SC TO-I

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Schedule TO
(Rule 13e-4)
Tender Offer Statement
Under Section 14(d) (1) or 13 (e) (1)
of the Securities Exchange Act of 1934

NORSTAN, INC.
(Name of Subject Company (Issuer))

NORSTAN, INC.
(Name of Filing Person (Offeror))

Options to Purchase Common Stock, $.10 Par Value, Granted to Eligible Employees Under the
Norstan, Inc. 1995 Long-Term Incentive Plan
(Title of Class of Securities)

656535101
(CUSIP Number of Underlying Class of Securities)

	Copy to:
Scott G. Christian	Philip J. Tilton
Executive Vice President	Maslon Edelman Borman & Brand, LLP
and Chief Financial Officer	3300 Wells Fargo Center
Norstan, Inc.	Minneapolis, Mn 55402
5101 Shady Oak Road	612.672.8200
Minnetonka, MN 55343
952.352.4000
(Name, Address, and Telephone Number of
Person Authorized to
Receive Notice and Communications on
Behalf of the Filing Persons)

CALCULATION OF FILING FEE

TRANSACTION VALUE*	AMOUNT OF FILING FEE
$383,729	$76.75

     *Calculated solely for purposes of determining the filing fee. This amount assumes that options to purchase 170,063 shares of common stock of Norstan, Inc., having an aggregate value of $383,729 as of September 21, 2001, will be exchanged pursuant to this offer. The aggregate value of such options was calculated based on the Black-Scholes option pricing model. The amount of the filing fee, calculated in accordance with Rule 0-11 of the Securities Exchange Act of 1934, as amended, equals 1/50^th of one percent of the value of the transaction.

Check box if any part of the fee is offset as provided by Rule 0-11 (a) (2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

Amount previously paid:	None
Form or Registration No:	Not Applicable
Filing party:	Not Applicable
Date filed:	Not Applicable

	Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer.
	Check the appropriate boxes below to designate any transactions to which the statement relates.

	third party tender offer subject to Rule 14d-1.
	issuer tender offer subject to Rule 13e-4.
	going-private transaction subject to Rule 13e-3.
	amendment to Schedule 13D under Rule 13d-2.

Check the following box if the filing is a final amendment reporting the results of the tender offer:  

     This Tender Offer Statement on Schedule TO (this “Schedule TO”) relates to our offer to exchange certain options to purchase shares of our common stock, $.10 par value (“Common Stock”) held by eligible employees for new options to purchase shares of our Common Stock at a per share exercise price equal to the fair market value of our Common Stock on the date of grant upon the terms and subject to the conditions in the Offer to Exchange dated                     , 2001, attached hereto as Exhibit (a)(1) (the “Offer to Exchange”) and the related Acceptance Letter attached hereto as Exhibit (a)(2) (the “Acceptance Letter”).

     The information in the Offer to Exchange and the Acceptance Letter is incorporated herein by reference in answer to all applicable items in this Schedule TO, except as otherwise set forth below.

Item 1. Summary Term Sheet.

     The information set forth under “Summary Term Sheet” in the Offer to Exchange, dated                     , 2001, (the “Offer to Exchange”), is incorporated herein by reference.

Item 2. Subject Company Information.

     (a)  Name and Address.

     The name of the issuer is Norstan, Inc., a Minnesota corporation (“Norstan”) or the “Company”). The Company’s principal executive offices are located at 5101 Shady Oak Road, Minnetonka, Minnesota 55343, and its telephone number is 952.352.4000. The information set forth in the Offer to Exchange under “Information Concerning Norstan” is incorporated herein by reference.

     (b)  Securities.

     This Tender Offer Statement on Schedule TO relates to an offer by the Company to exchange options to purchase shares of the Common Stock outstanding under the Norstan, Inc. 1995 Long-Term Incentive Plan, as amended (the “Plan”), having an exercise price of $15.00 or more, held by eligible employees of the Company, for new options (the “New Options”) to purchase shares of the Common Stock, to be granted pursuant to the Plan, upon the terms and subject to the conditions described in the Offer to Exchange and the related cover letter and acceptance letter (the “Acceptance Letter”) (which together and, where applicable, with any other documents provided by the Company, as they may be amended from time to time, shall constitute the “Offer”). The number of shares of Common Stock subject to the New Options will equal 50 percent of the number of shares covered by the options accepted for exchange and cancelled.

     The information set forth in the Offer to Exchange under “Summary Term Sheet,” Section 1 (“Number of Options; Eligible Employees; Expiration Date”), Section 5 (“Acceptance of Options for Exchange and Issuance of New Options”) and Section 8 (“Source and Amount of Consideration; Terms of New Options”) is incorporated herein by reference.

     (c)  Trading Market and Price.

     The information set forth in the Offer to Exchange under Section 7 (“Price Range of

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Common Stock Underlying the Options”) is incorporated herein by reference.

Item 3. Identity and Background of Filing Person.

     (a)  Name and Address.

     The information set forth under Item 2(a) above is incorporated herein by reference.

Item 4. Terms of the Transaction.

     (a)  Material Terms.

     The information set forth in the Offer to Exchange under “Summary Term Sheet,” Section 1 (“Eligible Options; Eligible Employees; Expiration Date”), Section 3 (“Procedures for Tendering Options”), Section 4 (“Withdrawal Rights”), Section 5 (“Acceptance of Options for Exchange and Issuance of New Options”), Section 6 (“Conditions of the Offer”), Section 8 (“Source and Amount of Consideration’ Terms of New Options”), Section 11 (“Status of Options Acquired by Us in the Offer; Accounting Consequences of the Offer”), Section 12 (“Legal Matters; Regulatory Approvals”), Section 13 (“Material Federal Income Tax Consequences”) and Section 14 (“Extension of Offer; Termination; Amendment”) is incorporated herein by reference.

     (b)  Purchases.

     The information set forth in the Offer to Exchange under Section 10 (“Interests of Directors and Officers; Transactions and Arrangements Concerning the Option”) is incorporated herein by reference.

Item 5. Past Contacts, Transactions, Negotiations and Arrangements.

     (e)  Agreements Involving the Subject Company’s Securities.

     The information set forth in the Offer to Exchange under Section 10 (“Interests of Directors and Officers; Transactions and Arrangements Concerning the Options”) is incorporated herein by reference.

Item 6. Purposes of the Transaction and Plans or Proposals.

     (a)  Purposes.

     The information set forth in the Offer to Exchange under Section 2 (“Purpose of the Offer”) is incorporated herein by reference.

     (b)  Use of Securities Acquired.

     The information set forth in the Offer to Exchange under Section 5 (“Acceptance of Options for Exchange and Issuance of New Option”) and Section 11 (“Status of Options Acquired by Us in the Offer; Accounting Consequences of the Offer”) is incorporated herein by reference.

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     (c)  Plans.

     The information set forth in the Offer to Exchange under Section 2 (“Purpose of the Offer”) is incorporated herein by reference.

Item 7. Source and Amount of Funds or Other Consideration.

     (a)  Source of Funds.

     The information set forth in the Offer to Exchange under Section 8 (“Source and Amount of Consideration; Terms of New Options”) and Section 15 (“Fees and Expenses”) is incorporated herein by reference.

     (b)  Conditions.

     The information set forth in the Offer to Exchange under Section 6 (“Conditions of the Offer”) is incorporated herein by reference.

     (d)  Borrowed Funds.

     Not applicable.

Item 8. Interest in Securities of the Subject Company.

     (a)  Securities Ownership.

     Not applicable.

     (b)  Securities Transactions.

     The information set forth in the Offer to Exchange under Section 10 (“Interests of Directors and Officers; Transactions and Arrangements Concerning the Options”) is incorporated herein by reference.

Item 9. Persons/Assets, Retained, Employed, Compensated or Used.

     (a)  Solicitations or Recommendations.

     Not applicable.

Item 10. Financial Statements.

     (a)  Financial Information.

     The information set forth in the Offer to Exchange under Section 9 (“Information Concerning Norstan”) and Section 16 (“Additional Information”), the information set forth on pages 13 to 19 and pages 21 to 42 of the Company’s Annual Report on Form 10-K for its fiscal year ended April 30, 2001, and the information set forth in the Company’s Quarterly Report on

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Form 10-Q for its fiscal quarter ended July 28, 2001 are incorporated herein by reference.

Item 11. Additional Information.

     (a)  Agreements, Regulatory Requirements and Legal Proceedings.

     The information set forth in the Offer to Exchange under Section 10 (“Interests of Directors and Officers; Transactions and Arrangements Concerning the Options”) and Section 12 (“Legal Matters; Regulatory Approvals”) is incorporated herein by reference.

     (b)  Other Material Information.

     Not applicable.

Item 12. Exhibits.

99.(a)(1)	Offer to Exchange, dated                    , 2001.
99.(a)(2)	Form of Acceptance Letter.
99.(a)(3)	Form of Decline Letter.
99.(a)(4)	Form of Notice of Withdrawal.
99.(a)(5)	Form of Cover Letter to Employees Accompanying Offer to Exchange.
99.(b)	Not applicable.
99.(d)(1)	Norstan, Inc. 1995 Long-Term Incentive Plan, as amended.
99.(d)(2)	Form of Non-Qualified Option Agreement related to the 1995 Long-Term Incentive Plan.
99.(g)	Not applicable.
99.(h)	Not applicable.

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SIGNATURE

     After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Schedule TO is true, complete and correct.

NORSTAN, INC.

 /s/ Scott G. Christian Scott G. Christian
Executive Vice President,
Chief Financial Officer

Date: September 21, 2001

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INDEX TO EXHIBITS

Exhibit Number	Description
99.(a)(1)	Offer to Exchange, dated                     , 2001.
99.(a)(2)	Form of Acceptance Letter.
99.(a)(3)	Form of Decline Letter.
99.(a)(4)	Form of Notice of Withdrawal.
99.(a)(5)	Form of Cover Letter to Employees Accompanying Offer to Exchange.
99.(d)(1)	Norstan, Inc. 1995 Long-Term Incentive Plan.
99.(d)(2)	Form of Non-Qualified Option Agreement related to the 1995 Long-Term Incentive Plan.

-6- EX-99.(A)(1) 3 c65101ex99-a1.txt OFFER TO EXCHANGE 1 EXHIBIT (a)(1) NORSTAN, INC. OFFER TO EXCHANGE OUTSTANDING OPTIONS UNDER NORSTAN, INC.'S 1995 LONG-TERM INCENTIVE PLAN HELD BY ELIGIBLE EMPLOYEES THAT HAVE AN EXERCISE PRICE OF $15.00 PER SHARE OR MORE FOR NEW OPTIONS ================================================================================ DATED: ______________, 2001 THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 11:59 P.M., CENTRAL TIME(1), ON _________ ____, 2001 UNLESS THE OFFER IS EXTENDED ================================================================================ Norstan, Inc., which we refer to as "we" or "Norstan," is offering eligible employees holding outstanding options to purchase shares of our common stock granted under the Norstan, Inc. 1995 Long-Term Incentive Plan as amended (the "Plan"), that have an exercise price of at least $15.00 per share, the opportunity to exchange those options for new options that we will grant under the Plan. We are extending this offer upon the terms and subject to the conditions set forth in this offer to exchange and in the related acceptance letter (which together, as each may be amended or supplemented from time to time, constitute the "offer"). We intend to grant options to acquire fifty percent of the number of shares as are covered by the options you tender. We will grant the new options on a date that is at least six months and one day following the date we cancel the options accepted for exchange. This offer is not conditioned upon a minimum number of options being tendered, but is subject to conditions that we describe in Section 6 of this offer to exchange, including our right to accept or reject any options tendered in response to this offer. Participation in this offer is completely voluntary. Subject to our rights to extend, terminate and amend the offer, we currently expect that we will accept, promptly after the expiration of the offer, all properly tendered options that have not been validly withdrawn. If you tender options for exchange and we accept them, we will grant you new options under the Plan pursuant to an option agreement between us and you, all as more fully described in the offer. The exercise price per share of the new options will equal the fair market value of our common stock on the date of the grant. The new options will vest one-third immediately (on the date of grant) and one-third on each of the first and second anniversaries of the date of grant. The new options will have other terms and conditions that are substantially the same as those of the --------------- (1) As described more fully on page 2, certain eligible Norstan employees holding options with an exercise price of $15.00 or more per share received option grants in May and June of 2001. To avoid unfavorable financial accounting repercussions from the option exchange program, the offer will not commence with respect to such individuals until December 6, 2001 and will expire (unless extended) at 11:59 p.m. Central Time on January 6, 2002. (a)(1)-1 2 cancelled options. ALTHOUGH OUR BOARD OF DIRECTORS HAS APPROVED THIS OFFER, NEITHER WE NOR OUR BOARD OF DIRECTORS MAKES ANY RECOMMENDATION AS TO WHETHER OR NOT YOU SHOULD TENDER YOUR OPTIONS FOR EXCHANGE. YOU MUST MAKE YOUR OWN DECISION WHETHER OR NOT TO TENDER YOUR OPTIONS. Shares of our common stock are quoted on the Nasdaq National Market under the symbol "NRRD." On September ____, 2001, the last reported sale price of Norstan's common stock on the Nasdaq National Market was $__________ per share. WE RECOMMEND THAT YOU OBTAIN CURRENT MARKET QUOTATIONS FOR OUR COMMON STOCK BEFORE DECIDING WHETHER OR NOT TO TENDER YOUR OPTIONS. THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC") OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SEC OR ANY STATE SECURITIES COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION OR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS OFFER TO EXCHANGE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. You should direct questions about this offer or requests for assistance or for additional copies of the offer to exchange or the acceptance letter to Mary Kiernan at Norstan, Inc., 5101 Shady Oak Road, Minnetonka, Minnesota 55343, (telephone number: 952.352.4194). HOW TO PARTICIPATE; HOW TO ACCEPT THE OFFER. To participate and accept the offer to exchange your eligible options for new options, you must be an eligible employee. If you wish to tender your eligible options for exchange, you must complete and sign the acceptance letter in accordance with its instructions, and mail, fax or hand deliver it and any other required documents to us before 11.59 p.m., Central Time, on ___________________, 2001, at Norstan, Inc., 5101 Shady Oak Road, Minnetonka, Minnesota 55343, Attention: Mary Kiernan, Facsimile: 952.352.4044. Certain of the Norstan employees holding options with an exercise price of $15.00 per share or more received option grants during May and June of 2001. The accounting rules governing financial reporting of stock option grants provide that where a new option is granted in exchange for the cancellation of existing options and the recipient also received one or more option grants within the six-month period preceding the new option grant, the exchange will result in the Company recognizing compensation expense. To avoid recognizing an accounting charge in connection with this offer, Norstan is deferring the commencement of the offer, solely with respect to the employees referred to above, until December 6, 2001. The expiration date of the offer for these employees is 11:59 p.m. Central Time on January 6, 2002, unless extended. DOCUMENTS DESCRIBING THE OPTION EXCHANGE PROGRAM PROVIDED TO THESE EMPLOYEES WILL INCLUDE A SUPPLEMENTAL MEMORANDUM INDICATING THAT THE OFFER IS NOT EFFECTIVE FOR SUCH INDIVIDUALS UNTIL DECEMBER 6, 2001 AND WILL EXPIRE (UNLESS EXTENDED) AT 11:59 P.M. CENTRAL TIME ON (a)(1)-2 3 JANUARY 6, 2002. THESE EMPLOYEES MAY NOT TENDER OPTIONS FOR EXCHANGE IN CONNECTION WITH THE OFFER UNTIL DECEMBER 6, 2001 WITHDRAWAL OF ACCEPTANCE. You can withdraw your acceptance of our offer to exchange by delivering, by mail, fax or hand delivery, the notice of withdrawal, properly completed and signed, to us at the same address as the acceptance letter. You must withdraw all tendered options; you may not withdraw only a portion of tendered options. DEADLINE TO ACCEPT THE OFFER OR TO WITHDRAW A PREVIOUS ACCEPTANCE; EXPIRATION DATE. Your acceptance letter and any notice of withdrawal must be received by us before 11:59 p.m., Central Time, on ___________________, 2001(2), unless we extend the expiration date for the offer. If we extend this offer beyond that time, you may tender your eligible options or withdraw a previous acceptance of the offer to tender eligible options by delivering the signed acceptance letter or notice of withdrawal, as the case may be, so long as we receive your signed letter or notice before the extended expiration of this offer. OFFER SUBJECT TO LEGAL REQUIREMENTS OF JURISDICTIONS. We are not making this offer to, nor will we accept any tender of options from or on behalf of, eligible employees in any jurisdiction in which the offer to exchange or the acceptance of any tender of options would not be in compliance with the laws of such jurisdiction. However, we may, at our discretion, take any actions necessary for us to make this offer to eligible employees in any such jurisdiction. WE HAVE NOT AUTHORIZED ANY PERSON TO MAKE ANY RECOMMENDATION ON OUR BEHALF AS TO WHETHER OR NOT YOU SHOULD TENDER YOUR OPTIONS PURSUANT TO THE OFFER. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFER OTHER THAN THE INFORMATION AND REPRESENTATIONS CONTAINED IN THIS DOCUMENT OR IN THE RELATED ACCEPTANCE LETTER. IF ANYONE MAKES ANY RECOMMENDATION OR REPRESENTATION TO YOU OR GIVES YOU ANY INFORMATION, YOU MUST NOT RELY UPON THAT RECOMMENDATION, REPRESENTATION OR INFORMATION AS HAVING BEEN AUTHORIZED BY US. ------------ (2) Unless extended, the offer expiration date for the employees referred to above who received option grants in May or June 2001 will be 11:59 p.m. on January 6, 2002. (a)(1)-3 4 TABLE OF CONTENTS

Page No. -------- SUMMARY TERM SHEET....................................................................................... 5 INTRODUCTION............................................................................................. 16 THE OFFER: 1 Number of Options; Eligible Employees; Expiration Date......................................... 16 2 Purpose of the Offer........................................................................... 18 3 Procedures for Tendering Options............................................................... 20 4 Withdrawal Rights.............................................................................. 20 5 Acceptance of Options for Exchange and Issuance of New Options................................. 21 6 Conditions of the Offer........................................................................ 23 7 Price Range of Common Stock Underlying the Options............................................. 24 8 Source and Amount of Consideration; Terms of New Options....................................... 25 9 Information Concerning Norstan, Inc............................................................ 26 10 Interests of Directors and Officers; Transactions and Arrangements Concerning the Options......................................................................... 29 11 Status of Options Acquired by Us in the Offer; Accounting Consequences of the Offer...................................................................... 31 12 Legal Matters; Regulatory Approvals............................................................ 32 13 Material Federal Income Tax Consequences....................................................... 32 14 Extension of Offer; Termination; Amendment..................................................... 33 15 Fees and Expenses.............................................................................. 34 16 Additional Information......................................................................... 34 17 Forward Looking Statements..................................................................... 35 18 Miscellaneous.................................................................................. 36

