of, or caused by any liability of either Seller for Taxes of any entity other than the Company (i) under Treasury Reg. ss.1.1502-6 (or any similar provision of state, local or foreign law), (ii) as a transferee or successor, (iii) by contract, or (iv) otherwise. (B) Returns for Periods Through the Closing Date. Seller will include the income of the Company (including any deferred income triggered into income by Treasury Reg. ss.1.1502-13 and Treasury Reg. ss.1.1502-14 and any excess loss accounts taken into income under Reg. ss.1.1502-19) on Seller's consolidated federal income Tax Returns for all periods through the Closing Date and pay any federal income Taxes attributable to such income. Purchaser will cause the Company to furnish Tax information to Seller for inclusion in Seller's federal consolidated income Tax Return for the period which includes the Closing Date in accordance with the Company's past custom and practice. Seller will allow Purchaser an opportunity to review and comment upon such Tax Returns (including any amended returns) to the extent that they relate to the Company. Seller will take no position on such returns that relate to the Company that would adversely affect the Company after the Closing Date unless such position would be reasonable in the case of an entity that owned the Company both before and after the Closing Date. The income of the Company will be apportioned to the period up to and including the Closing Date and the period after the Closing Date by closing the books of the Company as of the end of the Closing Date. Seller shall remain responsible for any state and/or federal -19- 20 income Taxes attributable to the income of the Company for all periods up to and including the Closing Date. To the extent that the Company has paid to Seller any amounts for Taxes on the Company's income for the period from January 1, 2001 up to and including the Closing Date, in excess of the amount of Tax actually attributable to such income, Seller will reimburse the Company for such excess within 30 days of the filing deadline for the relevant Tax Return. (C) Audits. Seller will allow Purchaser and its counsel to participate, at Purchaser's own expense, in any audits of Seller's consolidated federal income Tax Returns to the extent that such returns relate to the Company. Seller will not settle any such audit in a manner which would adversely affect the Company after the Closing Date unless such settlement would be reasonable in the case of an entity that owned the Company both before and after the Closing Date. XII. General. (A) Further Assurances. Purchaser and Seller agree that, on and after the Closing Date, they shall take all appropriate action and execute any documents, instruments or conveyances of any kind which may be reasonably necessary or advisable to carry out any of the provisions hereof. (B) Amendment and Waiver. This Agreement may not be amended or waived except in a writing executed by the party against which such amendment or waiver is sought to be enforced. No course of dealing between or among any persons having any interest in this Agreement will be deemed effective to modify or amend any part of this Agreement or any rights or obligations of any person under or by reason of this Agreement. (C) Severability. In case any one or more of the provisions of this Agreement shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision which shall be a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement. (D) Notices. All notices, demands and other communications to be given or delivered under or by reason of the provisions of this Agreement will be in writing and will be deemed to have been given when personally delivered or mailed by first class mail, return receipt requested, or when receipt is acknowledged, if sent by facsimile, telecopy or other electronic transmission device. Notices, demands and communications to Purchaser and Seller will, unless another address is specified in writing, be sent to the address indicated below:

If to Seller: If to Purchaser: ------------ --------------- Norstan, Inc. Synchromesh Consulting, Inc. 5101 Shady Oak Road 5101 Shady Oak Road Minnetonka, MN 55343-4100 Minnetonka, MN 55343-4100 Attention: Scott G. Christian Attention: Barry R. Rubin telephone: 952.352.4034 telephone: 952.352.5612 telecopy: 952.352.4461 telecopy: 952.238.5612

-20- 21

With copies to: With a copy to: -------------- -------------- Maslon Edelman Borman & Brand, LLP Lindquist & Vennum, PLLP 3300 Wells Fargo Center 4200 IDS Center Minneapolis, MN 55402 Minneapolis, MN 55402 Attention: Philip Tilton Attention: Robert Hartman and Jeffrey Saunders telephone: 612.672.8200 telephone: 612.371-3211 telecopy: 612.672.8397 telecopy: 612.371.3207 Jerry P. Lehrman Norstan, Inc. 5101 Shady Oak Road Minnetonka, MN 55343-4100 telephone: 952.352.4075 telecopy: 952.352.4907

(E) Assignment. This Agreement and all of the provisions hereof will be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, except that neither this Agreement nor any of the rights, interests or obligations hereunder may be assigned by Purchaser without the prior written consent of Seller, or assigned by Seller (other than to any successor to Seller by merger, consolidation, share exchange or sale of all or substantially all of Seller's assets) without the prior written consent of Purchaser. (F) Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. (G) Complete Agreement. This Agreement and the exhibits hereto contain the complete agreement between the parties and supersede any prior understandings, agreements or representations by or between the parties, written or oral, which may have related to the subject matter hereof in any way. (H) Counterparts. This Agreement may be executed in one or more counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together will constitute one and the same instrument. (I) Governing Law. The internal law, without regard to conflicts of laws principles, of the State of Minnesota will govern all questions concerning the construction, validity and interpretation of this Agreement and the performance of the obligations imposed by this Agreement. -21- 22 (J) Authority. The persons executing this Agreement on behalf of the entity parties hereto hereby represent and warrant that they are duly authorized to execute and deliver this Agreement on behalf of the party for whom they are signing and that no further action is required on behalf of such party in connection with the execution and delivery of this Agreement. [SIGNATURE PAGE FOLLOWS] -22- 23 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date. NORSTAN, INC. By: /s/ Scott G. Christian ------------------------------------ Its: CFO SYNCHROMESH CONSULTING, INC. Barry R. Rubin, individually (solely with respect to Articles IV(E) and V hereof): /s/ Barry R. Rubin ----------------------------------------- By: /s/ Barry R. Rubin ----------------------------------- Its: CEO/President EX-22 9 c63940ex22.txt EX-22 SUBSIDIARIES OF NORSTAN, INC. 1 EXHIBIT 22 SUBSIDIARIES OF NORSTAN, INC.

PERCENTAGE OF STATE OF VOTING SECURITIES NAME INCORPORATION OWNED BY THE COMPANY --------------------------------------------------- -------------- -------------------- NORSTAN COMMUNICATIONS, INC MINNESOTA 100% NORSTAN FINANCIAL SERVICES, INC MINNESOTA 100% NORSTAN CANADA INC MINNESOTA 100% NORSTAN CANADA, LTD ONTARIO, CANADA 100% NORSTAN NETWORK SERVICES, INC MINNESOTA 100% NORSTAN NETWORK SERVICES NEW HAMPSHIRE 100% OF NEW HAMPSHIRE, INC NORSTAN INTERNATIONAL, INC MINNESOTA 100% NORSTAN-UK LIMITED UNITED KINGDOM 100% THE NORSTAN FOUNDATION MINNESOTA 100% 501(C)(3) IRS DETERMINATION LETTER DATED 9/7/99 VIBES TECHNOLOGIES, INC MINNESOTA 100% SUMMIT GEAR, INC MINNESOTA 100% INACTIVE SHELL NORSTAN INFORMATION SYSTEMS, INC MINNESOTA 100% INACTIVE SHELL

EX-23.(A) 10 c63940ex23-a.txt EX-23.(A) CONSENT - INDEPENDENT PUBLIC ACCOUNTANTS 1 EXHIBIT 23(a) Consent of independent public accountants As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K, into the Company's previously filed Registration Statement File Nos. 33-62967, 33-62971, 33-72928, 333-32394, 333-68059, 333-37913 and 333-55764. /s/ Arthur Andersen LLP Minneapolis, Minnesota, July 30, 2001

EX-10.(D)(1)

   1


                                                                  EXHIBIT 10D(1)


                           FIRST AMENDMENT TO AMENDED
                          AND RESTATED CREDIT AGREEMENT

         THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT is dated
as of March 19, 2001 ("this Amendment"), by and among NORSTAN, INC., a Minnesota
corporation (the "Borrower"), the banks which are signatories hereto (each
individually, a "Bank," and collectively, the "Banks"), and U.S. BANK NATIONAL
ASSOCIATION, a national banking association, one of the Banks, as agent for the
Banks (in such capacity, the "Agent").

                                    RECITALS

         A. The Borrower, the Banks and the Agent are parties to an Amended and
Restated Credit Agreement dated as of December 20, 2000 (the "Credit
Agreement").

         B. The Borrower, NCI and Jeffrey A. Lusenhop ("Lusenhop") have entered
into, and consummated the transactions contemplated by, that certain Purchase
Agreement dated as of January 1, 2001 among them (the "Connaissance Sale
Agreement") whereunder, among other things, NCI has sold to Lusenhop all of its
member interests in Connaissance Consulting, LLC, a Minnesota limited liability
company ("Connaissance").

         C. Prior to the date of this Amendment, (i) the Agent has received the
sum of $3,000,000 from the proceeds of the transactions consummated pursuant to
the Connaissance Sale Agreement, which amount the Agent has applied in the
manner set forth in Section 2.6(c) of the Credit Agreement and (ii) the Agent
has executed and delivered to the Borrower UCC-3 financing statements (A)
terminating the UCC-1 financing statements filed by the Agent with respect to
Connaissance and (B) amending the UCC-1 financing statement filed by the Agent
with respect to NCI's Pledge Agreement to release the Agent's security interest
in the member interests in Connaissance pledged by NCI thereunder.

         D. NCI and Ericsson, Inc. ("Ericsson") have entered into, and
consummated the transactions contemplated by, the following documents among
them, each dated as of December 29, 2000 (the "Ericsson Purchase Documents"):
(i) Amended and Restated Asset Purchase Agreement, (ii) Administrative and Back
Office Service Agreement, (iii) MD110 Contracts Back-to-Back Agreement and (iv)
Shared Office Rental Agreement. Further, NCI has executed and delivered to
Ericsson its Promissory Note in the amount of $1,981,384 dated as of December
29, 2000 (the "Ericsson Note") and an Amended and Restated Security Agreement
dated as of January 16, 2001 (collectively with the Ericsson Note and the
Ericsson Purchase Documents, the "Ericsson Documents"). Under the Ericsson
Documents, NCI purchased certain assets from Ericsson and agreed to grant to
Ericsson a security interest in certain of such assets to secure a loan by
Ericsson to NCI to finance a portion of the purchase price thereof.

         E. The Borrower has requested that the Banks (i) consent to the
Connaissance Sale Agreement and the transactions consummated thereby, (ii)
consent to the Ericsson Documents and the transactions consummated thereby and
(iii) agree to amend certain provisions of, and waive certain Events of Default
under, the Credit Agreement as set forth in this Amendment.



   2


         NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:

         Section 1. Definitions. Capitalized terms used herein and not otherwise
defined herein, but which are defined in the Credit Agreement, shall have the
meanings ascribed to such terms in the Credit Agreement unless the context
otherwise requires.

         Section 2. Amendments to Credit Agreement. Subject to Section 5 hereof,
the Credit Agreement is hereby amended as follows:

                  (a) Amended Definitions. Section 1.1 of the Credit Agreement
         is amended by deleting the definitions of "Guarantors" and "Security
         Documents" as they appear therein and substituting in lieu thereof the
         following definitions in the appropriate alphabetical order:

                           "Connaissance Notes": Collectively, (a) that certain
                  Promissory Note dated January 31, 2001 made by Jeffrey A.
                  Lusenhop in favor of NCI in the amount of $1,000,000, and (b)
                  that certain Promissory Note dated January 31, 2001 made by
                  Jeffrey A. Lusenhop in favor of NCI in the amount of
                  $12,000,000.

                           "Connaissance Note Collateral": Collectively, (a) the
                  Connaissance Notes and the instruments and other agreements
                  evidencing the Connaissance Notes, and all interest, cash,
                  instruments, agreements and other property from time to time
                  received, receivable or otherwise distributed in respect of or
                  in exchange for any or all of the Connaissance Notes, (b) any
                  and all collateral security (including the Subordinated
                  Connaissance Note) now or hereafter securing all or any items
                  of the Connaissance Notes, and all agreements granting such
                  security, and all rights, remedies, powers and privileges of
                  NCI under all of the foregoing, and (c) all proceeds of any
                  and all of the foregoing (including proceeds that constitute
                  property of types described above in this definition).

                           "Connaissance": Connaissance Consulting, LLC, a
                  Minnesota limited liability company.

                           "Guarantors": Norstan Financial Services, Inc., a
                  Minnesota corporation; Norstan Communications, Inc., a
                  Minnesota corporation; Norstan Network Services, Inc., a
                  Minnesota corporation; Norstan International, Inc., a
                  Minnesota corporation; Norstan-UK Limited, a corporation
                  incorporated in London, England; Norstan Consulting Holding
                  Company, a Minnesota corporation; Norstan Consulting, Inc., a
                  Minnesota corporation; Norstan Canada, Ltd., a Canadian
                  corporation; Vibes Technologies, Inc., a Minnesota
                  corporation; Norstan Canada, Inc. a Minnesota corporation;
                  Norstan Information Systems, Inc., a Minnesota corporation;
                  and Norstan Network Services of New Hampshire, Inc., a New
                  Hampshire corporation.

                           "Pledge Agreements": Collectively, the separate
                  Pledge Agreements of the Borrower, Norstan Canada, NCI,
                  Norstan Network Services, Inc. and Norstan



                                      -2-
   3


                  Consulting Holding Company pursuant to which the Agent has
                  been granted, for the benefit of the Banks, a security
                  interest in the capital stock (or the equivalent) of certain
                  direct and indirect Subsidiaries of the Borrower, as any of
                  the same may be amended, supplemented, extended, restated or
                  otherwise modified from time to time.

                           "Security Documents": The Guaranties, the Security
                  Agreements, the Pledge Agreements, any collateral assignment
                  documents executed and delivered by the Borrower or any
                  Subsidiary under Section 3.1(a)(xv) and any other documents or
                  instruments executed and delivered in connection with any of
                  the forgoing.

                           "Subordinated Connaissance Note": Senior Subordinated
                  Promissory Note made by Connaissance in favor of NCI in the
                  amount of $9,953,931.00.

                  (b) Connaissance Note Collateral. The following new Section
         5.16 of the Credit Agreement is added immediately following Section
         5.15 of the Credit Agreement:

                           Section 5.16 Connaissance Note Collateral.

                                    (a) The Borrower acknowledges and confirms,
                           and shall cause NCI to acknowledge and confirm, that
                           the Connaissance Note Collateral constitutes
                           "Collateral" under and within the meaning of NCI's
                           Security Agreement. Except as the Agent may otherwise
                           agree, the Borrower shall cause all certificates,
                           instruments and other agreements representing or
                           evidencing Connaissance Note Collateral received by
                           the Borrower or any Subsidiary to be delivered to the
                           Agent promptly upon receipt thereof. All such
                           certificates, instruments and agreements shall be in
                           suitable form for transfer by delivery, or shall be
                           accompanied by duly executed instruments of transfer
                           or assignment in blank, all in form and substance
                           satisfactory to the Agent. Neither the Borrower nor
                           any Subsidiary shall forgive, cancel, compromise,
                           modify, amend or extend the time for payment of, or
                           waive any default under, any of the Connaissance Note
                           Collateral, or modify or amend, or waive any default
                           under any agreement with respect to the Connaissance
                           Note Collateral, or consent to or acquiesce in any of
                           the foregoing, without in each case the prior written
                           consent of the Banks.

                                    (b) Notwithstanding whether an Event of
                           Default has occurred, any and all cash paid, payable
                           or otherwise distributed in respect of principal of,
                           or in exchange for, any Connaissance Note Collateral,
                           shall be applied, and shall be forthwith delivered to
                           the Agent to apply, to the Obligations in the manner
                           set forth in Section 2.6(c) hereof and shall, if
                           received by the Borrower or any Subsidiary, be
                           received in trust for the benefit of the Agent, be
                           segregated from the other property or funds of the
                           Borrower or such Subsidiary, and be forthwith
                           delivered to the Agent in the same form as so
                           received (with any necessary endorsement or



                                      -3-
   4


                           assignment). Notwithstanding the forgoing, upon the
                           occurrence of an Event of Default and at any time
                           during the continuance thereof, the Agent may take
                           any action with respect to the Connaissance Note
                           Collateral specified in Section 20 of NCI's Security
                           Agreement or otherwise.

                                    (c) The provisions of this Section 5.16
                           shall supplement, and be cumulative of, NCI's
                           Security Agreement.

                  (c) Sales of Assets. Sections 6.2(d) and 6.2(e) of the Credit
         Agreement are each amended by (i) deleting the references to the clause
         "Section 6.13(d)" as they appear therein and replacing each such
         reference with the clause "Section 6.13(b)" and (2) inserting the
         clause ", and the residual interest of the equipment leased under,"
         immediately following the clause "total present value of the rental
         streams under" as such clause appears in each such section.

                  (d) Investments. The following new Section 6.10(r) of the
         Credit Agreement is added immediately following Section 6.10(q) of the
         Credit Agreement:

                           (r) The Connaissance Notes.

                  (e) Liens. Section 6.12(l) of the Credit Agreement is deleted
         in its entirety and the following is substituted in lieu thereof:

                           (l) Purchase money Liens granted by NCI to Ericsson,
                  Inc. against inventory sold by Ericsson, Inc. to NCI pursuant
                  to the Ericsson Acquisition Documents, provided that that
                  certain Intercreditor Agreement dated as of the date of the
                  First Amendment hereto between Ericsson, Inc. and the Agent
                  remains unmodified and in full force and effect and has not
                  been repudiated by NCI or Ericsson, Inc.

                           (m) Purchase money Liens granted by NCI to Ericsson
                  Webcom, Inc. against inventory sold by Ericsson Webcom, Inc.
                  to NCI, provided that that certain Intercreditor Agreement
                  dated as of the date of the First Amendment hereto between
                  Ericsson Webcom, Inc. and the Agent remains unmodified and in
                  full force and effect and has not been repudiated by NCI or
                  Ericsson Webcom, Inc.

                  (f) Events of Default. Section 7.1(c) of the Credit Agreement
         is amended by deleting the clause "or 5.15" as it appears therein and
         substituting in lieu thereof the clause ", 5.15 or 5.16".

         Section 3. Consent; Waiver of Events of Default and Termination of
Connaissance Security Documents. Upon the satisfaction of the conditions set
forth in Section 5 below:

                  (a) Each Bank and the Agent (i) hereby consents to the
         execution and delivery by the Borrower and NCI of the Connaissance Sale
         Agreement and the consummation of the transactions contemplated thereby
         and (ii) hereby waives any default or Event of



                                      -4-
   5


         Default arising under Sections 4.10, 4.19, 6.1, 6.2, 6.10, 6.14,
         7.1(k), 7.1(m) or 7.1(o) of the Credit Agreement (the "Existing
         Connaissance Defaults") due to the matters specified in the forgoing
         clause (i). Further, each Bank and the Agent (x) hereby consents to the
         execution and delivery by NCI of the Ericsson Documents and the
         consummation of the transactions contemplated thereby, (y) hereby
         waives any default or Event of Default arising under Sections 6.10(q),
         6.11(l) or 6.12(l) of the Credit Agreement (collectively with the
         Existing Connaissance Defaults, the "Existing Defaults") due to the
         matters specified in the foregoing clause (x) and (z) agrees that the
         purchase price paid by NCI in connection with the Ericsson Documents
         shall not constitute a "Capital Expenditure" for purposes of Section
         6.8 of the Credit Agreement. The Banks' and the Agent's consents and
         waivers set forth in the forgoing two sentences are limited to the
         specific terms thereof, and nothing herein shall be deemed a waiver by
         the Banks or the Agent of any other term, condition, representation or
         covenant applicable to the Borrower or any Guarantor under the Loan
         Documents (including but not limited to any future occurrence similar
         to the Existing Defaults). The waivers by the Banks and the Agent set
         forth this subparagraph shall not constitute a waiver by the Banks or
         the Agent of any other Default or Event of Default, if any, under any
         Loan Document, and shall not be, and shall not be deemed to be, a
         course of action with respect thereto upon which the Borrower may rely
         in the future, and the Borrower hereby expressly waives any claim to
         such effect.

                  (b) The Guaranty of Connaissance and the Security Agreement of
         Connaissance are each hereby terminated for all purposes.

                  (c) Schedule I attached to NCI's Pledge Agreement is hereby
         amended to read as set forth on Exhibit A to this Amendment. Except as
         amended by this Amendment, NCI's Pledge Agreement shall remain
         unmodified and in full force and effect.

                  (d) The Borrower acknowledges that the Ericsson Documents
         constitute the "Ericsson Acquisition Documents" under and within the
         meaning of that term set forth in the Credit Agreement.

         Section 4. Representations and Warranties of the Borrower. To induce
the Banks and the Agent to execute and deliver this Amendment (which
representations and warranties shall survive the execution and delivery of this
Amendment), the Borrower represents and warrants to the Agent and the Banks
that:

                  (a) this Amendment has been duly authorized, executed and
         delivered by it and this Amendment constitutes the legal, valid and
         binding obligation of the Borrower enforceable against the Borrower in
         accordance with its terms, subject to limitations as to enforceability
         which might result from bankruptcy, insolvency, reorganization,
         moratorium or similar laws or equitable principles relating to or
         limiting creditors' rights generally;

                  (b) the Credit Agreement, as amended by this Amendment,
         constitutes the legal, valid and binding obligation of the Borrower
         enforceable against the Borrower in accordance with its terms, subject
         to limitations as to enforceability which might result



                                      -5-
   6


         from bankruptcy, insolvency, reorganization, moratorium or similar laws
         or equitable principles relating to or limiting creditors' rights
         generally;

                  (c) the execution, delivery and performance by the Borrower of
         the Amendment (i) have been duly authorized by all requisite corporate
         action and, if required, shareholder action, (ii) do not require the
         consent or approval of any governmental or regulatory body or agency,
         and (iii) will not (A) violate (1) any provision of law, statute, rule
         or regulation or its certificate of incorporation or bylaws, (2) any
         order of any court or any rule, regulation or order of any other agency
         or government binding upon it, or (3) any provision of any material
         indenture, agreement or other instrument to which it is a party or by
         which any of its properties or assets are or may be bound, or (B)
         result in a breach of or constitute (alone or with due notice or lapse
         of time or both) a default under any indenture, agreement or other
         instrument referred to in clause (iii)(A)(3) of this Section 4(c);

                  (d) as of the date hereof, no Default or Event of Default has
         occurred which either (a) is continuing or (b) has not been waived by
         the Agent and the Banks as set forth in Section 3 of this Amendment;
         and

                  (e) all the representations and warranties contained in
         Article IV of the Credit Agreement are true and correct in all material
         respects with the same force and effect as if made by the Borrower on
         and as of the date hereof.

                  (f) (i) the Borrower has furnished to the Agent true, complete
         and accurate copies of the Connaissance Sale Agreement, the
         Connaissance Note Collateral, and all exhibits, schedules and ancillary
         documents related thereto, (ii) the documents specified in the forgoing
         clause (i), (A) constitute the entire agreement between the Borrower,
         NCI and the other parties thereto with respect to the subject matter
         thereof and (B) have not been amended, terminated or otherwise modified
         and remain in full force and effect and (iii) the transactions
         contemplated by the Connaissance Sale Agreement have been consummated.

         Section 5. Conditions to Effectiveness of this Amendment. This
Amendment shall become effective as of January 31, 2001 when each and every one
of the following conditions shall have been satisfied:

                  (a) The Agent shall have received executed counterparts of
         this Amendment, duly executed by the Borrower and each of the Banks.

                  (b) The Agent shall have received from the Guarantors a
         Consent and Agreement of Guarantors in the form of Exhibit B hereto
         (the "Guarantor Agreements") duly completed and executed by each
         Guarantor.

                  (c) The Agent shall have received the Intercreditor Agreement
         in the form of Exhibit C hereto, duly completed and executed by
         Ericsson and NCI.

                  (d) The Agent shall have received the Intercreditor Agreement
         in the form of Exhibit D hereto, duly completed and executed by
         Ericsson Webcom, Inc.



                                      -6-
   7


                  (e) The Agent shall have received all certificates,
         instruments and other agreements representing or evidencing the
         Connaissance Note Collateral, together with duly executed instruments
         of transfer or assignment in blank, all in form and substance
         satisfactory to the Agent.

                  (f) The Agent shall have received a Guaranty and a Security
         Agreement for Norstan Information Systems, Inc. ("NIS") in the form
         prescribed by the Agent, each duly executed by NIS.