(a)(1)-4 5 SUMMARY TERM SHEET Below we provide answers to some of the questions that you may have about this offer. We urge you to read carefully the summary of this offer to exchange, the remainder of this offer to exchange and the accompanying acceptance letter because the information in this summary is not complete and additional important information is contained in the remainder of this offer to exchange and the other documents. WHY ARE WE MAKING THE OFFER? We implemented this offer to exchange because a considerable number of our employees have stock options, whether or not they are currently exercisable, that are "underwater;" i.e., the option exercise price is above the current and recent trading prices of our common stock. We believe these options are unlikely to be exercised in the foreseeable future. For our stock option program to provide the intended retention and performance incentives for employees, they must feel that our options provide them with an opportunity to realize value within a reasonable period of time. With the uncertainty of current market conditions, we believe that employees may feel that the opportunity for realizing value is limited with their existing options. This program is voluntary and will allow employees to choose whether to keep their current eligible options at their current exercise price, or to rescind those options in exchange for a new option for 50 percent of the number of shares covered by the rescinded options, to be granted on a date which is at least six months and one day from the date we cancel the options accepted for exchange. By making this offer to exchange, we hope to provide our employees with the benefit of owning options that over time may have a greater potential to increase in value, thereby encouraging our employees to remain with us, and ultimately maximize shareholder value. While it is hoped that this program will ameliorate the current underwater options issue, this cannot be guaranteed considering the ever-present risks associated with a volatile and unpredictable economy and stock market. WHAT SECURITIES ARE WE OFFERING TO EXCHANGE? We are offering to exchange all stock options granted to eligible employees having an exercise price of $15.00 per share or more, that are outstanding under the Norstan, Inc. 1995 Long-Term Incentive Plan, as amended, which we refer to as the Plan. WHO IS ELIGIBLE TO PARTICIPATE IN THE OFFER? The offer is available to eligible employees of Norstan who hold options under the Plan that have an exercise price of $15.00 per share or more. As of September ___, 2001, , there were outstanding options to purchase 425,125 shares of our common stock that have an exercise price of $15.00 per share or more. Certain eligible Norstan employees holding options with an exercise price of $15.00 or more per share received option grants in May and June of 2001. To avoid unfavorable financial accounting repercussions from the option exchange program, the offer will not commence with respect to such individuals until December 6, 2001 and will expire (unless extended) at 11:59 p.m. Central Time on January 6, 2002 "Eligible employees" are all employees of Norstan or one of its subsidiaries (exclusive of (a)(1)-5 6 certain executive officers identified below) who are actively employed or on an authorized short-term leave of absence as of September ____, 2001 and on the date the offer expires. Also, an employee will not be considered an "eligible employee" and accordingly, will not be eligible to participate in this offer, if on or before the date the offer expires, the employee is no longer employed by Norstan or any of its subsidiaries, for any reason, including the employee: - receives a notice of involuntary termination, with or without cause, from Norstan or one of its subsidiaries; - resigns or gives notice of resignation from such employment, whether voluntarily or involuntarily or with or without good reason; - enters into an agreement with Norstan or any of its subsidiaries with respect to the employee's resignation, whether voluntarily or involuntarily or with or without good reason. - takes a long-term leave of absence (over six months in duration) or if currently on a short-term leave of absence, does not return within the authorized six month period, resulting in a recategorization of the leave as long-term; or - dies. Paul Baszucki, Jim Granger and Scott Christian, the Norstan Chairman of the Board of Directors, Chief Executive Officer and Chief Financial Officer, respectively, together with all non-employee directors, are not eligible to participate in the offer. IF, FOR ANY REASON, YOU ARE NOT AN EMPLOYEE OF NORSTAN OR ANY OF OUR SUBSIDIARIES, FROM THE DATE YOU TENDER OPTIONS THROUGH THE DATE THE OFFER EXPIRES, YOU WILL NOT BE ELIGIBLE TO PARTICIPATE IN THE OFFER. PARTICIPATION IN THE OFFER DOES NOT CONFER UPON YOU THE RIGHT TO REMAIN IN THE EMPLOY OF NORSTAN OR ANY OF OUR SUBSIDIARIES. IF I TENDER OPTIONS IN THIS OFFER, ARE THERE ANY ELIGIBILITY REQUIREMENTS I MUST SATISFY AFTER THE EXPIRATION DATE OF THE OFFER IN ORDER TO RECEIVE THE NEW OPTIONS? To receive a grant of new options pursuant to the offer, you must be eligible to receive options pursuant to the Plan from the date you tender options through the date we grant the new options. You must be continuously and actively employed by or on an authorized short-term leave of absence from Norstan or one of its subsidiaries from the date you tender eligible options for exchange through, and including, the date of grant of the new options. An employee who is on an authorized short-term leave of absence of six months or less, including a short-term disability leave, is considered to be an employee of Norstan or its subsidiaries. You will not be eligible to receive the new options on the new option grant date if you are not employed by Norstan or any of its subsidiaries at any time between the date you tender options and the date of grant of the new options, for any reason, including the following: - you receive a notice of involuntary termination, with or without cause, from Norstan or (a)(1)-6 7 one of its subsidiaries; - you resign or give notice of resignation from such employment, whether voluntarily or involuntarily or with or without good reason; - you enter into an agreement with Norstan or one of its subsidiaries with respect to your resignation, whether voluntarily or involuntarily or with or without good reason; - you die. IF, FOR ANY REASON, INCLUDING THOSE DESCRIBED ABOVE, YOU ARE NOT AN EMPLOYEE OF NORSTAN OR ANY OF OUR SUBSIDIARIES, FROM THE DATE YOU TENDER OPTIONS THROUGH THE DATE WE GRANT THE NEW OPTIONS, YOU WILL NOT RECEIVE ANY NEW OPTIONS OR ANY OTHER CONSIDERATION IN EXCHANGE FOR YOUR TENDERED OPTIONS THAT WE HAVE ACCEPTED FOR EXCHANGE. PARTICIPATION IN THE OFFER DOES NOT CONFER UPON YOU THE RIGHT TO REMAIN IN THE EMPLOY OF NORSTAN OR ANY OF OUR SUBSIDIARIES. YOU ARE EMPLOYED BY NORSTAN OR ONE OF ITS SUBSIDIARIES ON AN "AT-WILL" BASIS. AS AN AT-WILL EMPLOYEE, YOUR CONTINUED EMPLOYMENT IS AT THE WILL AND SOLE DISCRETION OF NORSTAN OR ITS SUBSIDIARIES. WE CANNOT GUARANTEE OR PROVIDE YOU WITH ANY ASSURANCE THAT YOU WILL NOT BE SUBJECT TO INVOLUNTARY TERMINATION OR THAT YOU WILL OTHERWISE REMAIN IN THE EMPLOY OF NORSTAN OR ANY OF OUR SUBSIDIARIES UNTIL THE NEW OPTION GRANT DATE. IS THIS A REPRICING? No, this is not a stock option repricing in the traditional sense. Under a traditional stock option repricing, the exercise price of a holder's current options would be immediately repriced to the then current fair value of the Company's common stock and the Company would have a variable accounting charge against earnings. WHY CAN'T NORSTAN SIMPLY REPRICE MY OPTIONS, AS I HAVE SEEN DONE AT OTHER COMPANIES? In 1998, the Financial Accounting Standards Board adopted unfavorable accounting charge consequences for companies that reprice options. As a result of this action, many companies have ceased "repricing" options to avoid this negative consequence. If we were to simply reprice options, this would result in "variable" accounting treatment for such options. This would require us, for financial reporting purposes, to record additional compensation expense each quarter until the repriced options are exercised, cancelled or have expired. This would reduce our reported earnings for each fiscal quarter that the repriced options remained outstanding. This could have a material negative effect on our stock price performance and would be unfavorable to Norstan and its shareholders. (a)(1)-7 8 WHY WON'T I RECEIVE MY NEW OPTIONS IMMEDIATELY AFTER THE EXPIRATION DATE OF THE OFFER? If we were to grant the new options on any date that is earlier than six months and one day after the date we cancel the options accepted for exchange and the new options had an exercise price that was lower than the exercise price of the cancelled eligible options, we would be required to employ what is called variable accounting, which, as described above, is an unfavorable accounting treatment for financial reporting purposes. This would reduce our reported earnings for each fiscal quarter that the new options remained outstanding. This could have a material negative effect on our stock price performance. WHY CAN'T I JUST BE GRANTED MORE OPTIONS WITHOUT HAVING MY OPTIONS CANCELLED? We have a limited pool of options available for grant to our employees. The grant of supplemental options, without the cancellation of outstanding eligible options, would reduce the number of options that are currently available for grant to our employees under the Plan. Because the outstanding options under the Plan are, to a large extent, "underwater," we have determined that it is in the best interest of Norstan and our shareholders (including our employee shareholders) to offer this exchange program as designed. This offer attempts to minimize the future dilutive impact of our ongoing stock option program. Options that are cancelled pursuant to this offer will become available for new option grants and future option grants under the Plan. WHAT ARE THE CONDITIONS TO THE OFFER? The offer is not conditioned upon a minimum number of options being tendered. Participation in this offer is completely voluntary. However, the offer is subject to a number of other conditions with regard to events that could occur prior to the expiration of the offer. These events include, among other things, a change in accounting principles, a lawsuit challenging the tender offer, a third-party tender offer for our common stock or other acquisition proposal, or a change in your employment status with us. These and various other conditions are more fully described in Section 6 of this offer to exchange. Once the offer has expired and the tendered options have been accepted and cancelled in the offer, the conditions will no longer apply, even if the specified events occur during the period between the expiration date and the date of grant of the new options. However, as described herein, a change in your employment status during that period could result in you not receiving a grant of new options. IF I TENDER OPTIONS IN THIS OFFER, HOW MANY NEW OPTIONS WILL I RECEIVE IN EXCHANGE FOR MY TENDERED OPTIONS? Provided you meet the eligibility requirements and subject to the terms of this offer, we will grant to you new options to purchase a number of shares of our common stock equal to 50 percent of the number of shares of common stock subject to the options that you tender and that we accept for exchange. All new options will be granted under, and will be subject to the terms and conditions of, the Plan and of a new option agreement between you and us. The new option agreement will be in substantially the same form as the option agreement or agreements for your current options and the term of the option. You must execute the new option agreement prior to receiving new options. (a)(1)-8 9 IF I TENDER OPTIONS IN THIS OFFER, WHEN WILL I RECEIVE MY NEW OPTIONS? We expect to grant the new options on a business day that is at least six months and one day after the date we cancel the options accepted for exchange. Our Board of Directors or Compensation Committee will select the actual grant date of the new options after the expiration of the offer, in accordance with the Plan(3). If we cancel tendered options on ________________, 2002, the business day following the scheduled expiration date, the grant date of the new options will be no earlier than _______________, 2001. However, if the expiration date of the offer is extended by us, the grant date for the new options may also be extended. You must be an employee, or otherwise be eligible to receive options pursuant to the Plan on the grant date to receive the new options. WILL THE TERMS OF THE NEW OPTIONS BE THE SAME AS THE TERMS OF THE OPTIONS TENDERED FOR EXCHANGE? The new options will be issued under the Plan, which is the same option plan as the related options cancelled in the offer, and will be issued pursuant to an option agreement that is similar to the option agreement pursuant to which the related options tendered and cancelled in the offer were issued. The new options will have substantially the same terms and conditions as the related options cancelled in the offer, except for the following: - EXERCISE PRICE. Although the method for determining the exercise price (also known as the grant price or option price) of the new options is the same as the method used for determining the exercise price of the options tendered for exchange (i.e., based on the fair market value of our common stock on the date of grant for options granted), it is highly likely that the exercise price of the new options will be different from the exercise price of the tendered options. - NUMBER OF SHARES. The number of shares of common stock covered by the new options will be equal to 50 percent of the shares covered by the options given up in exchange. - VESTING. The new options will vest one-third on the date of grant and one-third on each of the first and second anniversaries of the date of grant. Option agreements governing options currently outstanding under the Plan, including options eligible for exchange pursuant to the offer, state that options may not be exercised following the termination of the holder's employment for any reason, including the retirement, death or disability of the holder. Effective September 21, 2001, Norstan will permit holders of options (or their estates, as applicable) to exercise the vested portion of options for a period of 90 days after termination of employment for any reason other than retirement at age 65 or more, death or disability, and for a period of one year in the case of retirement at age 65 or more, death or disability. In addition, all options held by a Norstan employee upon his or her termination of employment as a result of retirement at age 65 or more, death or disability shall vest in full on the date of termination of employment. Such terms will also apply to new options granted pursuant to the Company's option exchange program. WHAT WILL THE EXERCISE PRICE OF THE NEW OPTIONS BE? The exercise price (also known as the grant price or option price) of the new options will equal the fair market value of our common stock on the date we grant the new options, determined in accordance with the terms of the Plan. BECAUSE WE WILL NOT GRANT NEW OPTIONS UNTIL AT LEAST SIX MONTHS AND ONE DAY AFTER THE DATE WE CANCEL THE OPTIONS ACCEPTED FOR EXCHANGE, WE CANNOT PREDICT THE EXERCISE PRICE OF THE NEW OPTIONS. IT IS POSSIBLE THAT THE NEW OPTIONS MAY HAVE A HIGHER EXERCISE PRICE THAN SOME OR ALL OF YOUR CURRENT -------------- (3) For eligible Norstan employees who received option grants in May or June of 2001, the offer will not commence until December 6, 2001 and will expire (unless extended) at 11:59 p.m. Central Time on January 6, 2002. (a)(1)-9 10 OPTIONS THAT ARE CANCELLED IN THE OFFER, AND THEREFORE, YOUR NEW OPTIONS COULD BE WORTH LESS THAN YOUR OLD OPTIONS. WE RECOMMEND THAT YOU OBTAIN CURRENT MARKET QUOTATIONS FOR OUR COMMON STOCK BEFORE DECIDING WHETHER TO TENDER YOUR OPTIONS. See Section 7 in the offer to exchange for information concerning our stock price during the past two years. CAN I CANCEL ONLY PART OF MY ELIGIBLE OPTIONS? No, we cannot partially cancel your eligible options. If you choose to cancel options, then you must tender for exchange all of your options that have an exercise price of $15.00 or more. This means that an eligible employee may not tender some of his or her eligible options for cancellation and retain some eligible options; if an employee wishes to tender any of his or her eligible options, the eligible employee must tender all of his or her eligible options. WHAT HAPPENS TO OPTIONS THAT I TENDER AND ARE ACCEPTED FOR EXCHANGE? Tendered options that are accepted for exchange will be cancelled and will become available for future grants (including the new options) under the Plan from which such options were originally granted. WHAT IF I TENDER OPTIONS AND NORSTAN UNDERGOES A CHANGE OF CONTROL, SUCH AS A MERGER, BEFORE THE NEW OPTIONS ARE GRANTED? If we undergo a change of control, such as a merger, prior to the grant of the new options, it would be our intent to negotiate the terms of that change of control transaction such that you could receive options to purchase securities of the acquirer. However, we have the right to take any actions we deem necessary or appropriate to complete a transaction that our Board of Directors believes is in the best interests of Norstan and its shareholders, and this could result in your not being granted the new options. WHAT HAPPENS IF I TENDER MY ELIGIBLE OPTIONS AND I AM ON AN AUTHORIZED LEAVE OF ABSENCE ON THE NEW OPTION GRANT DATE? An employee who is on an authorized short-term leave of absence, including a short-term disability leave, is considered to be an employee of Norstan or its subsidiaries. An authorized short-term leave of absence is a leave of absence that has been approved in accordance with policy or practice by Norstan or its subsidiary that employs you, and that has a duration of six months or less, at the end of which the employee returns to active employment with Norstan or one of its subsidiaries. Authorized short-term leaves may include approved bereavement leave, family medical leave, personal medical leave, including short-term disability, jury duty leave, maternity and paternity leave and military leave. If you tender your options and they are cancelled in the offer and you are on an authorized short-term leave of absence, including a short-term disability leave, on the new option grant date, you are considered to be an employee of Norstan or its subsidiary that employs you, and will be entitled to a grant of new options on the new grant date. (a)(1)-10 11 However, you will not be eligible to receive the new options on the new option grant date if at any time between the date you tender options and the date of grant of the new option, including on the new option grant date, you are on a long-term leave of absence (over six months in duration). Similarly, you will not be eligible to receive the new options on the new option grant date if you are currently on a short-term leave of absence, but do not return to active employment within the authorized six-month period, resulting in a recategorization of your short-term leave as a long-term leave. WHAT HAPPENS IF I TENDER MY OPTIONS AND I RECEIVE A NOTICE OF INVOLUNTARY TERMINATION AFTER THE EXPIRATION DATE OF THE OFFER AND PRIOR TO THE NEW OPTION GRANT DATE? If you tender your eligible options and they are cancelled in the offer and, after the expiration date of the offer and prior to the new option grant date, you receive a notice of involuntary termination, with or without cause, from Norstan or one of its subsidiaries, you will not receive a grant of new options or any other consideration or payment for such tendered and cancelled options. As indicated earlier, you must be an eligible employee of Norstan or any of our subsidiaries, from the date you tender options through the date we grant the new options, in order to be eligible to receive new options for your tendered options that we have accepted for exchange. PARTICIPATION IN THE OFFER DOES NOT CONFER UPON YOU THE RIGHT TO REMAIN IN THE EMPLOY OF NORSTAN OR ANY OF OUR SUBSIDIARIES. YOU ARE EMPLOYED BY NORSTAN OR ONE OF ITS SUBSIDIARIES ON AN "AT-WILL" BASIS. AS AN AT-WILL EMPLOYEE, YOUR CONTINUED EMPLOYMENT IS AT THE WILL AND SOLE DISCRETION OF NORSTAN OR ITS SUBSIDIARIES. WE CANNOT GUARANTEE OR PROVIDE YOU WITH ANY ASSURANCE THAT YOU WILL NOT BE SUBJECT TO INVOLUNTARY TERMINATION OR THAT YOU WILL OTHERWISE REMAIN IN THE EMPLOY OF NORSTAN OR ANY OF OUR SUBSIDIARIES UNTIL THE NEW OPTION GRANT DATE. WHAT HAPPENS IF I TENDER MY OPTIONS AND MY EMPLOYMENT WITH NORSTAN CEASES AS A DIRECT RESULT OF A BUSINESS TRANSACTION OR THE ELIMINATION OF MY POSITION AFTER THE EXPIRATION DATE OF THE OFFER AND PRIOR TO THE NEW OPTION GRANT DATE? If you tender your eligible options and they are cancelled in the offer and, after the expiration date of the offer and prior to the new option grant date your employment ceases as a direct result of the divestiture of your business unit (either through a sale, corporate spin-off, joint venture or similar business transaction) or the elimination of your position, you are not eligible for new options. You must be an eligible employee of Norstan or any of our subsidiaries, from the date you tender options through the date we grant the new options, in order to be eligible to receive new options for your tendered options that we have accepted for exchange. WHAT HAPPENS IF I TENDER MY OPTIONS AND I RESIGN AFTER THE EXPIRATION DATE OF THE OFFER AND BEFORE THE NEW OPTION GRANT DATE? If you resign after the expiration date of the offer and prior to the new option grant date and (a)(1)-11 12 your eligible options have been tendered and cancelled in the offer, you will not receive a grant of new options or any other consideration or payment for such tendered and cancelled eligible options. You must be an eligible employee of Norstan or any of our subsidiaries, from the date you tender options through the date we grant the new options, in order to be eligible to receive new options for your tendered options that we have accepted for exchange. WHAT HAPPENS IF I TENDER MY ELIGIBLE OPTIONS AND I DIE AFTER THE EXPIRATION DATE OF THE OFFER AND BEFORE THE NEW OPTION GRANT DATE? If you die after the expiration date of the offer and prior to the new option grant date and your eligible options have been tendered and cancelled in the offer, neither your estate nor your beneficiaries will receive a grant of new options or any other consideration or payment for such tendered and cancelled eligible options. You must be an eligible employee of Norstan or any of our subsidiaries, from the date you tender options through the date we grant the options that we have accepted for exchange. ARE THERE OTHER CIRCUMSTANCES UNDER WHICH I WOULD NOT BE GRANTED NEW OPTIONS? It is possible that even if we accept your tendered options, we will not issue new options to you if we are prohibited by applicable law or regulations from doing so. We will use reasonable efforts to avoid such prohibition. WILL WE GRANT OPTIONS TO ELIGIBLE EMPLOYEES DURING THE PERIOD BETWEEN __________________, 2001, THE DATE THIS OFFER COMMENCES, AND THE DATE TENDERED OPTIONS ARE CANCELLED (CURRENTLY SCHEDULED TO BE ________________, 2001(4)? To avoid any possible adverse accounting consequences, we intend not to grant options to eligible employees during the period starting on _______________, 2001 (the date the offer commences) and ending on the date tendered eligible options are cancelled (currently scheduled to be ______________, 2001(4). IF I TENDER OPTIONS IN THE OFFER, WILL I BE ELIGIBLE TO RECEIVE OTHER OPTION GRANTS BEFORE I RECEIVE MY NEW OPTIONS? If we accept options you tender in the offer, we will defer until the grant date for your new options, our grant to you of other options, such as annual, bonus or promotional options, for which you may be eligible between the date hereof and the new option grant date. We will defer the grant to you of these other options if we determine it is necessary for us to do so to avoid incurring adverse accounting treatment because of accounting rules that could apply to these interim option grants as a result of the offer. If you do not tender options in the offer, however, we may grant you ------------ (4) For eligible Norstan employees who received option grants in May or June of 2001, the offer will not commence until December 6, 2001 and will expire (unless extended) at 11:59 p.m. Central Time on January 6, 2002. (a)(1)-12 13 promptly following the expiration of the offer options that you were eligible to receive between the date hereof and the expiration date. WHAT WILL MY NEW OPTION TYPE BE, INCENTIVE STOCK OPTION OR NON-QUALIFIED STOCK OPTION? Currently all options granted under the Plan with an exercise price of at least $15.00 per share and held by eligible employees are non-qualified stock options. Accordingly, all new options will be granted as non-qualified stock options. WILL I HAVE TO PAY TAXES IF I EXCHANGE MY OPTIONS IN THE OFFER? If you exchange your current options for new options, we believe you will not be required under current law to recognize income for federal income tax purposes at the time of the exchange. We believe that the exchange will be treated as a non-taxable exchange. Further, at the date of grant of the new options, we believe that you will not be required under current law to recognize income for federal income tax purposes. We recommend that you consult with your own tax advisor to determine the tax consequences of tendering options pursuant to the offer, including under the laws of the country that applies to you. Norstan is not responsible for any personal adverse tax or other financial consequences that may result from your voluntary participation in the exchange. AFTER THE NEW GRANT, WHAT HAPPENS IF MY OPTIONS AGAIN END UP UNDERWATER? We are conducting this offer only at this time, considering the unusual stock market conditions that have affected many companies throughout the country. This is therefore considered a one-time offer and is not expected to be offered again in the future. As your stock options are valid for ten years from the date of initial grant, subject to continued employment, the price of our common stock may appreciate over the long term and even if your options are underwater for some period of time after the grant date of the new options. HOWEVER, WE CAN PROVIDE NO ASSURANCE AS TO THE PRICE OF OUR COMMON STOCK AT ANY TIME IN THE FUTURE. WHAT HAPPENS TO OPTIONS THAT I CHOOSE NOT TO TENDER OR THAT ARE NOT ACCEPTED FOR EXCHANGE? Nothing. An option that you choose not to tender for exchange or that we do not accept for exchange remains outstanding until it is exercised or expires in accordance with its terms and retains its current exercise price and current exercise schedule. We currently expect that we will accept all properly tendered eligible options promptly after the expiration of this offer. WHAT HAPPENS TO ANY CURRENT OPTIONS GRANTED TO ME UNDER THE PLAN THAT DO NOT HAVE AN EXERCISE PRICE ABOVE $15.00 AND ARE NOT ELIGIBLE FOR TENDER? The offer will have no effect on those options that do not have an exercise price of $15.00 (a)(1)-13 14 or above, and are therefore not eligible for tender in this offer. Those options will remain outstanding in accordance with, and subject to, their current terms, whether or not you tender your eligible options. HOW LONG DO I HAVE TO DECIDE WHETHER TO TENDER OPTIONS IN THE OFFER? CAN THE OFFER BE EXTENDED, AND IF SO, HOW WILL I BE NOTIFIED IF IT IS EXTENDED? You have until 11:59 p.m. Central Time on _________________, 2001(5), to tender your options in the offer. Although we do not currently intend to do so, we may, in our discretion, extend the offer at any time. If we extend the offer, we will make a public announcement of the extension no later than 9:00 a.m., Central Time, on the next business day following the previously scheduled expiration date. If the offer is extended, then the cancellation date for tendered eligible options accepted for exchange and the grant date of the new options may be extended if necessary to avoid the possibility that we would have to recognize any compensation charges which would reduce our reported earnings. Under the accounting rules applicable to us, the new options must be granted more than six months following the date tendered eligible options are cancelled. HOW DO I TENDER MY OPTIONS? If you decide to tender your options, you must deliver, before the offer expires, a properly completed and duly executed acceptance letter and any other documents required by the acceptance letter to Norstan, Inc., 5101 Shady Oak Road, Minnetonka, Minnesota, 55343-4100, Attention: Mary Kiernan, telephone: 952.352.4194. We will only accept delivery of the signed acceptance letter by regular external mail, facsimile or hand delivery. If you choose to deliver your signature page by external mail, we recommend that you use registered mail with return receipt requested. Delivery by e-mail will NOT be accepted. You must allow for delivery time based on the method of delivery that you choose to ensure we receive your acceptance letter on time. This is a one-time offer, and we will strictly enforce the tender offer period. We reserve the right to reject any or all tenders of options that we determine are not in appropriate form or that we determine are unlawful to accept. We also reserve the right to waive any of the conditions of the offer or any defect or irregularity in any tender. Subject to our rights to extend, terminate and amend the offer, we currently expect that we will accept all properly tendered options following the expiration of the offer. DURING WHAT PERIOD OF TIME MAY I WITHDRAW PREVIOUSLY TENDERED OPTIONS? You may withdraw your tendered options at any time before the offer expires at 11:59 p.m. -------------- (5) For eligible Norstan employees who received option grants in May or June of 2001, the offer will not commence until December 6, 2001 and will expire (unless extended) at 11:59 p.m. Central Time on January 6, 2002. (a)(1)-14 15 Central Time on __________________, 2001(6). If we extend this offer beyond that time, you may withdraw your tendered options at any time until the extended expiration of this offer. To withdraw tendered options, you must deliver to us at the address or facsimile number listed above a written notice of withdrawal with the required information while you still have the right to withdraw the tendered options. As in the case of delivery of the acceptance letter, you may deliver the signed notice of withdrawal to us at the address noted above by regular external mail, facsimile or hand delivery. Once you have withdrawn options, you may re-tender options only by again following the delivery procedures described above. IF I CHOOSE NOT TO TENDER MY ELIGIBLE OPTIONS FOR EXCHANGE, WHAT DO I HAVE TO DO? If you choose to keep your eligible options and not participate in the offer, we ask that you complete the decline letter indicating your intent not to participate in the exchange and promptly return the letter to us. This will aid us in our efforts with respect to administration of the option exchange program. Even if you return the decline letter to us indicating your nonparticipation in the program, you may subsequently elect to participate in the exchange at any time prior to the expiration of the offer by delivering to us a properly completed and signed acceptance letter. HOW WILL I KNOW IF NORSTAN HAS RECEIVED MY ACCEPTANCE LETTER ELECTING TO TENDER MY ELIGIBLE OPTIONS? We will confirm receipt of your acceptance letter tendering our eligible options (and any withdrawal) shortly after we receive it. Also, after the expiration date of the offer, we will advise you whether or not your tender was accepted. Personalized confirmations of your eligible options that have been tendered and cancelled in the offer will be sent to you within sixty (60) days of the expiration of the offer. WHAT DOES THE COMPANY AND ITS BOARD OF DIRECTORS THINK OF THE OFFER? Although Norstan's Board of Directors has approved this offer, neither Norstan nor its Board of Directors makes any recommendation as to whether or not you should tender your options for exchange. For additional information or assistance, you should contact: Norstan, Inc., attention: Mary Kiernan, at 5101 Shady Oak Road, Minnetonka, Minnesota 55343, telephone: 952.352.4194. --------------- (6) For eligible Norstan employees who received option grants in May or June of 2001, the offer will not commence until December 6, 2001 and will expire (unless extended) at 11:59 p.m. Central Time on January 6, 2002. (a)(1)-15 16 INTRODUCTION Norstan, Inc. ("Norstan," "we" or the "Company") is offering eligible employees holding outstanding options to purchase shares of our common stock granted under the Norstan, Inc., 1995 Long-Term Incentive Plan as amended (the "Plan"), that have an exercise price of at least $15.00 per share, the opportunity to exchange those options for new options that we will grant under the Plan. We are extending this offer upon the terms and subject to the conditions set forth in this offer to exchange (the "offer to exchange") and in the related acceptance letter (which together, as each may be amended or supplemented from time to time, constitute the "offer"). We intend to grant options to acquire a number of shares equal to 50 percent of the number of shares covered by the options you tender. We will grant the new options on a date that is at least six months and one day following the date we cancel the options accepted for exchange. This offer is not conditioned upon a minimum number of options being tendered, but is subject to conditions that we describe in Section 6 of this offer to exchange, including our right to accept or reject any options tendered in response to this offer. Subject to our right to extend, terminate and amend the offer, we currently expect that we will accept promptly after the expiration of the offer all properly tendered options that have not been validly withdrawn. As of August 15, 2001, options to purchase 1,794,125 shares of our common stock were issued and outstanding under the Plan. Of these options, options to purchase 425,125 shares of our common stock, constituting 24 percent, had an exercise price of $15.00 or more(7). If you tender options for exchange and we accept such options, we will grant you new options under the Plan and enter into a new option agreement between us and you, all as more fully described below. The exercise price of the new options will equal the fair market value of our common stock on the date of the grant. The new options will vest one-third immediately and one-third on each of the first and second anniversaries of the date of the grant. THE OFFER 1. Number of Options; Eligible Employees; Expiration Date. Upon the terms and subject to the conditions of the offer, including our right to accept or reject any options tendered in response to this offer, we will exchange for new options to purchase common stock under the Plan all outstanding options under the Plan held by eligible employees that have an exercise price of at least $15.00 per share, that are properly tendered in accordance with Section 3 and not validly withdrawn in accordance with Section 4 before the "expiration date," as defined below. We will not accept partial tenders of eligible options. Therefore, if you choose to participate, you must tender all of your eligible options. To receive a grant of new options pursuant to the offer and under the terms of the Plan, an --------------- (7) Includes options to purchase up to 85,000 shares of Norstan common stock held by Paul Baszucki (Chairman of the Board of Directors), Jim Granger (Chief Executive Officer) and Scott Christian (Chief Financial Officer), all of whom are ineligible to participate in the offer. (a)(1)-16 17 employee must be eligible to receive options pursuant to the Plan from the date he or she tenders options through the date Norstan grants the new options. Except as set forth below, "eligible employees" are all employees, including executive officers, of Norstan or one of its subsidiaries who are actively employed or on an authorized short-term leave of absence on ____________, 2001 and on the date the offer expires. An employee who is on an authorized short-term leave of absence of six months or less, including a short-term disability leave, is considered to be an employee of Norstan or its subsidiaries. Paul Baszucki, Jim Granger and Scott Christian, Norstan's Chairman of the Board of Directors, Chief Executive Officer and Chief Financial Officer, respectively, are not eligible to participate in the offer. An employee will not be considered an "eligible employee" and accordingly, will not be eligible to participate in this offer if, on or before the date the offer expires the employee is no longer employed by Norstan or any of its subsidiaries, for any reason, including the employee: - receives a notice of involuntary termination, with or without cause from Norstan or one of its subsidiaries; - resigns or gives notice of resignation from such employment, whether voluntarily or involuntarily or with or without good reason; - enters into an agreement with Norstan or any of its subsidiaries with respect to the employee's resignation, whether voluntarily or involuntarily or with or without good reason; - takes a long-term leave of absence (over six months in duration) or if currently on a short-term leave of absence, does not return within the authorized six-month period, resulting in a recatagorization of the leave as long-term; or - dies. IF FOR ANY REASON, YOU ARE NOT AN EMPLOYEE OF NORSTAN OR ANY OF OUR SUBSIDIARIES FROM THE DATE YOU TENDER OPTIONS THROUGH THE DATE THE OFFER EXPIRES, YOU WILL NOT BE ELIGIBLE TO PARTICIPATE IN THE OFFER. PARTICIPATION I THE OFFER DOES NOT CONFER UPON YOU THE RIGHT TO REMAIN IN THE EMPLOY OF NORSTAN OR ANY OF ITS SUBSIDIARIES. If your options are properly tendered and accepted for exchange, unless we terminate this offer pursuant to the terms and conditions hereof, you will be entitled to receive, on a business day that is at least six months and one day following the date we accept the options tendered for exchange, new options to purchase the number of shares of our common stock that is equal to 50 percent of the number of shares subject to the options you tendered and we accepted, subject to adjustments for any stock splits, stock dividends and similar events that occur prior to the grant date of the new options. The exercise price (also known as the grant price or option price) on the date of grant of the new options will be determined in accordance with the terms of the Plan. Because the new options (a)(1)-17 18 will be granted at least six months and one day following the date eligible options are cancelled, we cannot predict the exercise price of the new options. Accordingly, the new options may have a higher exercise price than some or all of the eligible options that are cancelled in the offer. We recommend that eligible employees obtain current market quotations for our common stock before deciding whether to tender their eligible options. See Section 8 for a description of the determination of the market price and for other terms of the new options. The term "expiration date" means 11:59 p.m. Central Time, on ________________, 2001 unless and until we, in our discretion, have extended the period of time during which the offer will remain open, in which event the term "expiration date" refers to the latest time and date at which the offer, as so extended, expires. See Section 14 for a description of our rights to extend, delay, terminate and amend the offer. For purposes of this offer, a "business day" means any day other than a Saturday, Sunday or United States Federal holiday and consists of the time period from 12:01 a.m. through 11:59 p.m. Central Time. Certain eligible Norstan employees received option grants during May and June of 2001. Because an exchange of option grants within six months of a participant's receipt of any other option grant will result in the recognition of compensation expense for financial reporting purposes, the offer will not be effective for these employees until December 6, 2001, and will not expire until 11:59 Central Time on January 6, 2001 (unless extended). DOCUMENTS DESCRIBING THE OPTION EXCHANGE PROGRAM PROVIDED TO THESE EMPLOYEES WILL INCLUDE A SUPPLEMENTAL MEMORANDUM INDICATING THAT THE OFFER IS NOT EFFECTIVE FOR SUCH INDIVIDUALS UNTIL DECEMBER 6, 2001 AND WILL EXPIRE (UNLESS EXTENDED) AT 11:59 P.M. CENTRAL TIME ON JANUARY 6, 2002. THESE EMPLOYEES MAY NOT TENDER OPTIONS FOR EXCHANGE IN CONNECTION WITH THE OFFER UNTIL DECEMBER 6, 2001. 2. Purpose of the Offer. We issued the options outstanding under the Plan to: - provide our employees an opportunity to acquire or increase a proprietary interest in us, thereby creating a stronger incentive to expend maximum effort for our growth and success; and - encourage our employees to continue their employment with us. Many of our outstanding options, whether or not they are currently exercisable, have exercise prices that are higher than the current and recent trading prices of our common stock. We believe many of these options are unlikely to be exercised in the foreseeable future. We understand that for our stock option program to provide the intended retention and performance incentives for our employees, they must feel that our options provide them with an opportunity to realize value within a reasonable period of time. With the uncertainty of current market conditions, we believe that our employees may feel that the opportunity for realizing value is limited with their existing options. By making this offer to exchange eligible options for new options that will have an exercise (a)(1)-18 19 price equal to 100 percent of the market price of our common stock on the grant date of the new options (determined under and subject to the terms of the Plan), we hope to provide our employees with the benefit of owning options that over time may have a greater potential to increase in value, thereby encouraging our employees to remain with us, and ultimately maximize shareholder value. While we hope and anticipate that this program will ameliorate the current underwater options issue, this cannot be guaranteed considering the ever-present risks associated with a volatile and unpredictable economy and stock market. Subject to the foregoing, and except as otherwise disclosed in this offer or in our filings with the Securities and Exchange Commission, and other than transactions among or between our subsidiaries and our affiliates, we presently have no plans or proposals that relate to or would result in: (a) any extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving us or any of our subsidiaries; (b) any purchase, sale or transfer of a material amount of our assets; (c) any material change in our indebtedness or capitalization; (d) any material change in our present Board of Directors or management, other than changes in the number or term of directors or to fill any existing board vacancies, or as may otherwise occur in the ordinary course of business; (e) any other material change in our corporate structure or business; (f) our common stock not being authorized for quotation in an automated quotation system operated by a national securities association; (g) our common stock becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Securities Exchange Act; (h) the suspension of our obligation to file reports pursuant to Section 15(d) of the Securities Exchange Act; (i) the acquisition by any person of any material amount of our securities or the disposition of any material amount of our securities; or (j) any change in our Articles of Incorporation or Bylaws, or any actions which may impede the acquisition of control of us by any person. From time to time we entertain proposals from third parties regarding potential strategic relationships or transactions, which in some cases could include a merger or sale of Norstan, Inc. We have no definitive plans with respect to any such strategic relationship or transaction as of the date hereof. Neither we nor our Board of Directors makes any recommendation as to whether you should tender your options, nor have we authorized any person to make any such recommendation. (a)(1)-19 20 You are urged to evaluate carefully all of the information in this offer to exchange and to consult your own legal, investment and/or tax advisors. You must make your own decision whether to tender your options for exchange. 3. Procedures For Tendering Options. Proper Tender of Options: To validly tender your options pursuant to the offer, you must, in accordance with the terms of the acceptance letter, properly completed, duly executed and deliver to us the acceptance letter, or a facsimile thereof, along with any other required documents. We must receive all of the required documents at Norstan, Inc., 5101 Shady Oak Road, Minnetonka, Minnesota, 55343, Attention: Mary Kiernan, before the applicable expiration date. The only acceptable methods of delivery are regular external mail, facsimile transmission and hand delivery. Your eligible options will not be considered tendered until we receive them. Delivery by e-mail will not be accepted. THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING THE ACCEPTANCE LETTER AND ANY OTHER REQUIRED DOCUMENTS, IS AT YOUR ELECTION AND RISK. IF YOU DELIVER BY MAIL, WE RECOMMEND THAT YOU USE REGISTERED MAIL WITH RETURN RECEIPT REQUESTED AND PROPERLY INSURE THE MATERIALS. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO ENSURE TIMELY DELIVERY. Determination of Validity; Rejection of Options; Waiver of Defects; No Obligation to Give Notice of Defects: We will determine, in our sole discretion, all questions as to form of documents and the validity, form, eligibility, including time of receipt, and acceptance of any tender of options. Our determination of these matters will be final and binding on all parties. We reserve the right to reject any or all tenders of options that we determine are not in appropriate form or that we determine are unlawful to accept. Otherwise, we will accept properly and timely tendered options that are not validly withdrawn. We also reserve the right to waive any of the conditions of the offer or any defect or irregularity in any tender with respect to any particular options or any particular option holder. No tender of options will be deemed to have been properly made until all defects or irregularities have been cured by the tendering option holder or waived by us. Neither we nor any other person is obligated to give notice of any defects or irregularities in tenders, nor will anyone incur any liability for failure to give any such notice. Our Acceptance Constitutes An Agreement: Your tender of options pursuant to the procedures described above constitutes your acceptance of the terms and conditions of the offer. OUR ACCEPTANCE FOR EXCHANGE OF YOUR OPTIONS TENDERED BY YOU PURSUANT TO THE OFFER WILL CONSTITUTE A BINDING AGREEMENT BETWEEN US AND YOU UPON THE TERMS AND SUBJECT TO THE CONDITIONS OF THE OFFER. Subject to our rights to extend, terminate and amend the offer, we currently expect that we will accept promptly after the expiration of the offer all properly tendered options that have not been validly withdrawn. 4. Withdrawal Rights. (a)(1)-20 21 You may only withdraw your tendered options in accordance with the provisions of this Section 4. You may withdraw your tendered options at any time before 11:59 p.m., Central Time, on ________________, 2001(8). If the offer is extended by us beyond that time, you may withdraw your tendered eligible options at any time until the extended expiration of the offer. You must withdraw all tendered eligible options; you may not withdraw only a portion of tendered eligible options. To validly withdraw tendered options, an eligible employee must deliver to us at the address set forth in Section 3 a written notice of withdrawal, or a facsimile thereof, with the required information, while such employee still has the right to withdraw the tendered options. The notice of withdrawal must specify the name of the employee who tendered the options to be withdrawn. Except as described in the following sentence, the notice of withdrawal must be executed by the employee who tendered the options to be withdrawn exactly as such option holder's name appears on the acceptance letter previously submitted by the employee. If the signature is by a trustee, executor, administrator, guardian, attorney-in-fact or another person acting in a fiduciary or representative capacity, the signer's full title and proper evidence of the authority of such person to act in such capacity must be identified on the notice of withdrawal. You may not rescind any withdrawal. Any options you withdraw will thereafter be deemed not properly tendered for purposes of the offer, unless you properly re-tender those options before the expiration date by following the procedures described in Section 3. Neither we nor any other person is obligated to give notice of any defects or irregularities in any notice of withdrawal, nor will anyone incur any liability for failure to give any such notice. We will determine, in our discretion, all questions as to the form and validity, including time of receipt, of notices of withdrawal. Our determination of these matters will be final and binding. 5. Acceptance of Options For Exchange And Issuance of New Options. Upon the terms and subject to the conditions of this offer and promptly following the applicable expiration date, we will accept for exchange and cancel options properly tendered and not validly withdrawn before the applicable expiration date. If we cancel eligible options accepted for exchange on _______________, 2001, the business day following the applicable scheduled expiration date of the offer, you will be granted new options no earlier than the first business day that is at least six months and one day following the date we accept options for exchange. If the offer is extended, then the grant date of the new options will also be extended if necessary to ensure that the new option grant date is six months and one day following the date eligible options are cancelled. Our Board of Directors or Compensation Committee will select the actual grant date for the new options after the expiration date of the offer in accordance with the Plan. The exercise price of the new options will equal the fair market value of Norstan's common stock on the date of grant. ------------------ (8) For eligible Norstan employees who received option grants in May or June of 2001, the offer will not commence until December 6, 2001 and will expire (unless extended) at 11:59 p.m. Central Time on January 6, 2002. (a)(1)-21 22 To be entitled to the new options after your tendered eligible options have been cancelled in the offer, you must be eligible to receive options pursuant to the Plan from the date you tender options through the date Norstan grants the new options. You must be continuously and actively employed by, or on an authorized short-term leave of absence from, Norstan or one of its subsidiaries from the date you tender eligible options for exchange through, and including, the date of grant of the new options. An employee who is on an authorized short-term leave of absence of six months or less, including a short-term disability leave, is considered to be an employee of Norstan or its subsidiaries. You will not be eligible to receive the new options on the new option grant date if you are not employed by Norstan or any of its subsidiaries at any time between the date you tender options and the date of grant of the new options, for any reason, including the following: - you receive a notice of involuntary termination with or without cause, from Norstan, or one of its subsidiaries; - you resign or give notice of resignation from such employment, whether voluntarily or involuntarily or with or without good reason; - you enter into an agreement with Norstan, or one of its subsidiaries with respect to your resignation, whether voluntarily or involuntarily or with or without good reason; - you take a long-term leave of absence (lasting more than six months) or if you are currently on a short-term leave of absence, you do not return to active employment within the authorized six-month period, resulting in a recategorization of the leave as long-term; or - you die. IF, FOR ANY REASON, INCLUDING THOSE DESCRIBED ABOVE, YOU ARE NOT AN EMPLOYEE OF NORSTAN OR ANY OF OUR SUBSIDIARIES, FROM THE DATE YOU TENDER OPTIONS THROUGH THE DATE WE GRANT THE NEW OPTIONS, YOU WILL NOT RECEIVE ANY NEW OPTIONS OR ANY OTHER CONSIDERATION IN EXCHANGE FOR YOUR TENDERED OPTIONS THAT WE HAVE ACCEPTED FOR EXCHANGE. PARTICIPATION IN THE OFFER DOES NOT CONFER UPON YOU THE RIGHT TO REMAIN IN THE EMPLOY OF NORSTAN OR ANY OF OUR SUBSIDIARIES. YOU ARE EMPLOYED BY NORSTAN OR ONE OF ITS SUBSIDIARIES ON AN "AT-WILL" BASIS. AS AN AT-WILL EMPLOYEE, YOUR CONTINUED EMPLOYMENT IS AT THE WILL AND SOLE DISCRETION OF NORSTAN OR ITS SUBSIDIARIES. WE CANNOT GUARANTEE OR PROVIDE YOU WITH ANY ASSURANCE THAT YOU WILL NOT BE SUBJECT TO INVOLUNTARY TERMINATION OR THAT YOU WILL OTHERWISE REMAIN IN THE EMPLOY OF NORSTAN OR ANY OF OUR SUBSIDIARIES UNTIL THE NEW OPTION GRANT DATE. If we accept options you tender in the offer, we will defer until the grant date for your new options our grant to you of other options, such as annual, bonus or promotional options, for which you may be eligible between the date hereof and the new option grant date. We will defer the grant (a)(1)-22 23 to you of these other options if we determine it is necessary for us to do so to avoid incurring adverse accounting treatment because of accounting rules that could apply to these interim option grants as a result of the offer. If you do not tender options in the offer, however, we may grant you promptly following the expiration of the offer options that you were eligible to receive between the date hereof and the expiration date. For purposes of the offer, we will be deemed to have accepted for exchange options that are validly tendered and not properly withdrawn as, if and when we give oral or written notice to the option holders of our acceptance for exchange of such options. Subject to our right to extend, terminate and amend the offer, we currently expect that we will accept promptly after the applicable expiration date of the offer all properly tendered options that are not validly withdrawn. Promptly after we accept tendered options for exchange, we will send each tendering option holder a letter indicating the number of shares subject to the options that we have accepted for exchange. 6. Conditions of the Offer. Notwithstanding any other provision of the offer, we will not be required to accept any options tendered for exchange, and we may terminate or amend the offer, or postpone our acceptance and cancellation of any options tendered for exchange, in each case, subject to Rule 13e-4(f)(5) under the Securities Exchange Act, if at any time on or after _____________, 2001 and prior to the expiration date (i) any of the following events has occurred, or has been determined by us to have occurred, and, (ii) in our reasonable judgment in any such case and regardless of the circumstances giving rise thereto, including any action or omission to act by us, the occurrence of such event or events makes it inadvisable for us to proceed with the offer or with such acceptance and cancellation of options tendered for exchange: (a) there shall have been threatened or instituted or be pending any action or proceeding by any government or governmental, regulatory or administrative agency, authority or tribunal or any other person, before any court, authority, agency or tribunal that directly or indirectly challenges the making of the offer, the acquisition of some or all of the tendered options pursuant to the offer, the issuance of new options, or otherwise relates in any manner to the offer or that, in our reasonable judgment, could materially and adversely affect the business, condition (financial or other), income, operations or prospects of Norstan or our subsidiaries, or otherwise materially impair in any way the contemplated future conduct of our business or the business of any of our subsidiaries or materially impair the contemplated benefits of the offer to us; (b) there shall have been any action threatened, pending or taken, or approval withheld, or any statute, rule, regulation, judgment, order or injunction threatened, proposed, sought, promulgated, enacted, entered, amended, enforced or deemed to be applicable to the offer or Norstan, or any of our subsidiaries, by any court or any authority, agency or tribunal that, in our reasonable judgment, would or might directly or indirectly: (i) make the acceptance for exchange of, or issuance of new options for, some or all of the tendered options illegal or otherwise restrict or prohibit consummation of the offer or otherwise relates in any manner to the offer; (ii) delay or restrict our ability, or render us unable, to accept for exchange, or issue new options for, some or all of the tendered options; (a)(1)-23 24 (iii) materially impair the contemplated benefits of the offer to us; or (iv) materially and adversely affect the business, condition (financial or other), income, operations or prospects of Norstan or our subsidiaries, or otherwise materially impair in any way the contemplated future conduct of our business or the business of any of our subsidiaries or materially impair the contemplated benefits of the offer to us. (c) there shall have occurred any change, development, clarification or position taken in generally accepted accounting principles which could or would require us to record compensation expense against our earnings in connection with the offer for financial reporting purposes; (d) a tender or exchange offer with respect to some or all of our common stock, (e) merger or acquisition proposal for us, shall have been proposed, announced or made by another person or entity or shall have been publicly disclosed; or (f) any change or changes shall have occurred in the business, condition (financial or other), assets, income, operations, prospects or stock ownership of Norstan or our subsidiaries that, in our reasonable judgment, is or may be material to Norstan or our subsidiaries or materially impairs or may materially impair the contemplated benefits of the offer to us. The conditions to the offer are for our benefit. We may assert them in our discretion regardless of the circumstances giving rise to them prior to the expiration date. We may waive them, in whole or in part, at any time and from time to time prior to the expiration date, in our discretion, whether or not we waive any other condition to the offer. Our failure at any time to exercise any of these rights will not be deemed a waiver of any such rights. The waiver of any of these rights with respect to particular facts and circumstances will not be deemed a waiver with respect to any other facts and circumstances. Any determination we make concerning the events described in this Section 6 will be final and binding upon all persons. 7. Price Range of Common Stock Underlying the Options. Our common stock is quoted on the Nasdaq National Market under the symbol "NRRD." The following table shows, for the periods indicated, the high and low closing prices per share of our common stock as reported by the Nasdaq National Market.