                  (g) The Agent shall have received a complete copy of the
         Bylaws of each of Norstan Communications, Inc., Norstan Consulting
         Holding Company and Norstan Canada, Inc.

                  (h) The Agent shall have received such other documents or
         instruments reasonably deemed necessary by the Agent.

         Section 6. Affirmation; Reaffirmation. The Agent, each Bank and the
Borrower each acknowledge and affirm that the Credit Agreement, as hereby
amended, is hereby ratified and confirmed in all respects and all terms,
conditions and provisions of the Credit Agreement, except as amended by this
Amendment, shall remain unmodified and in full force and effect. All references
in any document or instrument to the Credit Agreement are hereby amended and
shall refer to the Credit Agreement as amended by this Amendment. The Borrower
confirms to the Agent and each Bank that the Obligations are and continue to be
secured by the security interest granted by the Borrower in favor of the Agent
under the Borrower's Security Agreement and all of the terms, conditions,
provisions, agreements, requirements, promises, obligations, duties, covenants
and representations of the Borrower under such documents and any and all other
documents and agreements entered into with respect to the Obligations are
incorporated herein by reference and are hereby ratified and affirmed in all
respects by the Borrower.

         Section 7. General.

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

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

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



                                      -7-
   8


                  (d) This Amendment shall be governed by, and construed in
         accordance with, the internal law, and not the law of conflicts, of the
         State of Minnesota, but giving effect to federal laws applicable to
         national banks.

                  (e) This Amendment shall be binding upon the Borrower, the
         Agent and the Banks and their respective successors and assigns, and
         shall inure to the benefit of the Borrower, the Agent and the Banks and
         the successors and assigns of the Agent and the Banks.





            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]





                                      -8-

   9


         IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first above written.


                                       NORSTAN, INC.


                                       By /s/ Robert J. Vold
                                         ---------------------------------------
                                          Its Treasurer


                                       U.S. BANK NATIONAL ASSOCIATION,
                                       as a Bank and as Agent


                                       By /s/ David C. Larsen
                                         ---------------------------------------
                                          Its VP


                                       HARRIS TRUST AND SAVINGS BANK


                                       By /s/ Lauren M. Powers
                                         ---------------------------------------
                                          Its Officer


                                       M&I MARSHALL & ILSLEY BANK


                                       By /s/ John W. Howard
                                         ---------------------------------------
                                          Its VP


                                       By /s/ Jeffrey P. Norton
                                         ---------------------------------------
                                          Its VP


                                       WELLS FARGO BANK MINNESOTA,
                                       NATIONAL ASSOCIATION


                                       By /s/ William J. Kennedy
                                         ---------------------------------------
                                          Its VP




  [Signature Page to First Amendment to Amended and Restated Credit Agreement]


                                       S-1

EX-10.(D)(2)

   1


                                                                  EXHIBIT 10D(2)


                           SECOND AMENDMENT TO AMENDED

                          AND RESTATED CREDIT AGREEMENT

         THIS SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT is dated
as of March 30, 2001 ("this Amendment"), by and among NORSTAN, INC., a Minnesota
corporation (the "Borrower"), the banks which are signatories hereto (each
individually, a "Bank," and collectively, the "Banks"), and U.S. BANK NATIONAL
ASSOCIATION, a national banking association, one of the Banks, as agent for the
Banks (in such capacity, the "Agent").

                                    RECITALS

         A. The Borrower, the Banks and the Agent are parties to an Amended and
Restated Credit Agreement dated as of December 20, 2000, as amended by a First
Amendment to Amended and Restated Credit Agreement dated as of March 19, 2001
(as amended, the "Credit Agreement").

         B. The Borrower has advised the Banks that (i) it will be unable to
make the principal payments due upon Term Loan A and Term Loan B of the Credit
Agreement due on March 30, 2001 and (ii) it has violated certain financial
covenants contained in the Credit Agreement.

         C. The Borrower has requested that the Banks agree to extend the times
for the payments due under Term Loan A and Term Loan B under the Credit
Agreement on the terms set forth in this Agreement and agree to forbear from
exercising their remedies pursuant to the Borrower's events of default due to
the Borrower's failure to meet its financial covenants.

         NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:

 DEFINITIONS. CAPITALIZED TERMS USED HEREIN AND NOT OTHERWISE DEFINED HEREIN,
     BUT WHICH ARE DEFINED IN THE CREDIT AGREEMENT, SHALL HAVE THE MEANINGS
           ASCRIBED TO SUCH TERMS IN THE CREDIT AGREEMENT UNLESS THE
                          CONTEXT OTHERWISE REQUIRES.

          AMENDMENTS TO CREDIT AGREEMENT. SUBJECT TO SECTION 5 HEREOF,
               THE CREDIT AGREEMENT IS HEREBY AMENDED AS FOLLOWS:

TERM LOAN PAYMENTS. SECTIONS 2.5(B) AND 2.5(C) OF THE CREDIT AGREEMENT ARE
DELETED IN THEIR ENTIRETIES AND THE FOLLOWING IS SUBSTITUTED IN LIEU THEREOF:

                           (b) Term A Loan. The unpaid balance of the Term A
                  Loan, and all accrued and unpaid interest thereon, shall be
                  due and payable on April 4, 2001;

   2


                           (c) Term B Loan. The unpaid balance of the Term B
                  Loan, and all accrued and unpaid interest thereon, shall be
                  due and payable on April 4, 2001;

               FORBEARANCE FROM OF EVENTS OF DEFAULT. THE BORROWER
                       HAS INFORMED THE BANKS AS FOLLOWS:

                  (a) that it was not in compliance with its covenant under
         Section 6.16 of the Credit Agreement for the period ended February 28,
         2001, in that its actual EBITDA for the fiscal month ended on that date
         was ($2,179,000), which amount is the less than the minimum EBITDA of
         $2,195,000 required by that Section for that period;

                  (b) that it was not in compliance with its covenant under
         Section 6.18 of the Credit Agreement for the fiscal month ended
         February 28, 2001, in that the Adjusted Leverage Ratio as of that date
         was 16.9 to 1.0, which amount is greater than the maximum Adjusted
         Leverage Ratio of 13.7 to 1.0 required by that Section for that period;
         and,

                  (c) that it was not in compliance with its covenant under
         Section 6.19 of the Credit Agreement for the fiscal month ended
         February 28, 2001, in that the Interest Coverage Ratio as of that date
         was (3.2) to 1.0, which amount is less than the minimum Interest
         Coverage Ratio of 3.9 to 1.0 required by that Section for that period;

Each such instance of noncompliance constitutes a Default or Event of Default
under the Credit Agreement (collectively, the "Existing Defaults"). Upon the
satisfaction of the conditions set forth in Section 5 below, each Bank and the
Agent shall, until the Forbearance Termination Date (defined below), forbear
from exercising their enforcement remedies under the Loan Documents arising from
the Existing Defaults. For purposes of this letter, the "Forbearance Termination
Date" shall mean the earlier to occur of April 4, 2001 or the date on which any
additional Event of Default occurs. The Banks' and the Agent's agreement to
forbear is limited to the express terms thereof, and nothing herein shall be
deemed a waiver or forbearance by the Banks or the Agent of any other term,
condition, representation or covenant applicable to the Borrower or any
Guarantor under the Loan Documents (including but not limited to any future
occurrence similar to the Existing Defaults). The forbearance by the Banks and
the Agent set forth herein shall not constitute a waiver or forbearance by the
Banks or the Agent of any other Default or Event of Default, if any, under any
Loan Document, and shall not be, and shall not be deemed to be, a course of
action with respect thereto upon which the Borrower may rely in the future, and
the Borrower hereby expressly waives any claim to such effect.




                                      -2-
   3


       REPRESENTATIONS AND WARRANTIES OF THE BORROWER. TO INDUCE THE BANKS
 AND THE AGENT TO EXECUTE AND DELIVER THIS AMENDMENT (WHICH REPRESENTATIONS AND
   WARRANTIES SHALL SURVIVE THE EXECUTION AND DELIVERY OF THIS AMENDMENT), THE
        BORROWER REPRESENTS AND WARRANTS TO THE AGENT AND THE BANKS THAT:

THIS AMENDMENT HAS BEEN DULY AUTHORIZED, EXECUTED AND DELIVERED BY IT AND THIS
AMENDMENT CONSTITUTES THE LEGAL, VALID AND BINDING OBLIGATION OF THE BORROWER
ENFORCEABLE AGAINST THE BORROWER IN ACCORDANCE WITH ITS TERMS, SUBJECT TO
LIMITATIONS AS TO ENFORCEABILITY WHICH MIGHT RESULT FROM BANKRUPTCY, INSOLVENCY,
REORGANIZATION, MORATORIUM OR SIMILAR LAWS OR EQUITABLE PRINCIPLES RELATING TO
OR LIMITING CREDITORS' RIGHTS GENERALLY;

THE CREDIT AGREEMENT, AS AMENDED BY THIS AMENDMENT, CONSTITUTES THE LEGAL, VALID
AND BINDING OBLIGATION OF THE BORROWER ENFORCEABLE AGAINST THE BORROWER IN
ACCORDANCE WITH ITS TERMS, SUBJECT TO LIMITATIONS AS TO ENFORCEABILITY WHICH
MIGHT RESULT FROM BANKRUPTCY, INSOLVENCY, REORGANIZATION, MORATORIUM OR SIMILAR
LAWS OR EQUITABLE PRINCIPLES RELATING TO OR LIMITING CREDITORS' RIGHTS
GENERALLY;

THE EXECUTION, DELIVERY AND PERFORMANCE BY THE BORROWER OF THE AMENDMENT (I)
HAVE BEEN DULY AUTHORIZED BY ALL REQUISITE CORPORATE ACTION AND, IF REQUIRED,
SHAREHOLDER ACTION, (II) DO NOT REQUIRE THE CONSENT OR APPROVAL OF ANY
GOVERNMENTAL OR REGULATORY BODY OR AGENCY, AND (III) WILL NOT (A) VIOLATE (1)
ANY PROVISION OF LAW, STATUTE, RULE OR REGULATION OR ITS CERTIFICATE OF
INCORPORATION OR BYLAWS, (2) ANY ORDER OF ANY COURT OR ANY RULE, REGULATION OR
ORDER OF ANY OTHER AGENCY OR GOVERNMENT BINDING UPON IT, OR (3) ANY PROVISION OF
ANY MATERIAL INDENTURE, AGREEMENT OR OTHER INSTRUMENT TO WHICH IT IS A PARTY OR
BY WHICH ANY OF ITS PROPERTIES OR ASSETS ARE OR MAY BE BOUND, OR (B) RESULT IN A
BREACH OF OR CONSTITUTE (ALONE OR WITH DUE NOTICE OR LAPSE OF TIME OR BOTH) A
DEFAULT UNDER ANY INDENTURE, AGREEMENT OR OTHER INSTRUMENT REFERRED TO IN CLAUSE
(III)(A)(3) OF THIS SECTION 4(C);

AS OF THE DATE HEREOF, NO DEFAULT OR EVENT OF DEFAULT HAS OCCURRED WHICH EITHER
(A) IS CONTINUING OR (B) PURSUANT TO WHICH THE AGENT AND THE BANKS HAVE NOT
AGREED TO FORBEAR FROM EXERCISING THEIR REMEDIES AS SET FORTH IN SECTION 3 OF
THIS AMENDMENT; AND

ALL THE REPRESENTATIONS AND WARRANTIES CONTAINED IN ARTICLE IV OF THE CREDIT
AGREEMENT ARE TRUE AND CORRECT IN ALL MATERIAL RESPECTS WITH THE SAME FORCE AND
EFFECT AS IF MADE BY THE BORROWER ON AND AS OF THE DATE HEREOF.

       CONDITIONS TO EFFECTIVENESS OF THIS AMENDMENT. THIS AMENDMENT SHALL
          BECOME EFFECTIVE AS OF THE DATE FIRST ABOVE WRITTEN WHEN EACH
      AND EVERY ONE OF THE FOLLOWING CONDITIONS SHALL HAVE BEEN SATISFIED:

THE AGENT SHALL HAVE RECEIVED EXECUTED COUNTERPARTS OF THIS AMENDMENT, DULY
EXECUTED BY THE BORROWER AND EACH OF THE BANKS.



                                      -3-
   4


THE AGENT SHALL HAVE RECEIVED FROM THE GUARANTORS A CONSENT AND AGREEMENT OF
GUARANTORS IN THE FORM OF EXHIBIT A HERETO (THE "GUARANTOR AGREEMENTS") DULY
COMPLETED AND EXECUTED BY EACH GUARANTOR.

THE BORROWER SHALL HAVE SATISFIED ALL OF THE CONDITIONS PRECEDENT TO THE
EFFECTIVENESS OF THE FIRST AMENDMENT TO THE CREDIT AGREEMENT.

THE AGENT SHALL HAVE RECEIVED SUCH OTHER DOCUMENTS OR INSTRUMENTS REASONABLY
DEEMED NECESSARY BY THE AGENT.

     AFFIRMATION; REAFFIRMATION. THE AGENT, EACH BANK AND THE BORROWER EACH
      ACKNOWLEDGE AND AFFIRM THAT THE CREDIT AGREEMENT, AS HEREBY AMENDED,
   IS HEREBY RATIFIED AND CONFIRMED IN ALL RESPECTS AND ALL TERMS, CONDITIONS
AND PROVISIONS OF THE CREDIT AGREEMENT, EXCEPT AS AMENDED BY THIS AMENDMENT,
SHALL REMAIN UNMODIFIED AND IN FULL FORCE AND EFFECT. ALL REFERENCES IN
         ANY DOCUMENT OR INSTRUMENT TO THE CREDIT AGREEMENT ARE HEREBY
  AMENDED AND SHALL REFER TO THE CREDIT AGREEMENT AS AMENDED BY THIS AMENDMENT.
  THE BORROWER CONFIRMS TO THE AGENT AND EACH BANK THAT THE OBLIGATIONS ARE AND
   CONTINUE TO BE SECURED BY THE SECURITY INTEREST GRANTED BY THE BORROWER IN
    FAVOR OF THE AGENT UNDER THE BORROWER'S SECURITY AGREEMENT AND ALL OF THE
 TERMS, CONDITIONS, PROVISIONS, AGREEMENTS, REQUIREMENTS, PROMISES, OBLIGATIONS,
 DUTIES, COVENANTS AND REPRESENTATIONS OF THE BORROWER UNDER SUCH DOCUMENTS AND
      ANY AND ALL OTHER DOCUMENTS AND AGREEMENTS ENTERED INTO WITH RESPECT
     TO THE OBLIGATIONS ARE INCORPORATED HEREIN BY REFERENCE AND ARE HEREBY
              RATIFIED AND AFFIRMED IN ALLRESPECTS BY THE BORROWER.

                                    GENERAL.

THE BORROWER AGREES TO REIMBURSE THE AGENT UPON DEMAND FOR ALL REASONABLE
EXPENSES (INCLUDING REASONABLE ATTORNEYS FEES AND LEGAL EXPENSES) INCURRED BY
THE AGENT IN THE PREPARATION, NEGOTIATION AND EXECUTION OF THIS AMENDMENT AND
ANY OTHER DOCUMENT REQUIRED TO BE FURNISHED HEREWITH, AND TO PAY AND SAVE THE
AGENT HARMLESS FROM ALL LIABILITY FOR ANY STAMP OR OTHER TAXES WHICH MAY BE
PAYABLE WITH RESPECT TO THE EXECUTION OR DELIVERY OF THIS AMENDMENT, WHICH
OBLIGATIONS OF THE BORROWER SHALL SURVIVE ANY TERMINATION OF THE CREDIT
AGREEMENT.

THIS AMENDMENT MAY BE EXECUTED IN AS MANY COUNTERPARTS AS MAY BE DEEMED
NECESSARY OR CONVENIENT, AND BY THE DIFFERENT PARTIES HERETO ON SEPARATE
COUNTERPARTS, EACH OF WHICH, WHEN SO EXECUTED, SHALL BE DEEMED AN ORIGINAL BUT
ALL SUCH COUNTERPARTS SHALL CONSTITUTE BUT ONE AND THE SAME INSTRUMENT.

ANY PROVISION OF THIS AMENDMENT WHICH IS PROHIBITED OR UNENFORCEABLE IN ANY
JURISDICTION SHALL, AS TO SUCH JURISDICTION, BE INEFFECTIVE TO THE EXTENT OF
SUCH PROHIBITION OR UNENFORCEABILITY WITHOUT INVALIDATING THE REMAINING PORTIONS
HEREOF OR AFFECTING THE VALIDITY OR ENFORCEABILITY OF SUCH PROVISIONS IN ANY
OTHER JURISDICTION.



                                      -4-
   5


THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
INTERNAL LAW, AND NOT THE LAW OF CONFLICTS, OF THE STATE OF MINNESOTA, BUT
GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.

THIS AMENDMENT SHALL BE BINDING UPON THE BORROWER, THE AGENT AND THE BANKS AND
THEIR RESPECTIVE SUCCESSORS AND ASSIGNS, AND SHALL INURE TO THE BENEFIT OF THE
BORROWER, THE AGENT AND THE BANKS AND THE SUCCESSORS AND ASSIGNS OF THE AGENT
AND THE BANKS.


            [The remainder of this page is intentionally left blank]



                                      -5-
   6


         IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first above written.


                                       NORSTAN, INC.


                                       By /s/ Robert J. Vold
                                         ---------------------------------------
                                          Its Treasurer


                                       U.S. BANK NATIONAL ASSOCIATION,
                                       as a Bank and as Agent


                                       By /s/ David C. Larsen
                                         ---------------------------------------
                                          Its VP


                                       HARRIS TRUST AND SAVINGS BANK


                                       By /s/ Lauren M. Powers
                                         ---------------------------------------
                                          Its VP


                                       M&I MARSHALL & ILSLEY BANK


                                       By /s/ John W. Howard
                                         ---------------------------------------
                                          Its VP


                                       By /s/ Doug Pudvah
                                         ---------------------------------------
                                          Its VP


                                       WELLS FARGO BANK MINNESOTA,
                                       NATIONAL ASSOCIATION


                                       By /s/ William J. Kennedy
                                         ---------------------------------------
                                          Its VP




  [Signature Page to Second Amendment to Amended and Restated Credit Agreement]

                                       S-1

EX-10.(D)(3)

   1


                                                                  EXHIBIT 10D(3)


                           THIRD AMENDMENT TO AMENDED
                          AND RESTATED CREDIT AGREEMENT

         THIS THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT is dated
as of April 4, 2001 ("this Amendment"), by and among NORSTAN, INC., a Minnesota
corporation (the "Borrower"), the banks which are signatories hereto (each
individually, a "Bank," and collectively, the "Banks"), and U.S. BANK NATIONAL
ASSOCIATION, a national banking association, one of the Banks, as agent for the
Banks (in such capacity, the "Agent").

                                    RECITALS

         A. The Borrower, the Banks and the Agent are parties to an Amended and
Restated Credit Agreement dated as of December 20, 2000, as amended by a First
Amendment to Amended and Restated Credit Agreement dated as of March 19, 2001
(the "First Amendment") and as amended by a Second Amendment to Amended and
Restated Credit Agreement (the "Second Amendment") dated as of March 30, 2001
(as amended, the "Credit Agreement").

         B. The Borrower has advised the Banks that (i) it will be unable to
make the principal payments due upon Term Loan A and Term Loan B of the Credit
Agreement due on April 4, 2001, (ii) it has violated certain financial covenants
contained in the Credit Agreement and (iii) it expects to be in violation of
certain financial covenants contained in the Credit Agreement for the month
ended March 31, 2001 and for future reporting periods.

         C. The Borrower has requested that the Banks agree to extend the due
dates for the payments due under Term Loan A and Term Loan B under the Credit
Agreement on the terms set forth in this Agreement, to waive the Borrower's
events of default due to the Borrower's failure to meet its financial covenants
and to modify the Borrower's financial covenants on the terms set forth in this
Amendment.

         NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:

         Section 1. Definitions. Capitalized terms used herein and not otherwise
defined herein, but which are defined in the Credit Agreement, shall have the
meanings ascribed to such terms in the Credit Agreement unless the context
otherwise requires.

         Section 2. Amendments to Credit Agreement. Subject to Section 5 hereof,
the Credit Agreement is hereby amended as follows:

                  (a) Amended Definitions. Sections 2.5(b) and 2.5(c) of the
         Credit Agreement are deleted in their entireties and the following is
         substituted in lieu thereof:

                           (b) Term A Loan. The Term A Loan shall be payable as
                  follows (i) one installment of principal in the amount of
                  $500,000 shall be due and payable on April 16, 2001, (ii) two
                  installments of principal in the amount of $1,000,000 each
                  shall be due and payable on May 15, 2001 and





   2


                  June 15, 2001 and (iii) an installment equal to the unpaid
                  balance of Term Loan A, and all accrued and unpaid interest
                  thereon, shall be due and payable on June 29, 2001;

                           (c) Term B Loan. The unpaid balance of the Term B
                  Loan, and all accrued and unpaid interest thereon, shall be
                  due and payable on June 29, 2001;

                  (b) Mandatory Prepayments. The second sentence of Section
         2.6(c) of the Credit Agreement is deleted in its entirety and the
         following is substituted in lieu thereof:

                  Any such prepayments shall be applied, in the following order
                  by the Agent to the Loans ratably to each Bank according to
                  its Revolving Commitment Percentage, Term A Loan Percentage,
                  Term B Loan Percentage or Term C Loan Percentage, as
                  applicable: (i) first, to unpaid principal balance of the Term
                  A Loan, in inverse order of the maturities of the installments
                  thereon (or, in the case of prepayments due to sale or
                  transfers of the type specified in clause (A) of the forgoing
                  sentence, in order of the maturities of the installments
                  thereon), (ii) second, to the unpaid principal balance of the
                  Term B Loan, (iii) third, to the unpaid principal balance of
                  the Term C Loan, (iv) fourth, to the unpaid principal balance
                  of the Revolving Loans (other than the reimbursement
                  obligations with respect to the Existing Letter of Credit) and
                  (v) fifth, to the Holding Account in the amount of the
                  aggregate face amount of the Existing Letter of Credit.

                  (c) Financial Reporting. Sections 5.1(c) and (d) of the Credit
         Agreement are each amended by deleting the clause "45 days" as it
         appears in each such Section and substituting in lieu thereof the
         clause "30 days". Section 5.1(d) of the Credit Agreement is amended by
         deleting the clause "Sections 6.8, 6.16, 6.18 and 6.19" as it appears
         therein and substituting in lieu thereof the clause "Sections 6.8, 6.16
         and 6.18".

                  (d) Ericsson Intercreditor Agreements. The following new
         Section 5.17 is added immediately following Section 5.16 of the Credit
         Agreement:

                           Section 5.17 ERICSSON INTERCREDITOR AGREEMENTS. By
                  April 19, 2001, the Borrower shall furnish to the Agent the
                  Intercreditor Agreements substantially in the form of those
                  attached as Exhibits C and D to the First Amendment hereto,
                  duly executed by the NCI, Ericsson, Inc. or Ericsson Webcom,
                  Inc., as applicable.

                  (e) Amendments to Financial Covenants. Sections 6.15, 6.16,
         6.17, 6.18 and 6.19 of the Credit Agreement are deleted in their
         respective entireties and the following is substituted in lieu thereof:

                           Section 6.15 [RESERVED].

                           Section 6.16 MINIMUM EBITDA. The Borrower will not
                  permit EBITDA, as of the last day of the Borrower's fiscal
                  months ended on or about the



                                      -2-
   3


                  following dates for such fiscal month, to be less than the
                  following indicated amounts:



                  Fiscal Month Ended On or About     Minimum EBITDA
                  ------------------------------     --------------
                                                  
                          March 31, 2001                ($900,000)
                          April 30, 2001               $1,400,000
                          May 31, 2001                   $900,000
                          June 30, 2001                $1,300,000


                           Section 6.17     [RESERVED].

                           Section 6.18 ADJUSTED LEVERAGE RATIO. The Borrower
                  will not permit the Adjusted Leverage Ratio, as of the last
                  day of the Borrower's fiscal months ended on or about the
                  following dates for such fiscal month, to be greater than the
                  following indicated amounts:



                  Fiscal Month Ended On or About              Maximum Adjusted Leverage Ratio
                  ------------------------------              -------------------------------
                                                           
                          March 31, 2001                                24.0 to 1.0
                          April 30, 2001                                22.0 to 1.0
                          May 31, 2001                                  24.9 to 1.0
                          June 30, 2001                                 25.0 to 1.0


                           Section 6.19     [RESERVED].