(in U.S. dollars) --------------------------------- High Low ---- --- Fiscal Year Ending April 30, 2002 First Quarter 4.094 1.125 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

(a)(1)-24 25

(in U.S. dollars) --------------------------------- High Low ---- --- 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

As of ___________________, 2001, the last reported sale price of our common stock, as reported by the Nasdaq National Market, was $_________ per share. WE RECOMMEND THAT YOU OBTAIN CURRENT MARKET QUOTATIONS FOR OUR COMMON STOCK BEFORE DECIDING WHETHER OR NOT TO TENDER YOUR OPTIONS. 8. Source and Amount of Consideration; Terms of New Options. Consideration: We will issue new options to purchase common stock under the Plan in exchange for outstanding eligible options properly tendered and accepted for exchange by us. We will grant the new options on a business day that is at least six months and one day following the date we cancel the options accepted for exchange. The number of shares of common stock subject to new options to be granted to each employee will be equal to 50 percent of the number of shares subject to the options tendered by such employee and accepted for exchange, subject to adjustments for any stock splits, stock dividends and similar events that occur prior to the grant date of the new options. However, we will not issue any options exercisable for fractional shares. Instead, we will round down to the nearest whole number. As of August 15, 2001, options covering 1,794,125 shares of Norstan common stock were issued and outstanding under the Plan. Of these options, options covering 425,125 shares of common stock have an exercise price of $15.00 or more per share, including options to purchase 85,000 shares of common stock held by Messrs. Baszucki, Granger and Christian, who are ineligible to participate in the offer. If we receive and accept tenders of all outstanding eligible options, we will grant new options to purchase a total of approximately 170,063 shares of our common stock and the common stock issuable upon exercise of the new options will equal approximately one percent of the total shares of our issued and outstanding common stock(9). Terms of New Options: The new options will be issued under the Plan and pursuant to option agreements that are similar to those used for the options tendered for exchange. Except as otherwise noted in the offer and except with respect to the number of shares covered, exercise price, and vesting schedule, we expect that the terms and conditions of the new options will be similar to the terms and conditions of the options tendered for exchange. On the date the new options are granted, we will deliver an option agreement to each tendering employee whose tendered options were accepted for exchange and canceled by us. After receipt of the option agreement, each ---------------- (9) Based on 12,284,708 shares of common stock issued and outstanding as of September 4, 2001. (a)(1)-25 26 employee will be expected to execute and deliver to us his or her option agreements as soon as practicable. The following description summarizes the material terms of the Plan and the options granted under the Plan. The following description of the Plan and the new options is only a summary and may not be complete. For complete information please refer to the copy of the Plan and the form of option agreement that have been filed with the SEC as exhibits to the Tender Offer Statement on Schedule TO. You may also contact us to request copies of the Plan or the form of the option agreement, which will be provided to you at our expense. - General: The number of shares of common stock subject to the Plan is 3,400,000. There are currently 1,794,125 options to purchase shares of our common stock outstanding under the Plan. The Plan permits the granting of stock options that are incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and non-qualified stock options (i.e., stock options that do not qualify as incentive stock options). All eligible options subject to this offer are non-qualified options. All new options that may be granted pursuant to this offer will also be non-qualified options. All officers and other employees of Norstan, and its subsidiaries, non-employee members of the board and the Board of Directors of its subsidiaries, consultants and independent advisors of Norstan and its subsidiaries are eligible to participate in the Plan. - Administration: The Compensation Committee of the Norstan Board of Directors has authority to administer the Plan, with broad discretion to fashion the terms of grants of options, including type, size and exercise price, as it deems appropriate. The Compensation Committee also selects the persons to whom options are granted. - Exercise Price: The exercise price of each option is determined by the Compensation Committee. To the extent that the exercise price of an option grant is less than the fair market value of our common stock on the date of grant, we would incur compensation expense. Consistent with our prior grants under the Plan, the exercise price of the new non-qualified options to be granted pursuant to the offer will equal the fair market value of our common stock on the date of the grant to avoid recognizing compensation expense. In accordance with the terms of the Plan, the fair market value per share of common stock on any relevant date under the Plan will be the average of the high and low price as reported on such date by the Nasdaq National Market. BECAUSE WE WILL NOT GRANT NEW OPTIONS UNTIL AT LEAST SIX MONTHS AND ONE DAY AFTER THE DATE WE CANCEL THE OPTIONS ACCEPTED FOR EXCHANGE, IT IS POSSIBLE THAT THE NEW OPTIONS MAY HAVE A HIGHER EXERCISE PRICE THAN SOME OR ALL OF YOUR CURRENT OPTIONS, AND THEREFORE, YOUR NEW OPTIONS COULD BE WORTH LESS THAN YOUR OLD OPTIONS. WE RECOMMEND THAT YOU OBTAIN CURRENT MARKET QUOTATIONS FOR OUR COMMON STOCK BEFORE DECIDING WHETHER OR NOT TO TENDER YOUR OPTIONS. - Number Of Shares: The number of shares issued upon exercise of the new options will equal 50 percent of the shares covered by the options given up in exchange. - Vesting and Exercise: The Compensation Committee determines at what time or times each option may be exercised. The term of the new options granted under the Plan will commence (a)(1)-26 27 on the date of grant and, subject to the applicable vesting requirements, will be exercisable during the period beginning on the date of grant of the new options and ending on the day before the tenth anniversary of the date of grant, except that the period for exercise of the new options will end on an earlier date in the event of the termination of an eligible employee's employment. In accordance with the terms of the Plan and the option agreement, all of the new options will remain exercisable upon the termination of employment for a period of 90 days after the termination date. The new options will vest one-third upon the date of grant, one-third on the first anniversary of the date of grant and one-third on the second anniversary of the date of grant. - Method of Exercising Options: After the new options are exercisable, the option holder may exercise the options in accordance with the terms of the Plan and the option holder's option agreement by providing to us (i) a written notice identifying the option and stating the number of shares of common stock that the option holder desires to purchase and (ii) payment in full of the option price per share for the shares of common stock then being acquired by check payable to the order of Norstan, in full payment for the shares of common stock being purchased. - Prohibition Against Transfer, Pledge and Attachment: The options, and the rights and privileges conferred by them, are personal to the option holder and may not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise), and during the option holder's lifetime shall be exercisable only by the option holder. The option holder may transfer the options, and the rights and privileges conferred by it, upon the option holder's death, either by will or under the laws of intestate succession. All transferees shall be subject to all of the terms and conditions of the options to the same extent as the option holder. - Registration of Option Shares: All shares of common stock issuable upon exercise of options under the Plan, including the shares that will be issuable upon exercise of all new options, have been registered under the Securities Act on a registration statement on Form S-8 filed with the SEC. Unless you are an executive officer, director or significant shareholder of Norstan, you will be able to sell your common stock issued upon exercise of new options free of any transfer restrictions under applicable securities laws. - Effect of Change of Control: If we merge or are consolidated with, or sell substantially all of our assets or stock to, another entity before we grant the new options, it would be our intent to negotiate the terms of that change of control transaction such that eligible employees who tender options pursuant to the offer would receive options to purchase securities of the acquiror. However, we have the right to take any actions we deem necessary or appropriate to complete a transaction that our Board of Directors believes is in the best interests of the Company and its shareholders, accordingly management may elect to terminate the offer and any obligation to grant the new options. If we were to terminate the offer in connection with a change of control transaction, tendering option holders would not receive options to purchase securities of the acquiror or any other consideration for their tendered options. - Amendment of Plan: Norstan's Board of Directors may amend or modify the Plan in any or all respects whatsoever, subject to any required shareholder approval. Option holders have no shareholder rights with respect to any of our common stock subject to outstanding options until such shares are purchased in accordance with the provisions of the Plan (a)(1)-27 28 and option agreement. Nothing in the Plan confers upon any option holder any right to continued employment. You should refer to Section 13 for a discussion of the U.S. Federal income tax consequences of accepting or rejecting this offer to tender eligible options for cancellation and of the grant of the new options under this offer to exchange. Our statements in this offer concerning the Plan and the new options are merely summaries and do not purport to be complete. The statements are subject to, and are qualified in their entirety by reference to, all provisions of the Plan and the form of option agreement under the Plan, each of which is filed as an exhibit to the Tender Offer Statement on Schedule TO, of which this offer to exchange is a part. See Section 16 for a discussion of how to obtain copies of the Plan and form of option agreement. 9. Information Concerning Norstan, Inc. 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 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 leading edge 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 percent, 8.8 percent, 9.2 percent and 3.2 percent of Norstan's fiscal year 2001 revenues, respectively. Solutions and Services provides leading edge 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 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. Norstan 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 (a)(1)-28 29 by a fiscal year 2001 survey of Norstan's communication customers that found an overall satisfaction rating of 95.6 percent. 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. 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. 10. Interests of Directors and Officers; Transactions and Arrangements Concerning the Options A list of our directors and executive officers as of September 1, 2001 is as follows:

Name Position with the Company ---- -------------------------- Paul Baszucki Chairman of the Board James C. Granger President, Chief Executive Officer and Director Constance M. Levi Director Alan L. Mendelson Director Dr. Jagdish N. Sheth Director Herbert F. Trader Director Mercedes Walton Director Scott G. Christian Executive Vice President and Chief Financial Officer Michael E. Laughlin Executive Vice President of Services Delivery Scott R. McDonald Vice President of Channels Development Larry J. Schmidt Executive Vice President of Direct Solutions Roger D. Van Beusekom Executive Vice President of Resale Services

(a)(1)-29 30 As of July 13, 2001, our executive officers and non-employee directors as a group beneficially owned options to purchase a total of approximately 445,652 shares of our common stock. Non-employee members of Norstan's Board of Directors together with Paul Baszucki, Chairman, Jim Granger, Chief Executive Officer, and Scott Christian, Chief Finance Officer, are not eligible to participate in the offer. The following table sets forth the beneficial ownership by each of our executive officers and directors of options as of July 13, 2001:

Percent of Amount and Nature of Outstanding Name of Beneficial Owner Beneficial Ownership(1) Shares(2) ------------------------ -------------------- ------ Paul Baszucki 557,981(3) 4.5 James C. Granger 160,000(4) 1.3 Scott G. Christian 25,100(5) * Roger D. Van Beusekom 150,514(6) 1.2 Constance M. Levi 46,500(7) * Alan L. Mendelson 26,460(8) * Dr. Jagdish N. Sheth 60,100(9) * Gerald D. Pint** 40,600(10) * Herbert F. Trader 50,100(11) * Mercedes Walton 17,490(12) * All directors and executive officers as a group (13 persons) 1,241,267(13) 9.8