                  (f) Schedule to Borrower's Pledge Agreement. The Borrower's
         Pledge Agreement is amended by deleting the text following the
         subheading "Part II, Foreign Shares" as it appears therein and
         substituting in lieu thereof the clause "None".

                  (g) Amendment to First Amendment. The First Amendment is
         amended by deleting the text of Sections 5(c) and (d) and substituting
         in lieu of such text the clause "[Reserved]".

                  (h) Amendment of Second Amendment. Section 3(a) of the Second
         Amendment is amended by deleting the clause "($2,179,000), which amount
         is" as it appearing therein. Section 3(b) of the Second Amendment is
         amended by deleting the clause "16.9 to 1.0, which amount is" as it
         appears therein. Section 3(c) of the Second Amendment is amended by
         deleting the clause "(3.2) to 1.0, which amount is" as it appears
         therein.

         Section 3. Waiver of Events of Default. The Borrower has informed the
Banks as follows:

                  (a) that it was not in compliance with its covenant under
         Section 6.16 of the Credit Agreement (as it existed prior to the
         effectiveness of this Amendment) for the period ended February 28,
         2001, in that its actual EBITDA for the fiscal month ended on



                                      -3-
   4


         that date was the less than the minimum EBITDA of $2,195,000 required
         by that Section for that period;

                  (b) that it was not in compliance with its covenant under
         Section 6.18 of the Credit Agreement (as it existed prior to the
         effectiveness of this Amendment) for the fiscal month ended February
         28, 2001, in that the Adjusted Leverage Ratio as of that date was
         greater than the maximum Adjusted Leverage Ratio of 13.7 to 1.0
         required by that Section for that period; and,

                  (c) that it was not in compliance with its covenant under
         Section 6.19 of the Credit Agreement (as it existed prior to the
         effectiveness of this Amendment) for the fiscal month ended February
         28, 2001, in that the Interest Coverage Ratio as of that date was less
         than the minimum Interest Coverage Ratio of 3.9 to 1.0 required by that
         Section for that period;

Each such instance of noncompliance constitutes a Default or Event of Default
under the Credit Agreement (collectively, the "Existing Defaults"). Upon the
satisfaction of the conditions set forth in Section 4 below, each Bank waives
the Existing Defaults. The Banks' agreement to waive the Existing Defaults is
limited to the express terms thereof, and nothing herein shall be deemed a
waiver by the Banks of any other term, condition, representation or covenant
applicable to the Borrower under the Loan Documents (including but not limited
to any future occurrence similar to the Existing Defaults). The waiver by the
Banks set forth herein shall not constitute a waiver by the Banks of any other
Default or Event of Default, if any, under any Loan Document, and shall not be,
and shall not be deemed to be, a course of action with respect thereto upon
which the Borrower may rely in the future, and the Borrower hereby expressly
waives any claim to such effect.

         Section 4. Representations and Warranties of the Borrower. To induce
the Banks and the Agent to execute and deliver this Amendment (which
representations and warranties shall survive the execution and delivery of this
Amendment), the Borrower represents and warrants to the Agent and the Banks
that:

                  (a) this Amendment has been duly authorized, executed and
         delivered by it and this Amendment constitutes the legal, valid and
         binding obligation of the Borrower enforceable against the Borrower in
         accordance with its terms, subject to limitations as to enforceability
         which might result from bankruptcy, insolvency, reorganization,
         moratorium or similar laws or equitable principles relating to or
         limiting creditors' rights generally;

                  (b) the Credit Agreement, as amended by this Amendment,
         constitutes the legal, valid and binding obligation of the Borrower
         enforceable against the Borrower in accordance with its terms, subject
         to limitations as to enforceability which might result from bankruptcy,
         insolvency, reorganization, moratorium or similar laws or equitable
         principles relating to or limiting creditors' rights generally;

                  (c) the execution, delivery and performance by the Borrower of
         the Amendment (i) have been duly authorized by all requisite corporate
         action and, if



                                      -4-
   5


         required, shareholder action, (ii) do not require the consent or
         approval of any governmental or regulatory body or agency, and (iii)
         will not (A) violate (1) any provision of law, statute, rule or
         regulation or its certificate of incorporation or bylaws, (2) any order
         of any court or any rule, regulation or order of any other agency or
         government binding upon it, or (3) any provision of any material
         indenture, agreement or other instrument to which it is a party or by
         which any of its properties or assets are or may be bound, or (B)
         result in a breach of or constitute (alone or with due notice or lapse
         of time or both) a default under any indenture, agreement or other
         instrument referred to in clause (iii)(A)(3) of this Section 4(c);

                  (d) as of the date hereof, no Default or Event of Default has
         occurred which either (a) is continuing or (b) has not been waived by
         the Agent and the Banks as set forth in Section 3 of this Amendment;
         and

                  (e) all the representations and warranties contained in
         Article IV of the Credit Agreement are true and correct in all material
         respects with the same force and effect as if made by the Borrower on
         and as of the date hereof.

         Section 5. Conditions to Effectiveness of this Amendment. This
Amendment shall become effective as of the date first above written when each
and every one of the following conditions shall have been satisfied:

                  (a) The Agent shall have received executed counterparts of
         this Amendment, duly executed by the Borrower and each of the Banks.

                  (b) The Agent shall have received from the Guarantors a
         Consent and Agreement of Guarantors in the form of Exhibit A hereto
         (the "Guarantor Agreements") duly completed and executed by each
         Guarantor.

                  (c) The Agent shall have received a Pledge Agreement executed
         by Norstan International, Inc. covering 65% of its capital stock in
         Norstan UK, Ltd., together with financing statements and stock powers
         in the form prescribed by the Agent, each duly executed by Norstan
         International, Inc.

                  (d) The Agent shall have received such other documents or
         instruments reasonably deemed necessary by the Agent.

         Section 6. Affirmation; Reaffirmation. The Agent, each Bank and the
Borrower each acknowledge and affirm that the Credit Agreement, as hereby
amended, is hereby ratified and confirmed in all respects and all terms,
conditions and provisions of the Credit Agreement, except as amended by this
Amendment, shall remain unmodified and in full force and effect. All references
in any document or instrument to the Credit Agreement are hereby amended and
shall refer to the Credit Agreement as amended by this Amendment. The Borrower
confirms to the Agent and each Bank that the Obligations are and continue to be
secured by the security interest granted by the Borrower in favor of the Agent
under the Borrower's Security Agreement and all of the terms, conditions,
provisions, agreements, requirements, promises, obligations, duties, covenants
and representations of the Borrower under such documents and any and all other




                                      -5-
   6


documents and agreements entered into with respect to the Obligations are
incorporated herein by reference and are hereby ratified and affirmed in all
respects by the Borrower.

         Section 7. General Release. The Borrower hereby releases and discharges
the Agent and each Bank, and each of their officers, directors, employees,
agents and attorneys, from any and all claims, actions and liabilities of any
kind or nature that it or any one claiming through or under the Borrower ever
had or may now have, whether now known or hereafter discovered, arising out of
or in any way relating to: (i) any lending relationship or loan commitment
between the Agent, the Banks and the Borrower prior to the date of this
Amendment; (ii) the Loan Documents; or (iii) the negotiations preceding the
execution and delivery of this Agreement.

         Section 8. General.

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

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

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

                  (d) This Amendment shall be governed by, and construed in
         accordance with, the internal law, and not the law of conflicts, of the
         State of Minnesota, but giving effect to federal laws applicable to
         national banks.

                  (e) This Amendment shall be binding upon the Borrower, the
         Agent and the Banks and their respective successors and assigns, and
         shall inure to the benefit of the Borrower, the Agent and the Banks and
         the successors and assigns of the Agent and the Banks.


               [Remainder of this page intentionally left blank.]




                                      -6-

   7


         IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first above written.


                                       NORSTAN, INC.


                                       By /s/ Robert J. Vold
                                         ---------------------------------------
                                          Its Treasurer


                                       U.S. BANK NATIONAL ASSOCIATION,
                                       as a Bank and as Agent


                                       By /s/ David C. Larsen
                                         ---------------------------------------
                                          Its VP


                                       HARRIS TRUST AND SAVINGS BANK


                                       By /s/ Lawrence Mizera
                                         ---------------------------------------
                                          Its VP


                                       M&I MARSHALL & ILSLEY BANK


                                       By /s/ Robert A. Nielsen
                                         ---------------------------------------
                                          Its VP


                                       By /s/ Mark R. Hogan
                                         ---------------------------------------
                                          Its SVP


                                       WELLS FARGO BANK MINNESOTA,
                                       NATIONAL ASSOCIATION


                                       By /s/ William J. Kennedy
                                         ---------------------------------------
                                          Its VP




  [Signature Page to Third Amendment to Amended and Restated Credit Agreement]

                                       S-1

EX-10.(D)(4)

   1


                                                                  EXHIBIT 10D(4)


                           FOURTH AMENDMENT TO AMENDED
                          AND RESTATED CREDIT AGREEMENT


         THIS FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT is dated
as of May 15, 2001 ("this Amendment"), by and among NORSTAN, INC., a Minnesota
corporation (the "Borrower"), the banks which are signatories hereto (each
individually, a "Bank," and collectively, the "Banks"), and U.S. BANK NATIONAL
ASSOCIATION, a national banking association, one of the Banks, as agent for the
Banks (in such capacity, the "Agent").

                                    RECITALS

         A. The Borrower, the Banks and the Agent are parties to an Amended and
Restated Credit Agreement dated as of December 20, 2000, as amended by a First
Amendment to Amended and Restated Credit Agreement dated as of March 19, 2001,
as amended by a Second Amendment to Amended and Restated Credit Agreement dated
as of March 30, 2001 and as amended by a Third Amendment to Amended and Restated
Credit Agreement dated as of April 4, 2001 (as amended, the "Credit Agreement").

         B. The Borrower, Syncromesh Consulting, Inc. ("Syncromesh"), and
(solely with respect to Article V thereof) Barry R. Rubin have entered into, and
consummated the transactions contemplated by, that certain Stock Purchase
Agreement dated as of April 30, 2001 among them (the "Consulting Sale
Agreement") whereunder, among other things, the Borrower has sold to Syncromesh
all of the issued and outstanding common stock in Norstan Consulting Holding
Company, a Minnesota corporation ("NCHC"). NCHC owns all of the issued and
outstanding common stock in Norstan Consulting, Inc., a Minnesota corporation
("Consulting").

         C. The Borrower has requested that the Banks (i) consent to the
Consulting Sale Agreement and the transactions consummated thereby, and (ii)
agree to amend certain provisions of, and waive certain Events of Default under,
the Credit Agreement as set forth in this Amendment.

         NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:

         Section 1. Definitions. Capitalized terms used herein and not otherwise
defined herein, but which are defined in the Credit Agreement, shall have the
meanings ascribed to such terms in the Credit Agreement unless the context
otherwise requires.

         Section 2. Amendments to Credit Agreement. Subject to Section 5 hereof,
the Credit Agreement is hereby amended as follows:

                  (a) Amended Definitions. Section 1.1 of the Credit Agreement
         is amended by deleting the definitions of "Guarantors" and "Pledge
         Agreements" as they appear therein





   2


         and substituting in lieu thereof the following definitions in the
         appropriate alphabetical order:

                           "Consulting": Norstan Consulting, Inc., a Minnesota
                  corporation.

                           "Consulting Cash Portion": The initial payment of
                  $500,000 payable by Syncromesh, Inc. to the Borrower pursuant
                  to Section I(B) of the Consulting Sale Agreement.

                           "Consulting Note Documents": Collectively, (a) that
                  certain promissory note dated April 30, 2001 made by
                  Syncromesh, Inc. in favor of the Borrower in the amount of
                  $1,500,000 (the "Consulting Purchaser Note"), (b) that certain
                  promissory note dated October 28, 1999 made by TechSkills.com,
                  Inc. in favor of Consulting in the original principal amount
                  of $1,801,943.01, (c) that certain promissory note dated
                  January 22, 2001 made by Substance Abuse Management, Inc. in
                  favor of Consulting in the original principal amount of
                  $1,500,000, (d) that certain guaranty dated January 22, 2001
                  made by Henry Goldberg in favor of Consulting whereunder such
                  individual has guaranteed payment of the note specified in the
                  forgoing subparagraph (c), and (e) that certain assignment
                  agreement dated as of April 30, 2001 whereunder Consulting has
                  absolutely and irrevocably assigned to the Borrower the notes
                  and guaranty specified in the forgoing subparagraphs (b), (c)
                  and (d).

                           "Consulting Purchaser Note": As defined in the
                  definition of "Consulting Note Documents" contained in Section
                  1.1 hereof.

                           "Consulting Sale Agreement": That certain Stock
                  Purchase Agreement dated as of April 30, 2001 between
                  Syncromesh, Inc., the Borrower and (solely with respect to
                  Article V of such agreement) Barry R. Rubin.

                           "Consulting Sale Collateral": Collectively, (a) the
                  Consulting Note Documents and the Consulting Sale Agreement
                  and the instruments and other agreements evidencing the
                  Consulting Note Documents or the Consulting Sale Agreement,
                  and all interest, cash, instruments, agreements and other
                  property from time to time received, receivable or otherwise
                  distributed in respect of or in exchange for any or all of the
                  Consulting Note Documents or the Consulting Sale Agreement,
                  (b) any and all collateral security and guaranties now or
                  hereafter securing or guarantying all or any items of the
                  Consulting Note Documents or the Consulting Sale Agreement,
                  and all agreements granting such security or guaranties, and
                  all rights, remedies, powers and privileges of the Borrower
                  under all of the foregoing, and (c) all proceeds of any and
                  all of the foregoing (including proceeds that constitute
                  property of types described above in this definition).

                           "Guarantors": Norstan Financial Services, Inc., a
                  Minnesota corporation; Norstan Communications, Inc., a
                  Minnesota corporation; Norstan Network Services, Inc., a
                  Minnesota corporation; Norstan International, Inc., a
                  Minnesota corporation; Norstan-UK Limited, a corporation
                  incorporated in London,



                                      -2-
   3


                  England; Norstan Canada, Ltd., a Canadian corporation; Vibes
                  Technologies, Inc., a Minnesota corporation; Norstan Canada,
                  Inc. a Minnesota corporation; Norstan Information Systems,
                  Inc., a Minnesota corporation; and Norstan Network Services of
                  New Hampshire, Inc., a New Hampshire corporation

                           "Net Proceeds": With respect to the sale or
                  disposition of property, sale of capital stock and offering of
                  debt securities by the Borrower or a Subsidiary, or other
                  non-recurring event, an amount equal to (a) the cash
                  (including deferred cash proceeds and all amounts received
                  from time to time upon the Consulting Sale Collateral) and
                  other consideration received by the Borrower or a Subsidiary
                  in connection with such transaction or event, minus (b) the
                  sum of (i) the unpaid principal balance on the date of any
                  such sale or offering of any Indebtedness that is secured by a
                  Lien not proscribed by Section 6.12 and affecting such
                  property, and which is required to be repaid on the date of
                  such sale or offering, (ii) any closing costs or selling costs
                  payable upon the consummation such sale or offering (other
                  than Permitted Consulting Sale Costs), (iii) any sales or
                  income tax paid or payable by the Borrower in connection with
                  such transaction or event (excluding any tax for which the
                  Borrower is reimbursed by the purchaser) and (iv) in the case
                  of the amounts received upon the Consulting Cash Portion and
                  the Consulting Purchaser Note (and not in the case of any
                  amounts received upon any other Consulting Sale Collateral),
                  the Permitted Consulting Sale Costs.

                           "Permitted Consulting Sale Costs": As of any date of
                  any determination, the following amounts: (a) all amounts
                  payable on or before such date upon Consulting's trade
                  accounts payable and accrued payroll obligations (other than
                  severance obligations specified in SectionV(B) of the
                  Consulting Sale Agreement) assumed by the Borrower pursuant to
                  Section I(B) of the Consulting Sale Agreement and (b) all
                  other amounts payable on or before such date under the
                  Consulting Sale Agreement (including severance costs incurred
                  under Section V(B) of the Consulting Sale Agreement, but
                  excluding any indemnification obligations under Sections V(B)
                  or X(A) of the Consulting Sale Agreement or otherwise),
                  provided that the "Permitted Consulting Sale Costs" shall not
                  include (i) any amounts payable in excess of (A) $2,000,000,
                  in the case of amounts specified in clause (a) of this
                  definition and (B) $600,000, in the case of amounts specified
                  in clause (b) of this definition and (ii) any amounts which,
                  prior to such determination, have been deducted from the
                  proceeds of Consulting Sale Collateral in determining whether
                  any Net Proceeds derive therefrom.

                           "Pledge Agreements": Collectively, the separate
                  Pledge Agreements of the Borrower, Norstan Canada, NCI,
                  Norstan Network Services, Inc. and Norstan International, Inc.
                  pursuant to which the Agent has been granted, for the benefit
                  of the Banks, a security interest in the capital stock (or the
                  equivalent) of certain direct and indirect Subsidiaries of the
                  Borrower, as any of the same may be amended, supplemented,
                  extended, restated or otherwise modified from time to time.



                                      -3-
   4


                           "Security Documents": The Guaranties, the Security
                  Agreements, the Pledge Agreements, any collateral assignment
                  documents executed and delivered by the Borrower or any
                  Subsidiary under Section 3.1(a)(xv) and any other documents or
                  instruments executed and delivered in connection with any of
                  the forgoing.

                  (b) Connaissance Note Collateral. Section 5.16(b) of the
         Credit Agreement is amended by adding the following new sentence at the
         end thereof:

                  Notwithstanding anything to the contrary in NCI's Security
                  Agreement, NCI will not, without the Agent's prior written
                  consent, agree to any modifications, amendments,
                  subordinations, cancellations or terminations of the
                  obligations of any Account Debtor (as defined in the
                  Borrower's Security Agreement) upon any Connaissance Note
                  Collateral.

                  (c) Consulting Sale Collateral. Section 5.17 of the Credit
         Agreement is deleted in its entirety and the following is substituted
         in lieu thereof

                           Section 5.17 Ericsson Intercreditor Agreements. By
                  May 30, 2001, the Borrower shall furnish to the Agent the
                  Intercreditor Agreements substantially in the form of those
                  attached as Exhibits C and D to the First Amendment hereto,
                  duly executed by the NCI, Ericsson, Inc. or Ericsson Webcom,
                  Inc., as applicable.

                           Section 5.18  Consulting Sale Collateral.

                           (a)      The Borrower acknowledges and confirms that
                                    the Consulting Sale Collateral constitutes
                                    "Collateral" under and within the meaning of
                                    the Borrower's Security Agreement. Except as
                                    the Agent may otherwise agree, the Borrower
                                    shall cause all certificates, instruments
                                    and other agreements representing or
                                    evidencing Consulting Sale Collateral
                                    received by the Borrower or any Subsidiary
                                    to be delivered to the Agent promptly upon
                                    receipt thereof. All such certificates,
                                    instruments and agreements shall be in
                                    suitable form for transfer by delivery, or
                                    shall be accompanied by duly executed
                                    instruments of transfer or assignment in
                                    blank, all in form and substance
                                    satisfactory to the Agent. Neither the
                                    Borrower nor any Subsidiary shall forgive,
                                    cancel, compromise, modify, amend or extend
                                    the time for payment of, or waive any
                                    default under, any of the Consulting Sale
                                    Collateral, or modify or amend, or waive any
                                    default under, any agreement with respect to
                                    the Consulting Sale Collateral, or consent
                                    to or acquiesce in any of the foregoing,
                                    without in each case the prior written
                                    consent of the Banks.

                  (b) Subject to paragraph (c) of this Section 5.18, the
         Borrower shall be entitled to exercise or refrain from exercising any
         and all voting and other consensual rights



                                      -4-
   5


         pertaining to the Persus Collateral or any part thereof for any purpose
         not inconsistent with the terms of this Agreement or the Borrower's
         Security Agreement, provided, however, that the Borrower shall not
         exercise or refrain from exercising any such right if such action could
         reasonably be expected to be inconsistent with the terms of this
         Agreement or the Security Agreement, including without limitation,
         Pledgor's voting at any time to increase the number of member interests
         of authorized and/or issued member interests of Persus, except in a
         manner consistent with the terms of Section ___ of this Section 5.18,
         or voting at any time to sell any assets of such company.

                  (c) Subject to paragraph (e) of this Section 5.18, the
         Borrower shall be entitled to receive, retain, and use in any manner
         not prohibited by this Agreement any and all dividends and other
         distributions paid in respect of the Persus Collateral; provided,
         however, that any and all

                           (i) dividends and other distributions paid or payable
                  other than in cash in respect of, and instruments and other
                  property received, receivable or otherwise distributed in
                  respect of, or in exchange for, any Collateral,

                           (ii) dividends and other distributions paid or
                  payable in cash in respect of any Collateral in connection
                  with a partial or total liquidation or dissolution or in
                  connection with a reduction of capital, capital surplus or
                  paid-in-surplus, and

                           (iii) cash paid, payable or otherwise distributed in
                  redemption of, or in exchange for, any Collateral,

         shall be, and shall be forthwith delivered to the Bank to hold as,
         Collateral and shall, if received by the Borrower, be received in trust
         for the benefit of the Bank, be segregated from the other property or
         funds of the Borrower, and be forthwith delivered to the Bank as
         Collateral in the same form as so received (with any necessary
         indorsement or assignment). The Borrower shall, upon request by the
         Bank, promptly execute all such documents and do all such acts as may
         be necessary or desirable to give effect to the provisions of this
         Section 5.18(c).

                  (d) Upon the occurrence and during the continuance of any
         Event of Default, the Bank shall have the right in its sole discretion,
         and the Borrower shall execute and deliver all such proxies and other
         instruments as may be necessary or appropriate to give effect to such
         right, to terminate all rights of the Borrower to exercise or refrain
         from exercising the voting and other consensual rights that it would
         otherwise be entitled to exercise pursuant to Section 5.18(b) hereof,
         and all such rights shall thereupon become vested in the Bank who shall
         thereupon have the sole right to exercise or refrain from exercising
         such voting and other consensual rights; provided, however, that the
         Bank shall not be deemed to possess or have control over any voting
         rights with respect to any Collateral unless and until the Bank has
         given written notice to the Borrower that any further exercise of such
         voting rights by the Borrower is prohibited and that the Bank and/or
         its assigns will henceforth exercise such voting rights; and provided,
         further, that neither the registration of any item of Collateral in the
         Bank's name nor the exercise of any voting



                                      -5-
   6


         rights with respect thereto shall be deemed to constitute a retention
         by the Bank of any such Collateral in satisfaction of the Obligations
         or any part thereof.

                  (e) Upon the occurrence and during the continuance of any
         Event of Default:

                           (i) all rights of the Borrower to receive the
                  dividends and other distributions that it would otherwise be
                  authorized to receive and retain pursuant to Section 6(c)
                  hereof shall cease, and all such rights shall thereupon become
                  vested in the Bank who shall thereupon have the sole right to
                  receive and hold such dividends and other distributions as
                  Collateral under the Borrower's Security Agreement, and

                           (ii) all payments of dividends and other
                  distributions that are received by the Borrower contrary to
                  the provisions of paragraph (i) of this Section 5.18(e) shall
                  be received in trust for the benefit of the Bank, shall be
                  segregated from other funds of the Borrower and shall be
                  forthwith paid over to the Bank as Collateral under the
                  Borrower's Security Agreement in the same form as so received
                  (with any necessary indorsement).

                  (f) The Borrower agrees that it will not (i) sell, assign (by
         operation of law or otherwise) or otherwise dispose of, or grant any
         option with respect to, any of the Persus Collateral.

                  (g) The Pledgor agrees that it will (i) cause Persus not to
         issue any stock, member interests or other securities in addition to or
         in substitution for the Persus Collateral, except to the Pledgor and
         except for the 700 voting interests and 3750 nonvoting interests in
         Persus issued in favor of the "Partners", as specified in the Master
         Agreement and (ii) pledge under the Borrower's Security Agreement,
         immediately upon its acquisition (directly or indirectly) thereof, any
         and all additional member interests, stock or other securities of
         Persus issued in favor of the Borrower



                           (b) Notwithstanding whether an Event of Default has
                  occurred, any and all Net Proceeds paid, payable or otherwise
                  distributed in respect of, or in exchange for, any Consulting
                  Sale Collateral, shall be applied, and shall be forthwith
                  delivered to the Agent to apply, to the Obligations in the
                  manner set forth in Section 2.6(c) hereof and shall, if
                  received by the Borrower or any Subsidiary, be received in
                  trust for the benefit of the Agent, be segregated from the
                  other property or funds of the Borrower or such Subsidiary,
                  and be forthwith delivered to the Agent in the same form as so
                  received (with any necessary endorsement or assignment).
                  Notwithstanding the forgoing, upon the occurrence of an Event
                  of Default and at any time during the continuance thereof, the
                  Agent may take any action with respect to the Consulting Sale
                  Collateral specified in Section 20 of the Borrower's Security
                  Agreement or otherwise. Notwithstanding anything to the
                  contrary in the Borrower's Security Agreement, the Borrower
                  will not, without the Agent's prior written consent, agree to
                  any modifications,



                                      -6-
   7


                  amendments, subordinations, cancellations or terminations of
                  the obligations of any Account Debtor (as defined in the
                  Borrower's Security Agreement) upon any Consulting Sale
                  Collateral. Within 10 days of any request therefor made by the
                  Agent from time to time, the Borrower shall furnish to the
                  Agent a written accounting of all amounts received on or prior
                  to the date of such request by the Borrower or any Subsidiary
                  upon the Consulting Sale Collateral and the Net Proceeds
                  derived therefrom, which accounting shall be certified by the
                  chief financial officer of the Borrower and shall be in form
                  and substance reasonably acceptable to the Agent.

                           (c) The provisions of this Section 5.18 shall
                  supplement, and be cumulative of, the Borrower's Security
                  Agreement.

                  (d) Investments. The following new Section 6.10(s) of the
         Credit Agreement is added immediately following Section 6.10(r) of the
         Credit Agreement:

                           (s) Investments comprising the Consulting Sale
                  Collateral.

                  (e) Events of Default. Section 7.1(c) of the Credit Agreement
         is amended by deleting the clause "5.15 or 5.16" as it appears therein
         and substituting in lieu thereof the clause "5.15, 5.16, 5.17 or 5.18".

         Section 3. Consent; Waiver of Events of Default; Termination of
Consulting Security Documents; Delivery of Instruments. Upon the satisfaction of
the conditions set forth in Section 5 below:

                  (a) Each Bank and the Agent (i) hereby consents to the
         execution and delivery by the Borrower of the Consulting Sale Agreement
         and the consummation of the transactions contemplated thereby, (ii)
         hereby waives any default or Event of Default arising under Sections
         4.10, 4.19, 6.1, 6.2, 6.10, 6.14, 7.1(k), 7.1(m) or 7.1(o) of the
         Credit Agreement due to the matters specified in the forgoing clause
         (i) and (iii) hereby waives any default or Event of Default arising
         under Section 5.17 of the Credit Agreement (as it existed prior to the
         date of this Amendment) arising due to the failure of the Borrower to
         timely furnish to the Agent the documents specified therein. The Banks'
         and the Agent's consents and waivers set forth in the forgoing sentence
         are limited to the specific terms thereof, and nothing herein shall be
         deemed a waiver by the Banks or the Agent of any other term, condition,
         representation or covenant applicable to the Borrower or any Guarantor
         under the Loan Documents (including but not limited to any future
         occurrence similar to the Existing Defaults). The waivers by the Banks
         and the Agent set forth this subparagraph shall not constitute a waiver
         by the Banks or the Agent of any other Default or Event of Default, if
         any, under any Loan Document, and shall not be, and shall not be deemed
         to be, a course of action with respect thereto upon which the Borrower
         may rely in the future, and the Borrower hereby expressly waives any
         claim to such effect.

                  (b) The following documents are each hereby terminated for all
         purposes: (i) the Guaranty of NCHC, (ii) the Pledge Agreement of NCHC,
         (iii) the Security



                                      -7-
   8


         Agreement of NCHC, (iv) the Guaranty of Consulting and (v) the Security
         Agreement of Consulting

                  (c) Schedule I attached to the Borrower's Pledge Agreement is
         hereby amended to read as set forth on Exhibit A to this Amendment.
         Except as amended by this Amendment, the Borrower's Pledge Agreement
         shall remain unmodified and in full force and effect.

                  (d) The Agent shall execute and deliver to the Borrower's
         counsel the following: (i) UCC-3 financing statements terminating the
         UCC-1 financing statements filed by the Agent with respect to the
         Security Agreements executed by NCHC and Consulting and the Pledge
         Agreement executed by NCHC, (ii) UCC-3 financing statements amending
         the UCC-1 financing statement filed by the Agent with respect to the
         Borrower's Pledge Agreement to delete from the collateral description
         set forth therein the common stock of NCHC pledged by the Borrower
         thereunder, (iii) the share certificates representing the common stock
         of NCHC and Consulting held by the Agent and the corresponding stock
         powers held by the Agent.

         Section 4. Representations and Warranties of the Borrower. To induce
the Banks and the Agent to execute and deliver this Amendment (which
representations and warranties shall survive the execution and delivery of this
Amendment), the Borrower represents and warrants to the Agent and the Banks
that:

                  (a) this Amendment has been duly authorized, executed and
         delivered by it and this Amendment constitutes the legal, valid and
         binding obligation of the Borrower enforceable against the Borrower in
         accordance with its terms, subject to limitations as to enforceability
         which might result from bankruptcy, insolvency, reorganization,
         moratorium or similar laws or equitable principles relating to or
         limiting creditors' rights generally;

                  (b) the Credit Agreement, as amended by this Amendment,
         constitutes the legal, valid and binding obligation of the Borrower
         enforceable against the Borrower in accordance with its terms, subject
         to limitations as to enforceability which might result from bankruptcy,
         insolvency, reorganization, moratorium or similar laws or equitable
         principles relating to or limiting creditors' rights generally;

                  (c) the execution, delivery and performance by the Borrower of
         the Amendment (i) have been duly authorized by all requisite corporate
         action and, if required, shareholder action, (ii) do not require the
         consent or approval of any governmental or regulatory body or agency,
         and (iii) will not (A) violate (1) any provision of law, statute, rule
         or regulation or its certificate of incorporation or bylaws, (2) any
         order of any court or any rule, regulation or order of any other agency
         or government binding upon it, or (3) any provision of any material
         indenture, agreement or other instrument to which it is a party or by
         which any of its properties or assets are or may be bound, or (B)
         result in a breach of or constitute (alone or with due notice or lapse
         of time or both) a default under any indenture, agreement or other
         instrument referred to in clause (iii)(A)(3) of this Section 4(c);



                                      -8-
   9


                  (d) as of the date hereof, no Default or Event of Default has
         occurred which either (a) is continuing or (b) has not been waived by
         the Agent and the Banks as set forth in Section 3 of this Amendment;
         and

                  (e) all the representations and warranties contained in
         Article IV of the Credit Agreement are true and correct in all material
         respects with the same force and effect as if made by the Borrower on
         and as of the date hereof.

                  (f) (i) the Borrower has furnished to the Agent true, complete
         and accurate copies of the Consulting Sale Agreement, the Consulting
         Note Documents, and all exhibits, schedules and ancillary documents
         related thereto, (ii) the documents specified in the forgoing clause
         (i), (A) constitute the entire agreement between the Borrower and the
         other parties thereto with respect to the subject matter thereof and
         (B) have not been amended, terminated or otherwise modified and remain
         in full force and effect and (iii) the transactions contemplated by the
         Consulting Sale Agreement have been consummated.

         Section 5. Conditions to Effectiveness of this Amendment. This
Amendment shall become effective as of April 30, 2001 when each and every one of
the following conditions shall have been satisfied:

                  (a) The Agent shall have received executed counterparts of
         this Amendment, duly executed by the Borrower and each of the Banks.

                  (b) The Agent shall have received from the Guarantors a
         Consent and Agreement of Guarantors in the form of Exhibit B hereto
         (the "Guarantor Agreements") duly completed and executed by each
         Guarantor.

                  (c) The Agent shall have received all certificates,
         instruments and other agreements representing or evidencing the
         Consulting Sale Collateral, together with duly executed instruments of
         transfer or assignment in blank, all in form and substance satisfactory
         to the Agent.

                  (d) The Agent shall have received Warrants properly completed
         for each Bank and dated as of the First Determination Date and Second
         Determination Date (each as defined in the Warrant Issuance Agreement),
         duly executed by the Borrower.

                  (e) The Agent shall have received such other documents or
         instruments reasonably deemed necessary by the Agent.

         Section 6. Affirmation; Reaffirmation. The Agent, each Bank and the
Borrower each acknowledge and affirm that the Credit Agreement, as hereby
amended, is hereby ratified and confirmed in all respects and all terms,
conditions and provisions of the Credit Agreement, except as amended by this
Amendment, shall remain unmodified and in full force and effect. All references
in any document or instrument to the Credit Agreement are hereby amended and
shall refer to the Credit Agreement as amended by this Amendment. The Borrower
confirms to the Agent and each Bank that the Obligations are and continue to be
secured by the security interest granted by the Borrower in favor of the Agent
under the Borrower's Security Agreement and all



                                      -9-
   10


of the terms, conditions, provisions, agreements, requirements, promises,
obligations, duties, covenants and representations of the Borrower under such
documents and any and all other documents and agreements entered into with
respect to the Obligations are incorporated herein by reference and are hereby
ratified and affirmed in all respects by the Borrower.

         Section 7. General.

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

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

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

                  (d) This Amendment shall be governed by, and construed in
         accordance with, the internal law, and not the law of conflicts, of the
         State of Minnesota, but giving effect to federal laws applicable to
         national banks.

                  (e) This Amendment shall be binding upon the Borrower, the
         Agent and the Banks and their respective successors and assigns, and
         shall inure to the benefit of the Borrower, the Agent and the Banks and
         the successors and assigns of the Agent and the Banks.

         Section 8. General Release. The Borrower hereby releases and discharges
the Agent and each Bank, and each of their officers, directors, employees,
agents and attorneys, from any and all claims, actions and liabilities of any
kind or nature that it or any one claiming through or under the Borrower ever
had or may now have, whether now known or hereafter discovered, arising out of
or in any way relating to: (i) any lending relationship or loan commitment
between the Agent, the Banks and the Borrower prior to the date of this
Amendment; (ii) the Loan Documents; or (iii) the negotiations preceding the
execution and delivery of this Amendment.



            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]




                                      -10-


   11


         IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first above written.


                                       NORSTAN, INC.


                                       By /s/ Robert J. Vold
                                         ---------------------------------------
                                          Its Treasurer


                                       U.S. BANK NATIONAL ASSOCIATION,
                                       as a Bank and as Agent


                                       By /s/ David C. Larsen
                                         ---------------------------------------
                                          Its VP


                                       HARRIS TRUST AND SAVINGS BANK


                                       By /s/ Lawrence A. Mizera
                                         ---------------------------------------
                                          Its VP


                                       M&I MARSHALL & ILSLEY BANK


                                       By /s/ John W. Howard
                                         ---------------------------------------
                                          Its VP


                                       By /s/ Doug Pudvah
                                         ---------------------------------------
                                          Its VP


                                       WELLS FARGO BANK MINNESOTA,
                                       NATIONAL ASSOCIATION


                                       By /s/ William J. Kennedy
                                         ---------------------------------------
                                          Its VP




  [Signature Page to Fourth Amendment to Amended and Restated Credit Agreement]

                                       S-1

EX-10.(D)(5)

   1


                                                                  EXHIBIT 10D(5)


                           FIFTH AMENDMENT TO AMENDED
                          AND RESTATED CREDIT AGREEMENT

         THIS FIFTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT is dated
as of June 29, 2001 ("this Amendment"), by and among NORSTAN, INC., a Minnesota
corporation (the "Borrower"), the banks which are signatories hereto (each
individually, a "Bank," and collectively, the "Banks"), and U.S. BANK NATIONAL
ASSOCIATION, a national banking association, one of the Banks, as agent for the
Banks (in such capacity, the "Agent").

                                    RECITALS

         A. The Borrower, the Banks and the Agent are parties to an Amended and
Restated Credit Agreement dated as of December 20, 2000, as amended by a First
Amendment to Amended and Restated Credit Agreement dated as of March 19, 2001,
as amended by a Second Amendment to Amended and Restated Credit Agreement dated
as of March 30, 2001, as amended by a Third Amendment to Amended and Restated
Credit Agreement dated as of April 4, 2001 and as amended by a Fourth Amendment
to Amended and Restated Credit Agreement dated as of May 15, 2001 (as amended,
the "Credit Agreement").

         B. The Borrower has requested that the Banks agree to amend certain
provisions of the Credit Agreement as set forth in this Amendment.

         NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:

         Section 1. Definitions. Capitalized terms used herein and not otherwise
defined herein, but which are defined in the Credit Agreement, shall have the
meanings ascribed to such terms in the Credit Agreement unless the context
otherwise requires.

         Section 2. Amendments to Credit Agreement. Subject to Section 5 hereof,
the Credit Agreement is hereby amended as follows:

                  (a) Amended Definitions. Section 1.1 of the Credit Agreement
         is amended by deleting the definitions of "Applicable Margin",
         "Borrowing Base Supplement", "Excess Cash Flow", "Existing Letter of
         Credit", "Holding Account", "Loan", "Note", "Obligations", "Revolving
         Commitment Amount", "Revolving Outstandings", "Term C Loan", "Term C
         Loan Commitment Amount", "Term Loan C Percentage", "Term C Note",
         "Total Percentage" and "Warrant Documents" as they appear therein and
         by inserting in such Section 1.1 the following definitions in the
         appropriate alphabetical order:




   2


                           "Additional Letter of Credit": Any irrevocable letter
                  of credit (other than the Existing Letter of Credit) issued by
                  the Agent pursuant to this Agreement for the account of the
                  Borrower.

                           "Average Monthly Revolver Availability": with respect
                  to any calendar month, (a) the sum of the amount, if any, by
                  which the lesser of the Aggregate Revolving Commitment Amounts
                  or the Borrowing Base, exceeds the Aggregate Revolving
                  Outstandings, in each case calculated as of the close of
                  business on each Friday contained in such month, divided by
                  (b) the number of Fridays contained in such month.

                           "Applicable Margin":  With respect to:

                           (a)      the Revolving Loans - 2.50%;

                           (b)      the Term A Loans - 2.50%; and

                           (c)      the Term B Loans - 4.00%; provided that,
                           from and after the date on which the Term A Loans
                           have been paid in full, the Applicable Margin for the
                           Term B Loans shall be permanently reduced to 2.50%.

                           "Bonus Payments": For any period of determination,
                  Employee bonuses under the Borrower's annual incentive plan
                  paid to management employees by the Borrower or any
                  Subsidiary.

                           "Borrowing Base Supplement": $7,500,000, provided
                  that (a) such amount shall be permanently reduced to an amount
                  not less than $5,000,000 by the aggregate amount of
                  prepayments applied to the Revolving Loans in accordance with
                  Sections 2.6(d), 5.16(b) and 5.18(b) and (b) if such amount
                  has not been earlier reduced to $5,000,000 pursuant to the
                  forgoing clause (a), such amount shall be permanently reduced
                  to $5,000,000 on and after October 15, 2001.

                           "Excess Cash Flow": As of the end of any fiscal year
                  of the Borrower, determined for such fiscal year on a
                  consolidated basis for the Borrower and its Subsidiaries in
                  accordance with GAAP, the remainder of

                                    (a) the sum, without duplication, of (i)
                           EBITDA for such period, and (ii) extraordinary cash
                           income, if any, business interruption insurance
                           proceeds, if any, and cash gains attributable to
                           sales of assets outside the ordinary course of
                           business (but net of taxes, expenses and reserves for
                           indemnification, and exclusive of any gains realized
                           in connection with any transaction contemplated by
                           Section 2.6(c) so long as the Net Proceeds of such
                           transaction are applied in the manner set forth in
                           Section 2.6(d)), if any, during such period to the
                           extent that any such extraordinary cash income, such
                           insurance proceeds or such cash gain is not included
                           in EBITDA for such period,

                           minus



                                      -2-
   3


                                    (b) the sum, without duplication, of (i)
                           income taxes paid in cash or accrued by the Borrower
                           or any Subsidiary during such period, (ii) the
                           aggregate amount of Capital Expenditures, if any (but
                           only to the extent such Capital Expenditures were
                           permissible under Section 6.8 during such period)
                           minus Indebtedness incurred to finance such Capital
                           Expenditures and secured solely by Liens on the
                           property acquired, and (iii) Interest Expense and
                           (iv) any payments made upon the Term A Loans or the
                           Term B Loans (other than prepayments applied to the
                           Term A Loans or the Term B Loans pursuant to Section
                           2.6(d)).

                           "Existing Letter of Credit": Letter of Credit No.
                  76528 in the original face amount of $3,500,000 issued by U.S.
                  Bank for the account of the Borrower in favor of Bank of
                  Montreal.

                           "Holding Account": A deposit account belonging to the
                  Agent for the benefit of the Banks into which the Borrower may
                  be required to make deposits pursuant to the provisions of
                  this Agreement, such account to be under the sole dominion and
                  control of the Agent and not subject to withdrawal by the
                  Borrower, with any amounts therein to be held for application
                  toward any drawings made under any Letter of Credit. The
                  Holding Account shall be a money market savings account or
                  substantial equivalent (or other appropriate investment medium
                  as the Borrower may from time to time request and to which the
                  Agent in its sole discretion shall have consented) and shall
                  bear interest in accordance with the terms of similar accounts
                  held by the Agent for its customers.

                           "Letter of Credit": The Existing Letter of Credit and
                  any Additional Letter of Credit.

                           "Loan": A Revolving Loan, a Term A Loan or a Term B
                  Loan.

                           "Note": A Term A Note, a Term B Note or a Revolving
                  Note.

                           "Obligations": The Borrower's obligations in respect
                  of the due and punctual payment of principal and interest
                  (including, without limitation and to the extent permitted by
                  law, interest accruing after the commencement of a case by or
                  against the Borrower under the United States Bankruptcy Code)
                  on the Notes and Unpaid Drawings when and as due, whether by
                  acceleration or otherwise and all fees (including Unused
                  Revolving Commitment Fees and Letter of Credit Fees),
                  expenses, indemnities, reimbursement and other obligations of
                  the Borrower under this Agreement, any other Borrower Loan
                  Document, and any letter of credit application and
                  reimbursement agreement executed and delivered by the Borrower
                  to U.S. Bank in connection with the issuance of any Letter of
                  Credit, in all cases whether now existing or hereafter arising
                  or incurred.

                           "Ratably": With respect to any unpaid installment
                  upon the Term A Loan or the Term B Loan, as applicable, the
                  amount equal to (a) the aggregate amount of any prepayment to
                  be applied pursuant to this Agreement to the Term A Loan



                                      -3-
   4


                  or the Term B Loan, as applicable, multiplied by (b) a
                  fraction, the numerator of which is the unpaid principal
                  balance of such installment payment and the denominator of
                  which is the aggregate unpaid principal balance of Term A Loan
                  or the Term B Loan, as applicable.

                           "Revolving Commitment Amount": With respect to a
                  Bank, initially the amount set opposite such Bank's name on
                  Schedule 1.1B hereto (as such Schedule may from time to time
                  be amended) as its Revolving Commitment Amount, but as the
                  same may be from time to time increased or reduced as provided
                  Section 2.8.

                           "Revolving Outstandings": As of any date of
                  determination with respect to any Bank, the sum of (a) the
                  aggregate unpaid principal balance of Advances outstanding
                  under such Bank's Revolving Note on such date, (b) an amount
                  equal to the aggregate stated amount of each Letter of Credit
                  multiplied by such Bank's Revolving Commitment Percentage, and
                  (c) an amount equal to the aggregate amount of Unpaid Drawings
                  on such date (after applying any funds held in the Holding
                  Account to the payment thereof) multiplied by such Bank's
                  Revolving Commitment Percentage.

                           "Stock": All shares, interests, participation or
                  other equivalents, however designated, of or in a corporation
                  or a limited liability company, whether or not voting,
                  including but not limited to common stock, member interests,
                  warrants, preferred stock, convertible debentures, and all
                  agreements, instruments and documents convertible, in whole or
                  in part, into any one or more or all of the foregoing.

                            "Subsequent Warrants": Warrants for the purchase of
                  100,000 shares of the Borrower's common stock issued upon the
                  effectiveness of the Fifth Amendment hereto ratably to the
                  Banks in accordance with their Revolving Commitment
                  Percentages.

                           "Subsequent Warrant Issuance Agreement": Second Round
                  Warrant Issuance Agreement dated as of the date of the Fifth
                  Amendment hereto between the Borrower and the Banks, as the
                  same may be amended, restated or otherwise modified from time
                  to time.

                           "Total Percentage": With respect to any Bank, the
                  percentage equivalent of a fraction, the numerator of which is
                  the sum of the Revolving Commitment Amount of such Bank (or,
                  if the Revolving Commitments have been terminated, the
                  Revolving Outstandings of such Bank), the outstanding Term A
                  Loans and Term B Loans of such Bank and the denominator of
                  which is the sum of the Aggregate Revolving Commitment Amounts
                  (or, if the Revolving Commitments have terminated, the
                  Aggregate Revolving Outstandings) and the outstanding Term A
                  Loans and Term B Loans of all the Banks.



                                      -4-
   5


                           "Warrant Documents": The Warrant Registration
                  Agreement, the Warrant Issuance Agreement, the Warrants, the
                  Subsequent Warrant Issuance Agreement and the Subsequent
                  Warrants.

                  (b) Term Loans. Sections 2.1(b), (c) and (d) of the Credit
         Agreement are deleted in their respective entireties and the following
         is substituted in lieu thereof:

                           (c) Term A Loans. Upon the Fifth Amendment Effective
                  Date, each Bank shall continue its ratable portion of
                  $20,000,000 of the Banks' existing term loans to the Borrower
                  as a term loan in an amount by such Bank equal to its Term A
                  Loan Commitment Amount (each being a "Term A Loan" and,
                  collectively, the "Term A Loans").

                           (d) Term B Loans. Upon the Fifth Amendment Effective
                  Date, each Bank shall continue its ratable portion of
                  $15,430,004.50 of the Banks' existing term loans to the
                  Borrower as a term loan in an amount by such Bank equal to its
                  Term B Loan Commitment Amount (each being a "Term B Loan" and,
                  collectively, the "Term B Loans").

                  (c) Notes. Section 2.3 of the Credit Agreement is deleted in
         its entirety and the following is substituted in lieu thereof:

                           Section 2.3 Notes. The Revolving Loans of each Bank
                  shall be evidenced by a single Revolving Note payable to the
                  order of such Bank in a principal amount equal to such Bank's
                  Revolving Commitment Amount originally in effect. The Term A
                  Loan of each Bank shall be evidenced by a Term A Note payable
                  to the order of such Bank in the principal amount equal to
                  such Bank's Term A Loan Commitment Amount. The Term B Loan of
                  each Bank shall be evidenced by a Term B Note payable to the
                  order of such Bank in the principal amount equal to such
                  Bank's Term B Loan Commitment Amount. Each Bank shall enter in
                  its ledgers and records the amount of its Term A Loan, its
                  Term B Loan, and each Revolving Loan, the various Advances
                  made and the payments made thereon, and each Bank is
                  authorized by the Borrower to enter on a schedule attached to
                  its Term A Note, Term B Note, or Revolving Note, as
                  appropriate, a record of such Term A Loan, Term B Loan,
                  Revolving Loans, Advances and payments; provided, however that
                  the failure by any Bank to make any such entry or any error in
                  making such entry shall not limit or otherwise affect the
                  obligation of the Borrower hereunder and on the Notes, and, in
                  all events (a) the principal amounts owing by the Borrower in
                  respect of the Revolving Notes shall be the aggregate amount
                  of all Revolving Loans made by the Banks less all payments of
                  principal thereof made by the Borrower, (b) the principal
                  amount owing by the Borrower in respect of the Term A Notes
                  shall be the aggregate amount of all Term A Loans made by the
                  Banks less all payments of principal thereof made by the
                  Borrower, and (c) the principal amount owing by the Borrower
                  in respect of the Term B Notes shall be the aggregate amount
                  of all Term B Loans made by the Banks less all payments of
                  principal thereof made by the Borrower.