* less than one percent. ** Mr. Pint retired from service on the Norstan Board of Directors on September 13, 2001. (1) Each person has sole voting and sole dispositive powers with respect to the outstanding shares held by the indicated person, except as otherwise noted. (2) Each figure showing the percentage of outstanding shares owned beneficially has been calculate by treating as outstanding and owned the shares which would be issuable within 60 days if stock options held by the indicated person were exercised. (3) Includes 570 shares owned by Mr. Baszucki's spouse and 17,267 shares owned by a family foundation with respect to which Mr. Baszucki serves as trustee. Mr. Baszucki disclaims beneficial ownership of all such shares. Also includes 116,718 shares issuable to Mr. Baszucki upon exercise of options exercisable within 60 days. (4) Includes 50,000 shares issuable to Mr. Granger upon exercise of options exercisable within 60 days. (5) Includes 100 shares issuable to Mr. Christian upon exercise of options exercisable within 60 days. (6) Includes 21,181 shares held by a trust with respect to which Mr. Van Beusekom serves as (a)(1)-30 31 trustee. Also includes 57,717 shares issuable to Mr. Van Beusekom upon exercise of options exercisable within 60 days. (7) Includes 39,000 shares issuable to Ms. Levi upon exercise of options exercisable within 60 days. (8) Includes 14,000 shares issuable to Mr. Mendelson upon exercise of options exercisable within 60 days. (9) Includes 38,000 shares issuable to Dr. Sheth upon exercise of options exercisable within 60 days. (10) Includes 19,000 shares issuable to Mr. Pint upon exercise of options exercisable within 60 days. (11) Includes 19,000 shares issuable to Mr. Trader upon exercise of options exercisable within 60 days. (12) Includes 14,000 shares issuable to Ms. Walton upon exercise of options exercisable within 60 days. (13) Includes 445,652 shares issuable to the Company 's officers and directors pursuant to the exercise of options held by them and exercisable within the next 60 days. 11. Status of Options Acquired By Us in the Offer; Accounting Consequences of the Offer. Many of our employees hold options with exercise prices significantly higher than the current market price of our common stock. We believe it is in our best interest to invite these option holders to exchange these options to provide an opportunity to more effectively participate in the potential growth in our stock price. We could accomplish this goal by repricing existing options, which would enable option holders to immediately receive new options with a lower exercise price. However, the repriced options would be subject to variable accounting, which would require us to record additional compensation expense each quarter until the repriced options were exercised, canceled or expired. Furthermore, if we were to cancel a stock option and issue another option with an exercise price that is lower than the exercise price of the canceled option within the shorter of (i) the six-month period immediately prior to the date on which the option was required to be tendered for cancellation or (ii) the period from the date of grant of the canceled option to the date on which the option was required to be tendered for cancellation, the cancellation and exchange would be deemed a repricing that results in variable accounting. The cancellation of an existing option and the issuance of another option within this time period will be deemed a repricing even if the issuance of the second option occurs before the cancellation of the first option. We believe that we can accomplish our goals of providing option holders the benefit of choosing whether they want to receive options that over time may have a greater potential to increase in value, without incurring additional current or future compensation expense because: - we will not grant any new options until a day that is at least six months and one day after (a)(1)-31 32 the date that we accept and cancel options tendered for exchange; - the exercise price of all new options will equal the fair market value of our common stock on the future date we grant the new options; and - we will not grant any other options to an eligible employee who tenders eligible options in the offer that are cancelled in the exchange until after the date on which we grant the new options. If we were to grant any options to any eligible employee before the scheduled new grant date, our grant of those options to the electing employee would be treated for financial reporting purposes as a variable award to the extent that the number of shares subject to the newly granted options is equal to or less than the number of the option holder's option shares elected for exchange and the exercise price of those awards is less than the exercise price of those cancelled options. In this event, we would be required to record as compensation expense the amount by which the market value of the shares subject to the newly granted options exceeds the exercise price of those shares. This compensation expense would accrue as a variable accounting charge to our earnings over the period when the newly granted options are outstanding. We would have to adjust this compensation expense periodically during the option term based on increases or decreases in the market value of the shares subject to the newly granted options. Options we accept for exchange and acquire pursuant to this offer will be cancelled and will be returned to the pool of options available for future option grants under the Plan. To the extent such options are not granted in connection with this offer, the options will be available for future grants to employees and other eligible plan participants without further shareholder action, except as may be required by applicable law or the rules of the Nasdaq Stock Market or any other stock exchange on which our common stock is then quoted or listed. 12. Legal Matters; Regulatory Approvals. We are not aware of any license or regulatory permit that appears to be material to our business that might be adversely affected by our exchange of options and issuance of new options as contemplated by the offer, or of any approval or other action by any government or governmental, administrative or regulatory authority or agency, domestic or foreign, that would be required for the acquisition or ownership of our options as contemplated herein. Should any such approval or other action be required, we presently contemplate that we will seek such approval or take such other action. We cannot assure you that any such approval or other action, if needed, would be obtained or would be obtained without substantial conditions or that the failure to obtain any such approval or other action might not result in adverse consequences to our business. Our obligation under the offer to accept tendered options for exchange and to issue new options for tendered options is subject to the conditions described in Section 6. 13. Material Federal Income Tax Consequences. The following is a general summary of the material U.S. federal income tax consequences of the exchange of eligible options and the grant of the new options pursuant to this offer applicable to those eligible employees who are U.S. citizens or residents of the U.S. This discussion is based on (a)(1)-32 33 the now applicable provisions of the U.S. Internal Revenue Code and the regulations thereunder, all of which are subject to change, possibly on a retroactive basis. This summary does not discuss all of the tax consequences that may be relevant to you in light of your particular circumstances, nor is it intended to be applicable in all respects to all categories of option holders. Eligible employees who are U.S. citizens or residents of the U.S. who exchange eligible options for new options will not be required to recognize income for U.S. federal income tax purposes at the time of the exchange. We believe that the exchange will be treated as a non-taxable exchange for U.S. federal income tax purposes. At the date of grant of the new options, eligible employees who are U.S. citizens or residents of the U.S. will not be required to recognize income for U.S. federal income tax purposes. The grant of options is not recognized as taxable income for U.S. federal income tax purposes. Upon the exercise of a new option for cash, the eligible employee will recognize compensation income, taxable as ordinary income, in an amount equal to the excess of (i) the fair market value of the shares purchased upon such exercise, on the date such option is exercised, over (ii) the exercise price of the shares purchased upon such exercise. The tax basis of any share received upon the exercise of a new option will be equal to the fair market value of such share on the date of exercise of such option. Upon any subsequent sale of such share, the eligible employee will realize a capital gain (or loss) in an amount equal to the difference between the amount realized on the sale and such tax basis. An eligible employee's holding period for federal income tax purposes for such share will commence on the date following the date of exercise of the option. The Company generally will be entitled to an income tax deduction in an amount equal to the amount of compensation income, taxable as ordinary income, recognized by the eligible employee as a result of the exercise of a new option, in the year of recognition by the eligible employee. WE RECOMMEND THAT YOU CONSULT YOUR OWN TAX ADVISOR WITH RESPECT TO THE FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES OF PARTICIPATING IN THE OFFER. 14. Extension Of Offer; Termination; Amendment. We expressly reserve the right, in our discretion, at any time and from time to time, and regardless of whether or not any event set forth in Section 6 has occurred or is deemed by us to have occurred, to extend the period of time during which the offer is open and thereby delay the acceptance for exchange of any options by giving oral or written notice of such extension to the option holders and making a public announcement thereof. We also expressly reserve the right, in our reasonable judgment, prior to the expiration date to terminate or amend the offer and to postpone our acceptance and cancellation of any options tendered for exchange upon the occurrence of any of the conditions specified in Section 6, by giving oral or written notice of such termination or postponement to the option holders and making a public announcement thereof. Our reservation of the right to delay our acceptance and cancellation of options tendered for exchange is limited by Rule 13e-4(f)(5) promulgated under the Securities Exchange Act of 1934, which requires that we must pay the consideration offered or return the options tendered promptly after termination or withdrawal of the offer. (a)(1)-33 34 Subject to compliance with applicable law, we further reserve the right, in our discretion, and regardless of whether any event set forth in Section 6 has occurred or is deemed by us to have occurred, to amend this offer in any respect, including, without limitation, by decreasing or increasing the consideration offered in this offer to eligible employees or by decreasing or increasing the number of options being sought in the offer. Amendments to the offer may be made at any time and from time to time by public announcement of the amendment. In the case of an extension, the amendment must be issued no later than 9:00 a.m., Central Time, on the next business day after the last previously scheduled or announced applicable expiration date. Any announcement made pursuant to the offer will be disseminated promptly to eligible employees in a manner reasonably designated to inform eligible employees of such change. If we materially change the terms of the offer or the information concerning the offer, or if we waive a material condition of the offer, we will extend the offer to the extent required by Rules 13e-4(d)(2) and 13e-4(e)(3) under the Securities Exchange Act of 1934. These rules require that the minimum period during which an offer must remain open following material, changes in the terms of the offer or information concerning the offer, other than a change in price or a change in percentage of securities sought, will depend on the facts and circumstances, including the relative materiality of such terms or information. 15. Fees And Expenses. We will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of options pursuant to this offer to exchange. Nor will we pay any fees for professional services you may incur from your tax, financial planning or other advisors. 16. Additional Information. With respect to the offer, we have filed with the SEC a Tender Offer Statement on Schedule TO, as amended, of which this offer to exchange is a part. This offer to exchange does not contain all of the information contained in the Schedule TO and the exhibits to the Schedule TO. We recommend that you review the Schedule TO, including its exhibits, and the following materials which we have filed with the SEC before making a decision on whether or not to tender your eligible options: (a) Our Annual Report on Form 10-K/A for the fiscal year ended April 30, 2001, filed with the SEC on July 30, 2001; (b) Our Quarterly Report on Form l0-Q for the quarter ended July 28, 2001, filed with the SEC on September 11, 2001; (c) Our Form S-8 (registering shares to be issued under the Norstan, Inc., 1995 Long-Term Incentive Plan) filed with the SEC on September 27, 1995; (d) Our Form S-8 (registering shares to be issued under the Norstan, Inc., 1995 Long-Term Incentive Plan) filed with the SEC on November 27, 1998; (a)(1)-34 35 (e) Our Form S-8 (registering shares to be issued under the Norstan, Inc., 1995 Long-Term Incentive Plan) filed with the SEC on February 16, 2001; (f) The description of our common stock contained in our registration statement on Form 8-A, together with all amendments or reports updating this description; and (g) Our Proxy Statement relating to our 2001 Annual Meeting of Shareholders filed with the SEC on August 9, 2001. These filings, our other annual, quarterly and current reports, our proxy statements and our other SEC filings may be examined, and copies may be obtained, at the public reference facilities maintained by the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Room 2120, Washington D.C. 20549; and at its regional offices located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and at 7 World Trade Center, New York, New York 10048. Copies of such materials may also be obtained (1) at no charge from our web site at http://www.norstan.com or (2) by mail, upon payment of the SEC's customary charges, from the SEC's Public Reference Room at Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549. Information about the operation of this public reference room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site at http://www.sec.gov that contains reports, proxy statements and information statements and other information regarding registrants, including Norstan, that file electronically with the SEC. Our common stock is listed for trading on the Nasdaq National Market under the symbol "NRRD." We will also provide without charge to each person to whom a copy of this offer to exchange is delivered, upon the written or oral request of any such person, a copy of any or all of the documents to which we have referred you, other than exhibits to such documents (unless such exhibits are specifically incorporated by reference into such documents). Requests should be directed to: Norstan, Inc. 5101 Shady Oak Road Minnetonka, Minnesota 55343 Attention: Mary Kiernan telephone: 952.352.4194 between the hours of 9:00 a.m. and 5:00 p.m., Central Time. As you read the documents listed in Section 16, you may find some inconsistencies in information from one document to another. Should you find inconsistencies between the documents, or between a document and this offer to exchange, you should rely on the statements made in the most recent document. The information contained in this offer to exchange about Norstan, should be read together with the information contained in the documents to which we have referred you. 17. Forward Looking Statements. This offer to exchange and our SEC reports referred to above, include forward-looking statements that reflect our current expectations and projections about our future results, (a)(1)-35 36 performance, prospects and opportunities. We have tried to identify these forward-looking statements by using words including "may," "will," "expects," "anticipates," "believes," "intends", "could", "should" and "estimates" and similar expressions. These forward-looking statements are based on information currently available to us and are subject to a number of risks, uncertainties and other factors that could cause our actual results, performance, prospects or opportunities in 2001 and beyond to differ materially from those expressed in, or implied by, these forward-looking statements. For information about risks, uncertainties and other factors that may affect our business, please review the disclosure included under the captions "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our annual report on Form 10-K for the fiscal year ended April 30, 2001 and in our quarterly report on Form 10-Q for the fiscal period ended July 28, 2001. Except as otherwise required by federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason after the date of this offer to exchange. 18. Miscellaneous. We are not aware of any jurisdiction where the making of the offer is not in compliance with applicable law. If we become aware of any jurisdiction where the making of the offer is not in compliance with any valid applicable law, we will make a good faith effort to comply with such law. If, after such good faith effort, we cannot comply with such law, the offer will not be made to, nor will tenders be accepted from or on behalf of, the eligible employees residing in such jurisdiction. WE HAVE NOT AUTHORIZED ANY PERSON TO MAKE ANY RECOMMENDATION ON OUR BEHALF AS TO WHETHER OR NOT YOU SHOULD TENDER YOUR OPTIONS PURSUANT TO THE OFFER. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER THAN THE INFORMATION AND REPRESENTATIONS CONTAINED IN THIS DOCUMENT OR IN THE RELATED ACCEPTANCE LETTER. IF ANYONE MAKES ANY RECOMMENDATION OR REPRESENTATION TO YOU OR GIVES YOU ANY INFORMATION, YOU MUST NOT RELY UPON THAT RECOMMENDATION, REPRESENTATION OR INFORMATION AS HAVING BEEN AUTHORIZED BY US. Norstan, Inc. ____________, 2001 (a)(1)-36 EX-99.(A)(2) 4 c65101ex99-a2.txt FORM OF ACCEPTANCE LETTER 1 EXHIBIT (a)(2) NORSTAN, INC. ACCEPTANCE LETTER PURSUANT TO THE OFFER TO EXCHANGE OPTIONS HELD BY ELIGIBLE EMPLOYEES UNDER NORSTAN, INC.'S 1995 LONG-TERM INCENTIVE PLAN FOR NEW OPTIONS -------------------------------------------------------------------------------- THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 11:59 P.M., CENTRAL TIME ON , 2001, UNLESS THE OFFER IS EXTENDED -------------------------------------------------------------- To: Norstan, Inc. 5101 Shady Oak Road Minnetonka, Minnesota 55343 Attention: Mary Kiernan Telephone: 952.352.4194 Facsimile: 952.352.4044 I have received the Offer to Exchange dated 2001 provided by Norstan, Inc. ("Norstan, Inc.," or the "Company") describing the stock option exchange program under which eligible employees of Norstan, Inc., holding options to purchase the Company's common stock, $.10 par value ("Common Stock") under the Norstan, Inc., 1995 Long Term Incentive Plan, as amended (the "Plan"), with an exercise price equal to or greater than $15.00 per share, may tender such options for cancellation in exchange for new options to be granted under the Plan. UPON THE TERMS AND SUBJECT TO THE CONDITIONS SET FORTH IN THE OFFER TO EXCHANGE DATED 2001, AND IN THIS ACCEPTANCE LETTER (WHICH, TOGETHER WITH THE OFFER TO EXCHANGE, AS THEY MAY BE AMENDED FROM TIME TO TIME, CONSTITUTES THE "OFFER"), I HEREBY TENDER TO NORSTAN, INC., ALL OF MY OPTIONS LISTED IN THE "OPTION REPORT" (ATTACHED HERETO AS ATTACHMENT A) WITH AN EXERCISE PRICE OF $15.00 OR HIGHER (THE "TENDERED OPTIONS") THAT WERE GRANTED TO ME UNDER THE PLAN AND ARE OUTSTANDING ON THE EXPIRATION DATE OF THE OFFER, IN EXCHANGE FOR NEW OPTIONS TO PURCHASE A NUMBER OF SHARES OF COMMON STOCK EQUAL TO 50 PERCENT OF THE SHARES COVERED BY THE TENDERED OPTIONS THAT THE COMPANY ACCEPTS FOR EXCHANGE (THE "NEW OPTIONS"). I acknowledge and confirm that the Tendered Options consist solely of the following options (TO VALIDLY TENDER THE TENDERED OPTIONS, YOU MUST COMPLETE (VERIFY) THE FOLLOWING): (a)(2)-1 2 NUMBER OF OPTIONS GRANT DATE OF EXERCISE PRICE OF TENDERED TENDERED OPTION TENDERED OPTION -------- --------------- --------------- Subject to, and effective upon, the Company's acceptance for exchange of the Tendered Options in accordance with the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), I hereby sell, assign and transfer to, or upon the order of, the Company all right, title and interest in and to the Tendered Options. I hereby represent and warrant that I have full power and authority to tender the Tendered Options and that, when and to the extent the Tendered Options are accepted for exchange by the Company, the Tendered Options will be free and clear of all security interests, liens, restrictions, charges, encumbrances, conditional sales agreements or other obligations relating to the sale or transfer thereof (other than pursuant to the applicable option agreement or instrument of grant) and the Tendered Options will not be subject to any adverse claims. Upon request, I will execute and deliver any additional documents deemed by the Company to be necessary or desirable to complete the exchange of the Tendered Options pursuant to the Offer. The name of the registered holder of the Tendered Options appears on the signature line below exactly as it appears on the option agreement or agreements representing the Tendered Options. I understand and acknowledge that: (1) I may only tender options granted under the Company's 1995 Long-Term Incentive Plan, as amended, with an exercise price of at least $15.00 per share and that I am not required to tender any of such options in the Offer. (2) I may not tender only part of the options eligible to be tendered by me. If I choose to accept the Offer, I must tender all of my options granted under the Plan with an exercise price of at least $15.00 per share. (3) All Tendered Options properly tendered prior to 11:59 p.m., Central Time, on , 2001, unless the Company has extended the period of time the Offer will remain open (the "Expiration Date"), and not properly withdrawn that are cancelled in the Offer will be exchanged for New Options, upon the terms and subject to the conditions of the Offer described in the Offer to Exchange. (4) Upon the Company's acceptance of the Tendered Options for exchange, the option agreement or other instrument of grant to which the Tendered Options are subject will terminate automatically and the Company will terminate and cancel all then outstanding options thereunder. All New Options will be subject to the terms and conditions of the Plan and the terms of a new option agreement or other instrument of grant to be issued by the Company, a copy of which I will receive after the New Options are granted. (a)(2)-2 3 (5) The New Options will not be granted until a date that is at least six months and one day after the date the Company accepts for exchange and cancels the Tendered Options and will have (a) an exercise price (also known as the grant price or option price) equal to the fair market value of the Common Stock on the grant date of the New Options, determined under the terms of the Plan, (b) a term of ten years from the date of grant, subject to earlier expiration upon termination of employment (90 days from the date of termination), death or disability (one year after the date of death or the date employee is determined to be disabled), and (c) vest one-third on the date of grant and one-third on each of the first and second anniversaries of the date of the grant. (6) To be entitled to the New Options after my Tendered Options have been cancelled in the Offer, I must be eligible to receive options pursuant to the Plan from the date I tender my Tendered Options for exchange through, and including, the date of grant of the New Options. I will not be eligible to receive the New Options on the New Option grant date if I am not continuously and actively employed by or on an authorized short-term leave of absence from Norstan, Inc., (or the subsidiary that employs me) from the date I tender the Tender Options for exchange through, and including, the date of grant of the New Options, for any reason, including the following: (i) I receive a notice of involuntary termination with or without cause, from the Company or one of its subsidiaries; (ii) I resign or give notice of resignation from such employment, whether voluntarily or involuntarily or with or without good reason; (iii) I enter into an agreement with the Company or one of its subsidiaries with respect to my resignation, whether voluntarily or involuntarily or with or without good reason; (iv) I take a long-term leave of absence (lasting more than six months) or I am currently on a short-term leave of absence and I do not return to active employment within the authorized six month period, resulting in a recategorization of my leave as long-term; or (v) I die. IF, FOR ANY REASON, INCLUDING THOSE LISTED ABOVE, I AM NOT AN EMPLOYEE OF THE COMPANY OR ANY OF ITS SUBSIDIARIES, FROM THE DATE I TENDER THE TENDERED OPTIONS THROUGH THE DATE THE COMPANY GRANTS THE NEW OPTIONS, I WILL NOT RECEIVE ANY NEW OPTIONS OR ANY OTHER CONSIDERATION IN EXCHANGE FOR MY TENDERED OPTIONS THAT THE COMPANY HAS ACCEPTED FOR EXCHANGE. (7) I ACKNOWLEDGE THAT PARTICIPATION IN THE OFFER DOES NOT CONFER UPON ME THE RIGHT TO REMAIN IN THE EMPLOY OF NORSTAN, INC., OR ANY OF ITS SUBSIDIARIES. I AM EMPLOYED BY NORSTAN, INC., OR ONE OF ITS SUBSIDIARIES ON AN "AT-WILL" BASIS. AS AN AT-WILL EMPLOYEE, MY CONTINUED EMPLOYMENT IS AT THE WILL AND SOLE DISCRETION OF NORSTAN, INC., OR THE SUBSIDIARY THAT EMPLOYS ME. NEITHER NORSTAN, INC., NOR ANY OF ITS SUBSIDIARIES HAS EVER GUARANTEED OR PROVIDED ME WITH ANY ASSURANCE THAT I WILL NOT BE SUBJECT TO INVOLUNTARY TERMINATION OR THAT I WILL OTHERWISE REMAIN IN THE EMPLOY OF NORSTAN, INC., OR ANY OF ITS SUBSIDIARIES UNTIL THE NEW OPTION GRANT DATE. (8) If the Company merges or is consolidated with, or sells substantially all of its assets or stock to, another entity before the Company grants the New Options, the Company has the right to take any actions it deems necessary or appropriate to complete a transaction that its Board of Directors believes is in the best interest of the company and its shareholders. This could include terminating the Offer and any obligation to grant the New Options. IF THE COMPANY WERE (a)(2)-3 4 TO TERMINATE THE OFFER IN CONNECTION WITH A CHANGE OF CONTROL TRANSACTION, I WOULD NOT RECEIVE OPTIONS TO PURCHASE SECURITIES OF THE ACQUIROR OR ANY OTHER CONSIDERATION FOR THE TENDERED OPTIONS. (9) By tendering the Tendered Options pursuant to the procedure described in Section 3 of the Offer to Exchange and in the instructions to this Letter, I accept the terms and conditions of the Offer. The Company's acceptance for exchange of the Tendered Options will constitute a binding agreement between the Company and me upon the terms and subject to the conditions of the Offer. (10) Under certain circumstances set forth in the Offer to Exchange, the Company may terminate or amend the Offer and postpone its acceptance and cancellation of any Tendered Options. (11) All options that I choose not to tender for exchange or that are not accepted or exchange shall remain outstanding and retain their current exercise price and exercise schedule. (12) The Company has advised me to consult with my own advisors (including my own tax advisors) as to the consequences of participating or not participating in the Offer. (13) The Company has not made any representation or warranty to me whatsoever concerning the future value of its Common Stock and no employees or representatives of the Company are authorized to make, or have made, on behalf of the Company any representation or any recommendation to me as to whether or not I should tender my options pursuant to the Offer. I further acknowledge and agree that the Company has advised me that if I have any questions regarding the Offer or the New Options I should contact Mary Kiernan at Norstan, Inc. and/or review any of the following documents made available to me by Norstan, Inc., the Plan, the applicable option agreement for my current options, the Tender Offer Statement on Schedule TO, which was filed with the SEC in connection with the Offer, and/or any financial documents that Norstan, Inc., regularly files with the SEC from time to time. The Company has advised me that neither the Company nor its Board of Directors makes any recommendation as to whether or not I should tender my options for exchange that I must make my own decision whether to tender my options. The Company also has advised me in the Offer to Exchange that I should speak with my own tax advisor to determine the tax consequences of the tender of options under the Offer and the receipt of new options, prior to signing this Acceptance Letter. (14) The determination of whether to tender my eligible options pursuant to the Offer requires a subjective determination by me as to the future value of the Company's Common Stock and that the future value of the Company's Common Stock depends on a number of variables, including future events that involve substantial risks and uncertainties. All authority herein conferred or agreed to be conferred shall not be affected by, and shall survive, my death or incapacity, and all of my obligations hereunder shall be binding upon my heirs, personal representatives, successors and assigns. Except as stated in the Offer, this tender is irrevocable. The Offer is not being made to (nor will Tendered Options be accepted from or on behalf of) holders in any jurisdiction in which the making or acceptance of the Offer would not be in (a)(2)-4 5 compliance with the laws of such jurisdiction. By signing below, I agree to the terms and conditions set forth in this Acceptance Letter, including the terms and conditions of the Offer to Exchange. ----------------------------------- ------------------------------ Signature Date and Time Name and Title -------------------------------- ------------------------------ Tax ID/SSN ------------------------------------------------------------------------------ address ------------------------------------- telephone YOU MUST COMPLETE AND SIGN ABOVE EXACTLY AS YOUR NAME APPEARS ON THE OPTION AGREEMENT OR AGREEMENTS EVIDENCING THE TENDERED OPTIONS. IF THE SIGNATURE IS BY A TRUSTEE, EXECUTOR, ADMINISTRATOR, GUARDIAN, ATTORNEY-IN-FACT OR ANOTHER PERSON ACTING IN A FIDUCIARY OR REPRESENTATIVE CAPACITY, PLEASE SET FORTH THE SIGNER'S FULL TITLE AND INCLUDE WITH THIS ACCEPTANCE LETTER PROPER EVIDENCE OF THE AUTHORITY OF SUCH PERSON TO ACT IN SUCH CAPACITY. SEE INSTRUCTIONS 1 AND 4 ATTACHED TO THIS ACCEPTANCE LETTER. INSTRUCTIONS THESE INSTRUCTIONS FORM PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. DELIVERY OF ACCEPTANCE LETTER. A properly completed and signed original of this Letter (or a facsimile thereof) must be received by the Company at its address or facsimile number set forth on the front cover of this Letter on or before the Expiration Date. The Company will not accept any alternative, conditional or contingent tenders. All tendering eligible employees, by signing this Letter (or a facsimile of it), waive any right to receive any notice of the acceptance of their tender, except as provided for in the Offer to Exchange. DELIVERY OF THIS LETTER TO AN ADDRESS OTHER THAN AS SET FORTH ON PAGE 1 OF THIS LETTER OR TRANSMISSION VIA FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ON PAGE 1 OF THIS LETTER WILL NOT CONSTITUTE A VALID DELIVERY. THE METHOD BY WHICH YOU DELIVER ANY REQUIRED DOCUMENTS IS AT (a)(2)-5 6 YOUR OWN RISK, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE COMPANY. IF YOU ELECT TO DELIVER YOUR DOCUMENTS BY MAIL, THE COMPANY RECOMMENDS THAT YOU USE REGISTERED MAIL WITH RETURN RECEIPT REQUESTED. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO ENSURE TIMELY DELIVERY. 2. WITHDRAWAL OF TENDERED OPTIONS. Tenders of Tendered Options made pursuant to the Offer may be withdrawn at any time prior to the Expiration Date. You must withdraw all Tendered Options; you may not withdraw only a portion of Tendered Options. If the Offer is extended by the Company beyond that time, you may withdraw the Tendered Options at any time until the extended expiration of the Offer. To withdraw Tendered Options, you must deliver a written Notice of Withdrawal with the required information to the Company while you still have the right to withdraw the Tendered Options. Withdrawals may not be rescinded and any Tendered Options withdrawn will thereafter be deemed not properly tendered for purposes of the Offer unless such withdrawn Tendered Options are properly re-tendered prior to the Expiration Date by following the procedures described above. 3. TENDERS. If you intend to tender options pursuant to the Offer, you must verify the table on the first page of this Letter by confirming the number of Common Stock subject to each Tendered Option, the grant date of each Tendered Option and the exercise price of each Tendered Option. If you intend to tender eligible options pursuant to the Offer, you must tender all of your eligible options that are outstanding on the Expiration Date. 4. SIGNATURES ON THIS ACCEPTANCE LETTER. If this Letter is signed by the eligible employee who is the holder of the Tendered Options, the signature must be by such employee. The signature must correspond with the name as written on the face of the option agreement or agreements to which the Tendered Options are subject without alteration, enlargement or any change whatsoever. If this Letter is signed by a trustee, executor, administrator, guardian, attorney-in-fact or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and proper evidence satisfactory to the Company of the authority of such person so to act must be submitted with this Letter. 5. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Any questions or requests for assistance, as well as requests for additional copies of the Offer to Exchange or this Letter, may be directed to Mary Kiernan at the address and telephone number given on page 1 of this Letter. The Company will promptly furnish copies at its expense. 6. IRREGULARITIES. All questions as to the number of Common Stock subject to Tendered Options to be accepted for exchange, and the validity, form, eligibility (including time of receipt) and acceptance for exchange of any Tendered Options will be determined by the Company in its discretion, which determinations shall be final and binding on all parties. The Company reserves the right to reject any or all Tendered Options the Company determines not to be in proper form or the acceptance of which may, in the opinion of the Company's counsel, be unlawful. The Company also reserves the right to waive any of the conditions of the Offer and any defect or irregularity in the tender of any particular Tendered Options, and the Company's interpretation of the terms of the Offer (including these instructions) will be final and binding on all parties. No (a)(2)-6 7 tender of Tendered Options will be deemed to be properly made until all defects and irregularities have been cured or waived to the Company's satisfaction. Unless waived, any defects or irregularities in connection with tenders must be cured within such time as the Company shall determine. Neither the Company nor any other person is or will be obligated to give notice of any defects or irregularities in tenders, and no person will incur any liability for failure to give any such notice. IMPORTANT: TO ACCEPT THE OFFER, THE SIGNED LETTER (OR A FACSIMILE COPY THEREOF) MUST BE RECEIVED BY THE COMPANY ON OR PRIOR TO THE EXPIRATION DATE. YOU MUST DELIVER A PROPERLY SIGNED PAPER COPY OF THIS LETTER BY REGULAR EXTERNAL MAIL, FACSIMILE OR HAND-DELIVERY. DELIVERY BY E-MAIL WILL NOT BE ACCEPTED. 7. IMPORTANT TAX INFORMATION. You should carefully review Section 13 of the Offer to Exchange, which contains important tax information. (a)(2)-7 EX-99.(A)(3) 5 c65101ex99-a3.txt FORM OF DECLINE LETTER 1 EXHIBIT (a)(3) NORSTAN, INC. DECLINE LETTER PURSUANT TO THE OFFER TO EXCHANGE OPTIONS HELD BY ELIGIBLE EMPLOYEES UNDER NORSTAN, INC.'S 1995 LONG TERM INCENTIVE PLAN FOR NEW OPTIONS ----------------------------------------------------- THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 11:59 P.M., CENTRAL TIME, ON ____________________, 2001, UNLESS THE OFFER IS EXTENDED ----------------------------------------------------- To: Norstan, Inc. 5101 Shady Oak Road Minnetonka, Minnesota 55434 Attention: Mary Kiernan Telephone: 952.352.4194 Facsimile: 952.352.4044 I have received the Offer to Exchange dated __________________, 2001 and the related Acceptance Letter (which together, as each may be amended or supplemented from time to time, constitute the "Offer") provided by Norstan, Inc., describing the stock option exchange program under which eligible employees holding options to purchase common stock under the Norstan, Inc. 1995 Long-Term Incentive Plan, as amended (the "Plan"), with an exercise price equal to or greater than $15.00 per share may tender such options for cancellation in exchange for new options to be granted under the Plan. BY RETURNING THIS DECLINE LETTER, I AM NOTIFYING NORSTAN, INC., THAT I DO NOT CURRENTLY PLAN TO TENDER ANY OPTIONS OR TO PARTICIPATE IN THE OFFER. I UNDERSTAND THAT NORSTAN, INC., IS ASKING ME TO RETURN THIS DECLINE LETTER SOLELY TO AID THEM IN THE ADMINISTRATION OF THE STOCK OPTION EXCHANGE PROGRAM. I UNDERSTAND THAT THIS DECLINE LETTER IS NOT BINDING IN ANY WAY AND THAT SUBSEQUENT TO DELIVERING THIS DECLINE LETTER TO NORSTAN, INC.. I MAY CHANGE MY MIND AND ACCEPT THE OFFER AT ANY TIME PRIOR TO THE EXPIRATION OF THE OFFER. To change my mind and elect to participate in the Offer, I must deliver a signed and dated Acceptance Letter (or a facsimile of the Acceptance Letter) with the required information, to Norstan, Inc., while I still have the right to participate in the Offer. If I do not accept the Offer, I understand that I will not receive any new options pursuant to the Offer and I will keep my current options. These options will continue to be governed by the (a)(3)-1 2 Plan, under which they were granted, and by the existing option agreement or agreements between Norstan, Inc., and me. ------------------------------ --------------------------------- SIGNATURE: DATE AND TIME ------------------------------ --------------------------------- NAME AND TITLE: TAX ID/SSN: ------------------------------ HOME TELEPHONE NUMBER (a)(3)-2 EX-99.(A)(4) 6 c65101ex99-a4.txt FORM OF NOTICE OF WITHDRAWAL 1 EXHIBIT (a)(4) NORSTAN, INC. NOTICE OF WITHDRAWAL OF PREVIOUSLY TENDERED OPTIONS PURSUANT TO THE OFFER TO EXCHANGE DATED ________________________, 2001 --------------------------------------------------- THE WITHDRAWAL RIGHTS EXPIRE AT 11:59 P.M., CENTRAL, ON _________________________, 2001, UNLESS THE OFFER IS EXTENDED ---------------------------------------------------- To: Norstan, Inc. 5101 Shady Oak Road Minnetonka, Minnesota 55434 Attention: Mary Kiernan Telephone: 952.352.4194 Facsimile: 952.352.4044 I previously received a copy of the Offer to Exchange dated _______________, 2001, the Acceptance Letter and other related documents. I signed and returned the Acceptance Letter, in which I accepted Norstan, Inc.'s offer to exchange all of my options granted under the Norstan, Inc.'s Long-Term Incentive Plan, as amended (the " Plan"), with an exercise price of at least $15.00 per share, for new options to be granted under the Plan (the "Offer"). I now wish to change that acceptance and instead reject the Offer. I understand that by signing this Notice of Withdrawal and delivering it to ________________________ by 11:59 p.m., Central Time on _________________, 2001, I will be able to withdraw my acceptance of the Offer and reject the Offer to exchange options instead. I have read and understand all the terms and conditions of the Offer to Exchange. I have read and understand the instructions attached to this Notice of Withdrawal. I understand that in order to reject the Offer, I must sign, date, and deliver this Notice of Withdrawal via facsimile to Mary Kiernan at Norstan, Inc. (fax number: 952.352.4044), or by mail or delivery, for receipt by Mary Kiernan by 11:59 p.m., Central Time on ___________________, 2001. I understand that by rejecting the Offer, I will not receive any new options pursuant to the Offer and I will keep the old options that I have. These options will continue to be governed by the Plan, under which they were granted, and by the existing option agreement or agreements between Norstan, Inc., and me. I understand that I must withdraw all of the options that I previously tendered; I may not withdraw only a portion of my options previously tendered. Upon withdrawal of the previously (a)(4)-1 2 tendered options, I understand that all such options will remain outstanding pursuant to their original terms and conditions, including their exercise prices and vesting schedule. I understand that I may not rescind this Notice of Withdrawal, and to once again accept the Offer to exchange options as to the withdrawn options, I must submit a new Acceptance Letter to Mary Kiernan via facsimile (fax number: 952.352.4044), or by mail or hand delivery, for receipt prior to 11:59 p.m., Central Time, on ________________, 2001. I am the person who signed the Acceptance Letter. I have signed this Notice of Withdrawal and printed my name exactly as it appears on the Acceptance Letter. I agree to all of the terms and conditions of the Offer and this Notice of Withdrawal. _______________________________ ______________________________ Signature Date and Time Name and Title_____________________________ ______________________________ Tax ID/SSN ________________________________________________________________________________ address _____________________________________ telephone THIS NOTICE OF WITHDRAWAL MUST BE COMPLETED AND SIGNED IN THE SAME NAME THAT APPEARS ON THE ACCEPTANCE LETTER PREVIOUSLY SUBMITTED BY THE ELIGIBLE EMPLOYEE WHO TENDERED THE PREVIOUSLY TENDERED OPTIONS. IF THE SIGNATURE IS BY A TRUSTEE, EXECUTOR, ADMINISTRATOR, GUARDIAN, ATTORNEY-IN-FACT, OR ANOTHER PERSON ACTING IN A FIDUCIARY OR REPRESENTATIVE CAPACITY, THE SIGNER'S FULL TITLE MUST BE SPECIFIED AND PROPER EVIDENCE OF THE AUTHORITY OF SUCH PERSON TO ACT IN SUCH CAPACITY MUST BE SUBMITTED WITH THIS NOTICE. INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. DELIVERY OF NOTICE OF WITHDRAWAL. A properly completed and executed original of this Notice of Withdrawal (or a facsimile of it) and any other documents required by this Notice of Withdrawal must be received by Mary Kiernan either by mail, hand delivery or by facsimile at the number listed on the front cover of this Notice of Withdrawal (fax number: 952.352.4044) on or before 11:59 p.m., Central Time, on ___________, 2001 (the "Expiration Date"). (a)(4)-2 3 The method by which you deliver any required documents is at your option and risk, and the delivery will be deemed made only when actually received by Norstan, Inc. You may mail or deliver your Notice of Withdrawal to Mary Kiernan at Norstan, Inc., 5101 Shady Oak Road, Minnetonka, Minnesota, 55434, or you may fax it to Mary Kiernan at 952.352.4044 In all cases, you should allow sufficient time to ensure timely delivery. Although by submitting a Notice of Withdrawal you have withdrawn your tendered options from the Offer, you may change your mind and re-accept the Offer until the expiration of the Offer. Tenders of options made through the Offer may be made at any time before the Expiration Date. If the Offer is extended by Norstan, Inc., beyond that time, you may tender your options at any time until the extended expiration of the Offer. To change your mind and elect to participate in the Offer as to the withdrawn options, you must deliver a new signed and dated Acceptance Letter, or a facsimile of the Acceptance Letter, with the required information, to Norstan, Inc., while you still have the right to participate in the Offer. The withdrawn options will not be properly tendered for purposes of the Offer unless you properly re-tender those options before the Expiration Date by delivery of the new Acceptance Letter following the procedures described in the Instructions to the Acceptance Letter. If you wish to withdraw any of your tendered options from the Offer, you are required to withdraw all of the options you previously tendered. By signing this Notice of Withdrawal (or a facsimile of it), you waive any right to receive any notice of the withdrawal of the tender of your options, except as provided for in the Offer to Exchange. 2. SIGNATURES ON THIS NOTICE OF WITHDRAWAL. The name and signature on this Notice of Withdrawal must correspond with the name and signature that appears on the Acceptance Letter pursuant to which the withdrawn options were previously tendered. If this Notice of Withdrawal is signed by a trustee, executor, administrator, guardian, attorney-in-fact, or other person acting in a fiduciary or representative capacity, that person should so indicate when signing, and proper evidence satisfactory to Norstan, Inc., of the authority of that person so to act must be submitted with this Notice of Withdrawal. 3. OTHER INFORMATION ON THIS NOTICE OF WITHDRAWAL. In addition to signing this Notice of Withdrawal, you must print your name and indicate the date and time at which you signed. You must also include a current telephone number. 4. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Any questions or requests for assistance, as well as requests for additional copies of the Offer to Exchange or this Notice of Withdrawal, may be directed to Mary Kiernan at Norstan, Inc., 5101 Shady Oak Road, Minnetonka, Minnesota, 55434. Ms. Kiernan's telephone number is 952.352.4194 and her fax number is 952.352.4044. Copies will be furnished promptly at Norstan, Inc.'s expense. 5. IRREGULARITIES. All questions as to the validity, form, eligibility (including time of receipt), and acceptance of (a)(4)-3 4 this Notice of Withdrawal will be determined by Norstan, Inc., in its sold discretion. Norstan, Inc.'s determinations shall be final and binding on all parties. Norstan, Inc., reserves the right to reject any or all Notices of Withdrawal that Norstan, Inc., determines not to be in proper form or the acceptance of which may, in the opinion of Norstan, Inc.'s counsel, be unlawful. Norstan, Inc., also reserves the right to waive any of the conditions of the Offer and any defect or irregularity in the Notice of Withdrawal, and Norstan, Inc.'s interpretation of the terms of the Offer (including these instructions) will be final and binding on all parties. No Notice of Withdrawal will be deemed to be properly made until all defects and irregularities have been cured or waived. Unless waived, any defects or irregularities in connection with Notices of Withdrawal must be cured within the time as Norstan, Inc., shall determine. Neither Norstan, Inc., nor any other person is or will be obligated to give notice of any defects or irregularities in Notices of Withdrawal, and no person will incur any liability for failure to give any such notice. Important: The Notice of Withdrawal (or a facsimile copy of it) together with all other required documents, must be received by Norstan, Inc., on or before the Expiration Date. 6. ADDITIONAL DOCUMENTS TO READ. You should be sure to read the Offer to Exchange, dated ________________, 2001, and all documents referenced therein, before deciding whether or not to participate in the Offer. 7. IMPORTANT TAX INFORMATION. You should refer to Section 13 of the Offer to Exchange, which contains important U.S. federal income tax information. (a)(4)-4 EX-99.(A)(5) 7 c65101ex99-a5.txt FORM OF COVER LETTER TO EMPLOYEES 1 EXHIBIT (a)(5) [NORSTAN LOGO] MEMORANDUM TO: (EMPLOYEE NAME) FROM: JIM GRANGER DATE: __________________, 2001 SUBJECT: NORSTAN'S STOCK OPTION EXCHANGE PROGRAM ================================================================================ I am pleased to announce NORSTAN'S STOCK OPTION EXCHANGE PROGRAM and offer you the opportunity to more fully utilize some of your Norstan stock options, and to do so sooner than originally planned. The decline of Norstan's stock price since early 1998 has kept many of your stock options "under water", that is, our stock price has been well below the strike price of some options you have received over the years. However, we have developed a one-time, voluntary program allowing you the opportunity to exchange your higher-priced options for options to be issued in the near future. On September 13, 2001, Norstan's Board of Directors approved a "Stock Option Exchange Program" whereby eligible Norstan stock optionees may elect to participate in the Program and exchange stock option(s) previously awarded at a price of $15.00 or more, for a stock option to be granted in the future at the then fair market value (FMV). The Program provides you the opportunity to receive a replacement stock option that may be more beneficial to you, while having no financial impact on Norstan. PROGRAM SUMMARY The following Program Summary is not a complete description of the Norstan Stock Option Exchange Program and is qualified in its entirety in reference to the Program documentation listed below. o Since you have outstanding stock option(s) with an exercise or option price of $15.00 per share or higher, you are being offered a one-for-two exchange, meaning canceling two shares of your previously granted stock options to receive one FMV-priced option in the future. o If you elect to participate in the Program, Norstan proposes to issue a new option six months and one day after the cancellation of your exchanged or old options at the then FMV. o No additional options can be granted to you during this six-month period if you accept this exchange. o This new option will vest in one-third increments, with the first third vesting immediately upon the date of the new grant, another third after one year and the final third after two years from the date of the new grant. (a)(5)-1 2 Page 2 ______________, 2001 Norstan's Stock Option Exchange Program REQUIRED ACTIONS To participate in the "Stock Option Exchange Program" and take advantage of this offer: o Fully review all Program documentation including: - Tender Offer Statement (Schedule TO) filed with the SEC - Offer to Exchange document Dated __________, 2001 - Acceptance Letter - Norstan, Inc. 1995 Long-Term Incentive Plan - Form of Stock Option Agreement o Verify your eligible options as listed in your "Acceptance Letter". o Understand that Norstan proposes to award you a new option for a number of shares equal to half the number of option shares you are exchanging. The strike price of the new option will be the FMV of Norstan's common stock on the date six months and one day after the old options are cancelled (i.e. you elect to participate and exchange 2,000 option shares with an option price of $15.00 for the right to receive an option for 1,000 shares in six months at the then FMV. o ATTEND THE THURSDAY, OCTOBER 11TH CONFERENCE CALL (CALL DETAILS) TO ADDRESS ANY QUESTIONS YOU MAY HAVE REGARDING THE PROGRAM. o Sign, date and return the "Acceptance Letter" to Mary Kiernan in Minnetonka by ____________, 2001. YOU MUST RETURN THE "ACCEPTANCE LETTER" TO MARY KIERNAN IN MINNETONKA BY____________,2001(1) UNLESS THE OFFER IS EXTENDED. ANY "ACCEPTANCE LETTERS" RECEIVED AFTER THE EXPIRATION DATE OF THE OFFER WILL NOT BE ACCEPTED AND YOU WILL NOT BE ALLOWED TO PARTICIPATE IN THE PROGRAM. NO EXCEPTIONS WILL BE MADE!!! I encourage you to carefully review and consider the provisions of the Stock Option Exchange Program. I am confident that with your help, we will continue our recent success and return to consistent profitability. In addition, I hope the Exchange Program plays a role in helping you achieve some of your long-term financial goals. /s/ James C. Granger ----------------------------------- James C. Granger President & Chief Executive Officer Attachments (1) As described in the Program documentation, for eligible employees who received option grants during May and June 2001, the offer does not commence until December 6, 2001 and will expire at 11:59 p.m. Central Time on January 6, 2002. (a)(5)-2 EX-99.(D)(1) 8 c65101ex99-d1.txt 1995 LONG-TERM INCENTIVE PLAN 1 EXHIBIT (d)(1) NORSTAN, INC. 1995 LONG-TERM INCENTIVE PLAN As Amended September 13, 2001 Section 1. Purpose; Effect on Prior Plans. (a) Purpose. The purpose of the Plan is to promote the interests of the Company and its shareholders by aiding the Company in attracting and retaining personnel capable of assuring the future success of the Company, to offer such personnel incentives to put forth maximum efforts for the success of the Company's business and to afford such personnel an opportunity to acquire a proprietary interest in the Company. (b) Effect on Prior Plans. From and after the date on which the Company's shareholders approve this Plan, no stock options, restricted stock awards, stock appreciation rights, performance awards or other awards shall be granted or awarded under the Company's 1986 Long-Term Incentive Plan, as amended ("1986 Plan"). All outstanding stock options, restricted stock awards, stock appreciation rights and performance awards granted under the 1986 Plan prior to the date on which the Company's shareholders approve this Plan shall continue and remain outstanding in accordance with the terms thereof. Section 2. Definitions. As used in the Plan, the following terms shall have the meanings set forth below: (a) "Affiliate" shall mean (i) any entity that, directly or indirectly through one or more intermediaries, is controlled by the Company and (ii) any entity in which the Company has a significant equity interest, in each case as determined by the Committee. (b) "Award" shall mean any Option, Stock Appreciation Right, Restricted Stock, Performance Award, or Other Award granted under the Plan. (c) "Award Agreement" shall mean any written agreement, contract or other instrument or document evidencing any Award granted under the Plan. (d) "Code" shall mean the internal Revenue Code of 1986, as amended from time to time, and any regulations promulgated thereunder. (e) "Committee" shall mean a committee of the Board of Directors of the Company designated by such Board to administer the Plan, which shall consist of members appointed from time to time by the Board of Directors and shall be comprised of not less than such number of directors as shall be required to permit the Plan to satisfy the requirements of Rule 16b-3. Each member of the Committee shall be a "non-employee director" within the meaning of Rule 16b-3. (f) "Company" shall mean NORSTAN, INC., a Minnesota corporation, and any successor corporation. (d)(1)-1 2 (g) "Eligible Person" shall mean any employee, or any consultant or advisor providing bona fide services to the Company or any Affiliate who the Committee determines to be an Eligible Person. A director of the Company who is not also an employee of the Company or an Affiliate shall not be an Eligible Person. (h) "Fair Market Value" shall mean, with respect to any property (including, without limitation, any Shares or other securities), the fair market value of such property determined by such methods or procedures as shall be established from time to time by the Committee. (i) "Incentive Stock Option" shall mean an option granted under Section 6(a) of the Plan that is intended to meet the requirements of Section 422 of the Code or any successor provision. (j) "Non-Qualified Stock Option" shall mean an option granted under Section 6(a) of the Plan that is not intended to be an Incentive Stock Option. (k) "Option" shall mean an Incentive Stock Option or a Non-Qualified Stock Option. (l) "Other (Stock-Based) Award" shall mean any right granted under Section 6(f) of the Plan. (m) "Participant" shall mean an Eligible Person designated to be granted an Award under the Plan. (n) "Performance Award" shall mean any right granted under Section 6(c) of the Plan. (o) "Plan" shall mean this 1995 Long-Term Incentive Plan, as amended from time to time. (p) "Restricted Stock" shall mean any Share granted under Section 6(b) of the Plan. (q) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, or any successor rule or regulation. (r) "Shares" shall mean shares of Common Stock, $.10 par value, of the Company or such other securities or property as may become subject to Awards pursuant to an adjustment made under Section 4(c) of the Plan. (s) "Stock Appreciation Right" shall mean any right granted under Section 6(e) of the Plan. Section 3. Administration. (a) Power and Authority of the Committee. The Plan shall be administered by the Committee. Subject of the express provisions of the Plan and to applicable law, the Committee shall have full power and authority to: (i) designate Participants; (ii) determine the type or types of Awards to be granted to each Participant under the Plan; (iii) determine the number of Shares to be covered by (or with respect to which payments, rights or other matters are to be calculated in connection with) each (d)(1)-2 3 Award; (iv) determine the terms and conditions of any Award or Award Agreement; (v) amend the terms and conditions of any Award or Award Agreement and accelerate the exercisability of Options or the lapse of restrictions relating to Restricted Stock or other Awards; provided, however, that the Committee shall not have the authority to adjust or amend the exercise price of any Option, whether through amendment or cancellation grants of any additional Options; (vi) determine whether, to what extent and under what circumstances Awards may be exercised in cash, Shares, other securities, other Awards or other property, or canceled, forfeited or suspended; (vii) determine whether, to what extent and under what circumstances cash, Shares, other securities, other Awards, other property and other amounts payable with respect to an Award under the Plan shall be deferred either automatically or at the election of the holder thereof or the Committee; (viii) interpret and administer the Plan and any instrument or agreement relating to, or Award made under, the Plan; (ix) establish, amend, suspend or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (x) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan. Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations and other decisions under or with respect to the Plan or any Award shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon any Participant, any holder or beneficiary of any Award and any employee of the Company or any Affiliate. The Board of Directors of the Company shall also have the authority in its discretion from time to time to administer the Plan by granting awards or taking any other action authorized or permitted to be taken by the Committee under the Plan. Section 4. Shares Available for Awards. (a) Shares Available. Subject to adjustment as provided in Section 4(c), the number of Shares initially available for granting Awards under the Plan shall be 3,400,000. No more than 3,400,000 shares shall be cumulatively available for the grant of Incentive Stock Options under the Plan. If any Shares covered by an Award or to which an Award relates are not purchased or are forfeited, or if an Award otherwise terminates without delivery of any shares, then the number of Shares counted against the aggregate number of Shares available under the Plan with respect to such Award, to the extent of any such forfeiture or termination, shall again be available for granting Awards under the Plan. (b) Accounting for Awards. For purposes of this Section 4, if an Award entitles the holder thereof to receive or purchase Shares, the number of Shares covered by such Award or to which such Award relates shall be counted on the date of grant of such Award against the aggregate number of Shares available for granting Awards under the Plan. (c) Adjustments. In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, Shares, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spinoff, combination, repurchase or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company or other similar corporate transaction or event affects the Shares such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it may deem equitable, adjust any or all of (i) the number and type of Shares (or other securities or other property) which thereafter may be made the subject of Awards, (ii) the number and type of Shares (or (d)(1)-3 4 other securities or other property) subject to outstanding Awards and (iii) the purchase or exercise price with respect to any Award; provided, however, that the number of Shares covered by any Award or to which such Award relates shall always be a whole number. (d) Award Limitations Under the Plan. No Eligible Person may be granted any Award or Awards, the value of which Awards are based solely on an increase in the value of the Shares after the date of grant of such Awards, for more than 100,000 Shares, in the aggregate, in any fiscal year of the Company. The foregoing limitation specifically includes the grant of any "performance-based" Awards within the meaning of Section 162(m) of the Code. Section 5. Eligibility. Any Eligible Person, including any Eligible Person who is an officer or director of the Company or any Affiliate, shall be eligible to be designated a Participant. In determining which Eligible Persons shall receive an Award and the terms of any Award, the Committee may take into account the nature of the services rendered by the respective Eligible Persons, their present and potential contributions to the success of the Company or such other factors as the Committee, in its discretion, shall deem relevant. Notwithstanding the foregoing, an Incentive Stock Option may only be granted to full or part-time employees (which term as used herein includes, without limitation, officers and directors who are also employees) and an incentive Stock Option shall not be granted to an employee of an Affiliate unless such Affiliate is also a "subsidiary corporation" of the Company within the meaning of Section 424(f) of the Code or any successor provision. Section 6. Awards. (a) Options. The Committee is hereby authorized to grant Options to Participants with the following terms and conditions and with such additional terms and conditions not inconsistent with the provisions of the Plan as the Committee shall determine: (i) Exercise Price. The purchase price per Share purchasable under an Option shall be determined by the Committee; provided, however, that such purchase price shall not be less than 100% of the Fair Market Value of a Share on the date of grant of such Option. (ii) Option Term. The term of each Option shall be fixed by the Committee but shall not exceed ten years from the date such option is granted. (iii) Time and Method of Exercise. The Committee shall determine the time or times at which an Option may be exercised in whole or in part and the method or methods by which, and the form or forms (including, without limitation, cash, Shares, promissory notes, other securities, other Awards or other property, withholding of Shares that would otherwise be issued, cashless exercise program of a broker or agent, or any combination thereof, having a Fair Market Value on the exercise date equal to the relevant exercise price) in which, payment of the exercise price with respect thereto may be made or deemed to have been made. (b) Restricted Stock. The Committee is hereby authorized to grant Awards of Restricted Stock to Participants with the following terms and conditions and with such additional terms and conditions not inconsistent with the provisions of the Plan as the Committee shall determine: (d)(1)-4 5 (i) Restrictions. Shares of Restricted Stock shall be subject to such restrictions as the Committee may impose (including, without limitation, any limitation on the right to vote a Share of Restricted Stock or the right to receive any dividend or other right or property with respect thereto, which restrictions may lapse separately or in combination at such time or times, in such installments or otherwise as the Committee may deem appropriate. (ii) Stock Certificates. Any Restricted Stock granted under the Plan shall be evidenced by issuance of a stock certificate or certificates, which certificate or certificates shall be held by the Company. Such certificate or certificates shall be registered in the name of the Participant and shall bear an appropriate legend referring to the terms, conditions and restrictions applicable to such Restricted Stock. (iii) Forfeiture; Delivery of Shares. Except as otherwise determined by the Committee, upon termination of employment (as determined under criteria established by the Committee) during the applicable restriction period, all Shares of Restricted Stock at such time subject to restriction shall be forfeited and reacquired by the Company; provided, however, that the Committee may, when it finds that a waiver would be in the best interest of the Company, waive in whole or in part any or all remaining restrictions with respect to Shares of Restricted Stock. Any Share representing Restricted Stock that is no longer subject to restrictions shall be delivered to the holder thereof promptly after the applicable restrictions lapse or are waived. (c) Performance Awards. The committee is hereby authorized to grant Performance Awards to Participants subject to the terms of the Plan and any applicable Award Agreement. A Performance Award granted under the Plan (i) may be denominated or payable in cash, Shares, other securities, other Awards or other property and (ii) shall confer on the holder thereof the right to receive payments, in whole or in part, upon the achievement of such performance goals during such performance periods as the Committee shall establish. Subject to the terms of the Plan and any applicable Award Agreement, the performance goals to be achieved during any performance period, the length of any performance period, the amount of any Performance Award granted, the amount of any payment or transfer to be made pursuant to any Performance Award and any other terms and conditions of any Performance Award shall be determined by the Committee. (d) Stock Appreciation Rights. The Committee is hereby authorized to grant Stock Appreciation Rights to Participants subject to the terms of the Plan and any applicable Award Agreement. A Stock Appreciation Right granted under the Plan shall confer on the holder thereof a right to receive upon exercise thereof the excess of (i) the Fair Market Value of one Share on the date of exercise (or, if the Committee shall so determine, at any time during a specified period before or after the date of exercise) over (ii) the grant price of the Stock Appreciation Right as specified by the Committee, which price shall not be less than 100% of the Fair Market Value of one Share on the date of grant of the Stock Appreciation Right. Subject to the terms of the Plan and any applicable Award Agreement, the grant price, term, methods of exercise, dates of exercise, methods of settlement and any other terms and conditions of any Stock Appreciation Right shall be as determined by the Committee. The Committee may impose such conditions or restrictions on the exercise of any Stock Appreciation Right as it may deem appropriate. (d)(1)-5 6 (e) Other Stock-Based Awards. The Committee is hereby authorized to grant to Participants such other Awards that are denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, Shares (including, without limitation, securities convertible into Shares), as are deemed by the Committee to be consistent with the purpose of the Plan; provided, however, that such grants must comply with Rule 16b-3 and applicable law. Subject to the terms of the Plan and any applicable Award Agreement, the Committee shall determine the terms and conditions of such Awards. Shares or other securities delivered pursuant to a purchase right granted under this Section 6(e) shall be purchased for such consideration, which may be paid by such method or methods and in such form or forms (including without limitation, cash, Shares, promissory notes, other securities, other Awards or other property, withholding of Shares that would otherwise be issued, cashless exercise program of a broker or agent, or any combination thereof), as the Committee shall determine, the value of which consideration, as established by the Committee shall not be less than 100% of the Fair Market Value of such Shares or other securities as of the date such purchase right is granted. (f) General (i) No Cash Consideration for Awards. Awards shall be granted for no cash consideration or for such minimal cash consideration as may be required by applicable law. (ii) Awards May Be Granted Separately or Together. Awards may, in the discretion of the committee, be granted either alone or in addition to, in tandem with or in substitution for any other Award or any award granted under any plan of the Company or any Affiliate other than the Plan. Awards granted in addition to or in tandem with other Awards or in addition to or in tandem with awards granted under any such other plan of the Company or any Affiliate may be granted either at the same time as or at a different time from the grant of such other Awards or awards. (iii) Forms of Payment under Awards. Subject to the terms of the Plan and of any applicable Award Agreement, payments or transfers to be made by the Company or an Affiliate upon the grant, exercise or payment of an Award may be made in such form or forms as the Committee shall determine (including, without limitation, cash, Shares, promissory notes, other securities, other Awards or other property or any combination thereof), and may be made in a single payment or transfer, in installments or on a deferred basis, in each case in accordance with rules and procedures established by the Committee. Such rules and procedures may include, without limitation, provisions for the payment or crediting of reasonable interest on installment or deferred payments. (iv) Limits on Transfer of Awards. No Award and no right under any such Award shall be transferable by a Participant otherwise than by will or by the laws of descent and distribution; provided, however, that, if so determined by the Committee, a Participant may, in the manner established by the Committee, designate a beneficiary or beneficiaries to exercise the rights of the Participant and receive any property distributable with respect to any Award upon the death of the Participant. Each Award or right under any Award shall be exercisable during the Participant's lifetime only by the Participant. No Award or right under any such Award may be pledged, alienated, attached or otherwise encumbered, and any purported pledge, alienation, attachment or encumbrance thereof shall be void and unenforceable against the Company or any Affiliate. (d)(1)-6 7 (v) Term of Awards. The term of each Award shall be for such period as may be determined by the Committee. (vi) Restrictions; Securities Exchange Listing. All certificates for Shares or other securities delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations and other requirements of the Securities and Exchange Commission and any applicable federal or state securities laws, and the Committee may cause a legend or legends to be placed on any such certificates to make appropriate reference to such restrictions. If the Shares or other securities are traded on a securities exchange, the Company shall not be required to deliver any Shares or other securities covered by an Award unless and until such Shares or other securities have been admitted for trading on such securities exchange. Section 7. Amendment and Termination; Adjustments. Except to the extent prohibited by applicable law and unless otherwise expressly provided in an Award Agreement or in the Plan: (a) Amendments to the Plan. The Board of Directors of the Company may amend, alter, suspend, discontinue or terminate the Plan; provided, however, that, notwithstanding any other provision of the Plan or any Award Agreement, without the approval of the shareholders of the Company, no such amendment, alteration, suspension, discontinuation or termination shall be made that, absent such approval: (i) would cause Rule 16b-3 to become unavailable with respect to the Plan; (ii) would violate the rules or regulations of the National Association of Securities Dealers, Inc. or any securities exchange that are applicable to the Company; or (iii) would cause the Company to be unable, under the Code, to grant incentive Stock Options under the Plan. (b) Amendments to Awards. The Committee may waive any conditions of or rights of the Company under any outstanding Award, prospectively or retroactively. The Committee may not amend, alter, suspend, discontinue or terminate any outstanding Award, prospectively or retroactively, without the consent of the Participant or holder or beneficiary thereof, except as otherwise herein provided. (c) Correction of Defects, Omissions and Inconsistencies. The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem desirable to carry the Plan into effect. (d)(1)-7 8 Section 8. Change in Control. In case of a "Change in Control" (as such term is hereinafter defined), each Participant shall be fully vested (as of the date of the Change in Control) in all shares of Restricted Stock, Performance Awards, Stock Appreciation Rights, Options and Other Awards granted or awarded under this Plan and any and all restrictions or performance requirements on the issuance, exercise or sale of said grants, awards, shares or rights under said Restricted Stock awards, Stock Performance Awards, Stock Appreciation Rights, Options and Other Awards shall be waived or removed as of the date of the Change in Control. For purposes of this Plan, a Change in Control shall be deemed to occur when and if: (a) any Person (meaning any individual, firm, Corporation, partnership, trust or other entity, and includes a "group" (as that term is used in Sections 13(d) and 14(d) of the Act), but excludes Continuing Directors (as defined below) and benefit plans sponsored by the Company): (i) makes a tender or exchange offer for any shares of the Company's outstanding voting securities at any point in time (the "Company Stock") pursuant to which any shares of the Company's Stock are purchased; or (ii) together with its "affiliates" and "associates" (as those terms are defined in Rule 12b-2 under the Securities Exchange Act of 1934 (the "Act")) becomes the "beneficial owner" (within the meaning of Rule 13d-3 under the Act) of at least 20% of Company's Stock; or (b) the shareholders of the Company approve a definitive agreement or plan to merge or consolidate the Company with or into another unaffiliated corporation, to sell or otherwise dispose of all or substantially all of its assets, or to liquidate the Company; or (c) a majority of the members of the Board become individuals other than Continuing Directors (as defined below). A "Continuing Director" means: (a) any member of the Board as of June 8, 1995, and (b) any other member of the Board, from time to time, who was (i) nominated for election by the Board, or (ii) appointed by the Board to fill a vacancy on the Board or to fill a newly-created directorship, in each case excluding any individual nominated or appointed (y) at a Board meeting at which the majority of directors present are not Continuing Directors or (z) by unanimous written action of the Board unless a majority of the directors taking such action are Continuing Directors. (d) Notwithstanding the foregoing provisions of Section 8, the Committee may impose such additional restrictions, limitations or requirements as it deems appropriate on the vesting of any Award in the event of a Change in Control before such Award shall be deemed to be fully vested. In the event that no such additional restrictions, limitations or requirements on the vesting of any Award in the event of a Change in Control are imposed in the Award Agreement, the Change in Control provisions set forth in the preceding paragraphs of this Section 8 shall govern such Award. (d)(1)-8 9 Section 9. Income Tax Withholding. In order to comply with all applicable federal or state income tax laws or regulations, the Company may take such action as it deems appropriate to ensure that all applicable federal or state payroll, withholding, income or other taxes, which are the sole and absolute responsibility of a Participant, are withheld or collected from such Participant. In order to assist a Participant in paying all or a portion of the federal and state taxes to be withheld or collected upon exercise or receipt of (or the lapse of restrictions relating to) an Award, the Committee, in its discretion and subject to such additional terms and conditions as it may adopt, may permit the Participant to satisfy such tax obligation by (i) electing to have the Company withhold a portion of the Shares otherwise to be delivered upon exercise or receipt of (or the lapse of restrictions relating to) such Award with a Fair Market Value equal to the amount of such taxes or (ii) delivering to the Company Shares other than Shares issuable upon exercise or receipt of (or the lapse of restrictions relating to) such Award with a Fair Market Value equal to the amount of such taxes. Section 10. General Provisions. (a) No Rights to Awards. No Eligible Person, Participant or other Person shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Eligible Persons, Participants or holders or beneficiaries of Awards under the Plan. The terms and conditions of Awards need not be the same with respect to any Participant or with respect to different Participants. (b) Award Agreements. No Participant will have rights under an Award granted to such Participant unless and until an Award Agreement shall have been duly executed on behalf of the Company. (c) No Limit on Other Compensation Arrangements. Nothing contained in the Plan shall prevent the Company or any Affiliate from adopting or continuing in effect other or additional compensation arrangements, and such arrangements may be either generally applicable or applicable only in specific cases. (d) No Right to Employment. The grant of an Award shall not be construed as giving Participant the right to be retained in the employ of the Company or any Affiliate, nor will it affect in any way the right of the Company or an Affiliate to terminate such employment at any time, with or without cause. In addition, the Company or an Affiliate may at any time dismiss a Participant from employment free from any liability or any claim under the Plan, unless otherwise expressly provided in the Plan or in any Award Agreement. (e) Governing Law. The validity, construction and effect of the Plan or any Award, and any rules and regulations relating to the Plan or any Award, shall be determined in accordance with the laws of the State of Minnesota. (f) Severability. If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the purpose or intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction or Award, and the remainder of the Plan or any such Award shall remain in full force and effect. (d)(1)-9 10 (g) No Trust or Fund Created. Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and a Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any Affiliate pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company or any Affiliate. (h) No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the Plan or any Award, and the Committee shall determine whether cash shall be paid in lieu of any fractional Shares or whether such fractional Shares or any rights thereto shall be canceled, terminated or otherwise eliminated. (i) Headings. Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof. Section 11. Section 16(b) Compliance. The Plan is intended to comply in all respects with Rule 16b-3 or any successor provision, as in effect from time to time and in all events the Plan shall be construed in accordance with the requirements of Rule 16b-3. If any Plan provision does not comply with Rule 16b-3 as hereafter amended or interpreted, the provision shall be deemed inoperative. Moreover, in the event the Plan does not include a provision required by Rule 16b-3 to be stated therein, such provision (other than one relating to eligibility requirements, or the price and amount of awards) shall be deemed automatically to be incorporated by reference into the Plan insofar as Participants subject to Section 16 are concerned. The Board, in its absolute discretion, may bifurcate the Plan so as to restrict, limit or condition the use of any provision of the Plan to participants who are officers or directors subject to Section 16 of the Securities and Exchange Act of 1934, as amended, without so restricting, limiting or conditioning the Plan with respect to other participants. Section 12. Effective Date of the Plan. The Plan shall be effective as of August 8, 1995, subject to approval by the shareholders of the Company within one year thereafter. Section 13. Term of the Plan. Awards shall only be granted under the Plan during a ten-year period beginning on the effective date of the Plan. However, unless otherwise expressly provided in the Plan or in an applicable Award Agreement, any Award theretofore granted may extend beyond the end of such ten-year period, and the authority of the Committee provided for hereunder with respect to the Plan and any Awards, and the authority of the Board of Directors of the Company to amend the Plan, shall extend beyond the end of such period. (d)(1)-10 EX-99.(D)(2) 9 c65101ex99-d2.txt FORM OF NON-QUALIFIED OPTION AGREEMENT 1 EXHIBIT (d)(2) [NORSTAN LOGO] STOCK OPTION AGREEMENT -------------------------------------------------------------------------------- OPTIONEE: GRANT DATE: NUMBER OF OPTION SHARES: EXPIRATION DATE: EXERCISE PRICE PER SHARE: -------------------------------------------------------------------------------- THIS STOCK OPTION AGREEMENT is made between Norstan, Inc. (the "Company"), and you (the "Optionee"), pursuant to the provisions of the Norstan, Inc. 1995 Long-Term Incentive Plan. Together, the parties agree as follows: GRANT OF OPTION. The Company grants to the Optionee the right to purchase all or any part of the total number of shares of Norstan common stock set forth above (the "Option Shares"). PURCHASE PRICE. The purchase price of the shares of the common stock covered by this option shall be the Exercise Price per share as stated above. TERM OF OPTION. The term of this option is ten years beginning on the Grant Date and continuing until the Expiration Date set forth above, unless earlier terminated as provided in this document (see "Termination of Employment" and "Death of Optionee" below). EXERCISE OF OPTION. Except as otherwise provided in this agreement, this option will be exercisable in cumulative installments based on the following vesting schedule: 1) None of the Option Shares may be purchased prior to one year from the Grant Date; 2) Up to 33% (one-third) of the Option Shares may be purchased at any time after one year from the Grant Date; 3) Up to 66% (two-thirds) of the Option Shares (less any shares previously purchased pursuant to this option) may be purchased at any time after two years from the Grant Date; 4) Up to 100% of the Option Shares (less any shares previously purchased pursuant to this option) may be purchased at any time after three years from the Grant Date. These Option Shares may be purchased at any time after they vest and prior to termination of this option by providing to the Company the full purchase price of such shares including all applicable taxes and exercise documents which are available through the HR Service Center.* TERMINATION OF EMPLOYMENT. If the Optionee shall cease to be employed by the Company (or its Subsidiaries) as a result of retirement (at age 65 or older) or disability, this option will become fully vested and may be exercised within a period of one year after such termination of employment, but in no case later than the Expiration Date. If termination of employment occurs for any other reason (other than death) than this option may be exercised with respect to vested shares only within a period of ninety days after such termination of employment, but in no case later than the Expiration Date. DEATH OF OPTIONEE. In the event of the death of the Optionee while employed by the Company or by a subsidiary of the Company, this option will become fully vested and may be exercised within a period of one year after the date of death, but in no case later than the Expiration Date. In such event, this option shall be exercisable only by the executors or administrators of the Optionee or by the person or persons to whom the Optionee's rights under the option shall pass by the Optionee's Will or the laws of descent and distribution, as applicable. ADJUSTMENTS. In the event that the Compensation and Stock Option Committee of the Company (the "Committee") determines, while any portion of this option is outstanding and unexercised, that a change in capital or organization structure or other similar corporate event which affects the shares of common stock has occurred (e.g. stock split, recapitalization, etc.), then the Committee shall, in such manner as it may deem equitable, adjust (i) the number of common stock shares subject to this option and/or (ii) the exercise price with respect to this option. Such adjustments may be required by the Committee in order to prevent dilution or enlargement of the benefits intended to be made available under this option. (d)(2)-1 2 CHANGE IN CONTROL. In case any Change in Control occurs, this option, if then outstanding, shall become immediately and fully exercisable (as of the date of the Change in Control) whether or not otherwise exercisable by its terms. For the purposes of this option, a Change in Control shall be deemed to occur when and if: 1) any Person (meaning any individual, firm, corporation, partnership, trust or other entity, and includes a "group" (as that term is used in Sections 13(d) and 14(d) of the Act), but excludes Continuing Directors (as defined below) and benefit plans sponsored by the Company): a) makes a tender or exchange offer for any shares of the Company's outstanding voting securities at any point in time (the "Company Stock") pursuant to which any shares of the Company's Stock are purchased; or b) together with its "affiliates" and "associates" (as those terms are defined in Rule 12b-2 under the Securities Exchange Act of 1934 (the "Act")) becomes the "beneficial owner" (within the meaning of Rule 13d-3 under the Act) of at least 20% of the Company's Stock; or 2) the shareholders of the Company approve a definitive agreement or plan to merge or consolidate the Company with or into another unaffiliated corporation, to sell or otherwise dispose of all or substantially all of its assets, or to liquidate the Company; or 3) a majority of the members of the Board become individuals other than Continuing Directors (as defined below). A "Continuing Director" means: (a) any member of the Board as of September 13, 2001, and (b) any other member of the Board, from time to time, who was (i) nominated for election by the Board or (ii) appointed by the Board to fill a vacancy on the Board or to fill a newly-created directorship, in each case excluding any individual nominated or appointed (y) at a Board meeting at which the majority of directors present are not Continuing Directors or (z) by unanimous written action of the Board unless a majority of the directors taking such action are Continuing Directors. NORSTAN, INC. OPTIONEE /s/ James C. Granger -------------------- PRESIDENT AND CEO NAME - This option is in all respects subject to and governed by all of the provisions of the Norstan, Inc. 1995 Long-Term Incentive Plan (the "Plan"). The interpretation and construction of any provision of the Plan and this option shall be made by the Committee and shall be final, binding and conclusive. - This option is not intended to be and will not be treated as an "incentive stock option" within the meaning of section 422A of the Internal Revenue Code of 1986, as amended. - This option is not transferable by the Optionee. - Neither the Optionee nor his/her legal representatives will be deemed to be a holder of any Option Shares for any purpose until certificates for these shares are issued to him/her under the terms of this agreement. - This option will not confer upon the Optionee any right with respect to continuance of employment by the Company or a Subsidiary of the Company, nor will it interfere in any way with the Company's right or the Subsidiary's right to terminate his/her employment at any time. * THE NORSTAN, INC. 1995 LONG-TERM INCENTIVE PLAN, THE CURRENT PLAN PROSPECTUS, AND A FAQ'S SHEET ARE AVAILABLE IN NORNET OR BY CALLING MARY KIERNAN AT 952-352-4194. 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EX-99.(A)(1)