                                      -5-
   6


                  (d) Repayments. Section 2.5 of the Credit Agreement is deleted
         in its entirety and the following is substituted in lieu thereof:

                           Section 2.5 Repayment; Payment to Holding Account.

                                    (a) Revolving Loans. The Revolving Loans,
                           together with all accrued and unpaid interest
                           thereon, shall be due and payable on the Termination
                           Date.

                                    (b) Term A Loan. The principal of the Term A
                           Loan shall be due and payable as follows:

                                             (i) an installment of $2,000,000
                                    due and payable on August 31, 2001;

                                             (ii) two equal installments of
                                    $1,000,000 due and payable on each of
                                    September 28, 2001 and October 31, 2001;

                                            (iii) five equal installments of
                                    $2,000,000 due and payable on each of
                                    November 30, 2001, December 31, 2001,
                                    January 31, 2002, February 28, 2002 and
                                    March 29, 2002;

                                             (iv) an installment of $3,000,000
                                    due and payable on April 30, 2002;

                                             (v) an installment of $1,000,000
                                    due and payable on May 31, 2002; and

                                             (vi) an installment of $2,000,000
                                    due and payable on June 28, 2002;

                           provided, however, that (y) any installment of
                           principal due on any date specified in the table
                           above shall be reduced by any prepayments of
                           principal applied to such installment pursuant to
                           this Agreement and (z) if the aggregate principal
                           amount outstanding under the Term A Loans as of the
                           date any principal payment is due is less than the
                           amount specified for such date in the table above,
                           then the principal amount payable on such date shall
                           be such amount outstanding.

                                    (c) Term B Loan. The principal of the Term B
                           Loan shall be due and payable as follows:

                                            (i) an installment of $2,000,000 due
                                    and payable on the earlier of (A) July 31,
                                    2002 and (B) the last Business Day of the
                                    first month following the month in which the
                                    Term A Loans have been paid in full;


                                      -6-
   7


                                            (ii) an installment of $1,000,000
                                    due and payable on the earlier of (A) August
                                    31, 2002 and (B) the last Business Day of
                                    the second month following the month in
                                    which the Term A Loans have been paid in
                                    full;

                                            (iii) an installment of $1,500,000
                                    due and payable on the earlier of (A)
                                    September 30, 2002 and (B) the last Business
                                    Day of the third month following the month
                                    in which the Term A Loans have been paid in
                                    full;

                                            (iv) an installment of $2,000,000
                                    due and payable on the earlier of (A)
                                    October 31, 2002 and (B) the last Business
                                    Day of the fourth month following the month
                                    in which the Term A Loans have been paid in
                                    full;

                                            (v) an installment of $2,000,000 due
                                    and payable on the earlier of (A) November
                                    29, 2002 and (B) the last Business Day of
                                    the fifth month following the month in which
                                    the Term A Loans have been paid in full; and

                                            (vi) an installment of $6,569,995.50
                                    due and payable on the earlier of (A)
                                    December 31, 2002 and (B) the last Business
                                    Day of the sixth month following the month
                                    in which the Term A Loans have been paid in
                                    full;

                           provided, however, that (x) any installment of
                           principal due on any date specified in the table
                           above shall be reduced by any prepayments applied to
                           such installment pursuant to this Agreement, (y) if
                           the aggregate principal amount outstanding under the
                           Term B Loans as of the date any principal payment is
                           due is less than the amount specified for such date
                           in the table above, then the principal amount payable
                           on such date shall be such amount outstanding and (z)
                           if the Term A Loan is paid in full on or prior to May
                           30, 2002, the Banks will consider in good faith any
                           proposal by the Borrower based upon its projections
                           of cash available for debt service to modify the
                           installment payments which would come due prior to
                           July 31, 2002 pursuant to the table above (provided
                           that no Bank shall be obligated to consider any such
                           proposal for more than 10 days beyond the Borrower's
                           initial written proposal and no Bank shall be
                           obligated to agree to modify such installment
                           payments, which modification shall be subject to the
                           prior written approval of each Bank in its sole
                           discretion).

                                    (d) Payment to Holding Account. The Borrower
                           shall pay to the Holding Account on the Termination
                           Date an amount equal to the aggregate face amount of
                           the Letters of Credit.

                  (e) Prepayments. Section 2.6 of the Credit Agreement is
         deleted in its entirety and the following is substituted in lieu
         thereof:



                                      -7-
   8


                           Section 2.6 Mandatory and Optional Prepayments.

                                    (a) Optional Prepayments. The Borrower may
                           prepay Loans, in whole or in part, at any time,
                           without premium or penalty. Amounts paid (unless
                           following an acceleration or upon termination of the
                           Revolving Commitments in whole) or prepaid on
                           Revolving Loans under this Section 2.6 may be
                           reborrowed upon the terms and subject to the
                           conditions and limitations of this Agreement. Amounts
                           paid or prepaid on the Term A Loans or the Term B
                           Loans may not be reborrowed. Amounts paid or prepaid
                           on the Loans under this Section 2.6 shall be for the
                           account of each Bank in proportion to its share of
                           Loans being prepaid.

                                    (b) Mandatory Prepayment of Revolving Loans.

                                            (i) If at any time the Aggregate
                                    Revolving Outstandings exceed the Aggregate
                                    Revolving Commitment Amounts (including but
                                    not limited to any excess caused by a
                                    reduction in the Revolving Commitment
                                    Amounts pursuant to Section 2.8 hereof), the
                                    Borrower shall repay the Revolving Notes in
                                    an aggregate amount equal to such excess,
                                    which prepayment shall be apportioned among
                                    the Banks' Revolving Notes in accordance
                                    with their respective Revolving Outstandings
                                    Percentages.

                                             (ii) Prepayments on Revolving Loans
                                    shall be made in accordance with the
                                    provisions of Section 2.17(b).

                                    (c) Mandatory Prepayments Due to Certain
                           Transactions. Immediately upon the receipt thereof by
                           the Borrower or any Subsidiary, the Borrower shall
                           prepay the Loans in an aggregate amount of 100% of
                           the Net Proceeds received in cash by the Borrower or
                           any Subsidiary as a result of any of the following
                           events: (i) sales or other transfers of NFS Lease
                           Accounts and Norstan Canada Lease Accounts (other
                           than NFS Lease Accounts and Norstan Canada Lease
                           Accounts that, from and after the date of the Fifth
                           Amendment hereto, have been, substantially
                           contemporaneously upon the creation of such Account,
                           financed in the ordinary course of business by a
                           financer other than the Borrower or any Subsidiary),
                           and the related leases and equipment that are
                           authorized by Sections 6.2(d) and (e); (ii) sales of
                           any assets of the Borrower or any Subsidiary, other
                           than sales of inventory in the ordinary course of
                           business or sales of obsolete or worn-out equipment
                           (but this subsection 2.6(c) does not authorize any
                           such sales, which are subject to Section 6.2 hereof)
                           and other than sales of assets of the type specified
                           in the forgoing clause (i); or (iii) any public or
                           private sale or offering by the Borrower of its
                           capital stock or debt securities (but this subsection
                           2.6(c) does not authorize any such issuances, which
                           are subject to Sections 6.11 and 6.24 hereof).



                                      -8-
   9


                                    (d) Application of Prepayments Under Section
                           2.6(c). Any prepayments made pursuant to Section
                           2.6(c) shall be applied in the following order by the
                           Agent to the Loans ratably to each Bank according to
                           its Revolving Commitment Percentage, Term A Loan
                           Percentage or Term B Loan Percentage, as applicable:

                                            (i) with respect to Net Proceeds of
                                    transactions of the type specified in the
                                    clauses (i) and (iii) of Section 2.6(c), (a)
                                    an amount equal to the lesser of 25% of such
                                    Net Proceeds and the unpaid balance of the
                                    Revolving Loans, shall be applied to the
                                    Revolving Loans (other than the
                                    reimbursement obligations with respect to
                                    the Letters of Credit), and (b) an amount
                                    equal to the greater of 75% of such Net
                                    Proceeds or the amount remaining of such Net
                                    Proceeds following payment in full of the
                                    Revolving Loans, shall be applied (w) first,
                                    Ratably to the unpaid installments upon Term
                                    A Loan, (x) second, Ratably to the unpaid
                                    installments upon the Term B Loan (y) third,
                                    to the unpaid principal balance of the
                                    Revolving Loans (other than reimbursement
                                    obligations with respect to letters of
                                    credit), and (z) fourth, to the Holding
                                    Account in the amount of the aggregate face
                                    amount of the Letters of Credit.

                                            (ii) with respect to Net Proceeds of
                                    transactions of the type specified in clause
                                    (ii) of Section 2.6(c), (a) an amount equal
                                    to the lesser of 75% of such Net Proceeds
                                    and the unpaid balance of the Term A Loans,
                                    shall be applied Ratably to the unpaid
                                    installments upon the Term A Loans, (b) an
                                    amount equal to the greater of 25% of such
                                    Net Proceeds and the amount remaining of
                                    such Net Proceeds following payment in full
                                    of the Term A Loans, shall be applied (x)
                                    first, Ratably to the unpaid installments
                                    upon the Term B Loan, (y) second, to the
                                    unpaid principal balance of the Revolving
                                    Loans (other than the reimbursement
                                    obligations with respect to the Letters of
                                    Credit), and (z) third, to the Holding
                                    Account in the amount of the aggregate face
                                    amount of the Letters of Credit.

                                    (e) Average Monthly Revolving Availability.
                           If, for any calendar month (commencing with the
                           calendar month ending on July 31, 2001), the Average
                           Monthly Revolving Availability exceeds $10,000,000,
                           then, on or before the 10th calendar day of the next
                           following month, the Borrower shall prepay the Term A
                           Loan and Term B Loan in the amount of such excess.
                           Any such prepayments shall be applied (a) first,
                           Ratably to the unpaid installments upon the Term A
                           Loans and (b) second, Ratably to the unpaid
                           installments upon the Term B Loans.

                                    (f) Borrowing Base Deficiency. If at any
                           time a Borrowing Base Deficiency exists, the Borrower
                           shall immediately pay on the



                                      -9-
   10


                           principal of the Revolving Loans an amount equal to
                           such Borrowing Base Deficiency. Amounts paid on the
                           Revolving Loans under this Section 2.6(f) shall be
                           for the account of each Bank in proportion to its
                           share of outstanding Revolving Loans. If, after
                           paying all outstanding Revolving Loans, a Borrowing
                           Base Deficiency still exists, the Borrower shall pay
                           into the Holding Account an amount equal to the
                           amount of the remaining Borrowing Base Deficiency.

                                    (g) Excess Cash Flow. On or before 30 days
                           after the end of each fiscal year of the Borrower
                           (commencing with the fiscal year ending April 30,
                           2002), the Borrower shall prepay the Term B Loans in
                           an amount equal to 50% of the Excess Cash Flow for
                           such fiscal year. Amounts paid on the Term B Loans
                           under this Section 2.6(g) shall applied to the unpaid
                           installments upon the Term B Loans in inverse order
                           of their maturities.

                  (f) Additional Letters of Credit. Section 2.7(a) of the Credit
         Agreement is deleted in its entirety and the following is substituted
         in lieu thereof:

                                    (a) The Letters of Credit. The Existing
                           Letter of Credit shall be deemed to be issued and
                           outstanding under this Agreement on the Closing Date.
                           Subject to Section 2.7(f) and the other terms and
                           conditions of this Agreement, the Agent agrees to
                           issue Additional Letters of Credit for the account of
                           the Borrower from time to time prior to the
                           Termination Date in such amounts as the Borrower
                           shall request; provided, however, that:

                                            (i) No Additional Letter of Credit
                                    will be issued in any amount which, after
                                    giving effect to such issuance, would cause
                                    either (A) the Aggregate Revolving
                                    Outstandings to exceed the Aggregate
                                    Revolving Commitment Amounts or (ii) the sum
                                    of the Unpaid Drawings under the Letters of
                                    Credit plus the aggregate amount available
                                    to be drawn under the Letters of Credit
                                    (including such Additional Letter of Credit)
                                    to exceed $8,000,000;

                                             (ii) No Additional Letter of Credit
                                    shall have a stated available amount of less
                                    than $50,000; and

                                            (iii) Without the prior written
                                    consent of all of the Banks, no Additional
                                    Letter of Credit shall expire later than the
                                    earlier of (i) 365 days after the date of
                                    issuance thereof and (ii) the Business Day
                                    preceding the Revolving Commitment Ending
                                    Date.

                  (g) Further Letter of Credit Amendments. Sections 2.7(b) and
         (e) of the Credit Agreement are each hereby amended by deleting each
         appearance of the term "the Existing Letter of Credit" contained
         therein and by substituting in lieu thereof the term "any Letter of
         Credit". Section 2.7(c) of the Credit Agreement is amended by deleting



                                      -10-
   11


         each appearance of the terms "the Existing Letter of Credit" and "the
         Existing Letters of Credit" contained therein and by substituting in
         lieu thereof the term "each Letter of Credit". Section 2.7(d) of the
         Credit Agreement is amended by deleting each appearance of the term
         "the Existing Letter of Credit" contained therein and by substituting
         in lieu thereof the term "any Letter of Credit." Section 2.7 of the
         Credit Agreement is further amended by adding the following new
         subsection (f) thereto:

                           (f) Procedures for Additional Letters of Credit. Each
                  request for an Additional Letter of Credit shall be made by
                  the Borrower in writing, by facsimile transmission or
                  electronic conveyance received by the Agent by 2:00 P.M.,
                  Minneapolis time, on a Business Day which is not less than one
                  Business Day preceding the requested date of issuance (which
                  shall also be a Business Day). Each request for an Additional
                  Letter of Credit shall be deemed a representation by the
                  Borrower that on the date of issuance of such Additional
                  Letter of Credit and after giving effect thereto the
                  applicable conditions specified in Article III have been and
                  will be satisfied. The Agent may require that such request be
                  made on such letter of credit application and reimbursement
                  agreement form as the Agent may from time to time specify,
                  along with satisfactory evidence of the authority and
                  incumbency of the officers of the Borrower making such
                  request. The Agent shall promptly notify the other Banks of
                  the receipt of the request and the matters specified therein.
                  On the date of each issuance of an Additional Letter of Credit
                  the Agent shall send notice to the other Banks of such
                  issuance, accompanied by a copy of the Additional Letter or
                  Letters of Credit so issued. Additional Letters of Credit
                  shall be issued in support of obligations of the Borrower and
                  the Subsidiaries under performance and surety bond incurred in
                  the ordinary course of business.

         Section 2.8 of the Credit Agreement is amended (1) by deleting the
         clause "the Existing Letters of Credit is no longer" as it appears
         therein and by substituting in lieu thereof the clause "no Letter of
         Credit is" and (2) by deleting the clause "the Existing Letter of
         Credit" as it appears in the last sentence thereof and by substituting
         in lieu thereof the clause "the Letters of Credit". Section 2.16 of the
         Credit Agreement is amended by deleting the clause "the Existing Letter
         of Credit" as it appears therein and by substituting in lieu thereof
         the clause "the Letters of Credit". Section 7.2 of the Credit Agreement
         is amended by deleting each reference to the phrase "the Existing
         Letters of Credit" appearing therein and by substituting in lieu
         thereof the phrase "each Letter of Credit". Section 9.1(g) is amended
         by deleting the clause "the Existing Letter of Credit" as it appears
         therein and by substituting in lieu thereof the clause "the Letters of
         Credit".

                  (h) Letter of Credit Fees. Section 2.10 of the Credit
         Agreement is deleted in its entirety and the following is substituted
         in lieu thereof:

                           Section 2.10 Letter of Credit Fees. For each Letter
                  of Credit issued, the Borrower shall pay to the Agent for the
                  ratable account of the Banks, in advance payable on the date
                  of issuance, a fee (a "Letter of Credit Fee") in an amount
                  equal to 2.5% of the original face amount of the Letter of
                  Credit. Each Bank may set off any refund of the Letter of
                  Credit Fees contemplated by the forgoing


                                      -11-
   12


                  sentence against any amounts due and payable to such Bank on
                  the date such refund is payable. The Borrower shall pay to
                  U.S. Bank for its own account, on demand, all fees customarily
                  charged by U.S. Bank with respect to the issuance, renewal,
                  amendment, administration or payment of each Letter of Credit.

                  (i) Revolving Commitment Ending Date. Section 2.14 is amended
         by deleting the clause "June 29, 2001" as it appears therein and by
         substituting in lieu thereof the clause "June 28, 2002".

                  (j) Use of Proceeds. Section 2.15 of the Credit Agreement is
         amended by deleting the first sentence thereof and by substituting in
         lieu thereof the following:

                  The Term A Loan and the Term B Loan shall each continue a
                  portion (equal to the principal amount of such Loan) of the
                  Borrower's existing term loan obligations to the Bank
                  outstanding immediately prior to the consummation of the Fifth
                  Amendment hereto.

                  (k) Conditions Precedent to all Loans. Section 3.2 of the
         Credit Agreement is amended (1) by deleting the clause ", Term B Loans
         and Term C Loans" as it appears therein and by substituting in lieu
         thereof the clause "and Term B Loans", (2) by deleting each reference
         to the phrase "the renewal of the Existing Letter of Credit" and by
         substituting in lieu thereof the phrase "the issuance of any Additional
         Letter of Credit" and (3) by deleting the phrase "the Existing Letter
         of Credit is renewed" and by substituting in lieu thereof the phrase
         "any Letter of Credit is issued".

                  (l) Preamble to Articles 5 and 6. The Preamble to each of
         Articles 5 and 6 of the Credit Agreement is deleted in its entirety and
         the following is substituted in lieu thereof:

                           Until any obligation of the Banks hereunder to make
                  the Loans, and any obligation of U.S. Bank to issue the
                  Letters of Credit shall have expired or been terminated and
                  the Notes and all of the other Obligations have been paid in
                  full, and no amount is available to be drawn under the under
                  the Letters of Credit, unless the Majority Banks shall
                  otherwise consent in writing:

                  (m) Connaissance Note Collateral. Section 5.16(b) of the
         Credit Agreement is deleted in its entirety and the following is
         substituted in lieu thereof:

                           (b) Notwithstanding whether an Event of Default has
                  occurred, any and all cash paid, payable or otherwise
                  distributed in respect of principal of, or in exchange for,
                  any Connaissance Note Collateral, shall be applied, and shall
                  be forthwith delivered to the Agent to apply, to the
                  Obligations as follows:

                                    (i) any such Net Proceeds constituting
                           payment upon any regularly scheduled installment of
                           principal upon the Connaissance Note Collateral shall
                           be applied (a) first, to the unpaid installments upon
                           the Term A Loans in order of their maturities, (b)
                           second, the unpaid installments upon the Term B Loans
                           in order of their maturities, (c) third, to the
                           unpaid


                                      -12-
   13


                           principal balance of the Revolving Loans (other than
                           reimbursement obligations with respect to Letters of
                           Credit) and (d) fourth, to the Holding Account in the
                           amount of the aggregate face amount of the Letters of
                           Credit; and,

                                    (ii) any such Net Proceeds other than as
                           provided in the forgoing clause (i) (including any
                           prepayments upon any Connaissance Note Collateral and
                           any payments upon any Connaissance Note Collateral
                           following any acceleration of the maturity dates of
                           such Connassiance Note Collateral) shall be applied
                           in the manner set forth in subclause (ii) of Section
                           2.6(d).

                  Any Net Proceeds of Connaissance Note Collateral shall, if
                  received by the Borrower or any Subsidiary, be received in
                  trust for the benefit of the Agent, be segregated from the
                  other property or funds of the Borrower or such Subsidiary,
                  and be forthwith delivered to the Agent in the same form as so
                  received (with any necessary endorsement or assignment).
                  Notwithstanding anything to the contrary in this Agreement,
                  upon the occurrence of an Event of Default and at any time
                  during the continuance thereof, the Agent may take any action
                  with respect to the Connaissance Note Collateral in accordance
                  with Section 20 of NCI's Security Agreement or otherwise.

                  (n) Ericsson Intercreditor Agreements. Section 5.17 of the
         Credit Agreement is amended by deleting the clause "May 30, 2001" as it
         appears therein and by substituting in lieu thereof the clause "July
         15, 2001".

                  (o) Consulting Sale Collateral. Section 5.18(b) of the Credit
         Agreement is deleted in its entirety and the following is substituted
         in lieu thereof:

                           (b) Notwithstanding whether an Event of Default has
                  occurred, any and all cash paid, payable or otherwise
                  distributed in respect of principal of, or in exchange for,
                  any Consulting Sale Collateral, shall be applied, and shall be
                  forthwith delivered to the Agent to apply, to the Obligations
                  as follows:

                                    (i) any such Net Proceeds constituting
                           payment upon any regularly scheduled installment of
                           principal upon the Consulting Sale Collateral shall
                           be applied (a) first, to the unpaid installments upon
                           the Term A Loans in order of their maturities, (b)
                           second, the unpaid installments upon the Term B Loans
                           in order of their maturities, (c) third, to the
                           unpaid principal balance of the Revolving Loans
                           (other than reimbursement obligations with respect to
                           Letters of Credit) and (d) fourth, to the Holding
                           Account in the amount of the aggregate face amount of
                           the Letters of Credit; and,

                                    (ii) any such Net Proceeds other than as
                           provided in the forgoing clause (i) (including any
                           prepayments upon any Consulting Sale Collateral and
                           any payments upon any Consulting Sale Collateral
                           following any


                                      -13-
   14


                           acceleration of the maturity dates of such Consulting
                           Sale Collateral) shall be applied in the manner set
                           forth in subclause (ii) of Section 2.6(d).

                  Any Net Proceeds of Consulting Sale Collateral shall, if
                  received by the Borrower or any Subsidiary, be received in
                  trust for the benefit of the Agent, be segregated from the
                  other property or funds of the Borrower or such Subsidiary,
                  and be forthwith delivered to the Agent in the same form as so
                  received (with any necessary endorsement or assignment).
                  Notwithstanding anything to the contrary in this Agreement,
                  upon the occurrence of an Event of Default and at any time
                  during the continuance thereof, the Agent may take any action
                  with respect to the Consulting Sale Collateral in accordance
                  with Section 20 of NCI's Security Agreement or otherwise.

                  (p) Sale of Assets. Sections 6.2(d) and (e) are amended be
         deleting the clause "applied pursuant to Section 2.6(c)" as such clause
         appears in each such Section and by substituting in lieu thereof the
         clause "paid to the Agent pursuant to Section 2.6(c) for application
         pursuant to Section 2.6(d)".

                  (q) Capital Expenditures. Section 6.8 of the Credit Agreement
         is deleted in its entirety and the following is substituted in lieu
         thereof:

                           Section 6.8 The Borrower will not, and will not
                  permit any Subsidiary to, make Capital Expenditures in an
                  amount exceeding, on a consolidated basis in the following
                  amounts for the following period: (a) during the fiscal year
                  ending April 30, 2002, $3,000,000, and (b) during the period
                  from May 1, 2002 through December 31, 2002, $2,000,000.

                  (r) Amendments to Financial Covenants. Sections 6.16, 6.17,
         6.18 and 6.19 of the Credit Agreement are deleted in their respective
         entireties and the following is substituted in lieu thereof:

                           Section 6.16 MINIMUM EBITDA. The Borrower will not
                  permit EBITDA to be less than (a) $2,301,000 for the fiscal
                  quarter ending on or about July 31, 2001, (b) $5,585,000 for
                  the two fiscal quarters ending on or about October 31, 2001
                  and (c) $9,264,000 for the three fiscal quarters ending on or
                  about January 31, 2002. Further, the Borrower will not permit
                  EBITDA, as of the last day of the Borrower's fiscal quarters
                  ending on or about the following dates for the four fiscal
                  quarters ended on such date, to be less than the following
                  indicated amounts:



                  Fiscal Quarter Ending On or About        Minimum EBITDA
                  ---------------------------------        --------------
                                                        
                          April 30, 2002                     $13,858,000
                          July 31, 2002                      $16,130,000
                          October 31, 2002                   $17,754,000


                           Section 6.17     [RESERVED].



                                      -14-
   15


                           Section 6.18 ADJUSTED LEVERAGE RATIO. The Borrower
                  will not permit the Adjusted Leverage Ratio, as of the last
                  day of the Borrower's fiscal quarters ending on or about the
                  following dates for such fiscal quarter, to be greater than
                  the following indicated amounts:



                  Fiscal Quarter Ending On or About     Maximum Adjusted Leverage Ratio
                  ---------------------------------     -------------------------------
                                                     
                          July 31, 2001                            69.7 to 1.0
                          October 31, 2001                         69.9 to 1.0
                          January 31, 2002                         44.3 to 1.0
                          April 30, 2002                           24.8 to 1.0
                          July 31, 2002                            15.7 to 1.0
                          October 31, 2002                         10.5 to 1.0


                           Section 6.19 INTEREST COVERAGE RATIO. The Borrower
                  will not permit the Interest Coverage Ratio to be less than
                  (a) 1.6 to 1.0 for the fiscal quarter ending on or about July
                  31, 2001, (b) 1.9 to 1.0 for the two fiscal quarters ending on
                  or about October 31, 2001 and (c) 2.2 to 1.0 for the three
                  fiscal quarters ending on or about January 31, 2002. Further,
                  the Borrower will not permit the Interest Coverage Ratio, as
                  of the last day of the Borrower's fiscal quarters ending on or
                  about the following dates for the four fiscal quarters ending
                  on such date, to be less than the following indicated amounts:



                  Fiscal Quarter Ending On or About     Minimum Interest Coverage Ratio
                  ---------------------------------     -------------------------------
                                                     
                           April 30, 2002                         2.6 to 1.0
                           July 31, 2002                          3.4 to 1.0
                           October 31, 2002                       4.3 to 1.0


                  (s) New Negative Covenant. Article 6 of the Credit Agreement
         is amended by adding the following new Sections 6.23 and 6.24 at the
         end thereof:

                           6.23 Employee Bonuses. The Borrower will not, and
                  will not permit any Subsidiary to, make any payments under the
                  Bonus Plan which are accrued and required to the paid during
                  the fiscal year ending April 30, 2002 in an amount exceeding
                  $2,000,000.

                           6.24 Issuance and Ownership of Stock. Except for
                  issuing Stock of the Borrower or any Subsidiary, or options to
                  purchase the same, issued in the ordinary course of business
                  to the Borrower's or such Subsidiary's officers or employees
                  pursuant to the Borrower's of such Subsidiary's officer or
                  employee stock purchase or option agreements, the Borrower
                  will not, nor will permit any Subsidiary to, take any action,
                  or permit any Subsidiary to take any action, which would (a)
                  result in a decrease in the Borrower's or any Subsidiary's
                  ownership interest in any Subsidiary including, without
                  limitation, decrease in the percentage of the shares of any
                  class of stock owned or (b) result in the issuance by the



                                      -15-
   16


                  Borrower of Stock other than (i) those issued and outstanding
                  on the date of the Fifth Amendment hereto and (ii) the
                  Warrants and the Subsequent Warrants and common stock of the
                  Borrower necessary to satisfy the exercise of the Warrants or
                  the Subsequent Warrants. The Borrower acknowledges that no
                  Bank has any obligation to exercise the Warrants or the
                  Subsequent Warrants and that any such exercise shall be in the
                  sole discretion of such Bank.

                  (t) Payments and Collections. Section 8.10 of the Credit
         Agreement is amended by deleting the third sentence thereof in its
         entirety. Section 8.10 of the Credit Agreement is further amended by
         deleting the clause "the Existing Letter of Credit" and substituting in
         lieu thereof the clause "the Letters of Credit".

                  (u) New Borrowing Base Certificate. Exhibit A to the Credit
         Agreement is hereby amended and restated as set forth in Exhibit A to
         this Amendment, which Exhibit A is hereby made a part of the Credit
         Agreement as Exhibit A thereto.

                  (v) New Term A Note. Exhibit C to the Credit Agreement is
         hereby amended and restated to read as set forth on Exhibit B to this
         Amendment, which Exhibit B is made a part of the Credit Agreement as
         Exhibit C thereto.

                  (w) New Term B Note. Exhibit D to the Credit Agreement is
         hereby amended and restated to read as set forth on Exhibit C to this
         Amendment, which Exhibit C is made a part of the Credit Agreement as
         Exhibit D thereto.

                  (x) Deletion of Term C Note. Exhibit E to the Credit Agreement
         is hereby deleted in its entirety.

                  (y) New Schedule of Commitments. Schedule 1.1B of the Credit
         Agreement is hereby amended and restated to read as set forth on
         Exhibit D hereto, which Exhibit D is hereby made a part of the Credit
         Agreement as Schedule 1.1B thereof.

                  (z) New Schedule of Subsidiaries. Schedule 4.19 of the Credit
         Agreement is hereby amended and restated to read as set forth on
         Exhibit E hereto, which Exhibit E is hereby made a part of the Credit
         Agreement as Schedule 4.19 thereof.

         Section 3. [Reserved]

         Section 4. Representations and Warranties of the Borrower. To induce
the Banks and the Agent to execute and deliver this Amendment (which
representations and warranties shall survive the execution and delivery of this
Amendment), the Borrower represents and warrants to the Agent and the Banks
that:

                  (a) this Amendment and each Amendment Document (defined below)
         to which the Borrower is a party has been duly authorized, executed and
         delivered by it and each Amendment Document to which the Borrower is a
         party constitutes the legal, valid and binding obligation of the
         Borrower enforceable against the Borrower in accordance with its terms,
         subject to limitations as to enforceability which might result from



                                      -16-
   17


         bankruptcy, insolvency, reorganization, moratorium or similar laws or
         equitable principles relating to or limiting creditors' rights
         generally;

                  (b) each Amendment Document to which the Borrower is a party
         constitutes the legal, valid and binding obligation of the Borrower
         enforceable against the Borrower in accordance with its terms, subject
         to limitations as to enforceability which might result from bankruptcy,
         insolvency, reorganization, moratorium or similar laws or equitable
         principles relating to or limiting creditors' rights generally;

                  (c) the execution, delivery and performance by the Borrower of
         the Amendment Documents to which it is a party (i) have been duly
         authorized by all requisite corporate action and, if required,
         shareholder action, (ii) do not require the consent or approval of any
         governmental or regulatory body or agency, and (iii) will not (A)
         violate (1) any provision of law, statute, rule or regulation or its
         certificate of incorporation or bylaws, (2) any order of any court or
         any rule, regulation or order of any other agency or government binding
         upon it, or (3) any provision of any material indenture, agreement or
         other instrument to which it is a party or by which any of its
         properties or assets are or may be bound, or (B) result in a breach of
         or constitute (alone or with due notice or lapse of time or both) a
         default under any indenture, agreement or other instrument referred to
         in clause (iii)(A)(3) of this Section 4(c);

                  (d) as of the date hereof, no Default or Event of Default has
         occurred which either (a) is continuing or (b) has not been waived by
         the Agent and the Banks; and

                  (e) all the representations and warranties contained in
         Article IV of the Credit Agreement are true and correct in all material
         respects with the same force and effect as if made by the Borrower on
         and as of the date hereof.

         Section 5. Conditions to Effectiveness of this Amendment. This
Amendment shall become effective as of June 29, 2001 when each and every one of
the following conditions shall have been satisfied:

                  (a) The Agent shall have received executed counterparts of
         this Amendment, duly executed by the Borrower and each of the Banks.

                  (b) The Agent shall have received an executed new Term A Note
         and a Term B Note for each Bank, properly completed for such Bank based
         upon its Term A Loan Commitment or Term B Loan Commitment, as
         applicable, and duly executed by the Borrower.

                  (c) The Agent shall have received from the Guarantors a
         Consent and Agreement of Guarantors in the form of Exhibit F hereto
         (the "Guarantor Agreements") duly completed and executed by each
         Guarantor.

                  (d) The Agent shall have received a copy of the resolutions of
         the Board of Directors of the Borrower authorizing the execution,
         delivery and performance by the Borrower of this Amendment, the new
         Term Note A and Term Note B and the other documents to be executed by
         the Borrower in connection herewith, together with a



                                      -17-
   18


         certificate of an officer of the Borrower certifying as to the
         incumbency and the true signatures of the officers authorized to
         execute such documents and certifying that the Articles of
         Incorporation and Bylaws of the Borrower have not been amended or
         otherwise modified since true and accurate copies of such documents
         were previously furnished to the Bank.

                  (e) the Agent shall have received the favorable opinion of
         counsel to Borrower, in form and substance acceptable to the Agent and
         its counsel;

                  (f) The Agent shall have received the Subsequent Warrant
         Registration Agreement, duly executed by the Borrower and the Banks.

                  (g) The Agent shall have received Subsequent Warrants,
         properly completed for each Bank and duly executed by the Borrower and
         issued to the Banks ratably in accordance with their Revolving
         Commitment Percentages, containing an exercise price equal to the
         closing price per share of the Borrower's common stock on the
         recognized exchange on which such stock is traded at the close of
         trading on the date of this Amendment.

                  (h) The Agent shall have received all certificates,
         instruments and other agreements representing or evidencing the
         Consulting Sale Collateral, together with duly executed instruments of
         transfer or assignment in blank, all in form and substance satisfactory
         to the Agent.

                  (i) The Agent shall have received for the ratable benefit of
         the Banks a non-refundable restructuring fee in the amount of $163,750
         (the "Restructuring Fee").

                  (j) The Borrower shall have satisfied such other conditions as
         specified by the Agent, including payment of all unpaid legal fees and
         expenses incurred by the Agent and the fees and expenses of Price
         Waterhouse Coopers, financial consultants to the Banks, in each case
         through the date of this Amendment in connection with the Credit
         Agreement, this Amendment and any and all other documents to be
         executed and delivered by any party in connection with this Amendment
         (the "Amendment Documents").

Upon the effectiveness of this amendment, the Agent shall distribute the
Restructuring Fee to the Banks ratably in accordance with their Revolving
Commitment Percentages.

         Section 6. Affirmation; Reaffirmation. The Agent, each Bank and the
Borrower each acknowledge and affirm that the Credit Agreement, as hereby
amended, is hereby ratified and confirmed in all respects and all terms,
conditions and provisions of the Credit Agreement, except as amended by this
Amendment, shall remain unmodified and in full force and effect. All references
in any document or instrument to the Credit Agreement are hereby amended and
shall refer to the Credit Agreement as amended by this Amendment. The Borrower
confirms to the Agent and each Bank that the Obligations are and continue to be
secured by the security interest granted by the Borrower in favor of the Agent
under the Borrower's Security Agreement and all of the terms, conditions,
provisions, agreements, requirements, promises, obligations, duties, covenants
and representations of the Borrower under such documents and any and all other



                                      -18-
   19


documents and agreements entered into with respect to the Obligations are
incorporated herein by reference and are hereby ratified and affirmed in all
respects by the Borrower.

         Section 7. General.

                  (a) As provided in Section 9.2 of the Credit Agreement, the
         Borrower agrees to reimburse the Agent and each Bank, upon execution of
         this Amendment, for all reasonable out-of-pocket expenses (including
         attorney' fees and legal expenses of Dorsey & Whitney LLP, counsel for
         the Agent and the fees and expenses of PriceWaterhouse Coopers,
         financial consultants to the Banks) incurred in connection with the
         Credit Agreement, including in connection with the negotiation,
         preparation and execution of the Amendment Documents and all other
         documents negotiated, prepared and executed in connection with the
         Amendment Documents, and in enforcing the obligations of the Borrower
         under the Amendment Documents, and to pay and save the Agent and the
         Banks harmless from all liability for, any stamp or other taxes which
         may be payable with respect to the execution or delivery of the
         Amendment Documents, which obligations of the Borrower shall survive
         any termination of the Credit Agreement.

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

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

                  (d) This Amendment shall be governed by, and construed in
         accordance with, the internal law, and not the law of conflicts, of the
         State of Minnesota, but giving effect to federal laws applicable to
         national banks.

                  (e) This Amendment shall be binding upon the Borrower, the
         Agent and the Banks and their respective successors and assigns, and
         shall inure to the benefit of the Borrower, the Agent and the Banks and
         the successors and assigns of the Agent and the Banks.

         Section 8. General Release. The Borrower hereby releases and discharges
the Agent and each Bank, and each of their officers, directors, employees,
agents and attorneys, from any and all claims, actions and liabilities of any
kind or nature that it or any one claiming through or under the Borrower ever
had or may now have, whether now known or hereafter discovered, arising out of
or in any way relating to: (i) any lending relationship or loan commitment
between the Agent, the Banks and the Borrower prior to the date of this
Amendment; (ii) the Loan Documents; or (iii) the negotiations preceding the
execution and delivery of this Amendment.



            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]





                                      -19-
   20


         IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first above written.


                                       NORSTAN, INC.


                                       By /s/ Robert J. Vold
                                         ---------------------------------------
                                          Its Treasurer


                                       U.S. BANK NATIONAL ASSOCIATION,
                                       as a Bank and as Agent


                                       By /s/ David C. Larsen
                                         ---------------------------------------
                                          Its VP


                                       HARRIS TRUST AND SAVINGS BANK


                                       By /s/ Lauren M. Powers
                                         ---------------------------------------
                                          Its VP


                                       M&I MARSHALL & ILSLEY BANK


                                       By /s/ John W. Howard
                                         ---------------------------------------
                                          Its VP


                                       By /s/ Doug Pudvah
                                         ---------------------------------------
                                          Its VP


                                       WELLS FARGO BANK MINNESOTA,
                                       NATIONAL ASSOCIATION


                                       By /s/ Calvin R. Emerson
                                         ---------------------------------------
                                          Its VP




  [Signature Page to Fifth Amendment to Amended and Restated Credit Agreement]

                                       S-1

EX-10.(I)

   1


                                                                   EXHIBIT 10(I)


                            STOCK PURCHASE AGREEMENT


         THIS STOCK PURCHASE AGREEMENT (the "Agreement") is entered into
effective as of April 30, 2001 (the "Effective Date") by and among Norstan,
Inc., a corporation organized under the laws of the State of Minnesota
("Seller"), Synchromesh Consulting, Inc., a corporation organized under the laws
of the State of Minnesota (the "Purchaser") and, solely with respect to Articles
IV(E) and V hereof, Barry R. Rubin ("Rubin"), an individual residing in the
State of Minnesota.

                              W I T N E S S E T H:

         WHEREAS, Seller is the sole shareholder of Norstan Consulting Holding
Company ("Holding"), a Minnesota corporation.

         WHEREAS, Holding is the sole shareholder of Norstan Consulting, Inc., a
corporation organized under the laws of the State of Minnesota (the "Company");

         WHEREAS, Rubin serves as the Chief Executive Officer of the Company;

         WHEREAS, Purchaser desires to purchase all of the issued and
outstanding shares of Holding common stock (the "Shares"); and

         WHEREAS, Holding is willing to transfer and convey the Shares to
Purchaser on the terms, and subject to the conditions set forth in this
Agreement.

         NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

                               A G R E E M E N T:

         I. Purchase and Sale of the Shares; Consideration; Closing.

         (A) Purchase and Sale of the Shares. At the Closing (as defined below),
Seller shall sell, transfer, assign, set over, deliver and surrender the Shares
to Purchaser, and Purchaser shall purchase and accept the Shares from Seller.

         (B) Purchase Price. As consideration for the Shares, Purchaser shall
pay to Seller the sum of $5,301,934.01 (the "Purchase Price"), plus certain
contingent consideration described in Section I(E) below. In addition, Seller
agrees to unconditionally release the Company from all of the Company's
indebtedness to Seller and Seller's subsidiaries, and to assume all of the
Company's trade accounts payable (including obligations for which documentation
may not be available on the Closing Date) and accrued payroll obligations
(including without limitation accrued salaries, wages, bonuses, commissions and
all related payroll taxes) reflected on the balance sheet of the Company on
April 30, 2001, such balance sheet to be prepared in accordance with generally
accepted accounting principles of the United
   2


States on a basis consistent with accounting principles employed by the Company
during the year ended April 30, 2001 ("GAAP"). The Purchase Price shall be paid
in the form of: (i) $500,000 in immediately available funds (the "Cash
Portion"); (ii) Purchaser's 120-day promissory note in the amount of $1.5
million, bearing interest at the weighted-average effective rate imposed on
Seller pursuant to that certain Credit Agreement, dated as of July 23, 1996, by
and among Seller, First Bank National Association, Harris Trust and Savings Bank
and the Sumitomo Bank, Limited, Chicago Branch, as amended to date (the "Seller
Credit Agreement"), or any replacement facility, adjustable monthly, secured by
the accounts and notes receivable of the Company and substantially in the form
attached hereto as Exhibit A (the "Purchaser Note"); and (iii) assignment by the
Company to Seller of (a) that certain promissory note, dated October 28, 1999,
issued by TechSkills.com, LLC in favor of the Company with an original unpaid
principal balance of $1,861,164.64 and a current unpaid principal balance of
$1,801,934.01 (the "TechSkills Note") and (b) that certain promissory note,
dated January 22, 2001, issued by Substance Abuse Management Inc. ("SAMI") in
favor of the Company with an original unpaid principal balance of $1,500,000 and
a current unpaid principal balance of $1,412,284.31 and the related personal
guarantee of Henry Goldberg dated January 22, 2001 (collectively, the "SAMI
Note"); (the TechSkills Note and the SAMI Note shall be referred to herein
collectively as the "Notes").

         (C) Collection of Notes; Purchaser Guarantee. The Company's assignment
of the Notes is without recourse to both the Company and Purchaser; provided,
however, that: (1) if the SAMI Note is in payment default at any time during the
three-year period following the Closing Date, Seller shall deliver written
notice thereof to Purchaser, and if while the SAMI Note is in payment default
Purchaser receives any payment from SAMI for services rendered or for any other
purpose, Purchaser shall promptly remit the amount thereof to Seller, less any
related travel and lodging expenses incurred by Purchaser and reimbursed by SAMI
(which remittance by Purchaser shall be limited to the total amount of interest,
principal and other charges due Seller under the SAMI Note); and (2) if as of
the third anniversary of the Closing Date (the "Third Anniversary") Seller has
collected less than $3,000,000 of the principal amount due and owing under the
Notes as of the Closing Date (including principal payments received from
Purchaser pursuant to clause (1) above), Purchaser shall then remit to Seller an
amount equal to the lesser of: (i) $500,000 or (ii) the excess of (a) $3,000,000
over (b) the principal amount collected by Seller under the Notes as of the
Third Anniversary. Within a reasonable period after the Third Anniversary,
Seller shall deliver to Purchaser written notice, in reasonable detail, of the
amount due and owing Seller under this Section I(C) (the "Purchaser Guarantee"),
and Purchaser shall remit the same to Seller within 10 business days following
receipt of such notice. In the event Purchaser does not make a full and timely
payment of the Purchaser Guarantee, interest shall accrue on the unpaid balance
at the weighted-average effective rate under the Seller Credit Agreement. Seller
shall use its reasonable best efforts to collect the outstanding principal under
the Notes in accordance with their respective terms. If, prior to the Third
Anniversary, Seller reduces, discounts, or otherwise compromises its claim
against the obligor under either or both of the Notes, Seller shall reduce the
Purchaser Guarantee by 50 percent of the amount of such reduction. In the event
that Seller collects additional principal amounts (a "Supplemental Recovery")
under the Notes after the Third Anniversary, Seller shall promptly remit to
Purchaser the amount of the excess, if any, of (i) the aggregate principal
amount recovered by Seller under the Notes and the Purchaser Guarantee over (ii)
$3,000,000, limited to the amount of the Purchaser Guarantee paid by Purchaser
to Seller.




                                      -2-
   3


         (D) The Closing. The closing (the "Closing") of the transactions
contemplated by this Agreement shall take place at the offices of Maslon Edelman
Borman & Brand, LLP, 3300 Wells Fargo Center, Minneapolis, Minnesota 55402, on
May 1, 2001 or on such other date as the parties may mutually agree (the
"Closing Date"). Irrespective of the actual Closing Date, the transactions
contemplated by this Agreement shall be deemed effective as of the close of
business on April 30, 2001. At the Closing, Holding shall deliver to Purchaser
one or more certificates representing the Shares, duly endorsed for transfer.
Purchaser shall deliver to Seller: (i) the Cash Portion via wire transfer of
immediately available funds to an account designated by Seller; (ii) the
Purchaser Note; and (iii) originally executed instruments representing the
TechSkills Note and the SAMI Note, accompanied by duly executed assignments
separate from certificates.

         (E) Contingent Consideration. As additional consideration for the
Shares, Purchaser shall pay to Seller an amount equal to 50 percent of Seller's
earnings before income taxes, interest, depreciation and amortization ("EBITDA")
for the 12-month period ending April 30, 2003 (the "Contingent Purchase Price")
determined in conformity with GAAP. Purchaser shall provide Seller with written
notice (the "EBITDA Notice") of Purchaser's determination of EBITDA in
reasonable detail on or before June 30, 2003, together with copies of a similar
computation with respect to Purchaser's EBITDA for the 12-month period ending
April 30, 2002. Following Purchaser's delivery to Seller of the EBITDA Notice,
Purchaser shall provide Seller's independent accountants and/or Seller's other
agents and representatives with reasonable access to Purchaser's books, records
and employees for the purpose of substantiating Purchaser's determination of
EBITDA for the 12-month period ending April 30, 2003. Seller shall deliver to
Purchaser, within 60 days following Seller's receipt of the EBITDA Notice,
written notice of (i) Seller's concurrence with Purchaser's determination of
EBITDA for the 12-month period ending April 30, 2003 ("Notice of Concurrence")
or (ii) Seller's disagreement with such determination, accompanied by a detailed
explanation of such disagreement. In the event of a disagreement, the parties
shall endeavor for a period of at least 30 days to negotiate a settlement of
their differences. If the parties are unable to reach agreement during such
period, the parties shall engage Ernst & Young LLP (the "Independent Firm") to
perform a determination of Purchaser's EBITDA for the 12-month period ending
April 30, 2003 (the "Final Determination"), which determination shall be final
and binding on each of the parties. The Independent Firm shall make its
determination based solely on presentations by Purchaser and Seller, and not by
independent review. In resolving any disputed item the Independent Firm may not
assign a value to any item greater than the greatest value for such item claimed
by either party or less than the smallest value for such item claimed by either
party. Any fees and expenses of the Independent Firm shall be borne by: (i)
Seller in the proportion that the aggregate dollar amount of such disputed items
so submitted that are unsuccessfully disputed by Seller bears to the aggregate
dollar amount of all disputed items and (ii) Purchaser in the proportion that
the aggregate dollar amount of such disputed items so submitted that are
successfully disputed by Seller bears to the aggregate dollar amount of all
disputed items. Purchaser shall pay to Seller the Contingent Purchase Price
within 10 business days following (i) Purchaser's receipt of the Notice of
Concurrence; (ii) completion of the parties' negotiated settlement with respect
to Purchaser's EBITDA for the 12-month period ending April 30, 2003; or (iii)
the parties' receipt of the Final Determination, as applicable.




                                      -3-
   4


         II. Representations and Warranties of Seller Concerning the
Transaction. Seller represents and warrants to Purchaser that, except as set
forth in the disclosure schedules attached hereto as Exhibit B and incorporated
by reference herein (the "Seller Disclosure Schedules"):

         (A) Organization of Seller. Seller is a corporation, validly existing
and in good standing under the laws of the State of Minnesota, with the
requisite corporate power and authority to own and use its properties and assets
and to carry on its business as currently conducted.

         (B) Authorization; Enforcement. Seller has the requisite corporate
power and authority to enter into and to consummate the transactions
contemplated by this Agreement and to otherwise carry out its obligations
hereunder. The execution and delivery of this Agreement by Seller and the
consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary action on the part of Seller. This Agreement has
been duly executed by Seller and when delivered in accordance with the terms
hereof shall constitute the legal, valid and binding obligation of Seller
enforceable against Seller in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application. Seller is not in violation of
any provision of its articles of incorporation, bylaws or other charter
documents.

         (C) No Conflicts. The execution, delivery and performance of this
Agreement by Seller and the consummation by Seller of the transactions
contemplated hereby do not and will not (i) conflict with or violate any
provision of its articles of incorporation, bylaws or other charter documents
(each as amended through the date hereof), (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 agreement, indenture or instrument
(evidencing a debt of Seller or otherwise) to which Seller is a party or by
which any property or asset of Seller is bound or affected, or (iii) result in a
violation of any law, rule, regulation, order, judgment, injunction, decree or
other restriction of any court or governmental authority to which Seller is
subject, or by which any property or asset of Seller is bound or affected,
except in the case of each of clauses (ii) and (iii), as could not, individually
or in the aggregate, have or result in a Material Adverse Effect (as defined
below) on Seller. Seller is not conducting its business in violation of any law,
ordinance or regulation of any governmental authority, except for violations
which, individually or in the aggregate, (x) do not and will not adversely
affect the legality, validity or enforceability of this Agreement or (y) do not
and will not adversely impair Seller's ability to perform fully on a timely
basis its material obligations under this Agreement (a "Seller Material Adverse
Effect").