   1
                                                                  EXHIBIT (a)(1)

                                  NORSTAN, INC.

                   OFFER TO EXCHANGE OUTSTANDING OPTIONS UNDER
                  NORSTAN, INC.'S 1995 LONG-TERM INCENTIVE PLAN
                     HELD BY ELIGIBLE EMPLOYEES THAT HAVE AN
           EXERCISE PRICE OF $15.00 PER SHARE OR MORE FOR NEW OPTIONS
================================================================================
                          DATED: ______________, 2001

                     THE OFFER AND WITHDRAWAL RIGHTS EXPIRE
                         AT 11:59 P.M., CENTRAL TIME(1),
                             ON _________ ____, 2001
                          UNLESS THE OFFER IS EXTENDED
================================================================================

         Norstan, Inc., which we refer to as "we" or "Norstan," is offering
eligible employees holding outstanding options to purchase shares of our common
stock granted under the Norstan, Inc. 1995 Long-Term Incentive Plan as amended
(the "Plan"), that have an exercise price of at least $15.00 per share, the
opportunity to exchange those options for new options that we will grant under
the Plan. We are extending this offer upon the terms and subject to the
conditions set forth in this offer to exchange and in the related acceptance
letter (which together, as each may be amended or supplemented from time to
time, constitute the "offer"). We intend to grant options to acquire fifty
percent of the number of shares as are covered by the options you tender. We
will grant the new options on a date that is at least six months and one day
following the date we cancel the options accepted for exchange.

         This offer is not conditioned upon a minimum number of options being
tendered, but is subject to conditions that we describe in Section 6 of this
offer to exchange, including our right to accept or reject any options tendered
in response to this offer. Participation in this offer is completely voluntary.
Subject to our rights to extend, terminate and amend the offer, we currently
expect that we will accept, promptly after the expiration of the offer, all
properly tendered options that have not been validly withdrawn.

         If you tender options for exchange and we accept them, we will grant
you new options under the Plan pursuant to an option agreement between us and
you, all as more fully described in the offer. The exercise price per share of
the new options will equal the fair market value of our common stock on the date
of the grant. The new options will vest one-third immediately (on the date of
grant) and one-third on each of the first and second anniversaries of the date
of grant. The new options will have other terms and conditions that are
substantially the same as those of the

---------------
(1) As described more fully on page 2, certain eligible Norstan employees
holding options with an exercise price of $15.00 or more per share received
option grants in May and June of 2001. To avoid unfavorable financial accounting
repercussions from the option exchange program, the offer will not commence with
respect to such individuals until December 6, 2001 and will expire (unless
extended) at 11:59 p.m. Central Time on January 6, 2002.



                                    (a)(1)-1

   2




cancelled options.

         ALTHOUGH OUR BOARD OF DIRECTORS HAS APPROVED THIS OFFER, NEITHER WE NOR
OUR BOARD OF DIRECTORS MAKES ANY RECOMMENDATION AS TO WHETHER OR NOT YOU SHOULD
TENDER YOUR OPTIONS FOR EXCHANGE. YOU MUST MAKE YOUR OWN DECISION WHETHER OR NOT
TO TENDER YOUR OPTIONS.

         Shares of our common stock are quoted on the Nasdaq National Market
under the symbol "NRRD." On September ____, 2001, the last reported sale price
of Norstan's common stock on the Nasdaq National Market was $__________ per
share. WE RECOMMEND THAT YOU OBTAIN CURRENT MARKET QUOTATIONS FOR OUR COMMON
STOCK BEFORE DECIDING WHETHER OR NOT TO TENDER YOUR OPTIONS.

         THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION (THE "SEC") OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SEC OR ANY STATE SECURITIES COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION OR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS OFFER TO EXCHANGE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

         You should direct questions about this offer or requests for assistance
or for additional copies of the offer to exchange or the acceptance letter to
Mary Kiernan at Norstan, Inc., 5101 Shady Oak Road, Minnetonka, Minnesota 55343,
(telephone number: 952.352.4194).


         HOW TO PARTICIPATE; HOW TO ACCEPT THE OFFER. To participate and accept
the offer to exchange your eligible options for new options, you must be an
eligible employee. If you wish to tender your eligible options for exchange, you
must complete and sign the acceptance letter in accordance with its
instructions, and mail, fax or hand deliver it and any other required documents
to us before 11.59 p.m., Central Time, on ___________________, 2001, at Norstan,
Inc., 5101 Shady Oak Road, Minnetonka, Minnesota 55343, Attention: Mary Kiernan,
Facsimile: 952.352.4044.

         Certain of the Norstan employees holding options with an exercise price
of $15.00 per share or more received option grants during May and June of 2001.
The accounting rules governing financial reporting of stock option grants
provide that where a new option is granted in exchange for the cancellation of
existing options and the recipient also received one or more option grants
within the six-month period preceding the new option grant, the exchange will
result in the Company recognizing compensation expense. To avoid recognizing an
accounting charge in connection with this offer, Norstan is deferring the
commencement of the offer, solely with respect to the employees referred to
above, until December 6, 2001. The expiration date of the offer for these
employees is 11:59 p.m. Central Time on January 6, 2002, unless extended.
DOCUMENTS DESCRIBING THE OPTION EXCHANGE PROGRAM PROVIDED TO THESE EMPLOYEES
WILL INCLUDE A SUPPLEMENTAL MEMORANDUM INDICATING THAT THE OFFER IS NOT
EFFECTIVE FOR SUCH INDIVIDUALS UNTIL DECEMBER 6, 2001 AND WILL EXPIRE (UNLESS
EXTENDED) AT 11:59 P.M. CENTRAL TIME ON


                                    (a)(1)-2


   3



JANUARY 6, 2002. THESE EMPLOYEES MAY NOT TENDER OPTIONS FOR EXCHANGE IN
CONNECTION WITH THE OFFER UNTIL DECEMBER 6, 2001

         WITHDRAWAL OF ACCEPTANCE. You can withdraw your acceptance of our offer
to exchange by delivering, by mail, fax or hand delivery, the notice of
withdrawal, properly completed and signed, to us at the same address as the
acceptance letter. You must withdraw all tendered options; you may not withdraw
only a portion of tendered options.

         DEADLINE TO ACCEPT THE OFFER OR TO WITHDRAW A PREVIOUS ACCEPTANCE;
EXPIRATION DATE. Your acceptance letter and any notice of withdrawal must be
received by us before 11:59 p.m., Central Time, on ___________________, 2001(2),
unless we extend the expiration date for the offer. If we extend this offer
beyond that time, you may tender your eligible options or withdraw a previous
acceptance of the offer to tender eligible options by delivering the signed
acceptance letter or notice of withdrawal, as the case may be, so long as we
receive your signed letter or notice before the extended expiration of this
offer.

         OFFER SUBJECT TO LEGAL REQUIREMENTS OF JURISDICTIONS. We are not making
this offer to, nor will we accept any tender of options from or on behalf of,
eligible employees in any jurisdiction in which the offer to exchange or the
acceptance of any tender of options would not be in compliance with the laws of
such jurisdiction. However, we may, at our discretion, take any actions
necessary for us to make this offer to eligible employees in any such
jurisdiction.

         WE HAVE NOT AUTHORIZED ANY PERSON TO MAKE ANY RECOMMENDATION ON OUR
BEHALF AS TO WHETHER OR NOT YOU SHOULD TENDER YOUR OPTIONS PURSUANT TO THE
OFFER. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFER OTHER
THAN THE INFORMATION AND REPRESENTATIONS CONTAINED IN THIS DOCUMENT OR IN THE
RELATED ACCEPTANCE LETTER. IF ANYONE MAKES ANY RECOMMENDATION OR REPRESENTATION
TO YOU OR GIVES YOU ANY INFORMATION, YOU MUST NOT RELY UPON THAT RECOMMENDATION,
REPRESENTATION OR INFORMATION AS HAVING BEEN AUTHORIZED BY US.





------------
(2) Unless extended, the offer expiration date for the employees referred to
above who received option grants in May or June 2001 will be 11:59 p.m. on
January 6, 2002.



                                    (a)(1)-3

   4


                                TABLE OF CONTENTS



                                                                                                            Page
                                                                                                             No.
                                                                                                          --------

                                                                                                   
SUMMARY TERM SHEET.......................................................................................     5

INTRODUCTION.............................................................................................    16
THE OFFER:
   1      Number of Options; Eligible Employees; Expiration Date.........................................    16
   2      Purpose of the Offer...........................................................................    18
   3      Procedures for Tendering Options...............................................................    20
   4      Withdrawal Rights..............................................................................    20
   5      Acceptance of Options for Exchange and Issuance of New Options.................................    21
   6      Conditions of the Offer........................................................................    23
   7      Price Range of Common Stock Underlying the Options.............................................    24
   8      Source and Amount of Consideration; Terms of New Options.......................................    25
   9      Information Concerning Norstan, Inc............................................................    26
   10     Interests of Directors and Officers; Transactions and Arrangements
          Concerning the Options.........................................................................    29
   11     Status of Options Acquired by Us in the Offer; Accounting
          Consequences of the Offer......................................................................    31
   12     Legal Matters; Regulatory Approvals............................................................    32
   13     Material Federal Income Tax Consequences.......................................................    32
   14     Extension of Offer; Termination; Amendment.....................................................    33
   15     Fees and Expenses..............................................................................    34
   16     Additional Information.........................................................................    34
   17     Forward Looking Statements.....................................................................    35
   18     Miscellaneous..................................................................................    36

















                                    (a)(1)-4

   5


                               SUMMARY TERM SHEET

         Below we provide answers to some of the questions that you may have
about this offer. We urge you to read carefully the summary of this offer to
exchange, the remainder of this offer to exchange and the accompanying
acceptance letter because the information in this summary is not complete and
additional important information is contained in the remainder of this offer to
exchange and the other documents.

WHY ARE WE MAKING THE OFFER?

         We implemented this offer to exchange because a considerable number of
our employees have stock options, whether or not they are currently exercisable,
that are "underwater;" i.e., the option exercise price is above the current and
recent trading prices of our common stock. We believe these options are unlikely
to be exercised in the foreseeable future. For our stock option program to
provide the intended retention and performance incentives for employees, they
must feel that our options provide them with an opportunity to realize value
within a reasonable period of time. With the uncertainty of current market
conditions, we believe that employees may feel that the opportunity for
realizing value is limited with their existing options. This program is
voluntary and will allow employees to choose whether to keep their current
eligible options at their current exercise price, or to rescind those options in
exchange for a new option for 50 percent of the number of shares covered by the
rescinded options, to be granted on a date which is at least six months and one
day from the date we cancel the options accepted for exchange. By making this
offer to exchange, we hope to provide our employees with the benefit of owning
options that over time may have a greater potential to increase in value,
thereby encouraging our employees to remain with us, and ultimately maximize
shareholder value. While it is hoped that this program will ameliorate the
current underwater options issue, this cannot be guaranteed considering the
ever-present risks associated with a volatile and unpredictable economy and
stock market.

WHAT SECURITIES ARE WE OFFERING TO EXCHANGE?

         We are offering to exchange all stock options granted to eligible
employees having an exercise price of $15.00 per share or more, that are
outstanding under the Norstan, Inc. 1995 Long-Term Incentive Plan, as amended,
which we refer to as the Plan.

WHO IS ELIGIBLE TO PARTICIPATE IN THE OFFER?

         The offer is available to eligible employees of Norstan who hold
options under the Plan that have an exercise price of $15.00 per share or more.
As of September ___, 2001, , there were outstanding options to purchase 425,125
shares of our common stock that have an exercise price of $15.00 per share or
more.

         Certain eligible Norstan employees holding options with an exercise
price of $15.00 or more per share received option grants in May and June of
2001. To avoid unfavorable financial accounting repercussions from the option
exchange program, the offer will not commence with respect to such individuals
until December 6, 2001 and will expire (unless extended) at 11:59 p.m. Central
Time on January 6, 2002

         "Eligible employees" are all employees of Norstan or one of its
subsidiaries (exclusive of

                                    (a)(1)-5

   6


certain executive officers identified below) who are actively employed or on an
authorized short-term leave of absence as of September ____, 2001 and on the
date the offer expires. Also, an employee will not be considered an "eligible
employee" and accordingly, will not be eligible to participate in this offer, if
on or before the date the offer expires, the employee is no longer employed by
Norstan or any of its subsidiaries, for any reason, including the employee:

         - receives a notice of involuntary termination, with or without
cause, from Norstan or one of its subsidiaries;

         - resigns or gives notice of resignation from such employment, whether
voluntarily or involuntarily or with or without good reason;

         - enters into an agreement with Norstan or any of its subsidiaries
with respect to the employee's resignation, whether voluntarily or involuntarily
or with or without good reason.

         - takes a long-term leave of absence (over six months in duration) or
if currently on a short-term leave of absence, does not return within the
authorized six month period, resulting in a recategorization of the leave as
long-term; or

         - dies.

         Paul Baszucki, Jim Granger and Scott Christian, the Norstan Chairman of
the Board of Directors, Chief Executive Officer and Chief Financial Officer,
respectively, together with all non-employee directors, are not eligible to
participate in the offer.

         IF, FOR ANY REASON, YOU ARE NOT AN EMPLOYEE OF NORSTAN OR ANY OF OUR
SUBSIDIARIES, FROM THE DATE YOU TENDER OPTIONS THROUGH THE DATE THE OFFER
EXPIRES, YOU WILL NOT BE ELIGIBLE TO PARTICIPATE IN THE OFFER. PARTICIPATION IN
THE OFFER DOES NOT CONFER UPON YOU THE RIGHT TO REMAIN IN THE EMPLOY OF NORSTAN
OR ANY OF OUR SUBSIDIARIES.

IF I TENDER OPTIONS IN THIS OFFER, ARE THERE ANY ELIGIBILITY REQUIREMENTS I MUST
SATISFY AFTER THE EXPIRATION DATE OF THE OFFER IN ORDER TO RECEIVE THE NEW
OPTIONS?

         To receive a grant of new options pursuant to the offer, you must be
eligible to receive options pursuant to the Plan from the date you tender
options through the date we grant the new options. You must be continuously and
actively employed by or on an authorized short-term leave of absence from
Norstan or one of its subsidiaries from the date you tender eligible options for
exchange through, and including, the date of grant of the new options. An
employee who is on an authorized short-term leave of absence of six months or
less, including a short-term disability leave, is considered to be an employee
of Norstan or its subsidiaries. You will not be eligible to receive the new
options on the new option grant date if you are not employed by Norstan or any
of its subsidiaries at any time between the date you tender options and the date
of grant of the new options, for any reason, including the following:

         - you receive a notice of involuntary termination, with or without
cause, from Norstan or

                                    (a)(1)-6

   7


one of its subsidiaries;

         - you resign or give notice of resignation from such employment,
whether voluntarily or involuntarily or with or without good reason;

         - you enter into an agreement with Norstan or one of its
subsidiaries with respect to your resignation, whether voluntarily or
involuntarily or with or without good reason;

         - you die.

         IF, FOR ANY REASON, INCLUDING THOSE DESCRIBED ABOVE, YOU ARE NOT AN
EMPLOYEE OF NORSTAN OR ANY OF OUR SUBSIDIARIES, FROM THE DATE YOU TENDER OPTIONS
THROUGH THE DATE WE GRANT THE NEW OPTIONS, YOU WILL NOT RECEIVE ANY NEW OPTIONS
OR ANY OTHER CONSIDERATION IN EXCHANGE FOR YOUR TENDERED OPTIONS THAT WE HAVE
ACCEPTED FOR EXCHANGE.

         PARTICIPATION IN THE OFFER DOES NOT CONFER UPON YOU THE RIGHT TO REMAIN
IN THE EMPLOY OF NORSTAN OR ANY OF OUR SUBSIDIARIES. YOU ARE EMPLOYED BY NORSTAN
OR ONE OF ITS SUBSIDIARIES ON AN "AT-WILL" BASIS. AS AN AT-WILL EMPLOYEE, YOUR
CONTINUED EMPLOYMENT IS AT THE WILL AND SOLE DISCRETION OF NORSTAN OR ITS
SUBSIDIARIES. WE CANNOT GUARANTEE OR PROVIDE YOU WITH ANY ASSURANCE THAT YOU
WILL NOT BE SUBJECT TO INVOLUNTARY TERMINATION OR THAT YOU WILL OTHERWISE REMAIN
IN THE EMPLOY OF NORSTAN OR ANY OF OUR SUBSIDIARIES UNTIL THE NEW OPTION GRANT
DATE.

IS THIS A REPRICING?

         No, this is not a stock option repricing in the traditional sense.
Under a traditional stock option repricing, the exercise price of a holder's
current options would be immediately repriced to the then current fair value of
the Company's common stock and the Company would have a variable accounting
charge against earnings.

WHY CAN'T NORSTAN SIMPLY REPRICE MY OPTIONS, AS I HAVE SEEN DONE AT OTHER
COMPANIES?

         In 1998, the Financial Accounting Standards Board adopted unfavorable
accounting charge consequences for companies that reprice options. As a result
of this action, many companies have ceased "repricing" options to avoid this
negative consequence. If we were to simply reprice options, this would result in
"variable" accounting treatment for such options. This would require us, for
financial reporting purposes, to record additional compensation expense each
quarter until the repriced options are exercised, cancelled or have expired.
This would reduce our reported earnings for each fiscal quarter that the
repriced options remained outstanding. This could have a material negative
effect on our stock price performance and would be unfavorable to Norstan and
its shareholders.



                                    (a)(1)-7

   8


WHY WON'T I RECEIVE MY NEW OPTIONS IMMEDIATELY AFTER THE EXPIRATION DATE OF THE
OFFER?

         If we were to grant the new options on any date that is earlier than
six months and one day after the date we cancel the options accepted for
exchange and the new options had an exercise price that was lower than the
exercise price of the cancelled eligible options, we would be required to employ
what is called variable accounting, which, as described above, is an unfavorable
accounting treatment for financial reporting purposes. This would reduce our
reported earnings for each fiscal quarter that the new options remained
outstanding. This could have a material negative effect on our stock price
performance.

WHY CAN'T I JUST BE GRANTED MORE OPTIONS WITHOUT HAVING MY OPTIONS CANCELLED?

         We have a limited pool of options available for grant to our employees.
The grant of supplemental options, without the cancellation of outstanding
eligible options, would reduce the number of options that are currently
available for grant to our employees under the Plan. Because the outstanding
options under the Plan are, to a large extent, "underwater," we have determined
that it is in the best interest of Norstan and our shareholders (including our
employee shareholders) to offer this exchange program as designed. This offer
attempts to minimize the future dilutive impact of our ongoing stock option
program. Options that are cancelled pursuant to this offer will become available
for new option grants and future option grants under the Plan.

WHAT ARE THE CONDITIONS TO THE OFFER?

         The offer is not conditioned upon a minimum number of options being
tendered. Participation in this offer is completely voluntary. However, the
offer is subject to a number of other conditions with regard to events that
could occur prior to the expiration of the offer. These events include, among
other things, a change in accounting principles, a lawsuit challenging the
tender offer, a third-party tender offer for our common stock or other
acquisition proposal, or a change in your employment status with us. These and
various other conditions are more fully described in Section 6 of this offer to
exchange. Once the offer has expired and the tendered options have been accepted
and cancelled in the offer, the conditions will no longer apply, even if the
specified events occur during the period between the expiration date and the
date of grant of the new options. However, as described herein, a change in your
employment status during that period could result in you not receiving a grant
of new options.

IF I TENDER OPTIONS IN THIS OFFER, HOW MANY NEW OPTIONS WILL I RECEIVE IN
EXCHANGE FOR MY TENDERED OPTIONS?

         Provided you meet the eligibility requirements and subject to the terms
of this offer, we will grant to you new options to purchase a number of shares
of our common stock equal to 50 percent of the number of shares of common stock
subject to the options that you tender and that we accept for exchange. All new
options will be granted under, and will be subject to the terms and conditions
of, the Plan and of a new option agreement between you and us. The new option
agreement will be in substantially the same form as the option agreement or
agreements for your current options and the term of the option. You must execute
the new option agreement prior to receiving new options.


                                    (a)(1)-8

   9


IF I TENDER OPTIONS IN THIS OFFER, WHEN WILL I RECEIVE MY NEW OPTIONS?

         We expect to grant the new options on a business day that is at least
six months and one day after the date we cancel the options accepted for
exchange. Our Board of Directors or Compensation Committee will select the
actual grant date of the new options after the expiration of the offer, in
accordance with the Plan(3). If we cancel tendered options on ________________,
2002, the business day following the scheduled expiration date, the grant date
of the new options will be no earlier than _______________, 2001. However, if
the expiration date of the offer is extended by us, the grant date for the new
options may also be extended. You must be an employee, or otherwise be eligible
to receive options pursuant to the Plan on the grant date to receive the new
options.

WILL THE TERMS OF THE NEW OPTIONS BE THE SAME AS THE TERMS OF THE OPTIONS
TENDERED FOR EXCHANGE?

         The new options will be issued under the Plan, which is the same option
plan as the related options cancelled in the offer, and will be issued pursuant
to an option agreement that is similar to the option agreement pursuant to which
the related options tendered and cancelled in the offer were issued. The new
options will have substantially the same terms and conditions as the related
options cancelled in the offer, except for the following:

         - EXERCISE PRICE. Although the method for determining the exercise
price (also known as the grant price or option price) of the new options is the
same as the method used for determining the exercise price of the options
tendered for exchange (i.e., based on the fair market value of our common stock
on the date of grant for options granted), it is highly likely that the exercise
price of the new options will be different from the exercise price of the
tendered options.

         - NUMBER OF SHARES. The number of shares of common stock covered by
the new options will be equal to 50 percent of the shares covered by the options
given up in exchange.

         - VESTING. The new options will vest one-third on the date of grant
and one-third on each of the first and second anniversaries of the date of
grant.

         Option agreements governing options currently outstanding under the
Plan, including options eligible for exchange pursuant to the offer, state that
options may not be exercised following the termination of the holder's
employment for any reason, including the retirement, death or disability of the
holder. Effective September 21, 2001, Norstan will permit holders of options (or
their estates, as applicable) to exercise the vested portion of options for a
period of 90 days after termination of employment for any reason other than
retirement at age 65 or more, death or disability, and for a period of one year
in the case of retirement at age 65 or more, death or disability. In addition,
all options held by a Norstan employee upon his or her termination of employment
as a result of retirement at age 65 or more, death or disability shall vest
in full on the date of termination of employment. Such terms will also apply to
new options granted pursuant to the Company's option exchange program.

WHAT WILL THE EXERCISE PRICE OF THE NEW OPTIONS BE?

         The exercise price (also known as the grant price or option price) of
the new options will equal the fair market value of our common stock on the date
we grant the new options, determined in accordance with the terms of the Plan.
BECAUSE WE WILL NOT GRANT NEW OPTIONS UNTIL AT LEAST SIX MONTHS AND ONE DAY
AFTER THE DATE WE CANCEL THE OPTIONS ACCEPTED FOR EXCHANGE, WE CANNOT PREDICT
THE EXERCISE PRICE OF THE NEW OPTIONS. IT IS POSSIBLE THAT THE NEW OPTIONS MAY
HAVE A HIGHER EXERCISE PRICE THAN SOME OR ALL OF YOUR CURRENT


--------------
(3) For eligible Norstan employees who received option grants in May or June of
2001, the offer will not commence until December 6, 2001 and will expire (unless
extended) at 11:59 p.m. Central Time on January 6, 2002.


                                    (a)(1)-9

   10


OPTIONS THAT ARE CANCELLED IN THE OFFER, AND THEREFORE, YOUR NEW OPTIONS COULD
BE WORTH LESS THAN YOUR OLD OPTIONS. WE RECOMMEND THAT YOU OBTAIN CURRENT MARKET
QUOTATIONS FOR OUR COMMON STOCK BEFORE DECIDING WHETHER TO TENDER YOUR OPTIONS.
See Section 7 in the offer to exchange for information concerning our stock
price during the past two years.

CAN I CANCEL ONLY PART OF MY ELIGIBLE OPTIONS?

         No, we cannot partially cancel your eligible options. If you choose to
cancel options, then you must tender for exchange all of your options that have
an exercise price of $15.00 or more. This means that an eligible employee may
not tender some of his or her eligible options for cancellation and retain some
eligible options; if an employee wishes to tender any of his or her eligible
options, the eligible employee must tender all of his or her eligible options.

WHAT HAPPENS TO OPTIONS THAT I TENDER AND ARE ACCEPTED FOR EXCHANGE?

         Tendered options that are accepted for exchange will be cancelled and
will become available for future grants (including the new options) under the
Plan from which such options were originally granted.

WHAT IF I TENDER OPTIONS AND NORSTAN UNDERGOES A CHANGE OF CONTROL, SUCH AS A
MERGER, BEFORE THE NEW OPTIONS ARE GRANTED?

         If we undergo a change of control, such as a merger, prior to the grant
of the new options, it would be our intent to negotiate the terms of that change
of control transaction such that you could receive options to purchase
securities of the acquirer. However, we have the right to take any actions we
deem necessary or appropriate to complete a transaction that our Board of
Directors believes is in the best interests of Norstan and its shareholders, and
this could result in your not being granted the new options.

WHAT HAPPENS IF I TENDER MY ELIGIBLE OPTIONS AND I AM ON AN AUTHORIZED LEAVE OF
ABSENCE ON THE NEW OPTION GRANT DATE?

         An employee who is on an authorized short-term leave of absence,
including a short-term disability leave, is considered to be an employee of
Norstan or its subsidiaries. An authorized short-term leave of absence is a
leave of absence that has been approved in accordance with policy or practice by
Norstan or its subsidiary that employs you, and that has a duration of six
months or less, at the end of which the employee returns to active employment
with Norstan or one of its subsidiaries. Authorized short-term leaves may
include approved bereavement leave, family medical leave, personal medical
leave, including short-term disability, jury duty leave, maternity and paternity
leave and military leave.

         If you tender your options and they are cancelled in the offer and you
are on an authorized short-term leave of absence, including a short-term
disability leave, on the new option grant date, you are considered to be an
employee of Norstan or its subsidiary that employs you, and will be entitled to
a grant of new options on the new grant date.

                                   (a)(1)-10

   11


         However, you will not be eligible to receive the new options on the new
option grant date if at any time between the date you tender options and the
date of grant of the new option, including on the new option grant date, you are
on a long-term leave of absence (over six months in duration). Similarly, you
will not be eligible to receive the new options on the new option grant date if
you are currently on a short-term leave of absence, but do not return to active
employment within the authorized six-month period, resulting in a
recategorization of your short-term leave as a long-term leave.

WHAT HAPPENS IF I TENDER MY OPTIONS AND I RECEIVE A NOTICE OF INVOLUNTARY
TERMINATION AFTER THE EXPIRATION DATE OF THE OFFER AND PRIOR TO THE NEW OPTION
GRANT DATE?

         If you tender your eligible options and they are cancelled in the offer
and, after the expiration date of the offer and prior to the new option grant
date, you receive a notice of involuntary termination, with or without cause,
from Norstan or one of its subsidiaries, you will not receive a grant of new
options or any other consideration or payment for such tendered and cancelled
options. As indicated earlier, you must be an eligible employee of Norstan or
any of our subsidiaries, from the date you tender options through the date we
grant the new options, in order to be eligible to receive new options for your
tendered options that we have accepted for exchange.