         (D) Ownership of the Shares; Ownership of Company Stock. Except for the
lien in favor of U.S. Bancorp National Association pursuant to the Seller Credit
Agreement, Seller owns of record and beneficially all of the Shares free and
clear of any liens, claims, options, charges, or encumbrances of any nature
whatsoever ("Encumbrances"), and free and clear of any restrictions on transfer.
Other than pursuant to the Seller Credit Agreement, Seller has not previously
sold, assigned or otherwise transferred any right or interest in the Shares, nor
is Seller a party to any option, warrant, purchase right, or other contract or
commitment that



                                      -4-
   5


could require Seller to sell, transfer or otherwise dispose of any capital stock
of Holding (other than this Agreement). Holding owns of record and beneficially
all of the issued and outstanding capital stock of the Company (the "Company
Stock") free and clear of any Encumbrances except for liens imposed pursuant to
the Seller Credit Agreement, and free and clear of any restrictions on transfer,
exclusive of restrictions imposed pursuant to the Seller Credit Agreement.
Holding has not previously sold, assigned or otherwise transferred any right or
interest in the Company Stock, nor is Holding a party to any option, warrant,
purchase right, or other contract or commitment that could require Holding to
sell, transfer or otherwise dispose of any Company Stock.

         (E) Litigation; Proceedings. There is no action, suit, notice of
violation, proceeding or investigation pending or, to the knowledge of Seller,
threatened against or affecting Seller or any of its properties before or by any
court, governmental or administrative agency or regulatory authority (federal,
state, county, local or foreign) which adversely affects or challenges the
legality, validity or enforceability of this Agreement.

         (F) Status of Holding. The sole asset of Holding consists of 100
percent of the issued and outstanding capital stock of the Company; Holding has
no liabilities.

         III. Representations and Warranties of Seller regarding the Company.
Seller hereby represents and warrants to Purchaser that, except as set forth in
the Seller Disclosure Schedules:

         (A) Organization and Qualification. Each of Holding and the Company is
a corporation, validly existing and in good standing under the laws of the State
of Minnesota, with the requisite corporate power and authority to own and use
its properties and assets and to carry on its respective business as currently
conducted. The Company is duly qualified to do business and is in good standing
as a foreign corporation in each jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification necessary,
except where the failure to be so qualified or in good standing, as the case may
be, could not, individually or in the aggregate, have a material adverse effect
on the results of operations, assets, or financial condition of the Company (a
"Company Material Adverse Effect").

         (B) Capitalization. Holding has 50,000,000 shares of authorized capital
stock, consisting of 10,000,000 shares of common stock, $.01 par value per
share, and 40,000,000 undesignated shares. Holding has 100 shares of common
stock issued and outstanding, all of which are owned beneficially and of record
by Seller. No other shares of Holding capital stock are issued or outstanding.
The Company is authorized to issue 1,000,000 shares of capital stock with a par
value of $.01 per share in the case of common stock and a par value as
determined by its board of directors in the case of preferred stock. The Company
has 100 shares of its common stock issued and outstanding, all of which are
owned beneficially and of record by Holding. No other shares of the Company's
capital stock are issued or outstanding. All of the Shares and the Company Stock
have been duly authorized and are validly issued, fully paid and nonassessable.
There are no outstanding or authorized options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights, or other contracts or
commitments that could require either Holding or the Company to issue, sell, or
otherwise cause to become outstanding any of its capital stock. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to Holding or the Company. There
are no voting



                                      -5-
   6


trusts, proxies, or other agreements or understandings with respect to the
voting of the capital stock of either Holding or the Company.

         (C) No Conflicts. The consummation of the transactions contemplated
hereby do not and will not: (i) conflict with or violate any provision of
Holding or the Company's respective articles of incorporation, bylaws or other
charter documents (each as amended through the date hereof), (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 agreement, indenture or
instrument (evidencing a debt of Holding or the Company) to which Holding or the
Company is a party or by which any property or asset of Holding or the Company
is bound or affected, or (iii) result in a violation of any law, rule,
regulation, order, judgment, injunction, decree or other restriction of any
court or governmental authority to which Holding or the Company is subject, or
by which any property or asset of Holding or the Company is bound or affected,
except in the case of each of clauses (ii) and (iii), as could not, individually
or in the aggregate, have or result in a Company Material Adverse Effect.

         (D) Brokers and Finders. Neither Holding nor the Company has employed
any broker, agent or finder or agreed to incur any liability for any brokerage
fees, agents' commissions or finders' fees in connection with the transactions
contemplated hereby.

         (E) Consents and Approvals. None of Seller, Holding or the Company is
required to obtain any consent, waiver, authorization or order of, or make any
filing or registration with, any court or other federal, state, local, foreign
or other governmental authority or other Person (defined below) in connection
with the execution, delivery and performance by the parties of this Agreement
other than where the failure to obtain such consent, waiver, authorization or
order, or to give or make such notice or filing, could not, individually or in
the aggregate, have or result in a Company Material Adverse Effect. Seller shall
deliver to Purchaser the Shares in the manner contemplated hereby free and clear
of all Encumbrances. A "Person" means an individual or corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or subdivision
thereof) or other entity of any kind.

         (F) Litigation; Proceedings. There is no action, suit, notice of
violation, proceeding or investigation pending or, to the knowledge of Seller,
threatened against or affecting Holding or the Company or any of their
respective properties before or by any court, governmental or administrative
agency or regulatory authority (federal, state, county, local or foreign) which:
(i) adversely affects or challenges the legality, validity or enforceability of
this Agreement; or (ii) could, individually or in the aggregate, have or result
in a Company Material Adverse Effect.

         (G) No Default or Violation. Neither Holding nor the Company: (i) is in
default under or in violation of (and, to the knowledge of Seller, has not
received notice of a claim that it is in default under or that it is in
violation of) any indenture, loan or credit agreement or any other agreement or
instrument to which it is a party or by which it or any of its respective
properties is bound, (ii) is not in violation of any order of any court,
arbitrator or governmental body, and (iii) is not in violation of any statute,
rule or regulation of any


                                      -6-
   7


governmental authority, except as could not individually or in the aggregate,
have or result in, a Company Material Adverse Effect.

         (H) Books and Records. The books of account, minute books, stock record
books and other records of both Holding and the Company, all of which have been
made available to Purchaser, are true, complete and correct and have been
maintained in accordance with sound business practices, including the
maintenance of an adequate system of internal controls. The minute books of
Holding and the Company contain accurate and complete records of all meetings
held of corporate action taken by the shareholders, the boards of directors, and
committees of the boards of directors of Holding and the Company, and no meeting
of any such shareholders, boards of directors or committee has been held for
which minutes have not been prepared and are not contained in such minute books.

         (I) Compliance with Law. Each of Holding and the Company has complied
and is currently in compliance with all applicable laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
changes thereunder) of the federal government of the United States and state
governments (and all agencies thereof) of the United States, asserting or
claiming jurisdiction over it or over any part of its operations, and no
proceedings or notices have been filed or, to the knowledge of Seller, commenced
against Holding or the Company alleging any failure to comply, except where the
failure to be in compliance has not had and is not reasonably expected to have a
Company Material Adverse Effect.

         (J) Title to Assets. Each of Holding and the Company has good and
marketable title to all of the assets used in or useful to its business, free
and clear of all Encumbrances, other than Encumbrances existing under the Seller
Credit Agreement. To the knowledge of Seller, none of the assets of Holding or
the Company are in the possession of any person other than Holding or the
Company, as applicable.

         (K) Employee Benefit Matters.

                  (1) Compliance. With respect to each employee welfare benefit
         plan and employee pension benefit plan as defined in sections 3(l) and
         3(2) of ERISA that has been or is sponsored by, participated in, or
         contributed to, by the Company (each, a "Plan"), through the date of
         Closing: (i) the plan is in compliance with ERISA in all material
         respects, including but not limited to all reporting and disclosure
         requirements of Part I of Subtitle B of Title I of ERISA; (ii) the
         appropriate Form 5500 has been timely filed, for each year of its
         existence; (iii) there has been no transaction described in sections
         406 or 407 of ERISA or section 4975 of the Internal Revenue Code of
         1986, as amended (the "Code") relating to the plan unless exempt under
         section 408 of ERISA or section 4975 of the Code, as applicable; (iv)
         the bonding requirements of section 412 of ERISA have been satisfied;
         and (v) all contributions required to have been made with respect to
         the plan have been timely made. There is no litigation, action,
         proceeding, investigation or claim asserted or, to the knowledge of
         Seller, threatened or contemplated, with respect to any Plan (other
         than the payment of benefits in the normal course) nor any issue if
         resolved adversely to the Company that may subject the Company to the
         payment of a penalty, interest, tax or other amount.




                                      -7-
   8


                  (2) Certain Pension Plans. All Plans that are intended to
         qualify under section 401 (a) of the Code either (i) have been
         determined by the IRS to be qualified under section 401 (a) of the Code
         or (ii) have applicable remedial amendment periods that will not have
         ended before the Closing Date.

                  (3) No Defined Benefit Pension Plans. Neither the Company nor
         any entity that has been treated as a single employer together with the
         Company under section 414 of the Code has maintained, had an obligation
         to contribute to, contributed to, or incurred any liability with
         respect to a plan that is or was a pension plan (as defined in section
         3(2) of ERISA) that is or was subject to Title IV of ERISA.

                  (4) Extended Medical Coverage. No employee welfare benefit
         plan (as defined in section 3(l) of ERISA) maintained by the Company
         provides medical, surgical, hospitalization or life insurance benefits
         (whether or not insured by a third party) for employees or former
         employees of the Company for periods extending beyond their
         terminations of employment, other than coverage mandated by the
         Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
         ("COBRA"); and the Company has not made any commitment to provide
         retiree medical, surgical, hospitalization or life insurance coverage
         for any current or former employees or directors of the Company (except
         as required by COBRA).

                  (5) Effect of this Transaction. Except as otherwise listed on
         the Seller Disclosure Schedules, the consummation of the transactions
         contemplated by this Agreement, either alone or in conjunction with
         another event (such as a termination of employment), will not (i)
         entitle any current or former employee or officer of the Company to
         severance pay from the Company, or any other payment under a Plan, (ii)
         accelerate the time of payment or vesting of benefits under a Plan, or
         (iii) increase the amount of compensation due any such employee or
         officer by the Company.

         (L) Taxes.

                  (1) Affiliated Groups. The Company has not been a member of an
         affiliated group (within the meaning of Section 1504 of the Code) or
         similar group under state, local or other applicable law filing
         consolidated tax returns other than the group the parent of which is
         Norstan ("Affiliated Group").

                  (2) Filing of Returns. The Company and the Affiliated Group of
         which the Company is or has been a member have filed, or caused to be
         filed in a timely manner, all Tax Returns (as defined below) required
         to be filed for each taxable period in which the Company was a member
         of the group on or before the date of this Agreement (taking into
         account any and all extensions) and all of those Tax Returns are
         complete and correct.

                  (3) Payment of Taxes. All Taxes (as defined below) due and
         payable or claimed to be due and payable from the Company have been
         timely paid in full or are not yet delinquent.

                  (4) Withholding. The Company has complied with all applicable
         laws relating to the withholding of Taxes (including, without
         limitation, withholding of Taxes pursuant to Sections 1441 and 1442 of
         the Code or similar provisions under any foreign laws),



                                      -8-
   9


         has, within the time and in the manner prescribed by those laws,
         withheld and paid over to the proper governmental body all amounts
         required to be so withheld and paid over under all such applicable laws
         and has, within the time and in the manner prescribed by those laws,
         filed all Tax Returns with respect to withholding.

                  (5) Encumbrances. Except for liens for ad valorem Taxes and
         real and personal property Taxes not yet delinquent, there are no
         Encumbrances for Taxes on the assets of the Company.

                  (6) Third-Party Taxes. The Company has no liability for the
         Taxes of any other person by contract or as transferor or successor, or
         otherwise.

                  (7) Tax Sharing. Except for: (i) Taxes in connection with
         leases of personal property by or to the Company; and (ii) a Tax
         sharing agreement by and among the Company, Seller and their affiliates
         which shall not be effective with respect to the Company after the
         Closing Date, the Company is not a party to, is not bound by, and has
         no obligation under, any contract, agreement or arrangement providing
         for the allocation or sharing of Taxes.

                  (8) Definitions. For purposes of this Agreement, "Taxes" shall
         mean and include all taxes, charges, fees, duties, levies, penalties or
         other assessments proposed by any federal, state or local authority
         within the United States of America, including income, gross IMP
         receipts, excise, property, sales, gains, use, license, capital stock,
         transfer, franchise, payroll, withholding, social security or other
         taxes, including any interest, penalties or additions attributable
         thereto (whether or not disputed); and "Tax Returns" shall mean and
         include all federal, state, and local tax returns, declarations,
         statements, reports, schedules, forms or information returns or claims
         for refunds relating to Taxes or other written information required to
         be supplied to any taxing authority in connection with Taxes (including
         any amended Tax Returns).

         (M) Insurance. Seller has delivered to Purchaser a listing of all
current insurance policies maintained by Seller with respect to Holding and the
Company through the Closing Date.

         IV. Representations and Warranties of Purchaser. Purchaser hereby
represents and warrants to Seller that, except as set forth in the disclosure
schedules attached hereto as Exhibit C and incorporated by reference herein (the
"Purchaser Disclosure Schedules"):

         (A) Authorization; Enforcement. Purchaser is a corporation validly
existing and in good standing under the laws of the State of Minnesota. This
Agreement has been duly executed and delivered by Purchaser constitutes the
valid and legally binding obligation of Purchaser, enforceable against Purchaser
in accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application.
Purchaser is not in violation of any provision of its articles of incorporation,
bylaws or other charter documents.




                                      -9-
   10


         (B) Promissory Notes. The Notes and the Purchaser Note are valid
receivables, are not subject to valid counterclaims or setoffs, and are
collectible in accordance with their terms.

         (C) Investment Intent. Purchaser is acquiring the Shares for
Purchaser's own account, for investment purposes only and not with a view to or
for distributing or reselling the Shares or any part thereof or interest
therein.

         (D) Purchaser's Status. At the date hereof, Purchaser is an "accredited
investor" within the meaning of Rule 501(a)(3) promulgated under the Securities
Act.

         (E) Access to Information. Purchaser acknowledges that as Chief
Executive Officer of the Company, Rubin (and, by attribution, Purchaser) has
been afforded (i) complete and unfettered access to the books, records and
personnel of the Company; (ii) the opportunity to ask such questions as Rubin
and/or Purchaser has deemed necessary of, and to receive answers from,
representatives of Seller concerning the business and affairs of the Company;
and (iii) the opportunity to obtain such additional information which Seller
possesses or can acquire without unreasonable effort or expense that is
necessary for Purchaser to make an informed investment decision with respect to
the Shares. Neither such inquiries nor any other investigation conducted by or
on behalf of Purchaser or Purchaser's representatives, agents or counsel shall
modify, amend or affect Purchaser's right to rely on the truth, accuracy and
completeness of Seller's representations and warranties contained herein;
provided, however, that Seller's representations and warranties shall have no
force or effect if, and to the extent that, Rubin has, at the Closing Date,
actual knowledge that such representations and warranties are untrue.

         (F) Reliance. Purchaser understands and acknowledges that (i) the
Shares are being offered and sold to Purchaser without registration under the
Securities Act in a private placement that is exempt from the registration
provisions of the Securities Act and (ii) the availability of such exemption,
depends in part on, and Seller will rely upon the accuracy and truthfulness of,
the foregoing representations and Purchaser hereby consents to such reliance.

         V. Covenants.

         (A) Conduct of Business. Each of Seller and Rubin covenant that, from
and after the execution of this Agreement through the Closing, except as
provided in Section V(B) below, the Company's business will be conducted in the
ordinary course, consistent with past practice, including without limitation
with respect to: solicitation of business, performance of, and billing for
consulting engagements, collection of accounts receivable, hiring and retention
of personnel, management of employee compensation and benefit matters, and
payment of accounts payable, salaries and other obligations of the Company.

         (B) Reductions in Force. During the period from the date hereof through
and including the Closing Date, Rubin and Seller shall jointly identify those
employees of the Company whose services will not be required after the Closing.
Rubin shall terminate the employment of such individuals (the "Terminated
Employees") on or prior to the Closing Date, providing each of the Terminated
Employees with the Company's standard severance arrangement. Seller agrees to
bear the entire severance cost associated with the Terminated Employees and to
indemnify Rubin, Purchaser and the Company with respect to such severance cost;
provided, however, that the foregoing indemnification protection shall not apply
if and to the extent that Purchaser incurs severance costs as a result of a
misrepresentation of Seller's standard severance arrangement or other breach of
this Section V(B).



                                      -10-
   11


         (C) Reasonable Best Efforts. Upon the terms and subject to the
conditions hereof, each of the parties hereto agrees to use its reasonable best
efforts promptly to take, or cause to be taken, all actions and to do, or cause
to be done, all things necessary, proper or advisable to consummate and make
effective the transactions contemplated by this Agreement. An undertaking of a
party under this Agreement to use such party's reasonable best efforts shall not
require such party to incur unreasonable expense or obligations in order to
satisfy such undertaking. If at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, each party
hereto and its proper officers, directors or other representatives will promptly
take such action.

         (D) Notification of Certain Matters. Purchaser, on the one hand, and
Seller, on the other hand, will each give prompt notice to the other of (i) the
occurrence, or failure to occur, of any event the occurrence or failure of which
would reasonably be likely to cause any of their respective representations or
warranties contained in this Agreement to be untrue or incorrect at any time
from the date hereof to the Closing Date, and (ii) any failure on their
respective parts or on the part of any of their respective officers, directors,
partners, employees, representatives or agents, if any, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
each of them under this Agreement; provided, however, that no such notification
will alter or otherwise affect such representations, warranties, covenants,
conditions or agreements.

         (E) Performance on SAMI Consulting Projects. Purchaser agrees to use
its reasonable best efforts to satisfactorily perform, in all material respects,
Purchaser's obligations under any and all consulting and other projects in any
way arising out of or relating to the origin of the SAMI Note.

         (F) Litigation Cooperation. From and after the Closing Date, Purchaser
shall provide to Seller, at no cost to Seller (exclusive of Seller's obligation
to reimburse Purchaser's reasonable travel expenses) such support as Seller
shall require in connection with Seller's dispute with Michael Vadini and his
affiliated entities.

         (G) Equipment Leases. Exhibit D hereto sets forth a listing of certain
equipment leases under which Seller is the lessee and the related equipment is
in the possession of: (i) the Company (the "Company Leases"); or (ii) third
parties pursuant to sublease arrangements (the "Third Party Leases"). Each of
Seller and Purchaser undertakes to put forth its reasonable best efforts to
arrange for the assignment of the Company Leases from Seller to Purchaser on a
basis without recourse to Seller. If and to the extent that Seller and Purchaser
are unable to effect an assignment of the Company Leases, Purchaser covenants to
perform, in all material respects, the lessee's duties and obligations arising
thereunder. With respect to the Third Party Leases, Purchaser agrees to put
forth its reasonable best efforts to invoice and collect the monthly payment
obligations of such third parties in accordance with the payment schedule set
forth in Exhibit D and to remit such payment to the equipment lessor, all in a
manner



                                      -11-
   12


consistent with past practice, until the expiration of the applicable
equipment lease obligations. If and to the extent that Purchaser is unable to
collect the monthly payment obligations from the third parties, Purchaser shall
provide Seller with timely notice thereof and thereafter remit the appropriate
payments to the equipment lessor following receipt of same from Seller.

         (H) Closed Facility Leases. Exhibit E hereto enumerates certain
facilities leases to which the Company is a party and, as of the date of this
Agreement, are not in use by the Company. Seller agrees to assume each of the
leasehold obligations identified in Exhibit E (the "Closed Facility Leases") and
to indemnify, defend and hold Purchaser harmless from and against and in respect
of any and all liabilities, losses, damages, claims, costs and expenses arising
from or relating in any manner to the Closed Facility Leases.

         VI. Transition Matters.

         (A) Shared Office Space. The parties acknowledge and agree that Seller
and the Company currently occupy joint office facilities pursuant to leasehold
interests held by Seller in the cities of Minnetonka, Minnesota, Milwaukee,
Wisconsin, Des Moines, Iowa, Omaha, Nebraska, Cleveland, Ohio and Columbus,
Ohio. During the 12-month period commencing on the Closing Date, subject to
Seller's receipt of any and all third party consents required under the terms of
Seller's lease agreements, Purchaser shall be permitted to occupy the space now
occupied by the Company without cost to Purchaser, provided, however, that in
the event Seller's occupancy of any such facility is terminated for any reason
during such 12-month period, Purchaser's right to occupy the related facilities
shall terminate simultaneously; and, provided further, that if Seller's
occupancy is so terminated, Seller shall use its reasonable best efforts to
provide Purchaser with reasonably prompt notice thereof.

         (B) Other Office Space; Office Equipment. Each of Purchaser and Seller
agrees to put forth its reasonable best efforts to arrange for the assignment by
Seller to Purchaser on a nonrecourse basis to Seller of Seller's leasehold
interest in the Warren, New Jersey office facility and office machines and
equipment currently utilized by the Company therein. In the event that the
parties are unsuccessful with respect to any one or more of such lease
assignments, Seller shall put forth its reasonable best efforts to enable
Purchaser to obtain all rights and privileges associated with any such lease,
subject to Seller's receipt of any and all third party consents required under
the terms of Seller's lease agreements. Purchaser hereby undertakes to perform
all of Seller's duties and satisfy all of Seller's other obligations under each
agreement not assignable to Purchaser on a nonrecourse basis to Seller and
Seller agrees not to extend or otherwise modify or amend its obligations under
any such agreement without Purchaser's prior written consent.

         (C) Telephone and Switchboard Equipment. During the 12-month period
commencing on the Closing Date, Purchaser shall be permitted to utilize Seller's
telephone and switchboard equipment currently in the space now occupied by the
Company without cost to Purchaser, provided, however, that in the event Seller's
occupancy of any such facility is terminated for any reason during such 12-month
period, Purchaser's right to utilize the related telephone and switchboard
equipment shall terminate simultaneously.




                                      -12-
   13


         (D) Information System Support. During the 12-month period commencing
on the Closing Date, Seller shall provide Purchaser with the information systems
support services reasonably required by Purchaser at a price of $31.00 per hour,
payable monthly upon receipt of Seller's invoice. Notwithstanding the preceding
sentence, Seller shall provide Purchaser with labor support for Purchaser's
Portera Software installation and transition without charge therefor for a
period of three months following the Closing Date.

         (E) Corporate Software Systems. For a period of 90 days commencing on
the Closing Date, Seller shall permit Purchaser to access all of Seller's
corporate software applications currently utilized by the Company and Purchaser
agrees to reimburse Seller for all direct costs incurred by Seller in connection
therewith. During such 90-day period, Seller shall provide reasonable consulting
assistance to Purchaser in connection with the selection, implementation, and
conversion to a new financial and HR software system for the Company at no cost
or expense to the Company.

         (F) Name Change. Purchaser acknowledges and agrees that on and after
the Closing Date, Purchaser shall use its reasonable best efforts to
discontinue, as soon as possible, all use of the name "Norstan" and any and all
logos in any way similar to those currently maintained by Seller, and in no
event shall Purchaser's use continue after 60 days following the Closing Date.
Purchaser agrees to file an amendment of the Company's articles of incorporation
with the office of the Minnesota Secretary of State to effect a change in the
name of the Company within 30 days after the Closing Date. Purchaser further
agrees to execute and deliver to Seller, upon Seller's request, any and all
instruments required, in the reasonable judgment of Seller, to effect an
assignment from the Company to Seller of any and all logos, trademarks, service
marks, and other intellectual property identifiable with the name "Norstan"
registered in the name of the Company with any federal state, or foreign
government or agency thereof. Seller shall reimburse Purchaser for all costs
incurred by Purchaser during the six-month period following the Closing Date for
services provided by third parties to effect and advertise a name change for the
Company, subject to a maximum reimbursement obligation of $100,000. Purchaser
agrees to indemnify Seller for any and all losses or other damages Seller may
incur in connection with, or in any way arising out of, Purchaser's use, after
the Closing Date, of the name "Norstan" or any logo or other symbol maintained
by, or otherwise identified with Seller.