         PARTICIPATION IN THE OFFER DOES NOT CONFER UPON YOU THE RIGHT TO REMAIN
IN THE EMPLOY OF NORSTAN OR ANY OF OUR SUBSIDIARIES. YOU ARE EMPLOYED BY NORSTAN
OR ONE OF ITS SUBSIDIARIES ON AN "AT-WILL" BASIS. AS AN AT-WILL EMPLOYEE, YOUR
CONTINUED EMPLOYMENT IS AT THE WILL AND SOLE DISCRETION OF NORSTAN OR ITS
SUBSIDIARIES. WE CANNOT GUARANTEE OR PROVIDE YOU WITH ANY ASSURANCE THAT YOU
WILL NOT BE SUBJECT TO INVOLUNTARY TERMINATION OR THAT YOU WILL OTHERWISE REMAIN
IN THE EMPLOY OF NORSTAN OR ANY OF OUR SUBSIDIARIES UNTIL THE NEW OPTION GRANT
DATE.

WHAT HAPPENS IF I TENDER MY OPTIONS AND MY EMPLOYMENT WITH NORSTAN CEASES AS A
DIRECT RESULT OF A BUSINESS TRANSACTION OR THE ELIMINATION OF MY POSITION AFTER
THE EXPIRATION DATE OF THE OFFER AND PRIOR TO THE NEW OPTION GRANT DATE?

         If you tender your eligible options and they are cancelled in the offer
and, after the expiration date of the offer and prior to the new option grant
date your employment ceases as a direct result of the divestiture of your
business unit (either through a sale, corporate spin-off, joint venture or
similar business transaction) or the elimination of your position, you are not
eligible for new options. You must be an eligible employee of Norstan or any of
our subsidiaries, from the date you tender options through the date we grant the
new options, in order to be eligible to receive new options for your tendered
options that we have accepted for exchange.

WHAT HAPPENS IF I TENDER MY OPTIONS AND I RESIGN AFTER THE EXPIRATION DATE OF
THE OFFER AND BEFORE THE NEW OPTION GRANT DATE?

         If you resign after the expiration date of the offer and prior to the
new option grant date and

                                   (a)(1)-11

   12



your eligible options have been tendered and cancelled in the offer, you will
not receive a grant of new options or any other consideration or payment for
such tendered and cancelled eligible options. You must be an eligible employee
of Norstan or any of our subsidiaries, from the date you tender options through
the date we grant the new options, in order to be eligible to receive new
options for your tendered options that we have accepted for exchange.

WHAT HAPPENS IF I TENDER MY ELIGIBLE OPTIONS AND I DIE AFTER THE EXPIRATION DATE
OF THE OFFER AND BEFORE THE NEW OPTION GRANT DATE?

         If you die after the expiration date of the offer and prior to the new
option grant date and your eligible options have been tendered and cancelled in
the offer, neither your estate nor your beneficiaries will receive a grant of
new options or any other consideration or payment for such tendered and
cancelled eligible options. You must be an eligible employee of Norstan or any
of our subsidiaries, from the date you tender options through the date we grant
the options that we have accepted for exchange.

ARE THERE OTHER CIRCUMSTANCES UNDER WHICH I WOULD NOT BE GRANTED NEW OPTIONS?

         It is possible that even if we accept your tendered options, we will
not issue new options to you if we are prohibited by applicable law or
regulations from doing so. We will use reasonable efforts to avoid such
prohibition.

WILL WE GRANT OPTIONS TO ELIGIBLE EMPLOYEES DURING THE PERIOD BETWEEN
__________________, 2001, THE DATE THIS OFFER COMMENCES, AND THE DATE TENDERED
OPTIONS ARE CANCELLED (CURRENTLY SCHEDULED TO BE ________________, 2001(4)?

         To avoid any possible adverse accounting consequences, we intend not to
grant options to eligible employees during the period starting on
_______________, 2001 (the date the offer commences) and ending on the date
tendered eligible options are cancelled (currently scheduled to be
______________, 2001(4).

IF I TENDER OPTIONS IN THE OFFER, WILL I BE ELIGIBLE TO RECEIVE OTHER OPTION
GRANTS BEFORE I RECEIVE MY NEW OPTIONS?

         If we accept options you tender in the offer, we will defer until the
grant date for your new options, our grant to you of other options, such as
annual, bonus or promotional options, for which you may be eligible between the
date hereof and the new option grant date. We will defer the grant to you of
these other options if we determine it is necessary for us to do so to avoid
incurring adverse accounting treatment because of accounting rules that could
apply to these interim option grants as a result of the offer. If you do not
tender options in the offer, however, we may grant you

------------
(4) For eligible Norstan employees who received option grants in May or June of
2001, the offer will not commence until December 6, 2001 and will expire (unless
extended) at 11:59 p.m. Central Time on January 6, 2002.



                                   (a)(1)-12

   13


promptly following the expiration of the offer options that you were eligible to
receive between the date hereof and the expiration date.

WHAT WILL MY NEW OPTION TYPE BE, INCENTIVE STOCK OPTION OR NON-QUALIFIED STOCK
OPTION?

         Currently all options granted under the Plan with an exercise price of
at least $15.00 per share and held by eligible employees are non-qualified stock
options. Accordingly, all new options will be granted as non-qualified stock
options.

WILL I HAVE TO PAY TAXES IF I EXCHANGE MY OPTIONS IN THE OFFER?

         If you exchange your current options for new options, we believe you
will not be required under current law to recognize income for federal income
tax purposes at the time of the exchange. We believe that the exchange will be
treated as a non-taxable exchange. Further, at the date of grant of the new
options, we believe that you will not be required under current law to recognize
income for federal income tax purposes.

         We recommend that you consult with your own tax advisor to determine
the tax consequences of tendering options pursuant to the offer, including under
the laws of the country that applies to you. Norstan is not responsible for any
personal adverse tax or other financial consequences that may result from your
voluntary participation in the exchange.

AFTER THE NEW GRANT, WHAT HAPPENS IF MY OPTIONS AGAIN END UP UNDERWATER?

         We are conducting this offer only at this time, considering the unusual
stock market conditions that have affected many companies throughout the
country. This is therefore considered a one-time offer and is not expected to be
offered again in the future. As your stock options are valid for ten years from
the date of initial grant, subject to continued employment, the price of our
common stock may appreciate over the long term and even if your options are
underwater for some period of time after the grant date of the new options.
HOWEVER, WE CAN PROVIDE NO ASSURANCE AS TO THE PRICE OF OUR COMMON STOCK AT ANY
TIME IN THE FUTURE.

WHAT HAPPENS TO OPTIONS THAT I CHOOSE NOT TO TENDER OR THAT ARE NOT ACCEPTED FOR
EXCHANGE?

         Nothing. An option that you choose not to tender for exchange or that
we do not accept for exchange remains outstanding until it is exercised or
expires in accordance with its terms and retains its current exercise price and
current exercise schedule. We currently expect that we will accept all properly
tendered eligible options promptly after the expiration of this offer.

WHAT HAPPENS TO ANY CURRENT OPTIONS GRANTED TO ME UNDER THE PLAN THAT DO NOT
HAVE AN EXERCISE PRICE ABOVE $15.00 AND ARE NOT ELIGIBLE FOR TENDER?

         The offer will have no effect on those options that do not have an
exercise price of $15.00

                                   (a)(1)-13

   14


or above, and are therefore not eligible for tender in this offer. Those options
will remain outstanding in accordance with, and subject to, their current terms,
whether or not you tender your eligible options.

HOW LONG DO I HAVE TO DECIDE WHETHER TO TENDER OPTIONS IN THE OFFER? CAN THE
OFFER BE EXTENDED, AND IF SO, HOW WILL I BE NOTIFIED IF IT IS EXTENDED?

         You have until 11:59 p.m. Central Time on _________________, 2001(5),
to tender your options in the offer.

         Although we do not currently intend to do so, we may, in our
discretion, extend the offer at any time. If we extend the offer, we will make a
public announcement of the extension no later than 9:00 a.m., Central Time, on
the next business day following the previously scheduled expiration date. If the
offer is extended, then the cancellation date for tendered eligible options
accepted for exchange and the grant date of the new options may be extended if
necessary to avoid the possibility that we would have to recognize any
compensation charges which would reduce our reported earnings. Under the
accounting rules applicable to us, the new options must be granted more than six
months following the date tendered eligible options are cancelled.

HOW DO I TENDER MY OPTIONS?

         If you decide to tender your options, you must deliver, before the
offer expires, a properly completed and duly executed acceptance letter and any
other documents required by the acceptance letter to Norstan, Inc., 5101 Shady
Oak Road, Minnetonka, Minnesota, 55343-4100, Attention: Mary Kiernan, telephone:
952.352.4194. We will only accept delivery of the signed acceptance letter by
regular external mail, facsimile or hand delivery. If you choose to deliver your
signature page by external mail, we recommend that you use registered mail with
return receipt requested. Delivery by e-mail will NOT be accepted. You must
allow for delivery time based on the method of delivery that you choose to
ensure we receive your acceptance letter on time.

         This is a one-time offer, and we will strictly enforce the tender offer
period. We reserve the right to reject any or all tenders of options that we
determine are not in appropriate form or that we determine are unlawful to
accept. We also reserve the right to waive any of the conditions of the offer or
any defect or irregularity in any tender. Subject to our rights to extend,
terminate and amend the offer, we currently expect that we will accept all
properly tendered options following the expiration of the offer.

DURING WHAT PERIOD OF TIME MAY I WITHDRAW PREVIOUSLY TENDERED OPTIONS?

         You may withdraw your tendered options at any time before the offer
expires at 11:59 p.m.



--------------
(5) For eligible Norstan employees who received option grants in May or June of
2001, the offer will not commence until December 6, 2001 and will expire (unless
extended) at 11:59 p.m. Central Time on January 6, 2002.


                                   (a)(1)-14

   15


Central Time on __________________, 2001(6). If we extend this offer beyond that
time, you may withdraw your tendered options at any time until the extended
expiration of this offer. To withdraw tendered options, you must deliver to us
at the address or facsimile number listed above a written notice of withdrawal
with the required information while you still have the right to withdraw the
tendered options. As in the case of delivery of the acceptance letter, you may
deliver the signed notice of withdrawal to us at the address noted above by
regular external mail, facsimile or hand delivery. Once you have withdrawn
options, you may re-tender options only by again following the delivery
procedures described above.

IF I CHOOSE NOT TO TENDER MY ELIGIBLE OPTIONS FOR EXCHANGE, WHAT DO I HAVE TO
DO?

         If you choose to keep your eligible options and not participate in the
offer, we ask that you complete the decline letter indicating your intent not to
participate in the exchange and promptly return the letter to us. This will aid
us in our efforts with respect to administration of the option exchange program.
Even if you return the decline letter to us indicating your nonparticipation in
the program, you may subsequently elect to participate in the exchange at any
time prior to the expiration of the offer by delivering to us a properly
completed and signed acceptance letter.

HOW WILL I KNOW IF NORSTAN HAS RECEIVED MY ACCEPTANCE LETTER ELECTING TO TENDER
MY ELIGIBLE OPTIONS?

         We will confirm receipt of your acceptance letter tendering our
eligible options (and any withdrawal) shortly after we receive it. Also, after
the expiration date of the offer, we will advise you whether or not your tender
was accepted. Personalized confirmations of your eligible options that have been
tendered and cancelled in the offer will be sent to you within sixty (60) days
of the expiration of the offer.

WHAT DOES THE COMPANY AND ITS BOARD OF DIRECTORS THINK OF THE OFFER?

         Although Norstan's Board of Directors has approved this offer, neither
Norstan nor its Board of Directors makes any recommendation as to whether or not
you should tender your options for exchange.

         For additional information or assistance, you should contact: Norstan,
Inc., attention: Mary Kiernan, at 5101 Shady Oak Road, Minnetonka, Minnesota
55343, telephone: 952.352.4194.


---------------
(6) For eligible Norstan employees who received option grants in May or June of
2001, the offer will not commence until December 6, 2001 and will expire (unless
extended) at 11:59 p.m. Central Time on January 6, 2002.


                                   (a)(1)-15



   16

                                  INTRODUCTION

         Norstan, Inc. ("Norstan," "we" or the "Company") is offering eligible
employees holding outstanding options to purchase shares of our common stock
granted under the Norstan, Inc., 1995 Long-Term Incentive Plan as amended (the
"Plan"), that have an exercise price of at least $15.00 per share, the
opportunity to exchange those options for new options that we will grant under
the Plan. We are extending this offer upon the terms and subject to the
conditions set forth in this offer to exchange (the "offer to exchange") and in
the related acceptance letter (which together, as each may be amended or
supplemented from time to time, constitute the "offer"). We intend to grant
options to acquire a number of shares equal to 50 percent of the number of
shares covered by the options you tender. We will grant the new options on a
date that is at least six months and one day following the date we cancel the
options accepted for exchange.

         This offer is not conditioned upon a minimum number of options being
tendered, but is subject to conditions that we describe in Section 6 of this
offer to exchange, including our right to accept or reject any options tendered
in response to this offer. Subject to our right to extend, terminate and amend
the offer, we currently expect that we will accept promptly after the expiration
of the offer all properly tendered options that have not been validly withdrawn.

         As of August 15, 2001, options to purchase 1,794,125 shares of our
common stock were issued and outstanding under the Plan. Of these options,
options to purchase 425,125 shares of our common stock, constituting 24 percent,
had an exercise price of $15.00 or more(7).

         If you tender options for exchange and we accept such options, we will
grant you new options under the Plan and enter into a new option agreement
between us and you, all as more fully described below. The exercise price of the
new options will equal the fair market value of our common stock on the date of
the grant. The new options will vest one-third immediately and one-third on each
of the first and second anniversaries of the date of the grant.

                                    THE OFFER

1.       Number of Options; Eligible Employees; Expiration Date.

         Upon the terms and subject to the conditions of the offer, including
our right to accept or reject any options tendered in response to this offer, we
will exchange for new options to purchase common stock under the Plan all
outstanding options under the Plan held by eligible employees that have an
exercise price of at least $15.00 per share, that are properly tendered in
accordance with Section 3 and not validly withdrawn in accordance with Section 4
before the "expiration date," as defined below. We will not accept partial
tenders of eligible options. Therefore, if you choose to participate, you must
tender all of your eligible options.

         To receive a grant of new options pursuant to the offer and under the
terms of the Plan, an


---------------
(7) Includes options to purchase up to 85,000 shares of Norstan common stock
held by Paul Baszucki (Chairman of the Board of Directors), Jim Granger (Chief
Executive Officer) and Scott Christian (Chief Financial Officer), all of whom
are ineligible to participate in the offer.


                                   (a)(1)-16

   17


employee must be eligible to receive options pursuant to the Plan from the date
he or she tenders options through the date Norstan grants the new options.

         Except as set forth below, "eligible employees" are all employees,
including executive officers, of Norstan or one of its subsidiaries who are
actively employed or on an authorized short-term leave of absence on
____________, 2001 and on the date the offer expires. An employee who is on an
authorized short-term leave of absence of six months or less, including a
short-term disability leave, is considered to be an employee of Norstan or its
subsidiaries. Paul Baszucki, Jim Granger and Scott Christian, Norstan's Chairman
of the Board of Directors, Chief Executive Officer and Chief Financial Officer,
respectively, are not eligible to participate in the offer.

         An employee will not be considered an "eligible employee" and
accordingly, will not be eligible to participate in this offer if, on or before
the date the offer expires the employee is no longer employed by Norstan or any
of its subsidiaries, for any reason, including the employee:

         -    receives a notice of involuntary termination, with or without
cause from Norstan or one of its subsidiaries;

         -    resigns or gives notice of resignation from such employment,
whether voluntarily or involuntarily or with or without good reason;

         -    enters into an agreement with Norstan or any of its subsidiaries
with respect to the employee's resignation, whether voluntarily or involuntarily
or with or without good reason;

         -    takes a long-term leave of absence (over six months in duration)
or if currently on a short-term leave of absence, does not return within the
authorized six-month period, resulting in a recatagorization of the leave as
long-term; or

         -    dies.

         IF FOR ANY REASON, YOU ARE NOT AN EMPLOYEE OF NORSTAN OR ANY OF OUR
SUBSIDIARIES FROM THE DATE YOU TENDER OPTIONS THROUGH THE DATE THE OFFER
EXPIRES, YOU WILL NOT BE ELIGIBLE TO PARTICIPATE IN THE OFFER. PARTICIPATION I
THE OFFER DOES NOT CONFER UPON YOU THE RIGHT TO REMAIN IN THE EMPLOY OF NORSTAN
OR ANY OF ITS SUBSIDIARIES.

         If your options are properly tendered and accepted for exchange, unless
we terminate this offer pursuant to the terms and conditions hereof, you will be
entitled to receive, on a business day that is at least six months and one day
following the date we accept the options tendered for exchange, new options to
purchase the number of shares of our common stock that is equal to 50 percent of
the number of shares subject to the options you tendered and we accepted,
subject to adjustments for any stock splits, stock dividends and similar events
that occur prior to the grant date of the new options.

         The exercise price (also known as the grant price or option price) on
the date of grant of the new options will be determined in accordance with the
terms of the Plan. Because the new options


                                   (a)(1)-17

   18


will be granted at least six months and one day following the date eligible
options are cancelled, we cannot predict the exercise price of the new options.
Accordingly, the new options may have a higher exercise price than some or all
of the eligible options that are cancelled in the offer. We recommend that
eligible employees obtain current market quotations for our common stock before
deciding whether to tender their eligible options. See Section 8 for a
description of the determination of the market price and for other terms of the
new options.

         The term "expiration date" means 11:59 p.m. Central Time, on
________________, 2001 unless and until we, in our discretion, have extended the
period of time during which the offer will remain open, in which event the term
"expiration date" refers to the latest time and date at which the offer, as so
extended, expires. See Section 14 for a description of our rights to extend,
delay, terminate and amend the offer.

         For purposes of this offer, a "business day" means any day other than a
Saturday, Sunday or United States Federal holiday and consists of the time
period from 12:01 a.m. through 11:59 p.m. Central Time.

         Certain eligible Norstan employees received option grants during May
and June of 2001. Because an exchange of option grants within six months of a
participant's receipt of any other option grant will result in the recognition
of compensation expense for financial reporting purposes, the offer will not be
effective for these employees until December 6, 2001, and will not expire until
11:59 Central Time on January 6, 2001 (unless extended). DOCUMENTS DESCRIBING
THE OPTION EXCHANGE PROGRAM PROVIDED TO THESE EMPLOYEES WILL INCLUDE A
SUPPLEMENTAL MEMORANDUM INDICATING THAT THE OFFER IS NOT EFFECTIVE FOR SUCH
INDIVIDUALS UNTIL DECEMBER 6, 2001 AND WILL EXPIRE (UNLESS EXTENDED) AT 11:59
P.M. CENTRAL TIME ON JANUARY 6, 2002. THESE EMPLOYEES MAY NOT TENDER OPTIONS FOR
EXCHANGE IN CONNECTION WITH THE OFFER UNTIL DECEMBER 6, 2001.

2.       Purpose of the Offer.

         We issued the options outstanding under the Plan to:

         - provide our employees an opportunity to acquire or increase a
proprietary interest in us, thereby creating a stronger incentive to expend
maximum effort for our growth and success; and

         - encourage our employees to continue their employment with us.

         Many of our outstanding options, whether or not they are currently
exercisable, have exercise prices that are higher than the current and recent
trading prices of our common stock. We believe many of these options are
unlikely to be exercised in the foreseeable future. We understand that for our
stock option program to provide the intended retention and performance
incentives for our employees, they must feel that our options provide them with
an opportunity to realize value within a reasonable period of time. With the
uncertainty of current market conditions, we believe that our employees may feel
that the opportunity for realizing value is limited with their existing options.
By making this offer to exchange eligible options for new options that will have
an exercise

                                   (a)(1)-18

   19


price equal to 100 percent of the market price of our common stock on the grant
date of the new options (determined under and subject to the terms of the Plan),
we hope to provide our employees with the benefit of owning options that over
time may have a greater potential to increase in value, thereby encouraging our
employees to remain with us, and ultimately maximize shareholder value. While we
hope and anticipate that this program will ameliorate the current underwater
options issue, this cannot be guaranteed considering the ever-present risks
associated with a volatile and unpredictable economy and stock market.

         Subject to the foregoing, and except as otherwise disclosed in this
offer or in our filings with the Securities and Exchange Commission, and other
than transactions among or between our subsidiaries and our affiliates, we
presently have no plans or proposals that relate to or would result in:

    (a)  any extraordinary corporate transaction, such as a merger,
         reorganization or liquidation, involving us or any of our subsidiaries;

    (b)  any purchase, sale or transfer of a material amount of our assets;

    (c)  any material change in our indebtedness or capitalization;

    (d)  any material change in our present Board of Directors or management,
         other than changes in the number or term of directors or to fill any
         existing board vacancies, or as may otherwise occur in the ordinary
         course of business;

    (e)  any other material change in our corporate structure or business;

    (f)  our common stock not being authorized for quotation in an automated
         quotation system operated by a national securities association;

    (g)  our common stock becoming eligible for termination of registration
         pursuant to Section 12(g)(4) of the Securities Exchange Act;

    (h)  the suspension of our obligation to file reports pursuant to Section
         15(d) of the Securities Exchange Act;

    (i)  the acquisition by any person of any material amount of our securities
         or the disposition of any material amount of our securities; or

    (j)  any change in our Articles of Incorporation or Bylaws, or any actions
         which may impede the acquisition of control of us by any person.

         From time to time we entertain proposals from third parties regarding
potential strategic relationships or transactions, which in some cases could
include a merger or sale of Norstan, Inc. We have no definitive plans with
respect to any such strategic relationship or transaction as of the date hereof.

         Neither we nor our Board of Directors makes any recommendation as to
whether you should tender your options, nor have we authorized any person to
make any such recommendation.

                                   (a)(1)-19

   20


You are urged to evaluate carefully all of the information in this offer to
exchange and to consult your own legal, investment and/or tax advisors. You must
make your own decision whether to tender your options for exchange.

3.       Procedures For Tendering Options.

         Proper Tender of Options: To validly tender your options pursuant to
the offer, you must, in accordance with the terms of the acceptance letter,
properly completed, duly executed and deliver to us the acceptance letter, or a
facsimile thereof, along with any other required documents. We must receive all
of the required documents at Norstan, Inc., 5101 Shady Oak Road, Minnetonka,
Minnesota, 55343, Attention: Mary Kiernan, before the applicable expiration
date.

         The only acceptable methods of delivery are regular external mail,
facsimile transmission and hand delivery. Your eligible options will not be
considered tendered until we receive them. Delivery by e-mail will not be
accepted.

         THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING THE ACCEPTANCE
LETTER AND ANY OTHER REQUIRED DOCUMENTS, IS AT YOUR ELECTION AND RISK. IF YOU
DELIVER BY MAIL, WE RECOMMEND THAT YOU USE REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED AND PROPERLY INSURE THE MATERIALS. IN ALL CASES, YOU SHOULD ALLOW
SUFFICIENT TIME TO ENSURE TIMELY DELIVERY.

         Determination of Validity; Rejection of Options; Waiver of Defects; No
Obligation to Give Notice of Defects: We will determine, in our sole discretion,
all questions as to form of documents and the validity, form, eligibility,
including time of receipt, and acceptance of any tender of options. Our
determination of these matters will be final and binding on all parties. We
reserve the right to reject any or all tenders of options that we determine are
not in appropriate form or that we determine are unlawful to accept. Otherwise,
we will accept properly and timely tendered options that are not validly
withdrawn. We also reserve the right to waive any of the conditions of the offer
or any defect or irregularity in any tender with respect to any particular
options or any particular option holder. No tender of options will be deemed to
have been properly made until all defects or irregularities have been cured by
the tendering option holder or waived by us. Neither we nor any other person is
obligated to give notice of any defects or irregularities in tenders, nor will
anyone incur any liability for failure to give any such notice.

         Our Acceptance Constitutes An Agreement: Your tender of options
pursuant to the procedures described above constitutes your acceptance of the
terms and conditions of the offer. OUR ACCEPTANCE FOR EXCHANGE OF YOUR OPTIONS
TENDERED BY YOU PURSUANT TO THE OFFER WILL CONSTITUTE A BINDING AGREEMENT
BETWEEN US AND YOU UPON THE TERMS AND SUBJECT TO THE CONDITIONS OF THE OFFER.

         Subject to our rights to extend, terminate and amend the offer, we
currently expect that we will accept promptly after the expiration of the offer
all properly tendered options that have not been validly withdrawn.

4.   Withdrawal Rights.


                                   (a)(1)-20

   21


         You may only withdraw your tendered options in accordance with the
provisions of this Section 4.

     You may withdraw your tendered options at any time before 11:59 p.m.,
Central Time, on ________________, 2001(8).  If the offer is extended by us
beyond that time, you may withdraw your tendered eligible options at any time
until the extended expiration of the offer. You must withdraw all tendered
eligible options; you may not withdraw only a portion of tendered eligible
options.

         To validly withdraw tendered options, an eligible employee must deliver
to us at the address set forth in Section 3 a written notice of withdrawal, or a
facsimile thereof, with the required information, while such employee still has
the right to withdraw the tendered options. The notice of withdrawal must
specify the name of the employee who tendered the options to be withdrawn.
Except as described in the following sentence, the notice of withdrawal must be
executed by the employee who tendered the options to be withdrawn exactly as
such option holder's name appears on the acceptance letter previously submitted
by the employee. If the signature is by a trustee, executor, administrator,
guardian, attorney-in-fact or another person acting in a fiduciary or
representative capacity, the signer's full title and proper evidence of the
authority of such person to act in such capacity must be identified on the
notice of withdrawal.

         You may not rescind any withdrawal. Any options you withdraw will
thereafter be deemed not properly tendered for purposes of the offer, unless you
properly re-tender those options before the expiration date by following the
procedures described in Section 3.

         Neither we nor any other person is obligated to give notice of any
defects or irregularities in any notice of withdrawal, nor will anyone incur any
liability for failure to give any such notice. We will determine, in our
discretion, all questions as to the form and validity, including time of
receipt, of notices of withdrawal. Our determination of these matters will be
final and binding.

5.   Acceptance of Options For Exchange And Issuance of New Options.

         Upon the terms and subject to the conditions of this offer and promptly
following the applicable expiration date, we will accept for exchange and cancel
options properly tendered and not validly withdrawn before the applicable
expiration date. If we cancel eligible options accepted for exchange on
_______________, 2001, the business day following the applicable scheduled
expiration date of the offer, you will be granted new options no earlier than
the first business day that is at least six months and one day following the
date we accept options for exchange. If the offer is extended, then the grant
date of the new options will also be extended if necessary to ensure that the
new option grant date is six months and one day following the date eligible
options are cancelled. Our Board of Directors or Compensation Committee will
select the actual grant date for the new options after the expiration date of
the offer in accordance with the Plan. The exercise price of the new options
will equal the fair market value of Norstan's common stock on the date of grant.


------------------
(8) For eligible Norstan employees who received option grants in May or June of
2001, the offer will not commence until December 6, 2001 and will expire (unless
extended) at 11:59 p.m. Central Time on January 6, 2002.


                                   (a)(1)-21

   22



         To be entitled to the new options after your tendered eligible options
have been cancelled in the offer, you must be eligible to receive options
pursuant to the Plan from the date you tender options through the date Norstan
grants the new options. You must be continuously and actively employed by, or on
an authorized short-term leave of absence from, Norstan or one of its
subsidiaries from the date you tender eligible options for exchange through, and
including, the date of grant of the new options. An employee who is on an
authorized short-term leave of absence of six months or less, including a
short-term disability leave, is considered to be an employee of Norstan or its
subsidiaries. You will not be eligible to receive the new options on the new
option grant date if you are not employed by Norstan or any of its subsidiaries
at any time between the date you tender options and the date of grant of the new
options, for any reason, including the following:

         - you receive a notice of involuntary termination with or without
cause, from Norstan, or one of its subsidiaries;

         - you resign or give notice of resignation from such employment,
whether voluntarily or involuntarily or with or without good reason;

         - you enter into an agreement with Norstan, or one of its subsidiaries
with respect to your resignation, whether voluntarily or involuntarily or with
or without good reason;

         - you take a long-term leave of absence (lasting more than six months)
or if you are currently on a short-term leave of absence, you do not return to
active employment within the authorized six-month period, resulting in a
recategorization of the leave as long-term; or

         - you die.

         IF, FOR ANY REASON, INCLUDING THOSE DESCRIBED ABOVE, YOU ARE NOT AN
EMPLOYEE OF NORSTAN OR ANY OF OUR SUBSIDIARIES, FROM THE DATE YOU TENDER OPTIONS
THROUGH THE DATE WE GRANT THE NEW OPTIONS, YOU WILL NOT RECEIVE ANY NEW OPTIONS
OR ANY OTHER CONSIDERATION IN EXCHANGE FOR YOUR TENDERED OPTIONS THAT WE HAVE
ACCEPTED FOR EXCHANGE.

         PARTICIPATION IN THE OFFER DOES NOT CONFER UPON YOU THE RIGHT TO REMAIN
IN THE EMPLOY OF NORSTAN OR ANY OF OUR SUBSIDIARIES. YOU ARE EMPLOYED BY NORSTAN
OR ONE OF ITS SUBSIDIARIES ON AN "AT-WILL" BASIS. AS AN AT-WILL EMPLOYEE, YOUR
CONTINUED EMPLOYMENT IS AT THE WILL AND SOLE DISCRETION OF NORSTAN OR ITS
SUBSIDIARIES. WE CANNOT GUARANTEE OR PROVIDE YOU WITH ANY ASSURANCE THAT YOU
WILL NOT BE SUBJECT TO INVOLUNTARY TERMINATION OR THAT YOU WILL OTHERWISE REMAIN
IN THE EMPLOY OF NORSTAN OR ANY OF OUR SUBSIDIARIES UNTIL THE NEW OPTION GRANT
DATE.

         If we accept options you tender in the offer, we will defer until the
grant date for your new options our grant to you of other options, such as
annual, bonus or promotional options, for which you may be eligible between the
date hereof and the new option grant date. We will defer the grant


                                   (a)(1)-22

   23


to you of these other options if we determine it is necessary for us to do so to
avoid incurring adverse accounting treatment because of accounting rules that
could apply to these interim option grants as a result of the offer. If you do
not tender options in the offer, however, we may grant you promptly following
the expiration of the offer options that you were eligible to receive between
the date hereof and the expiration date.

         For purposes of the offer, we will be deemed to have accepted for
exchange options that are validly tendered and not properly withdrawn as, if and
when we give oral or written notice to the option holders of our acceptance for
exchange of such options. Subject to our right to extend, terminate and amend
the offer, we currently expect that we will accept promptly after the applicable
expiration date of the offer all properly tendered options that are not validly
withdrawn. Promptly after we accept tendered options for exchange, we will send
each tendering option holder a letter indicating the number of shares subject to
the options that we have accepted for exchange.

6.   Conditions of the Offer.

         Notwithstanding any other provision of the offer, we will not be
required to accept any options tendered for exchange, and we may terminate or
amend the offer, or postpone our acceptance and cancellation of any options
tendered for exchange, in each case, subject to Rule 13e-4(f)(5) under the
Securities Exchange Act, if at any time on or after _____________, 2001 and
prior to the expiration date (i) any of the following events has occurred, or
has been determined by us to have occurred, and, (ii) in our reasonable judgment
in any such case and regardless of the circumstances giving rise thereto,
including any action or omission to act by us, the occurrence of such event or
events makes it inadvisable for us to proceed with the offer or with such
acceptance and cancellation of options tendered for exchange:

         (a) there shall have been threatened or instituted or be pending any
action or proceeding by any government or governmental, regulatory or
administrative agency, authority or tribunal or any other person, before any
court, authority, agency or tribunal that directly or indirectly challenges the
making of the offer, the acquisition of some or all of the tendered options
pursuant to the offer, the issuance of new options, or otherwise relates in any
manner to the offer or that, in our reasonable judgment, could materially and
adversely affect the business, condition (financial or other), income,
operations or prospects of Norstan or our subsidiaries, or otherwise materially
impair in any way the contemplated future conduct of our business or the
business of any of our subsidiaries or materially impair the contemplated
benefits of the offer to us;

         (b) there shall have been any action threatened, pending or taken, or
approval withheld, or any statute, rule, regulation, judgment, order or
injunction threatened, proposed, sought, promulgated, enacted, entered, amended,
enforced or deemed to be applicable to the offer or Norstan, or any of our
subsidiaries, by any court or any authority, agency or tribunal that, in our
reasonable judgment, would or might directly or indirectly:

               (i) make the acceptance for exchange of, or issuance of new
options for, some or all of the tendered options illegal or otherwise restrict
or prohibit consummation of the offer or otherwise relates in any manner to the
offer;

               (ii) delay or restrict our ability, or render us unable, to
accept for exchange, or issue new options for, some or all of the tendered
options;

                                   (a)(1)-23

   24

               (iii) materially impair the contemplated benefits of the offer to
us; or

               (iv) materially and adversely affect the business, condition
(financial or other), income, operations or prospects of Norstan or our
subsidiaries, or otherwise materially impair in any way the contemplated future
conduct of our business or the business of any of our subsidiaries or materially
impair the contemplated benefits of the offer to us.

         (c) there shall have occurred any change, development, clarification or
position taken in generally accepted accounting principles which could or would
require us to record compensation expense against our earnings in connection
with the offer for financial reporting purposes;

         (d) a tender or exchange offer with respect to some or all of our
common stock,

         (e) merger or acquisition proposal for us, shall have been proposed,
announced or made by another person or entity or shall have been publicly
disclosed; or

         (f) any change or changes shall have occurred in the business,
condition (financial or other), assets, income, operations, prospects or stock
ownership of Norstan or our subsidiaries that, in our reasonable judgment, is or
may be material to Norstan or our subsidiaries or materially impairs or may
materially impair the contemplated benefits of the offer to us.

         The conditions to the offer are for our benefit. We may assert them in
our discretion regardless of the circumstances giving rise to them prior to the
expiration date. We may waive them, in whole or in part, at any time and from
time to time prior to the expiration date, in our discretion, whether or not we
waive any other condition to the offer. Our failure at any time to exercise any
of these rights will not be deemed a waiver of any such rights. The waiver of
any of these rights with respect to particular facts and circumstances will not
be deemed a waiver with respect to any other facts and circumstances. Any
determination we make concerning the events described in this Section 6 will be
final and binding upon all persons.

7.   Price Range of Common Stock Underlying the Options.

         Our common stock is quoted on the Nasdaq National Market under the
symbol "NRRD." The following table shows, for the periods indicated, the high
and low closing prices per share of our common stock as reported by the Nasdaq
National Market.




                                                                      (in U.S. dollars)
                                                               ---------------------------------
                                                                    High              Low
                                                                    ----              ---
                                                                               
Fiscal Year Ending April 30, 2002
First Quarter                                                       4.094             1.125

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




                                   (a)(1)-24

   25



                                                                      (in U.S. dollars)
                                                               ---------------------------------
                                                                    High              Low
                                                                    ----              ---
                                                                               

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




         As of ___________________, 2001, the last reported sale price of our
common stock, as reported by the Nasdaq National Market, was $_________ per
share.

         WE RECOMMEND THAT YOU OBTAIN CURRENT MARKET QUOTATIONS FOR OUR COMMON
STOCK BEFORE DECIDING WHETHER OR NOT TO TENDER YOUR OPTIONS.

8.   Source and Amount of Consideration; Terms of New Options.

         Consideration: We will issue new options to purchase common stock under
the Plan in exchange for outstanding eligible options properly tendered and
accepted for exchange by us. We will grant the new options on a business day
that is at least six months and one day following the date we cancel the options
accepted for exchange. The number of shares of common stock subject to new
options to be granted to each employee will be equal to 50 percent of the number
of shares subject to the options tendered by such employee and accepted for
exchange, subject to adjustments for any stock splits, stock dividends and
similar events that occur prior to the grant date of the new options. However,
we will not issue any options exercisable for fractional shares. Instead, we
will round down to the nearest whole number.

         As of August 15, 2001, options covering 1,794,125 shares of Norstan
common stock were issued and outstanding under the Plan. Of these options,
options covering 425,125 shares of common stock have an exercise price of $15.00
or more per share, including options to purchase 85,000 shares of common stock
held by Messrs. Baszucki, Granger and Christian, who are ineligible to
participate in the offer.

         If we receive and accept tenders of all outstanding eligible options,
we will grant new options to purchase a total of approximately 170,063 shares of
our common stock and the common stock issuable upon exercise of the new options
will equal approximately one percent of the total shares of our issued and
outstanding common stock(9).

         Terms of New Options: The new options will be issued under the Plan and
pursuant to option agreements that are similar to those used for the options
tendered for exchange. Except as otherwise noted in the offer and except with
respect to the number of shares covered, exercise price, and vesting schedule,
we expect that the terms and conditions of the new options will be similar to
the terms and conditions of the options tendered for exchange. On the date the
new options are granted, we will deliver an option agreement to each tendering
employee whose tendered options were accepted for exchange and canceled by us.
After receipt of the option agreement, each

----------------
(9) Based on 12,284,708 shares of common stock issued and outstanding as of
September 4, 2001.
                                   (a)(1)-25

   26


employee will be expected to execute and deliver to us his or her option
agreements as soon as practicable. The following description summarizes the
material terms of the Plan and the options granted under the Plan.

         The following description of the Plan and the new options is only a
summary and may not be complete. For complete information please refer to the
copy of the Plan and the form of option agreement that have been filed with the
SEC as exhibits to the Tender Offer Statement on Schedule TO. You may also
contact us to request copies of the Plan or the form of the option agreement,
which will be provided to you at our expense.

         - General: The number of shares of common stock subject to the Plan is
3,400,000. There are currently 1,794,125 options to purchase shares of our
common stock outstanding under the Plan. The Plan permits the granting of stock
options that are incentive stock options within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code") and non-qualified
stock options (i.e., stock options that do not qualify as incentive stock
options). All eligible options subject to this offer are non-qualified options.
All new options that may be granted pursuant to this offer will also be
non-qualified options. All officers and other employees of Norstan, and its
subsidiaries, non-employee members of the board and the Board of Directors of
its subsidiaries, consultants and independent advisors of Norstan and its
subsidiaries are eligible to participate in the Plan.

         - Administration: The Compensation Committee of the Norstan Board of
Directors has authority to administer the Plan, with broad discretion to fashion
the terms of grants of options, including type, size and exercise price, as it
deems appropriate. The Compensation Committee also selects the persons to whom
options are granted.

         - Exercise Price: The exercise price of each option is determined by
the Compensation Committee. To the extent that the exercise price of an option
grant is less than the fair market value of our common stock on the date of
grant, we would incur compensation expense. Consistent with our prior grants
under the Plan, the exercise price of the new non-qualified options to be
granted pursuant to the offer will equal the fair market value of our common
stock on the date of the grant to avoid recognizing compensation expense. In
accordance with the terms of the Plan, the fair market value per share of common
stock on any relevant date under the Plan will be the average of the high and
low price as reported on such date by the Nasdaq National Market. BECAUSE WE
WILL NOT GRANT NEW OPTIONS UNTIL AT LEAST SIX MONTHS AND ONE DAY AFTER THE DATE
WE CANCEL THE OPTIONS ACCEPTED FOR EXCHANGE, IT IS POSSIBLE THAT THE NEW OPTIONS
MAY HAVE A HIGHER EXERCISE PRICE THAN SOME OR ALL OF YOUR CURRENT OPTIONS, AND
THEREFORE, YOUR NEW OPTIONS COULD BE WORTH LESS THAN YOUR OLD OPTIONS. WE
RECOMMEND THAT YOU OBTAIN CURRENT MARKET QUOTATIONS FOR OUR COMMON STOCK BEFORE
DECIDING WHETHER OR NOT TO TENDER YOUR OPTIONS.

         - Number Of Shares: The number of shares issued upon exercise of the
new options will equal 50 percent of the shares covered by the options given up
in exchange.

         - Vesting and Exercise: The Compensation Committee determines at what
time or times each option may be exercised. The term of the new options granted
under the Plan will commence

                                   (a)(1)-26

   27


on the date of grant and, subject to the applicable vesting requirements, will
be exercisable during the period beginning on the date of grant of the new
options and ending on the day before the tenth anniversary of the date of grant,
except that the period for exercise of the new options will end on an earlier
date in the event of the termination of an eligible employee's employment. In
accordance with the terms of the Plan and the option agreement, all of the new
options will remain exercisable upon the termination of employment for a period
of 90 days after the termination date. The new options will vest one-third upon
the date of grant, one-third on the first anniversary of the date of grant and
one-third on the second anniversary of the date of grant.

         - Method of Exercising Options: After the new options are exercisable,
the option holder may exercise the options in accordance with the terms of the
Plan and the option holder's option agreement by providing to us (i) a written
notice identifying the option and stating the number of shares of common stock
that the option holder desires to purchase and (ii) payment in full of the
option price per share for the shares of common stock then being acquired by
check payable to the order of Norstan, in full payment for the shares of common
stock being purchased.

         - Prohibition Against Transfer, Pledge and Attachment: The options, and
the rights and privileges conferred by them, are personal to the option holder
and may not be transferred, assigned, pledged or hypothecated in any way
(whether by operation of law or otherwise), and during the option holder's
lifetime shall be exercisable only by the option holder. The option holder may
transfer the options, and the rights and privileges conferred by it, upon the
option holder's death, either by will or under the laws of intestate succession.
All transferees shall be subject to all of the terms and conditions of the
options to the same extent as the option holder.

         - Registration of Option Shares: All shares of common stock issuable
upon exercise of options under the Plan, including the shares that will be
issuable upon exercise of all new options, have been registered under the
Securities Act on a registration statement on Form S-8 filed with the SEC.
Unless you are an executive officer, director or significant shareholder of
Norstan, you will be able to sell your common stock issued upon exercise of new
options free of any transfer restrictions under applicable securities laws.

         - Effect of Change of Control: If we merge or are consolidated with, or
sell substantially all of our assets or stock to, another entity before we grant
the new options, it would be our intent to negotiate the terms of that change of
control transaction such that eligible employees who tender options pursuant to
the offer would receive options to purchase securities of the acquiror. However,
we have the right to take any actions we deem necessary or appropriate to
complete a transaction that our Board of Directors believes is in the best
interests of the Company and its shareholders, accordingly management may elect
to terminate the offer and any obligation to grant the new options. If we were
to terminate the offer in connection with a change of control transaction,
tendering option holders would not receive options to purchase securities of the
acquiror or any other consideration for their tendered options.

         - Amendment of Plan: Norstan's Board of Directors may amend or modify
the Plan in any or all respects whatsoever, subject to any required shareholder
approval.

         Option holders have no shareholder rights with respect to any of our
common stock subject to outstanding options until such shares are purchased in
accordance with the provisions of the Plan


                                   (a)(1)-27

   28


and option agreement. Nothing in the Plan confers upon any option holder any
right to continued employment.

         You should refer to Section 13 for a discussion of the U.S. Federal
income tax consequences of accepting or rejecting this offer to tender eligible
options for cancellation and of the grant of the new options under this offer to
exchange.

         Our statements in this offer concerning the Plan and the new options
are merely summaries and do not purport to be complete. The statements are
subject to, and are qualified in their entirety by reference to, all provisions
of the Plan and the form of option agreement under the Plan, each of which is
filed as an exhibit to the Tender Offer Statement on Schedule TO, of which this
offer to exchange is a part. See Section 16 for a discussion of how to obtain
copies of the Plan and form of option agreement.

9.       Information Concerning Norstan, Inc.

         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 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 leading edge 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 percent, 8.8 percent, 9.2 percent and 3.2 percent of Norstan's fiscal year
2001 revenues, respectively. Solutions and Services provides leading edge
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 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.

         Norstan 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

                                   (a)(1)-28

   29


by a fiscal year 2001 survey of Norstan's communication customers that found an
overall satisfaction rating of 95.6 percent. 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.

         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.

10.      Interests of Directors and Officers; Transactions and Arrangements
Concerning the Options

         A list of our directors and executive officers as of September 1, 2001
is as follows:





         Name                                                          Position with the Company
         ----                                                          --------------------------

                                                                  
         Paul Baszucki                                                 Chairman of the Board

         James C. Granger                                              President,
                                                                       Chief Executive Officer and Director

         Constance M. Levi                                             Director

         Alan L. Mendelson                                             Director

         Dr. Jagdish N. Sheth                                          Director

         Herbert F. Trader                                             Director

         Mercedes Walton                                               Director

         Scott G. Christian                                            Executive Vice President and
                                                                       Chief Financial Officer

         Michael E. Laughlin                                           Executive Vice President of
                                                                       Services Delivery

         Scott R. McDonald                                             Vice President of
                                                                       Channels Development

         Larry J. Schmidt                                              Executive Vice President of
                                                                       Direct Solutions

         Roger D. Van Beusekom                                         Executive Vice President of
                                                                       Resale Services


                                   (a)(1)-29

   30


         As of July 13, 2001, our executive officers and non-employee directors
as a group beneficially owned options to purchase a total of approximately
445,652 shares of our common stock. Non-employee members of Norstan's Board of
Directors together with Paul Baszucki, Chairman, Jim Granger, Chief Executive
Officer, and Scott Christian, Chief Finance Officer, are not eligible to
participate in the offer.

         The following table sets forth the beneficial ownership by each of our
executive officers and directors of options as of July 13, 2001:




                                                                                                       Percent of
                                                                         Amount and Nature of          Outstanding
Name of Beneficial Owner                                               Beneficial Ownership(1)          Shares(2)
------------------------                                               --------------------             ------
                                                                                                 
Paul Baszucki                                                                    557,981(3)                4.5
James C. Granger                                                                 160,000(4)                1.3
Scott G. Christian                                                                25,100(5)                 *
Roger D. Van Beusekom                                                            150,514(6)                1.2
Constance M. Levi                                                                 46,500(7)                 *
Alan L. Mendelson                                                                 26,460(8)                 *
Dr. Jagdish N. Sheth                                                              60,100(9)                 *
Gerald D. Pint**                                                                  40,600(10)                *
Herbert F. Trader                                                                 50,100(11)                *
Mercedes Walton                                                                   17,490(12)                *
All directors and executive
officers as a group (13 persons)                                               1,241,267(13)               9.8



*  less than one percent.

** Mr. Pint retired from service on the Norstan Board of Directors on
   September 13, 2001.

(1)      Each person has sole voting and sole dispositive powers with respect to
         the outstanding shares held by the indicated person, except as
         otherwise noted.

(2)      Each figure showing the percentage of outstanding shares owned
         beneficially has been calculate by treating as outstanding and owned
         the shares which would be issuable within 60 days if stock options held
         by the indicated person were exercised.

(3)      Includes 570 shares owned by Mr. Baszucki's spouse and 17,267 shares
         owned by a family foundation with respect to which Mr. Baszucki serves
         as trustee. Mr. Baszucki disclaims beneficial ownership of all such
         shares. Also includes 116,718 shares issuable to Mr. Baszucki upon
         exercise of options exercisable within 60 days.

(4)      Includes 50,000 shares issuable to Mr. Granger upon exercise of options
         exercisable within 60 days.

(5)      Includes 100 shares issuable to Mr. Christian upon exercise of options
         exercisable within 60 days.

(6)      Includes 21,181 shares held by a trust with respect to which Mr. Van
         Beusekom serves as


                                   (a)(1)-30

   31


         trustee. Also includes 57,717 shares issuable to Mr. Van Beusekom upon
         exercise of options exercisable within 60 days.

(7)      Includes 39,000 shares issuable to Ms. Levi upon exercise of options
         exercisable within 60 days.

(8)      Includes 14,000 shares issuable to Mr. Mendelson upon exercise of
         options exercisable within 60 days.

(9)      Includes 38,000 shares issuable to Dr. Sheth upon exercise of options
         exercisable within 60 days.

(10)     Includes 19,000 shares issuable to Mr. Pint upon exercise of options
         exercisable within 60 days.

(11)     Includes 19,000 shares issuable to Mr. Trader upon exercise of options
         exercisable within 60 days.

(12)     Includes 14,000 shares issuable to Ms. Walton upon exercise of options
         exercisable within 60 days.

(13)     Includes 445,652 shares issuable to the Company 's officers and
         directors pursuant to the exercise of options held by them and
         exercisable within the next 60 days.

11.      Status of Options Acquired By Us in the Offer; Accounting Consequences
         of the Offer.

         Many of our employees hold options with exercise prices significantly
higher than the current market price of our common stock. We believe it is in
our best interest to invite these option holders to exchange these options to
provide an opportunity to more effectively participate in the potential growth
in our stock price. We could accomplish this goal by repricing existing options,
which would enable option holders to immediately receive new options with a
lower exercise price. However, the repriced options would be subject to variable
accounting, which would require us to record additional compensation expense
each quarter until the repriced options were exercised, canceled or expired.
Furthermore, if we were to cancel a stock option and issue another option with
an exercise price that is lower than the exercise price of the canceled option
within the shorter of (i) the six-month period immediately prior to the date on
which the option was required to be tendered for cancellation or (ii) the period
from the date of grant of the canceled option to the date on which the option
was required to be tendered for cancellation, the cancellation and exchange
would be deemed a repricing that results in variable accounting. The
cancellation of an existing option and the issuance of another option within
this time period will be deemed a repricing even if the issuance of the second
option occurs before the cancellation of the first option.

         We believe that we can accomplish our goals of providing option holders
the benefit of choosing whether they want to receive options that over time may
have a greater potential to increase in value, without incurring additional
current or future compensation expense because:

         - we will not grant any new options until a day that is at least six
months and one day after


                                   (a)(1)-31

   32


the date that we accept and cancel options tendered for exchange;

         - the exercise price of all new options will equal the fair market
value of our common stock on the future date we grant the new options; and

         - we will not grant any other options to an eligible employee who
tenders eligible options in the offer that are cancelled in the exchange until
after the date on which we grant the new options.

         If we were to grant any options to any eligible employee before the
scheduled new grant date, our grant of those options to the electing employee
would be treated for financial reporting purposes as a variable award to the
extent that the number of shares subject to the newly granted options is equal
to or less than the number of the option holder's option shares elected for
exchange and the exercise price of those awards is less than the exercise price
of those cancelled options. In this event, we would be required to record as
compensation expense the amount by which the market value of the shares subject
to the newly granted options exceeds the exercise price of those shares. This
compensation expense would accrue as a variable accounting charge to our
earnings over the period when the newly granted options are outstanding. We
would have to adjust this compensation expense periodically during the option
term based on increases or decreases in the market value of the shares subject
to the newly granted options.

         Options we accept for exchange and acquire pursuant to this offer will
be cancelled and will be returned to the pool of options available for future
option grants under the Plan. To the extent such options are not granted in
connection with this offer, the options will be available for future grants to
employees and other eligible plan participants without further shareholder
action, except as may be required by applicable law or the rules of the Nasdaq
Stock Market or any other stock exchange on which our common stock is then
quoted or listed.

12.  Legal Matters; Regulatory Approvals.

         We are not aware of any license or regulatory permit that appears to be
material to our business that might be adversely affected by our exchange of
options and issuance of new options as contemplated by the offer, or of any
approval or other action by any government or governmental, administrative or
regulatory authority or agency, domestic or foreign, that would be required for
the acquisition or ownership of our options as contemplated herein. Should any
such approval or other action be required, we presently contemplate that we will
seek such approval or take such other action. We cannot assure you that any such
approval or other action, if needed, would be obtained or would be obtained
without substantial conditions or that the failure to obtain any such approval
or other action might not result in adverse consequences to our business. Our
obligation under the offer to accept tendered options for exchange and to issue
new options for tendered options is subject to the conditions described in
Section 6.

13.  Material Federal Income Tax Consequences.

         The following is a general summary of the material U.S. federal income
tax consequences of the exchange of eligible options and the grant of the new
options pursuant to this offer applicable to those eligible employees who are
U.S. citizens or residents of the U.S. This discussion is based on


                                   (a)(1)-32

   33


the now applicable provisions of the U.S. Internal Revenue Code and the
regulations thereunder, all of which are subject to change, possibly on a
retroactive basis. This summary does not discuss all of the tax consequences
that may be relevant to you in light of your particular circumstances, nor is it
intended to be applicable in all respects to all categories of option holders.

         Eligible employees who are U.S. citizens or residents of the U.S. who
exchange eligible options for new options will not be required to recognize
income for U.S. federal income tax purposes at the time of the exchange. We
believe that the exchange will be treated as a non-taxable exchange for U.S.
federal income tax purposes. At the date of grant of the new options, eligible
employees who are U.S. citizens or residents of the U.S. will not be required to
recognize income for U.S. federal income tax purposes. The grant of options is
not recognized as taxable income for U.S. federal income tax purposes.

         Upon the exercise of a new option for cash, the eligible employee will
recognize compensation income, taxable as ordinary income, in an amount equal to
the excess of (i) the fair market value of the shares purchased upon such
exercise, on the date such option is exercised, over (ii) the exercise price of
the shares purchased upon such exercise. The tax basis of any share received
upon the exercise of a new option will be equal to the fair market value of such
share on the date of exercise of such option. Upon any subsequent sale of such
share, the eligible employee will realize a capital gain (or loss) in an amount
equal to the difference between the amount realized on the sale and such tax
basis. An eligible employee's holding period for federal income tax purposes for
such share will commence on the date following the date of exercise of the
option.

         The Company generally will be entitled to an income tax deduction in an
amount equal to the amount of compensation income, taxable as ordinary income,
recognized by the eligible employee as a result of the exercise of a new option,
in the year of recognition by the eligible employee.

         WE RECOMMEND THAT YOU CONSULT YOUR OWN TAX ADVISOR WITH RESPECT TO THE
FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES OF PARTICIPATING IN THE OFFER.

14.  Extension Of Offer; Termination; Amendment.

         We expressly reserve the right, in our discretion, at any time and from
time to time, and regardless of whether or not any event set forth in Section 6
has occurred or is deemed by us to have occurred, to extend the period of time
during which the offer is open and thereby delay the acceptance for exchange of
any options by giving oral or written notice of such extension to the option
holders and making a public announcement thereof.

         We also expressly reserve the right, in our reasonable judgment, prior
to the expiration date to terminate or amend the offer and to postpone our
acceptance and cancellation of any options tendered for exchange upon the
occurrence of any of the conditions specified in Section 6, by giving oral or
written notice of such termination or postponement to the option holders and
making a public announcement thereof. Our reservation of the right to delay our
acceptance and cancellation of options tendered for exchange is limited by Rule
13e-4(f)(5) promulgated under the Securities Exchange Act of 1934, which
requires that we must pay the consideration offered or return the options
tendered promptly after termination or withdrawal of the offer.

                                   (a)(1)-33

   34


         Subject to compliance with applicable law, we further reserve the
right, in our discretion, and regardless of whether any event set forth in
Section 6 has occurred or is deemed by us to have occurred, to amend this offer
in any respect, including, without limitation, by decreasing or increasing the
consideration offered in this offer to eligible employees or by decreasing or
increasing the number of options being sought in the offer.

         Amendments to the offer may be made at any time and from time to time
by public announcement of the amendment. In the case of an extension, the
amendment must be issued no later than 9:00 a.m., Central Time, on the next
business day after the last previously scheduled or announced applicable
expiration date. Any announcement made pursuant to the offer will be
disseminated promptly to eligible employees in a manner reasonably designated to
inform eligible employees of such change.

         If we materially change the terms of the offer or the information
concerning the offer, or if we waive a material condition of the offer, we will
extend the offer to the extent required by Rules 13e-4(d)(2) and 13e-4(e)(3)
under the Securities Exchange Act of 1934. These rules require that the minimum
period during which an offer must remain open following material, changes in the
terms of the offer or information concerning the offer, other than a change in
price or a change in percentage of securities sought, will depend on the facts
and circumstances, including the relative materiality of such terms or
information.

15. Fees And Expenses.

         We will not pay any fees or commissions to any broker, dealer or other
person for soliciting tenders of options pursuant to this offer to exchange. Nor
will we pay any fees for professional services you may incur from your tax,
financial planning or other advisors.

16.  Additional Information.

         With respect to the offer, we have filed with the SEC a Tender Offer
Statement on Schedule TO, as amended, of which this offer to exchange is a part.
This offer to exchange does not contain all of the information contained in the
Schedule TO and the exhibits to the Schedule TO. We recommend that you review
the Schedule TO, including its exhibits, and the following materials which we
have filed with the SEC before making a decision on whether or not to tender
your eligible options:

         (a)  Our Annual Report on Form 10-K/A for the fiscal year ended April
              30, 2001, filed with the SEC on July 30, 2001;

         (b)  Our Quarterly Report on Form l0-Q for the quarter ended July 28,
              2001, filed with the SEC on September 11, 2001;

         (c)  Our Form S-8 (registering shares to be issued under the Norstan,
              Inc., 1995 Long-Term Incentive Plan) filed with the SEC on
              September 27, 1995;

         (d)  Our Form S-8 (registering shares to be issued under the Norstan,
              Inc., 1995 Long-Term Incentive Plan) filed with the SEC on
              November 27, 1998;


                                   (a)(1)-34

   35


         (e)  Our Form S-8 (registering shares to be issued under the Norstan,
              Inc., 1995 Long-Term Incentive Plan) filed with the SEC on
              February 16, 2001;

         (f)  The description of our common stock contained in our registration
              statement on Form 8-A, together with all amendments or reports
              updating this description; and

         (g)  Our Proxy Statement relating to our 2001 Annual Meeting of
              Shareholders filed with the SEC on August 9, 2001.


         These filings, our other annual, quarterly and current reports, our
proxy statements and our other SEC filings may be examined, and copies may be
obtained, at the public reference facilities maintained by the SEC at Judiciary
Plaza, 450 Fifth Street, N.W., Room 2120, Washington D.C. 20549; and at its
regional offices located at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511 and at 7 World Trade Center, New York, New
York 10048. Copies of such materials may also be obtained (1) at no charge from
our web site at http://www.norstan.com or (2) by mail, upon payment of the SEC's
customary charges, from the SEC's Public Reference Room at Judiciary Plaza, 450
Fifth Street, N.W., Washington D.C. 20549. Information about the operation of
this public reference room can be obtained by calling the SEC at 1-800-SEC-0330.
The SEC also maintains a web site at http://www.sec.gov that contains reports,
proxy statements and information statements and other information regarding
registrants, including Norstan, that file electronically with the SEC.

         Our common stock is listed for trading on the Nasdaq National Market
under the symbol "NRRD."

         We will also provide without charge to each person to whom a copy of
this offer to exchange is delivered, upon the written or oral request of any
such person, a copy of any or all of the documents to which we have referred
you, other than exhibits to such documents (unless such exhibits are
specifically incorporated by reference into such documents). Requests should be
directed to:

                  Norstan, Inc.
                  5101 Shady Oak Road
                  Minnetonka, Minnesota 55343
                  Attention: Mary Kiernan
                  telephone:  952.352.4194

between the hours of 9:00 a.m. and 5:00 p.m., Central Time. As you read the
documents listed in Section 16, you may find some inconsistencies in information
from one document to another. Should you find inconsistencies between the
documents, or between a document and this offer to exchange, you should rely on
the statements made in the most recent document. The information contained in
this offer to exchange about Norstan, should be read together with the
information contained in the documents to which we have referred you.

17.  Forward Looking Statements.

         This offer to exchange and our SEC reports referred to above, include
forward-looking statements that reflect our current expectations and projections
about our future results,


                                   (a)(1)-35

   36

performance, prospects and opportunities. We have tried to identify these
forward-looking statements by using words including "may," "will," "expects,"
"anticipates," "believes," "intends", "could", "should" and "estimates" and
similar expressions. These forward-looking statements are based on information
currently available to us and are subject to a number of risks, uncertainties
and other factors that could cause our actual results, performance, prospects or
opportunities in 2001 and beyond to differ materially from those expressed in,
or implied by, these forward-looking statements.

         For information about risks, uncertainties and other factors that may
affect our business, please review the disclosure included under the captions
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations" in our annual report on Form 10-K for the fiscal year ended April
30, 2001 and in our quarterly report on Form 10-Q for the fiscal period ended
July 28, 2001. Except as otherwise required by federal securities laws, we
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events, changed
circumstances or any other reason after the date of this offer to exchange.

18.  Miscellaneous.


         We are not aware of any jurisdiction where the making of the offer is
not in compliance with applicable law. If we become aware of any jurisdiction
where the making of the offer is not in compliance with any valid applicable
law, we will make a good faith effort to comply with such law. If, after such
good faith effort, we cannot comply with such law, the offer will not be made
to, nor will tenders be accepted from or on behalf of, the eligible employees
residing in such jurisdiction.

         WE HAVE NOT AUTHORIZED ANY PERSON TO MAKE ANY RECOMMENDATION ON OUR
BEHALF AS TO WHETHER OR NOT YOU SHOULD TENDER YOUR OPTIONS PURSUANT TO THE
OFFER. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER
THAN THE INFORMATION AND REPRESENTATIONS CONTAINED IN THIS DOCUMENT OR IN THE
RELATED ACCEPTANCE LETTER. IF ANYONE MAKES ANY RECOMMENDATION OR REPRESENTATION
TO YOU OR GIVES YOU ANY INFORMATION, YOU MUST NOT RELY UPON THAT RECOMMENDATION,
REPRESENTATION OR INFORMATION AS HAVING BEEN AUTHORIZED BY US.

Norstan, Inc.
____________, 2001



                                   (a)(1)-36

EX-99.(A)(2)

   1

                                                                  EXHIBIT (a)(2)


                                  NORSTAN, INC.

                                ACCEPTANCE LETTER

                        PURSUANT TO THE OFFER TO EXCHANGE
                       OPTIONS HELD BY ELIGIBLE EMPLOYEES
               UNDER NORSTAN, INC.'S 1995 LONG-TERM INCENTIVE PLAN
                                 FOR NEW OPTIONS
--------------------------------------------------------------------------------
              THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 11:59 P.M.,
                     CENTRAL TIME ON                 , 2001,
                          UNLESS THE OFFER IS EXTENDED
         --------------------------------------------------------------

To:      Norstan, Inc.
         5101 Shady Oak Road
         Minnetonka, Minnesota 55343
         Attention: Mary Kiernan
         Telephone: 952.352.4194
         Facsimile:   952.352.4044

         I have received the Offer to Exchange dated                2001
provided by Norstan, Inc. ("Norstan, Inc.," or the "Company") describing the
stock option exchange program under which eligible employees of Norstan, Inc.,
holding options to purchase the Company's common stock, $.10 par value ("Common
Stock") under the Norstan, Inc., 1995 Long Term Incentive Plan, as amended (the
"Plan"), with an exercise price equal to or greater than $15.00 per share, may
tender such options for cancellation in exchange for new options to be granted
under the Plan.

UPON THE TERMS AND SUBJECT TO THE CONDITIONS SET FORTH IN THE OFFER TO EXCHANGE
DATED                2001, AND IN THIS ACCEPTANCE LETTER (WHICH, TOGETHER WITH
THE OFFER TO EXCHANGE, AS THEY MAY BE AMENDED FROM TIME TO TIME, CONSTITUTES THE
"OFFER"), I HEREBY TENDER TO NORSTAN, INC., ALL OF MY OPTIONS LISTED IN THE
"OPTION REPORT" (ATTACHED HERETO AS ATTACHMENT A) WITH AN EXERCISE PRICE OF
$15.00 OR HIGHER (THE "TENDERED OPTIONS") THAT WERE GRANTED TO ME UNDER THE PLAN
AND ARE OUTSTANDING ON THE EXPIRATION DATE OF THE OFFER, IN EXCHANGE FOR NEW
OPTIONS TO PURCHASE A NUMBER OF SHARES OF COMMON STOCK EQUAL TO 50 PERCENT OF
THE SHARES COVERED BY THE TENDERED OPTIONS THAT THE COMPANY ACCEPTS FOR EXCHANGE
(THE "NEW OPTIONS").

         I acknowledge and confirm that the Tendered Options consist solely of
the following options (TO VALIDLY TENDER THE TENDERED OPTIONS, YOU MUST COMPLETE
(VERIFY) THE FOLLOWING):



                                    (a)(2)-1
   2

                                              
      NUMBER OF OPTIONS      GRANT DATE OF          EXERCISE PRICE OF
          TENDERED          TENDERED OPTION          TENDERED OPTION
          --------          ---------------          ---------------





         Subject to, and effective upon, the Company's acceptance for exchange
of the Tendered Options in accordance with the terms and subject to the
conditions of the Offer (including, if the Offer is extended or amended, the
terms and conditions of any such extension or amendment), I hereby sell, assign
and transfer to, or upon the order of, the Company all right, title and interest
in and to the Tendered Options.

         I hereby represent and warrant that I have full power and authority to
tender the Tendered Options and that, when and to the extent the Tendered
Options are accepted for exchange by the Company, the Tendered Options will be
free and clear of all security interests, liens, restrictions, charges,
encumbrances, conditional sales agreements or other obligations relating to the
sale or transfer thereof (other than pursuant to the applicable option agreement
or instrument of grant) and the Tendered Options will not be subject to any
adverse claims. Upon request, I will execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
exchange of the Tendered Options pursuant to the Offer.

         The name of the registered holder of the Tendered Options appears on
the signature line below exactly as it appears on the option agreement or
agreements representing the Tendered Options.

     I understand and acknowledge that:

         (1) I may only tender options granted under the Company's 1995
Long-Term Incentive Plan, as amended, with an exercise price of at least $15.00
per share and that I am not required to tender any of such options in the Offer.

         (2) I may not tender only part of the options eligible to be tendered
by me. If I choose to accept the Offer, I must tender all of my options granted
under the Plan with an exercise price of at least $15.00 per share.

         (3) All Tendered Options properly tendered prior to 11:59 p.m., Central
Time, on               , 2001, unless the Company has extended the period of
time the Offer will remain open (the "Expiration Date"), and not properly
withdrawn that are cancelled in the Offer will be exchanged for New Options,
upon the terms and subject to the conditions of the Offer described in the Offer
to Exchange.

         (4) Upon the Company's acceptance of the Tendered Options for exchange,
the option agreement or other instrument of grant to which the Tendered Options
are subject will terminate automatically and the Company will terminate and
cancel all then outstanding options thereunder. All New Options will be subject
to the terms and conditions of the Plan and the terms of a new option agreement
or other instrument of grant to be issued by the Company, a copy of which I will
receive after the New Options are granted.



                                    (a)(2)-2
   3

         (5) The New Options will not be granted until a date that is at least
six months and one day after the date the Company accepts for exchange and
cancels the Tendered Options and will have (a) an exercise price (also known as
the grant price or option price) equal to the fair market value of the Common
Stock on the grant date of the New Options, determined under the terms of the
Plan, (b) a term of ten years from the date of grant, subject to earlier
expiration upon termination of employment (90 days from the date of
termination), death or disability (one year after the date of death or the date
employee is determined to be disabled), and (c) vest one-third on the date of
grant and one-third on each of the first and second anniversaries of the date of
the grant.

         (6) To be entitled to the New Options after my Tendered Options have
been cancelled in the Offer, I must be eligible to receive options pursuant to
the Plan from the date I tender my Tendered Options for exchange through, and
including, the date of grant of the New Options. I will not be eligible to
receive the New Options on the New Option grant date if I am not continuously
and actively employed by or on an authorized short-term leave of absence from
Norstan, Inc., (or the subsidiary that employs me) from the date I tender the
Tender Options for exchange through, and including, the date of grant of the New
Options, for any reason, including the following: (i) I receive a notice of
involuntary termination with or without cause, from the Company or one of its
subsidiaries; (ii) I resign or give notice of resignation from such employment,
whether voluntarily or involuntarily or with or without good reason; (iii) I
enter into an agreement with the Company or one of its subsidiaries with respect
to my resignation, whether voluntarily or involuntarily or with or without good
reason; (iv) I take a long-term leave of absence (lasting more than six months)
or I am currently on a short-term leave of absence and I do not return to active
employment within the authorized six month period, resulting in a
recategorization of my leave as long-term; or (v) I die. IF, FOR ANY REASON,
INCLUDING THOSE LISTED ABOVE, I AM NOT AN EMPLOYEE OF THE COMPANY OR ANY OF ITS
SUBSIDIARIES, FROM THE DATE I TENDER THE TENDERED OPTIONS THROUGH THE DATE THE
COMPANY GRANTS THE NEW OPTIONS, I WILL NOT RECEIVE ANY NEW OPTIONS OR ANY OTHER
CONSIDERATION IN EXCHANGE FOR MY TENDERED OPTIONS THAT THE COMPANY HAS ACCEPTED
FOR EXCHANGE.

         (7) I ACKNOWLEDGE THAT PARTICIPATION IN THE OFFER DOES NOT CONFER UPON
ME THE RIGHT TO REMAIN IN THE EMPLOY OF NORSTAN, INC., OR ANY OF ITS
SUBSIDIARIES. I AM EMPLOYED BY NORSTAN, INC., OR ONE OF ITS SUBSIDIARIES ON AN
"AT-WILL" BASIS. AS AN AT-WILL EMPLOYEE, MY CONTINUED EMPLOYMENT IS AT THE WILL
AND SOLE DISCRETION OF NORSTAN, INC., OR THE SUBSIDIARY THAT EMPLOYS ME. NEITHER
NORSTAN, INC., NOR ANY OF ITS SUBSIDIARIES HAS EVER GUARANTEED OR PROVIDED ME
WITH ANY ASSURANCE THAT I WILL NOT BE SUBJECT TO INVOLUNTARY TERMINATION OR THAT
I WILL OTHERWISE REMAIN IN THE EMPLOY OF NORSTAN, INC., OR ANY OF ITS
SUBSIDIARIES UNTIL THE NEW OPTION GRANT DATE.

         (8) If the Company merges or is consolidated with, or sells
substantially all of its assets or stock to, another entity before the Company
grants the New Options, the Company has the right to take any actions it deems
necessary or appropriate to complete a transaction that its Board of Directors
believes is in the best interest of the company and its shareholders. This could
include terminating the Offer and any obligation to grant the New Options. IF
THE COMPANY WERE



                                    (a)(2)-3
   4

TO TERMINATE THE OFFER IN CONNECTION WITH A CHANGE OF CONTROL TRANSACTION, I
WOULD NOT RECEIVE OPTIONS TO PURCHASE SECURITIES OF THE ACQUIROR OR ANY OTHER
CONSIDERATION FOR THE TENDERED OPTIONS.

         (9) By tendering the Tendered Options pursuant to the procedure
described in Section 3 of the Offer to Exchange and in the instructions to this
Letter, I accept the terms and conditions of the Offer. The Company's acceptance
for exchange of the Tendered Options will constitute a binding agreement between
the Company and me upon the terms and subject to the conditions of the Offer.

         (10) Under certain circumstances set forth in the Offer to Exchange,
the Company may terminate or amend the Offer and postpone its acceptance and
cancellation of any Tendered Options.

         (11) All options that I choose not to tender for exchange or that are
not accepted or exchange shall remain outstanding and retain their current
exercise price and exercise schedule.

         (12) The Company has advised me to consult with my own advisors
(including my own tax advisors) as to the consequences of participating or not
participating in the Offer.

         (13) The Company has not made any representation or warranty to me
whatsoever concerning the future value of its Common Stock and no employees or
representatives of the Company are authorized to make, or have made, on behalf
of the Company any representation or any recommendation to me as to whether or
not I should tender my options pursuant to the Offer. I further acknowledge and
agree that the Company has advised me that if I have any questions regarding the
Offer or the New Options I should contact Mary Kiernan at Norstan, Inc. and/or
review any of the following documents made available to me by Norstan, Inc., the
Plan, the applicable option agreement for my current options, the Tender Offer
Statement on Schedule TO, which was filed with the SEC in connection with the
Offer, and/or any financial documents that Norstan, Inc., regularly files with
the SEC from time to time. The Company has advised me that neither the Company
nor its Board of Directors makes any recommendation as to whether or not I
should tender my options for exchange that I must make my own decision whether
to tender my options. The Company also has advised me in the Offer to Exchange
that I should speak with my own tax advisor to determine the tax consequences of
the tender of options under the Offer and the receipt of new options, prior to
signing this Acceptance Letter.

         (14) The determination of whether to tender my eligible options
pursuant to the Offer requires a subjective determination by me as to the future
value of the Company's Common Stock and that the future value of the Company's
Common Stock depends on a number of variables, including future events that
involve substantial risks and uncertainties.

         All authority herein conferred or agreed to be conferred shall not be
affected by, and shall survive, my death or incapacity, and all of my
obligations hereunder shall be binding upon my heirs, personal representatives,
successors and assigns. Except as stated in the Offer, this tender is
irrevocable.