         (G) Corporate Travel Programs. Purchaser may utilize Seller's corporate
travel and American Express programs in a manner consistent with the Company's
current use of same for a period of three months following the Closing Date;
provided, however, that Purchaser shall pay for all expenses incurred by
Purchaser or its employees under these programs and Purchaser agrees to
indemnify Seller for all such expenses.

         (H) Human Resources and Payroll Processing. During the three-month
period commencing on the Closing Date, Seller shall provide Purchaser with human
resources support services, including human resources training, at no cost to
Purchaser. During the same period, Seller shall process or cause Purchaser's
payroll to be processed, provided, that: (i) Purchaser shall reimburse Seller
for all third-party payroll processing charges and expenses incurred on
Purchaser's behalf; and (ii) Purchaser shall deliver to Seller via cashier's
check or wire transfer sufficient funds to cover each Purchaser payroll
processed by Seller, prior to the processing thereof.




                                      -13-
   14


         (I) Consulting Opportunities. Seller agrees to put forth its reasonable
best efforts to offer Purchaser a reasonable opportunity to bid on internal and
external consulting projects reasonably deemed by Seller to be within
Purchaser's expertise and availability of resources and identified by Seller
during the 24-month period following the Closing Date. Such projects shall not
include work Seller may substantially perform with internal resources.

         (J) Accounts Receivable Collections Support. During the 60-day period
commencing on the Closing Date, Seller shall provide to Purchaser, at no cost to
Purchaser, accounts receivable collections support on a level consistent with
the services rendered by Seller to the Company immediately prior to the Closing
Date.

         (K) 401(k) Plan Contributions. On or before January 31, 2002, Seller
shall pay to Purchaser an amount equal to, and representing, a matching 401(k)
contribution on a pro rata basis for amounts contributed by employees of the
Company during the period from January 1, 2001 to the Closing Date who are
continuously employed by the Company during the period from the Closing Date to
and including December 31, 2001.

         (L) Release. Purchaser hereby grants to Seller and Seller's affiliates,
together with their respective officers, directors, employees and other agents
and representatives, an unconditional release of liability for any and all
losses or damages that may be incurred by Purchaser and Purchaser's affiliates
and their respective officers, directors, employees and other agents and
representatives directly or indirectly resulting from, or in any arising out of,
Seller's provision of services to Purchaser pursuant to this Article VI;
provided, however, that the foregoing shall not apply in connection with any act
of gross negligence or willful misconduct by Seller's officers, directors,
employees, agents and representatives.

         VII. Conditions Precedent to the Closing.

         (A) Conditions Precedent to Purchaser's Obligation to Close.
Notwithstanding any other provision herein, the obligation of Purchaser to
consummate the transactions contemplated hereunder are, at the option of
Purchaser, subject to the satisfaction of each of the conditions set forth
below:

                  (1) Agreements and Conditions. On or before the Closing Date,
         Seller shall have complied with and duly performed all agreements and
         conditions to be complied with or performed by Seller on or before the
         Closing Date pursuant to or in connection with this Agreement.

                  (2) Representations and Warranties. The representations and
         warranties of Seller contained in this Agreement shall be true and
         correct in all material respects on and as of the Closing Date with the
         same force and effect as though such representations and warranties had
         been restated and made on and as of the Closing Date, except for those
         representations and warranties which speak as of a specified date.

                  (3) Opinion of Counsel. Purchaser shall have received an
         opinion of Maslon Edelman Borman & Brand, LLP, counsel for Seller, in
         form and substance reasonably satisfactory to Purchaser and its
         counsel.




                                      -14-
   15


                  (4) No Legal Proceedings. No legal proceeding shall have been
         instituted or threatened which, in Purchaser's reasonable opinion,
         questions or reasonably appears to portend subsequent questioning of
         the validity or legality of this Agreement or the transactions
         contemplated hereby or seeks to restrict, limit, prohibit or enjoin (or
         to obtain damages as a result of) such transactions or may have a
         Company Material Adverse Effect.

                  (5) Officer's Certificate. Purchaser shall have received a
         certificate dated the Closing Date and executed by the Chief Executive
         Officer or the Chief Financial Officer of Seller, certifying that the
         representations and warranties made by Seller in this Agreement are
         true and correct in all material respects at and as of the Closing Date
         (except for such representations and warranties which speak as of a
         specified date), and that Seller has fulfilled all conditions to the
         Closing provided for in this Agreement to be fulfilled by Seller.

                  (6) Consents and Releases. All consents, approvals and
         releases, including but not limited to releases of any security
         interests in or to the Shares, required in connection with the
         transactions contemplated by this Agreement, all in form and substance
         reasonably satisfactory to Purchaser, shall have been obtained.

         (B) Conditions Precedent to Seller's Obligation to Close.
Notwithstanding any other provision herein, the obligation of Seller to
consummate the transactions contemplated hereunder are, at the option of Seller,
subject to the satisfaction of each of the conditions set forth below:

                  (1) Lender Consent. Seller shall have received from its
         lenders under the Seller Credit Agreement all consents required
         thereunder to effect and consummate the transactions contemplated by
         this Agreement and a full and complete release of all related security
         interests in the Shares, the capital stock of the Company and the
         assets of Holding and the Company.

                  (2) Conversion of SAMI Accounts Receivable; Guarantee. The
         Company, acting through Rubin, shall have converted the Company's
         accounts receivable from Substance Abuse Management Inc. into the SAMI
         Note and obtained an unconditional personal guarantee of the SAMI Note
         from the sole shareholder of SAMI.

                  (3) Assignment of Titan Litigation. The Company shall have
         assigned to Seller all of the Company's right, title to, and interest
         in, all claims the Company has or may have in the future, arising out
         of Seller's acquisition of Vadini Inc., the formation and operation of
         Titan Technology and all related matters, together with all litigation
         or arbitration conducted in connection therewith.

                  (4) Agreements and Conditions. On or before the Closing Date,
         Purchaser shall have complied with and duly performed all agreements
         and conditions to be complied with or performed by Purchaser on or
         before the Closing Date pursuant to or in connection with this
         Agreement.

                  (5) Representations and Warranties. The representations and
         warranties of Purchaser contained in this Agreement shall be true and
         correct in all material respects on and as of the Closing Date with the
         same force and effect as though such



                                      -15-
   16


         representations and warranties had been restated and made on and as of
         the Closing Date, except for those representations and warranties which
         speak as of a specified date.

                  (6) Opinion of Counsel. Purchaser shall have received an
         opinion of Lindquist & Vennum, PLLP, counsel for Purchaser, in form and
         substance reasonably satisfactory to Seller and its counsel.

                  (7) No Legal Proceedings. No legal proceeding shall have been
         instituted or threatened which, in Seller's reasonable opinion,
         questions or reasonably appears to portend subsequent questioning of
         the validity or legality of this Agreement or the transactions
         contemplated hereby or seeks to restrict, limit, prohibit or enjoin (or
         to obtain damages as a result of) such transactions.

                  (8) Officer's Certificate. Seller shall have received a
         certificate dated the Closing Date and executed by the Chief Executive
         Officer or the Chief Financial Officer of Purchaser, certifying that
         the representations and warranties made by Purchaser in this Agreement
         are true and correct in all material respects at and as of the Closing
         Date (except for such representations and warranties which speak as of
         a specified date), and that Purchaser has fulfilled all conditions to
         the Closing provided for in this Agreement to be fulfilled by
         Purchaser.

                  (9) Employment Contract. Rubin shall have consented in writing
         to: (i) the assignment of his employment agreement with Seller, dated
         March 1, 2000, from Seller to the Company without further liability to
         Seller; or (ii) the termination of same without further liability to
         Seller.

         VIII. Termination of the Agreement.

         (A) Termination by Mutual Consent. This Agreement may be terminated at
any time prior to the Closing Date by the mutual written consent of Purchaser
and Seller. This Agreement shall automatically terminate if the Closing has not
occurred on or before May 1, 2001 unless such date is extended by written
consent of the parties hereto.

         (B) Termination by Purchaser. Purchaser may terminate this Agreement by
written notice to Seller at any time prior to the Closing Date if:

                  (1) a condition to the performance of Purchaser set forth
         herein shall not be fulfilled on or before the date specified for the
         fulfillment thereof, unless such failure is a result of acts or
         failures to act of the Purchaser; or

                  (2) a material default under or a material breach of this
         Agreement or a material misrepresentation or a material breach of any
         representation, warranty or covenant of Seller set forth in this
         Agreement or in any instrument delivered by Seller pursuant hereto
         shall have occurred and be continuing unless the same is curable and is
         cured by Seller prior to the Closing Date.

         (C) Termination by Seller. Seller may terminate this Agreement by
written notice to Purchaser at any time prior to the Closing Date if:




                                      -16-
   17


                  (1) a condition to the performance of Seller set forth herein
         shall not be fulfilled on or before the date specified for the
         fulfillment thereof, unless such failure is a result of acts or
         failures to act of Seller; or

                  (2) a material default under or a material breach of this
         Agreement or a material misrepresentation or a material breach of any
         representation, warranty or covenant of Purchaser set forth in this
         Agreement or in any instrument delivered by Purchaser pursuant hereto
         shall have occurred and be continuing unless the same is curable and is
         cured by Purchaser prior to the Closing Date.

         (D) Effect of Termination. In the event of the termination and
abandonment hereof prior to the Closing Date pursuant to the provisions of this
Section VIII, this Agreement shall become void and have no effect, and each
party shall pay all of its own expenses incurred in connection herewith, without
any liability on the part of any party or its partners, directors, officers or
shareholders; provided, however, that if this Agreement is terminated and
abandoned because either party has defaulted under or breached this Agreement or
any representation, warranty or covenant set forth in this Agreement, then the
party so electing to terminate this Agreement shall be entitled to pursue,
exercise and enforce any and all other remedies, rights, powers and privileges
available to it at law or in equity.

         IX. Survival.

         (A) Representations and Warranties. The representations and warranties
of the parties in this Agreement shall survive the Closing and any
investigations made by or on behalf of any of the parties hereto for the
following periods, after which periods such representations and warranties shall
be of no further force and effect unless written notice of a claim with respect
to such representation and warranty shall have been given to the party
responsible therefor prior to the expiration thereof:

                  (1) The representations and warranties contained in Section
         III(K) shall survive, with respect to a particular tax period, until
         six months after the applicable limitations period (including waivers
         and extensions) shall have barred any assessment of tax deficiencies
         for such tax period or, if later, until six months after the final
         unappealable decision by a court of competent jurisdiction with respect
         to such tax.

                  (2) All other representations and warranties of Seller shall
         survive the Closing for a period of one year.

         (B) Covenants. All covenants of any party hereto which are not fully
performed as of the Closing shall survive the Closing for a period of one year
following the expiration of the applicable performance period.

         X. Indemnification.

         (A) Indemnification by Seller. Without limiting any other substantive
remedy Purchaser may expressly have hereunder, Seller hereby agrees to
indemnify, defend and hold Purchaser harmless from and against and in respect of
any and all liabilities, losses, damages, claims, costs and expenses, including
reasonable attorneys' fees (collectively, "Claims"), arising


                                      -17-
   18

from or relating in any manner to: (i) the breach of any representation or
warranty of Seller contained herein; or (ii) the failure of Seller to perform
any of its covenants contained herein. Seller's indemnification obligations
shall apply whether the subject Claims arise from third party claims (including
but not limited to claims made by shareholders of Seller) or not. In addition,
Seller hereby agrees to assume, and bear all expenses incurred in connection
with, Purchaser's defense against that certain action brought against the
Company under a complaint filed on April 27, 2001 by TechSkills, LLC in the
Circuit Court of Milwaukee County, Wisconsin, and to indemnify and hold
Purchaser harmless from and against and in respect of any and all liabilities,
losses, damages, claims, costs and expenses, including reasonable attorneys'
fees, arising from or relating in any manner to the aforementioned complaint;
provided, however, that such indemnification protection shall not apply in
connection with any liabilities, losses, damages, claims, costs and expenses
incurred by Purchaser as a result of any acts or omissions by the Company in
relation to the subject matter of the complaint subsequent to April 30, 2000;
and, provided further, that if any resolution of the TechSkills complaint
unfavorable to Purchaser, whether by settlement or judgment, is limited to a
reduction in the amount owed by TechSkills under the TechSkills Note, Purchaser
shall not be entitled to any indemnification protection hereunder, but shall
only be entitled to a reduction of the Purchaser Guarantee in accordance with
the provisions of Section I(C) hereof.

         (B) Indemnification by Purchaser. Without limiting any other
substantive remedy Seller may expressly have hereunder, Purchaser hereby agrees
to indemnify, defend, and hold Seller harmless from and against and in respect
of any and all liabilities, losses, damages, claims, costs and expenses,
including reasonable attorneys' fees (collectively, "Claims"), arising from or
relating in any manner to: (i) subject to the limitations set forth in Section
I(C) hereof with respect to Purchaser's assignment of the Notes, the breach of
any representation or warranty of Purchaser contained herein; or (ii) the
failure of Purchaser to perform any of its covenants contained herein.
Purchaser's indemnification obligations shall apply whether the subject Claims
arise from third party claims or not.

         (C) Procedure for Claiming Indemnification.


                  (1) The party seeking indemnification (the "Indemnitee") shall
         give the party from whom indemnification is sought (the "Indemnitor")
         notice of any claim or the commencement of action or proceeding
         promptly after the Indemnitee receives notice thereof; provided,
         however, that the failure of the Indemnitee to give notice shall not
         relieve the Indemnitor of its obligations hereunder, except to the
         extent the Indemnitor is actually prejudiced or harmed by such failure
         to give notice. The Indemnitor shall be permitted to assume the defense
         of any such claim or litigation resulting from such claim, with counsel
         reasonably satisfactory to the Indemnitee. The Indemnitor shall provide
         Indemnitee written notice of such assumption of defense within thirty
         (30) days of receipt by the Indemnitor of notice of the proceeding.

                  (2) If the Indemnitor assumes the defense of any such claim or
         litigation resulting therefrom, the Indemnitor shall take all steps
         necessary in the defense or settlement of such claim or litigation
         resulting therefrom and hold the Indemnitee harmless from and against
         any and all losses, damages and liabilities caused by or arising out of
         any settlement approved by the Indemnitor or any judgment in connection
         with such claim or litigation resulting



                                      -18-
   19

         therefrom. The Indemnitee may participate, at its expense, in the
         defense of any such claim or litigation, provided that the Indemnitor
         shall direct and control the defense of such claim or litigation.
         Except with the written consent of the Indemnitee, the Indemnitor shall
         not, in the defense of such claim or any litigation resulting
         therefrom, consent to entry of any judgment or enter into any
         settlement which does not include as an unconditional term thereof, the
         giving by the claimant or the plaintiff to the Indemnitee of a release
         from all liability with respect to the claim or litigation.

                  (3) If the Indemnitor shall not assume the defense of any such
         claim or litigation resulting therefrom, the Indemnitee may defend
         against such claim or litigation in such manner as it may deem
         appropriate and, unless the Indemnitor shall deposit with the
         Indemnitee a sum equivalent to the total amount demanded in such claim
         or litigation, or shall deliver to Indemnitee a surety bond in form and
         substance reasonably satisfactory to Indemnitee, Indemnitee may settle
         such claim or litigation on such terms as it may reasonably deem
         appropriate, and the Indemnitor shall promptly reimburse Indemnitee for
         the amount of all expenses, legal or otherwise, reasonably incurred by
         the Indemnitee in connection with the defense against or settlement of
         such claim or litigation, net of any related income tax benefit
         realized by the Indemnitee. If no settlement of such claim or
         litigation is made, the Indemnitor shall promptly reimburse the
         Indemnitee for the amount of any final judgment rendered with respect
         to such claim or in such litigation and for all reasonable expenses,
         legal or otherwise, incurred by the Indemnitee in the defense against
         such claim or litigation, but only to the extent that such amounts are
         actually paid.

         XI. Post-Closing Tax Covenants.

         (A) Taxes of Other Persons. Seller agrees to indemnify Purchaser and
the Company from and against the entirety of any adverse consequences Purchaser
or the Company may suffer resulting from, arising out of, relating to, in the
nature of, or caused by any liability of either Seller for Taxes of any entity
other than the Company (i) under Treasury Reg. ss.1.1502-6 (or any similar
provision of state, local or foreign law), (ii) as a transferee or successor,
(iii) by contract, or (iv) otherwise.

         (B) Returns for Periods Through the Closing Date. Seller will include
the income of the Company (including any deferred income triggered into income
by Treasury Reg. ss.1.1502-13 and Treasury Reg. ss.1.1502-14 and any excess loss
accounts taken into income under Reg. ss.1.1502-19) on Seller's consolidated
federal income Tax Returns for all periods through the Closing Date and pay any
federal income Taxes attributable to such income. Purchaser will cause the
Company to furnish Tax information to Seller for inclusion in Seller's federal
consolidated income Tax Return for the period which includes the Closing Date in
accordance with the Company's past custom and practice. Seller will allow
Purchaser an opportunity to review and comment upon such Tax Returns (including
any amended returns) to the extent that they relate to the Company. Seller will
take no position on such returns that relate to the Company that would adversely
affect the Company after the Closing Date unless such position would be
reasonable in the case of an entity that owned the Company both before and after
the Closing Date. The income of the Company will be apportioned to the period up
to and including the Closing Date and the period after the Closing Date by
closing the books of the Company as of the end of the Closing Date. Seller shall
remain responsible for any state and/or federal



                                      -19-
   20


income Taxes attributable to the income of the Company for all periods up to and
including the Closing Date. To the extent that the Company has paid to Seller
any amounts for Taxes on the Company's income for the period from January 1,
2001 up to and including the Closing Date, in excess of the amount of Tax
actually attributable to such income, Seller will reimburse the Company for such
excess within 30 days of the filing deadline for the relevant Tax Return.


         (C) Audits. Seller will allow Purchaser and its counsel to participate,
at Purchaser's own expense, in any audits of Seller's consolidated federal
income Tax Returns to the extent that such returns relate to the Company. Seller
will not settle any such audit in a manner which would adversely affect the
Company after the Closing Date unless such settlement would be reasonable in the
case of an entity that owned the Company both before and after the Closing Date.

         XII. General.

         (A) Further Assurances. Purchaser and Seller agree that, on and after
the Closing Date, they shall take all appropriate action and execute any
documents, instruments or conveyances of any kind which may be reasonably
necessary or advisable to carry out any of the provisions hereof.

         (B) Amendment and Waiver. This Agreement may not be amended or waived
except in a writing executed by the party against which such amendment or waiver
is sought to be enforced. No course of dealing between or among any persons
having any interest in this Agreement will be deemed effective to modify or
amend any part of this Agreement or any rights or obligations of any person
under or by reason of this Agreement.

         (C) Severability. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affected or impaired thereby and the parties will attempt to agree
upon a valid and enforceable provision which shall be a reasonable substitute
therefor, and upon so agreeing, shall incorporate such substitute provision in
this Agreement.

         (D) Notices. All notices, demands and other communications to be given
or delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when personally delivered or
mailed by first class mail, return receipt requested, or when receipt is
acknowledged, if sent by facsimile, telecopy or other electronic transmission
device. Notices, demands and communications to Purchaser and Seller will, unless
another address is specified in writing, be sent to the address indicated below:



If to Seller:                                                If to Purchaser:
------------                                                 ---------------
                                                          
Norstan, Inc.                                                Synchromesh Consulting, Inc.
5101 Shady Oak Road                                          5101 Shady Oak Road
Minnetonka, MN 55343-4100                                    Minnetonka, MN 55343-4100
Attention: Scott G. Christian                                Attention: Barry R. Rubin
telephone: 952.352.4034                                      telephone: 952.352.5612
telecopy:  952.352.4461                                      telecopy:  952.238.5612




                                      -20-
   21




With copies to:                                              With a copy to:
--------------                                               --------------
                                                          
Maslon Edelman Borman & Brand, LLP                           Lindquist & Vennum, PLLP
3300 Wells Fargo Center                                      4200 IDS Center
Minneapolis, MN 55402                                        Minneapolis, MN 55402
Attention: Philip Tilton                                     Attention: Robert Hartman and Jeffrey Saunders
telephone: 612.672.8200                                      telephone: 612.371-3211
telecopy:  612.672.8397                                      telecopy:  612.371.3207

Jerry P. Lehrman
Norstan, Inc.
5101 Shady Oak Road
Minnetonka, MN 55343-4100
telephone: 952.352.4075
telecopy:  952.352.4907



         (E) Assignment. This Agreement and all of the provisions hereof will be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, except that neither this Agreement nor any of
the rights, interests or obligations hereunder may be assigned by Purchaser
without the prior written consent of Seller, or assigned by Seller (other than
to any successor to Seller by merger, consolidation, share exchange or sale of
all or substantially all of Seller's assets) without the prior written consent
of Purchaser.

         (F) Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.

         (G) Complete Agreement. This Agreement and the exhibits hereto contain
the complete agreement between the parties and supersede any prior
understandings, agreements or representations by or between the parties, written
or oral, which may have related to the subject matter hereof in any way.

         (H) Counterparts. This Agreement may be executed in one or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together will constitute one and the same
instrument.

         (I) Governing Law. The internal law, without regard to conflicts of
laws principles, of the State of Minnesota will govern all questions concerning
the construction, validity and interpretation of this Agreement and the
performance of the obligations imposed by this Agreement.




                                      -21-
   22


         (J) Authority. The persons executing this Agreement on behalf of the
entity parties hereto hereby represent and warrant that they are duly authorized
to execute and deliver this Agreement on behalf of the party for whom they are
signing and that no further action is required on behalf of such party in
connection with the execution and delivery of this Agreement.


                            [SIGNATURE PAGE FOLLOWS]




                                      -22-
   23


         IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the Effective Date.

NORSTAN, INC.


By: /s/ Scott G. Christian
   ------------------------------------
    Its: CFO


SYNCHROMESH CONSULTING, INC.           Barry R. Rubin, individually
                                       (solely with respect to Articles IV(E)
                                       and V hereof):


                                       /s/ Barry R. Rubin
                                       -----------------------------------------

By: /s/ Barry R. Rubin
   -----------------------------------
    Its: CEO/President

EX-22

   1

                                                                      EXHIBIT 22



                          SUBSIDIARIES OF NORSTAN, INC.




                                                                                     PERCENTAGE OF
                                                          STATE OF                 VOTING SECURITIES
                     NAME                               INCORPORATION             OWNED BY THE COMPANY
---------------------------------------------------     --------------            --------------------
                                                                            
NORSTAN COMMUNICATIONS, INC                                MINNESOTA                       100%


NORSTAN FINANCIAL SERVICES, INC                            MINNESOTA                       100%


NORSTAN CANADA INC                                         MINNESOTA                       100%


NORSTAN CANADA, LTD                                     ONTARIO, CANADA                    100%


NORSTAN NETWORK SERVICES, INC                              MINNESOTA                       100%


NORSTAN NETWORK SERVICES                                 NEW HAMPSHIRE                     100%
    OF NEW HAMPSHIRE, INC

NORSTAN INTERNATIONAL, INC                                 MINNESOTA                       100%


NORSTAN-UK LIMITED                                      UNITED KINGDOM                     100%


THE NORSTAN FOUNDATION                                     MINNESOTA                       100%
501(C)(3) IRS DETERMINATION LETTER DATED 9/7/99

VIBES TECHNOLOGIES, INC                                    MINNESOTA                       100%


SUMMIT GEAR, INC                                           MINNESOTA                       100%
INACTIVE SHELL

NORSTAN INFORMATION SYSTEMS, INC                           MINNESOTA                       100%
INACTIVE SHELL

EX-23.(A)

   1
                                                                   EXHIBIT 23(a)


Consent of independent public accountants


As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statement File Nos. 33-62967, 33-62971, 33-72928, 333-32394,
333-68059, 333-37913 and 333-55764.

/s/ Arthur Andersen LLP

Minneapolis, Minnesota,
July 30, 2001