         The Offer is not being made to (nor will Tendered Options be accepted
from or on behalf of) holders in any jurisdiction in which the making or
acceptance of the Offer would not be in



                                    (a)(2)-4
   5

compliance with the laws of such jurisdiction.

         By signing below, I agree to the terms and conditions set forth in this
Acceptance Letter, including the terms and conditions of the Offer to Exchange.


-----------------------------------               ------------------------------
Signature                                         Date and Time

Name and Title
              --------------------------------    ------------------------------
                                                  Tax ID/SSN

------------------------------------------------------------------------------
address

-------------------------------------
telephone

         YOU MUST COMPLETE AND SIGN ABOVE EXACTLY AS YOUR NAME APPEARS ON THE
OPTION AGREEMENT OR AGREEMENTS EVIDENCING THE TENDERED OPTIONS. IF THE SIGNATURE
IS BY A TRUSTEE, EXECUTOR, ADMINISTRATOR, GUARDIAN, ATTORNEY-IN-FACT OR ANOTHER
PERSON ACTING IN A FIDUCIARY OR REPRESENTATIVE CAPACITY, PLEASE SET FORTH THE
SIGNER'S FULL TITLE AND INCLUDE WITH THIS ACCEPTANCE LETTER PROPER EVIDENCE OF
THE AUTHORITY OF SUCH PERSON TO ACT IN SUCH CAPACITY. SEE INSTRUCTIONS 1 AND 4
ATTACHED TO THIS ACCEPTANCE LETTER.


                                  INSTRUCTIONS

                         THESE INSTRUCTIONS FORM PART OF
                      THE TERMS AND CONDITIONS OF THE OFFER

         1. DELIVERY OF ACCEPTANCE LETTER. A properly completed and signed
original of this Letter (or a facsimile thereof) must be received by the Company
at its address or facsimile number set forth on the front cover of this Letter
on or before the Expiration Date.

         The Company will not accept any alternative, conditional or contingent
tenders. All tendering eligible employees, by signing this Letter (or a
facsimile of it), waive any right to receive any notice of the acceptance of
their tender, except as provided for in the Offer to Exchange.

         DELIVERY OF THIS LETTER TO AN ADDRESS OTHER THAN AS SET FORTH ON PAGE 1
OF THIS LETTER OR TRANSMISSION VIA FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH
ON PAGE 1 OF THIS LETTER WILL NOT CONSTITUTE A VALID DELIVERY.

         THE METHOD BY WHICH YOU DELIVER ANY REQUIRED DOCUMENTS IS AT



                                    (a)(2)-5
   6

YOUR OWN RISK, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED
BY THE COMPANY.

         IF YOU ELECT TO DELIVER YOUR DOCUMENTS BY MAIL, THE COMPANY RECOMMENDS
THAT YOU USE REGISTERED MAIL WITH RETURN RECEIPT REQUESTED. IN ALL CASES, YOU
SHOULD ALLOW SUFFICIENT TIME TO ENSURE TIMELY DELIVERY.

         2. WITHDRAWAL OF TENDERED OPTIONS. Tenders of Tendered Options made
pursuant to the Offer may be withdrawn at any time prior to the Expiration Date.
You must withdraw all Tendered Options; you may not withdraw only a portion of
Tendered Options. If the Offer is extended by the Company beyond that time, you
may withdraw the Tendered Options at any time until the extended expiration of
the Offer. To withdraw Tendered Options, you must deliver a written Notice of
Withdrawal with the required information to the Company while you still have the
right to withdraw the Tendered Options. Withdrawals may not be rescinded and any
Tendered Options withdrawn will thereafter be deemed not properly tendered for
purposes of the Offer unless such withdrawn Tendered Options are properly
re-tendered prior to the Expiration Date by following the procedures described
above.

         3. TENDERS. If you intend to tender options pursuant to the Offer, you
must verify the table on the first page of this Letter by confirming the number
of Common Stock subject to each Tendered Option, the grant date of each Tendered
Option and the exercise price of each Tendered Option. If you intend to tender
eligible options pursuant to the Offer, you must tender all of your eligible
options that are outstanding on the Expiration Date.

         4. SIGNATURES ON THIS ACCEPTANCE LETTER. If this Letter is signed by
the eligible employee who is the holder of the Tendered Options, the signature
must be by such employee. The signature must correspond with the name as written
on the face of the option agreement or agreements to which the Tendered Options
are subject without alteration, enlargement or any change whatsoever. If this
Letter is signed by a trustee, executor, administrator, guardian,
attorney-in-fact or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and proper evidence
satisfactory to the Company of the authority of such person so to act must be
submitted with this Letter.

         5. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Any questions or
requests for assistance, as well as requests for additional copies of the Offer
to Exchange or this Letter, may be directed to Mary Kiernan at the address and
telephone number given on page 1 of this Letter. The Company will promptly
furnish copies at its expense.

         6. IRREGULARITIES. All questions as to the number of Common Stock
subject to Tendered Options to be accepted for exchange, and the validity, form,
eligibility (including time of receipt) and acceptance for exchange of any
Tendered Options will be determined by the Company in its discretion, which
determinations shall be final and binding on all parties. The Company reserves
the right to reject any or all Tendered Options the Company determines not to be
in proper form or the acceptance of which may, in the opinion of the Company's
counsel, be unlawful. The Company also reserves the right to waive any of the
conditions of the Offer and any defect or irregularity in the tender of any
particular Tendered Options, and the Company's interpretation of the terms of
the Offer (including these instructions) will be final and binding on all
parties. No



                                    (a)(2)-6
   7

tender of Tendered Options will be deemed to be properly made until all defects
and irregularities have been cured or waived to the Company's satisfaction.
Unless waived, any defects or irregularities in connection with tenders must be
cured within such time as the Company shall determine. Neither the Company nor
any other person is or will be obligated to give notice of any defects or
irregularities in tenders, and no person will incur any liability for failure to
give any such notice.

         IMPORTANT: TO ACCEPT THE OFFER, THE SIGNED LETTER (OR A FACSIMILE COPY
THEREOF) MUST BE RECEIVED BY THE COMPANY ON OR PRIOR TO THE EXPIRATION DATE. YOU
MUST DELIVER A PROPERLY SIGNED PAPER COPY OF THIS LETTER BY REGULAR EXTERNAL
MAIL, FACSIMILE OR HAND-DELIVERY. DELIVERY BY E-MAIL WILL NOT BE ACCEPTED.

         7. IMPORTANT TAX INFORMATION. You should carefully review Section 13 of
the Offer to Exchange, which contains important tax information.




                                    (a)(2)-7

EX-99.(A)(3)

   1
                                                                  EXHIBIT (a)(3)

                                  NORSTAN, INC.

                                 DECLINE LETTER

                        PURSUANT TO THE OFFER TO EXCHANGE
                       OPTIONS HELD BY ELIGIBLE EMPLOYEES
               UNDER NORSTAN, INC.'S 1995 LONG TERM INCENTIVE PLAN
                                 FOR NEW OPTIONS
             -----------------------------------------------------
              THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 11:59 P.M.,
                  CENTRAL TIME, ON ____________________, 2001,
                          UNLESS THE OFFER IS EXTENDED
             -----------------------------------------------------

To:      Norstan, Inc.
         5101 Shady Oak Road
         Minnetonka, Minnesota  55434
         Attention: Mary Kiernan
         Telephone:  952.352.4194
         Facsimile:  952.352.4044

         I have received the Offer to Exchange dated __________________, 2001
and the related Acceptance Letter (which together, as each may be amended or
supplemented from time to time, constitute the "Offer") provided by Norstan,
Inc., describing the stock option exchange program under which eligible
employees holding options to purchase common stock under the Norstan, Inc. 1995
Long-Term Incentive Plan, as amended (the "Plan"), with an exercise price equal
to or greater than $15.00 per share may tender such options for cancellation in
exchange for new options to be granted under the Plan.

         BY RETURNING THIS DECLINE LETTER, I AM NOTIFYING NORSTAN, INC., THAT I
DO NOT CURRENTLY PLAN TO TENDER ANY OPTIONS OR TO PARTICIPATE IN THE OFFER.

         I UNDERSTAND THAT NORSTAN, INC., IS ASKING ME TO RETURN THIS DECLINE
LETTER SOLELY TO AID THEM IN THE ADMINISTRATION OF THE STOCK OPTION EXCHANGE
PROGRAM. I UNDERSTAND THAT THIS DECLINE LETTER IS NOT BINDING IN ANY WAY AND
THAT SUBSEQUENT TO DELIVERING THIS DECLINE LETTER TO NORSTAN, INC.. I MAY CHANGE
MY MIND AND ACCEPT THE OFFER AT ANY TIME PRIOR TO THE EXPIRATION OF THE OFFER.
To change my mind and elect to participate in the Offer, I must deliver a signed
and dated Acceptance Letter (or a facsimile of the Acceptance Letter) with the
required information, to Norstan, Inc., while I still have the right to
participate in the Offer.

         If I do not accept the Offer, I understand that I will not receive any
new options pursuant to the Offer and I will keep my current options. These
options will continue to be governed by the

                                    (a)(3)-1
   2
Plan, under which they were granted, and by the existing option agreement or
agreements between Norstan, Inc., and me.



------------------------------              ---------------------------------
SIGNATURE:                                  DATE AND TIME


------------------------------              ---------------------------------
NAME AND TITLE:                             TAX ID/SSN:


------------------------------
HOME TELEPHONE NUMBER



















                                    (a)(3)-2

EX-99.(A)(4)

   1
                                                                  EXHIBIT (a)(4)
                                  NORSTAN, INC.

                              NOTICE OF WITHDRAWAL

                   OF PREVIOUSLY TENDERED OPTIONS PURSUANT TO
           THE OFFER TO EXCHANGE DATED ________________________, 2001

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

                   THE WITHDRAWAL RIGHTS EXPIRE AT 11:59 P.M.,
                  CENTRAL, ON _________________________, 2001,
                          UNLESS THE OFFER IS EXTENDED
               ----------------------------------------------------


To:      Norstan, Inc.
         5101 Shady Oak Road
         Minnetonka, Minnesota  55434
         Attention: Mary Kiernan
         Telephone:  952.352.4194
         Facsimile:  952.352.4044

         I previously received a copy of the Offer to Exchange dated
_______________, 2001, the Acceptance Letter and other related documents. I
signed and returned the Acceptance Letter, in which I accepted Norstan, Inc.'s
offer to exchange all of my options granted under the Norstan, Inc.'s Long-Term
Incentive Plan, as amended (the " Plan"), with an exercise price of at least
$15.00 per share, for new options to be granted under the Plan (the "Offer"). I
now wish to change that acceptance and instead reject the Offer. I understand
that by signing this Notice of Withdrawal and delivering it to
________________________ by 11:59 p.m., Central Time on _________________, 2001,
I will be able to withdraw my acceptance of the Offer and reject the Offer to
exchange options instead. I have read and understand all the terms and
conditions of the Offer to Exchange. I have read and understand the instructions
attached to this Notice of Withdrawal.

         I understand that in order to reject the Offer, I must sign, date, and
deliver this Notice of Withdrawal via facsimile to Mary Kiernan at Norstan, Inc.
(fax number: 952.352.4044), or by mail or delivery, for receipt by Mary Kiernan
by 11:59 p.m., Central Time on ___________________, 2001.

         I understand that by rejecting the Offer, I will not receive any new
options pursuant to the Offer and I will keep the old options that I have. These
options will continue to be governed by the Plan, under which they were granted,
and by the existing option agreement or agreements between Norstan, Inc., and
me.

         I understand that I must withdraw all of the options that I previously
tendered; I may not withdraw only a portion of my options previously tendered.
Upon withdrawal of the previously

                                    (a)(4)-1
   2
tendered options, I understand that all such options will remain outstanding
pursuant to their original terms and conditions, including their exercise prices
and vesting schedule.

         I understand that I may not rescind this Notice of Withdrawal, and to
once again accept the Offer to exchange options as to the withdrawn options, I
must submit a new Acceptance Letter to Mary Kiernan via facsimile (fax number:
952.352.4044), or by mail or hand delivery, for receipt prior to 11:59 p.m.,
Central Time, on ________________, 2001.

         I am the person who signed the Acceptance Letter. I have signed this
Notice of Withdrawal and printed my name exactly as it appears on the Acceptance
Letter.

         I agree to all of the terms and conditions of the Offer and this Notice
of Withdrawal.


_______________________________                   ______________________________
Signature                                         Date and Time

Name and Title_____________________________       ______________________________
                                                  Tax ID/SSN

________________________________________________________________________________
address

_____________________________________
telephone

         THIS NOTICE OF WITHDRAWAL MUST BE COMPLETED AND SIGNED IN THE SAME NAME
THAT APPEARS ON THE ACCEPTANCE LETTER PREVIOUSLY SUBMITTED BY THE ELIGIBLE
EMPLOYEE WHO TENDERED THE PREVIOUSLY TENDERED OPTIONS. IF THE SIGNATURE IS BY A
TRUSTEE, EXECUTOR, ADMINISTRATOR, GUARDIAN, ATTORNEY-IN-FACT, OR ANOTHER PERSON
ACTING IN A FIDUCIARY OR REPRESENTATIVE CAPACITY, THE SIGNER'S FULL TITLE MUST
BE SPECIFIED AND PROPER EVIDENCE OF THE AUTHORITY OF SUCH PERSON TO ACT IN SUCH
CAPACITY MUST BE SUBMITTED WITH THIS NOTICE.

                                  INSTRUCTIONS

              FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER


         1. DELIVERY OF NOTICE OF WITHDRAWAL.

         A properly completed and executed original of this Notice of Withdrawal
(or a facsimile of it) and any other documents required by this Notice of
Withdrawal must be received by Mary Kiernan either by mail, hand delivery or by
facsimile at the number listed on the front cover of this Notice of Withdrawal
(fax number: 952.352.4044) on or before 11:59 p.m., Central Time, on
___________, 2001 (the "Expiration Date").

                                    (a)(4)-2
   3
         The method by which you deliver any required documents is at your
option and risk, and the delivery will be deemed made only when actually
received by Norstan, Inc. You may mail or deliver your Notice of Withdrawal to
Mary Kiernan at Norstan, Inc., 5101 Shady Oak Road, Minnetonka, Minnesota,
55434, or you may fax it to Mary Kiernan at 952.352.4044 In all cases, you
should allow sufficient time to ensure timely delivery.

         Although by submitting a Notice of Withdrawal you have withdrawn your
tendered options from the Offer, you may change your mind and re-accept the
Offer until the expiration of the Offer. Tenders of options made through the
Offer may be made at any time before the Expiration Date. If the Offer is
extended by Norstan, Inc., beyond that time, you may tender your options at any
time until the extended expiration of the Offer. To change your mind and elect
to participate in the Offer as to the withdrawn options, you must deliver a new
signed and dated Acceptance Letter, or a facsimile of the Acceptance Letter,
with the required information, to Norstan, Inc., while you still have the right
to participate in the Offer. The withdrawn options will not be properly tendered
for purposes of the Offer unless you properly re-tender those options before the
Expiration Date by delivery of the new Acceptance Letter following the
procedures described in the Instructions to the Acceptance Letter.

         If you wish to withdraw any of your tendered options from the Offer,
you are required to withdraw all of the options you previously tendered. By
signing this Notice of Withdrawal (or a facsimile of it), you waive any right to
receive any notice of the withdrawal of the tender of your options, except as
provided for in the Offer to Exchange.

         2. SIGNATURES ON THIS NOTICE OF WITHDRAWAL.

         The name and signature on this Notice of Withdrawal must correspond
with the name and signature that appears on the Acceptance Letter pursuant to
which the withdrawn options were previously tendered. If this Notice of
Withdrawal is signed by a trustee, executor, administrator, guardian,
attorney-in-fact, or other person acting in a fiduciary or representative
capacity, that person should so indicate when signing, and proper evidence
satisfactory to Norstan, Inc., of the authority of that person so to act must be
submitted with this Notice of Withdrawal.

         3. OTHER INFORMATION ON THIS NOTICE OF WITHDRAWAL.

         In addition to signing this Notice of Withdrawal, you must print your
name and indicate the date and time at which you signed. You must also include a
current telephone number.

         4. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.

         Any questions or requests for assistance, as well as requests for
additional copies of the Offer to Exchange or this Notice of Withdrawal, may be
directed to Mary Kiernan at Norstan, Inc., 5101 Shady Oak Road, Minnetonka,
Minnesota, 55434. Ms. Kiernan's telephone number is 952.352.4194 and her fax
number is 952.352.4044. Copies will be furnished promptly at Norstan, Inc.'s
expense.

         5. IRREGULARITIES.

         All questions as to the validity, form, eligibility (including time of
receipt), and acceptance of

                                    (a)(4)-3
   4
this Notice of Withdrawal will be determined by Norstan, Inc., in its sold
discretion. Norstan, Inc.'s determinations shall be final and binding on all
parties. Norstan, Inc., reserves the right to reject any or all Notices of
Withdrawal that Norstan, Inc., determines not to be in proper form or the
acceptance of which may, in the opinion of Norstan, Inc.'s counsel, be unlawful.
Norstan, Inc., also reserves the right to waive any of the conditions of the
Offer and any defect or irregularity in the Notice of Withdrawal, and Norstan,
Inc.'s interpretation of the terms of the Offer (including these instructions)
will be final and binding on all parties. No Notice of Withdrawal will be deemed
to be properly made until all defects and irregularities have been cured or
waived. Unless waived, any defects or irregularities in connection with Notices
of Withdrawal must be cured within the time as Norstan, Inc., shall determine.
Neither Norstan, Inc., nor any other person is or will be obligated to give
notice of any defects or irregularities in Notices of Withdrawal, and no person
will incur any liability for failure to give any such notice.

         Important: The Notice of Withdrawal (or a facsimile copy of it)
together with all other required documents, must be received by Norstan, Inc.,
on or before the Expiration Date.

         6. ADDITIONAL DOCUMENTS TO READ.

         You should be sure to read the Offer to Exchange, dated
________________, 2001, and all documents referenced therein, before deciding
whether or not to participate in the Offer.

         7. IMPORTANT TAX INFORMATION.

         You should refer to Section 13 of the Offer to Exchange, which contains
important U.S. federal income tax information.














                                    (a)(4)-4

EX-99.(A)(5)

   1

                                                                  EXHIBIT (a)(5)


                                                                  [NORSTAN LOGO]


                                   MEMORANDUM


TO:                 (EMPLOYEE NAME)

FROM:               JIM GRANGER

DATE:               __________________, 2001

SUBJECT:            NORSTAN'S STOCK OPTION EXCHANGE PROGRAM


================================================================================


I am pleased to announce NORSTAN'S STOCK OPTION EXCHANGE PROGRAM and offer you
the opportunity to more fully utilize some of your Norstan stock options, and to
do so sooner than originally planned.

The decline of Norstan's stock price since early 1998 has kept many of your
stock options "under water", that is, our stock price has been well below the
strike price of some options you have received over the years. However, we have
developed a one-time, voluntary program allowing you the opportunity to exchange
your higher-priced options for options to be issued in the near future.

On September 13, 2001, Norstan's Board of Directors approved a "Stock Option
Exchange Program" whereby eligible Norstan stock optionees may elect to
participate in the Program and exchange stock option(s) previously awarded at a
price of $15.00 or more, for a stock option to be granted in the future at the
then fair market value (FMV). The Program provides you the opportunity to
receive a replacement stock option that may be more beneficial to you, while
having no financial impact on Norstan.

PROGRAM SUMMARY

The following Program Summary is not a complete description of the Norstan
Stock Option Exchange Program and is qualified in its entirety in reference to
the Program documentation listed below.

o    Since you have outstanding stock option(s) with an exercise or option price
     of $15.00 per share or higher, you are being offered a one-for-two
     exchange, meaning canceling two shares of your previously granted stock
     options to receive one FMV-priced option in the future.

o    If you elect to participate in the Program, Norstan proposes to issue a new
     option six months and one day after the cancellation of your exchanged or
     old options at the then FMV.

o    No additional options can be granted to you during this six-month period if
     you accept this exchange.

o    This new option will vest in one-third increments, with the first third
     vesting immediately upon the date of the new grant, another third after one
     year and the final third after two years from the date of the new grant.



                                    (a)(5)-1


   2



Page 2
______________, 2001
Norstan's Stock Option Exchange Program




REQUIRED ACTIONS

To participate in the "Stock Option Exchange Program" and take advantage of this
offer:

o    Fully review all Program documentation including:

     -    Tender Offer Statement (Schedule TO) filed with the SEC

     -    Offer to Exchange document Dated __________, 2001

     -    Acceptance Letter

     -    Norstan, Inc. 1995 Long-Term Incentive Plan

     -    Form of Stock Option Agreement

o    Verify your eligible options as listed in your "Acceptance Letter".

o    Understand that Norstan proposes to award you a new option for a number of
     shares equal to half the number of option shares you are exchanging. The
     strike price of the new option will be the FMV of Norstan's common stock on
     the date six months and one day after the old options are cancelled (i.e.
     you elect to participate and exchange 2,000 option shares with an option
     price of $15.00 for the right to receive an option for 1,000 shares in six
     months at the then FMV.

o    ATTEND THE THURSDAY, OCTOBER 11TH CONFERENCE CALL (CALL DETAILS) TO ADDRESS
     ANY QUESTIONS YOU MAY HAVE REGARDING THE PROGRAM.

o    Sign, date and return the "Acceptance Letter" to Mary Kiernan in Minnetonka
     by ____________, 2001.

YOU MUST RETURN THE "ACCEPTANCE LETTER" TO MARY KIERNAN IN MINNETONKA
BY____________,2001(1) UNLESS THE OFFER IS EXTENDED. ANY "ACCEPTANCE LETTERS"
RECEIVED AFTER THE EXPIRATION DATE OF THE OFFER WILL NOT BE ACCEPTED AND YOU
WILL NOT BE ALLOWED TO PARTICIPATE IN THE PROGRAM.

                          NO EXCEPTIONS WILL BE MADE!!!

I encourage you to carefully review and consider the provisions of the Stock
Option Exchange Program. I am confident that with your help, we will continue
our recent success and return to consistent profitability. In addition, I hope
the Exchange Program plays a role in helping you achieve some of your long-term
financial goals.



/s/ James C. Granger
-----------------------------------
James C. Granger
President & Chief Executive Officer


Attachments

(1)  As described in the Program documentation, for eligible employees who
     received option grants during May and June 2001, the offer does not
     commence until December 6, 2001 and will expire at 11:59 p.m. Central Time
     on January 6, 2002.



                                    (a)(5)-2

EX-99.(D)(1)

   1

                                                                  EXHIBIT (d)(1)



                                  NORSTAN, INC.

                          1995 LONG-TERM INCENTIVE PLAN
                          As Amended September 13, 2001


Section 1. Purpose; Effect on Prior Plans.

         (a) Purpose. The purpose of the Plan is to promote the interests of the
Company and its shareholders by aiding the Company in attracting and retaining
personnel capable of assuring the future success of the Company, to offer such
personnel incentives to put forth maximum efforts for the success of the
Company's business and to afford such personnel an opportunity to acquire a
proprietary interest in the Company.

         (b) Effect on Prior Plans. From and after the date on which the
Company's shareholders approve this Plan, no stock options, restricted stock
awards, stock appreciation rights, performance awards or other awards shall be
granted or awarded under the Company's 1986 Long-Term Incentive Plan, as amended
("1986 Plan"). All outstanding stock options, restricted stock awards, stock
appreciation rights and performance awards granted under the 1986 Plan prior to
the date on which the Company's shareholders approve this Plan shall continue
and remain outstanding in accordance with the terms thereof.

Section 2. Definitions.

         As used in the Plan, the following terms shall have the meanings set
forth below:

         (a) "Affiliate" shall mean (i) any entity that, directly or indirectly
through one or more intermediaries, is controlled by the Company and (ii) any
entity in which the Company has a significant equity interest, in each case as
determined by the Committee.

         (b) "Award" shall mean any Option, Stock Appreciation Right, Restricted
Stock, Performance Award, or Other Award granted under the Plan.

         (c) "Award Agreement" shall mean any written agreement, contract or
other instrument or document evidencing any Award granted under the Plan.

         (d) "Code" shall mean the internal Revenue Code of 1986, as amended
from time to time, and any regulations promulgated thereunder.

         (e) "Committee" shall mean a committee of the Board of Directors of the
Company designated by such Board to administer the Plan, which shall consist of
members appointed from time to time by the Board of Directors and shall be
comprised of not less than such number of directors as shall be required to
permit the Plan to satisfy the requirements of Rule 16b-3. Each member of the
Committee shall be a "non-employee director" within the meaning of Rule 16b-3.

         (f) "Company" shall mean NORSTAN, INC., a Minnesota corporation, and
any successor corporation.



                                    (d)(1)-1


   2


         (g) "Eligible Person" shall mean any employee, or any consultant or
advisor providing bona fide services to the Company or any Affiliate who the
Committee determines to be an Eligible Person. A director of the Company who is
not also an employee of the Company or an Affiliate shall not be an Eligible
Person.

         (h) "Fair Market Value" shall mean, with respect to any property
(including, without limitation, any Shares or other securities), the fair market
value of such property determined by such methods or procedures as shall be
established from time to time by the Committee.

         (i) "Incentive Stock Option" shall mean an option granted under Section
6(a) of the Plan that is intended to meet the requirements of Section 422 of the
Code or any successor provision.

         (j) "Non-Qualified Stock Option" shall mean an option granted under
Section 6(a) of the Plan that is not intended to be an Incentive Stock Option.

         (k) "Option" shall mean an Incentive Stock Option or a Non-Qualified
Stock Option.

         (l) "Other (Stock-Based) Award" shall mean any right granted under
Section 6(f) of the Plan.

         (m) "Participant" shall mean an Eligible Person designated to be
granted an Award under the Plan.

         (n) "Performance Award" shall mean any right granted under Section
6(c) of the Plan.

         (o) "Plan" shall mean this 1995 Long-Term Incentive Plan, as amended
from time to time.

         (p) "Restricted Stock" shall mean any Share granted under Section 6(b)
of the Plan.

         (q) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities
and Exchange Commission under the Securities Exchange Act of 1934, as amended,
or any successor rule or regulation.

         (r) "Shares" shall mean shares of Common Stock, $.10 par value, of the
Company or such other securities or property as may become subject to Awards
pursuant to an adjustment made under Section 4(c) of the Plan.

         (s) "Stock Appreciation Right" shall mean any right granted under
Section 6(e) of the Plan.

Section 3.  Administration.

         (a) Power and Authority of the Committee. The Plan shall be
administered by the Committee. Subject of the express provisions of the Plan and
to applicable law, the Committee shall have full power and authority to: (i)
designate Participants; (ii) determine the type or types of Awards to be granted
to each Participant under the Plan; (iii) determine the number of Shares to be
covered by (or with respect to which payments, rights or other matters are to be
calculated in connection with) each



                                    (d)(1)-2


   3


Award; (iv) determine the terms and conditions of any Award or Award Agreement;
(v) amend the terms and conditions of any Award or Award Agreement and
accelerate the exercisability of Options or the lapse of restrictions relating
to Restricted Stock or other Awards; provided, however, that the Committee shall
not have the authority to adjust or amend the exercise price of any Option,
whether through amendment or cancellation grants of any additional Options; (vi)
determine whether, to what extent and under what circumstances Awards may be
exercised in cash, Shares, other securities, other Awards or other property, or
canceled, forfeited or suspended; (vii) determine whether, to what extent and
under what circumstances cash, Shares, other securities, other Awards, other
property and other amounts payable with respect to an Award under the Plan shall
be deferred either automatically or at the election of the holder thereof or the
Committee; (viii) interpret and administer the Plan and any instrument or
agreement relating to, or Award made under, the Plan; (ix) establish, amend,
suspend or waive such rules and regulations and appoint such agents as it shall
deem appropriate for the proper administration of the Plan; and (x) make any
other determination and take any other action that the Committee deems necessary
or desirable for the administration of the Plan. Unless otherwise expressly
provided in the Plan, all designations, determinations, interpretations and
other decisions under or with respect to the Plan or any Award shall be within
the sole discretion of the Committee, may be made at any time and shall be
final, conclusive and binding upon any Participant, any holder or beneficiary of
any Award and any employee of the Company or any Affiliate. The Board of
Directors of the Company shall also have the authority in its discretion from
time to time to administer the Plan by granting awards or taking any other
action authorized or permitted to be taken by the Committee under the Plan.

Section 4.  Shares Available for Awards.

         (a) Shares Available. Subject to adjustment as provided in Section
4(c), the number of Shares initially available for granting Awards under the
Plan shall be 3,400,000. No more than 3,400,000 shares shall be cumulatively
available for the grant of Incentive Stock Options under the Plan. If any Shares
covered by an Award or to which an Award relates are not purchased or are
forfeited, or if an Award otherwise terminates without delivery of any shares,
then the number of Shares counted against the aggregate number of Shares
available under the Plan with respect to such Award, to the extent of any such
forfeiture or termination, shall again be available for granting Awards under
the Plan.

         (b) Accounting for Awards. For purposes of this Section 4, if an Award
entitles the holder thereof to receive or purchase Shares, the number of Shares
covered by such Award or to which such Award relates shall be counted on the
date of grant of such Award against the aggregate number of Shares available for
granting Awards under the Plan.

         (c) Adjustments. In the event that the Committee shall determine that
any dividend or other distribution (whether in the form of cash, Shares, other
securities or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spinoff, combination,
repurchase or exchange of Shares or other securities of the Company, issuance of
warrants or other rights to purchase Shares or other securities of the Company
or other similar corporate transaction or event affects the Shares such that an
adjustment is determined by the Committee to be appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan, then the Committee shall, in such manner as it
may deem equitable, adjust any or all of (i) the number and type of Shares (or
other securities or other property) which thereafter may be made the subject of
Awards, (ii) the number and type of Shares (or



                                    (d)(1)-3


   4



other securities or other property) subject to outstanding Awards and (iii) the
purchase or exercise price with respect to any Award; provided, however, that
the number of Shares covered by any Award or to which such Award relates shall
always be a whole number.

         (d) Award Limitations Under the Plan. No Eligible Person may be granted
any Award or Awards, the value of which Awards are based solely on an increase
in the value of the Shares after the date of grant of such Awards, for more than
100,000 Shares, in the aggregate, in any fiscal year of the Company. The
foregoing limitation specifically includes the grant of any "performance-based"
Awards within the meaning of Section 162(m) of the Code.

Section 5.  Eligibility.

         Any Eligible Person, including any Eligible Person who is an officer or
director of the Company or any Affiliate, shall be eligible to be designated a
Participant. In determining which Eligible Persons shall receive an Award and
the terms of any Award, the Committee may take into account the nature of the
services rendered by the respective Eligible Persons, their present and
potential contributions to the success of the Company or such other factors as
the Committee, in its discretion, shall deem relevant. Notwithstanding the
foregoing, an Incentive Stock Option may only be granted to full or part-time
employees (which term as used herein includes, without limitation, officers and
directors who are also employees) and an incentive Stock Option shall not be
granted to an employee of an Affiliate unless such Affiliate is also a
"subsidiary corporation" of the Company within the meaning of Section 424(f) of
the Code or any successor provision.

Section 6.  Awards.

         (a) Options. The Committee is hereby authorized to grant Options to
Participants with the following terms and conditions and with such additional
terms and conditions not inconsistent with the provisions of the Plan as the
Committee shall determine:

                  (i) Exercise Price. The purchase price per Share purchasable
         under an Option shall be determined by the Committee; provided,
         however, that such purchase price shall not be less than 100% of the
         Fair Market Value of a Share on the date of grant of such Option.

                  (ii) Option Term. The term of each Option shall be fixed by
         the Committee but shall not exceed ten years from the date such
         option is granted.

                  (iii) Time and Method of Exercise. The Committee shall
         determine the time or times at which an Option may be exercised in
         whole or in part and the method or methods by which, and the form or
         forms (including, without limitation, cash, Shares, promissory notes,
         other securities, other Awards or other property, withholding of Shares
         that would otherwise be issued, cashless exercise program of a broker
         or agent, or any combination thereof, having a Fair Market Value on the
         exercise date equal to the relevant exercise price) in which, payment
         of the exercise price with respect thereto may be made or deemed to
         have been made.

         (b) Restricted Stock. The Committee is hereby authorized to grant
Awards of Restricted Stock to Participants with the following terms and
conditions and with such additional terms and conditions not inconsistent with
the provisions of the Plan as the Committee shall determine:



                                    (d)(1)-4


   5



                  (i) Restrictions. Shares of Restricted Stock shall be subject
         to such restrictions as the Committee may impose (including, without
         limitation, any limitation on the right to vote a Share of Restricted
         Stock or the right to receive any dividend or other right or property
         with respect thereto, which restrictions may lapse separately or in
         combination at such time or times, in such installments or otherwise as
         the Committee may deem appropriate.

                  (ii) Stock Certificates. Any Restricted Stock granted under
         the Plan shall be evidenced by issuance of a stock certificate or
         certificates, which certificate or certificates shall be held by the
         Company. Such certificate or certificates shall be registered in the
         name of the Participant and shall bear an appropriate legend referring
         to the terms, conditions and restrictions applicable to such Restricted
         Stock.

                  (iii) Forfeiture; Delivery of Shares. Except as otherwise
         determined by the Committee, upon termination of employment (as
         determined under criteria established by the Committee) during the
         applicable restriction period, all Shares of Restricted Stock at such
         time subject to restriction shall be forfeited and reacquired by the
         Company; provided, however, that the Committee may, when it finds that
         a waiver would be in the best interest of the Company, waive in whole
         or in part any or all remaining restrictions with respect to Shares of
         Restricted Stock. Any Share representing Restricted Stock that is no
         longer subject to restrictions shall be delivered to the holder thereof
         promptly after the applicable restrictions lapse or are waived.

         (c) Performance Awards. The committee is hereby authorized to grant
Performance Awards to Participants subject to the terms of the Plan and any
applicable Award Agreement. A Performance Award granted under the Plan (i) may
be denominated or payable in cash, Shares, other securities, other Awards or
other property and (ii) shall confer on the holder thereof the right to receive
payments, in whole or in part, upon the achievement of such performance goals
during such performance periods as the Committee shall establish. Subject to the
terms of the Plan and any applicable Award Agreement, the performance goals to
be achieved during any performance period, the length of any performance period,
the amount of any Performance Award granted, the amount of any payment or
transfer to be made pursuant to any Performance Award and any other terms and
conditions of any Performance Award shall be determined by the Committee.

         (d) Stock Appreciation Rights. The Committee is hereby authorized to
grant Stock Appreciation Rights to Participants subject to the terms of the Plan
and any applicable Award Agreement. A Stock Appreciation Right granted under the
Plan shall confer on the holder thereof a right to receive upon exercise thereof
the excess of (i) the Fair Market Value of one Share on the date of exercise
(or, if the Committee shall so determine, at any time during a specified period
before or after the date of exercise) over (ii) the grant price of the Stock
Appreciation Right as specified by the Committee, which price shall not be less
than 100% of the Fair Market Value of one Share on the date of grant of the
Stock Appreciation Right. Subject to the terms of the Plan and any applicable
Award Agreement, the grant price, term, methods of exercise, dates of exercise,
methods of settlement and any other terms and conditions of any Stock
Appreciation Right shall be as determined by the Committee. The Committee may
impose such conditions or restrictions on the exercise of any Stock Appreciation
Right as it may deem appropriate.



                                    (d)(1)-5


   6



         (e) Other Stock-Based Awards. The Committee is hereby authorized to
grant to Participants such other Awards that are denominated or payable in,
valued in whole or in part by reference to, or otherwise based on or related to,
Shares (including, without limitation, securities convertible into Shares), as
are deemed by the Committee to be consistent with the purpose of the Plan;
provided, however, that such grants must comply with Rule 16b-3 and applicable
law. Subject to the terms of the Plan and any applicable Award Agreement, the
Committee shall determine the terms and conditions of such Awards. Shares or
other securities delivered pursuant to a purchase right granted under this
Section 6(e) shall be purchased for such consideration, which may be paid by
such method or methods and in such form or forms (including without limitation,
cash, Shares, promissory notes, other securities, other Awards or other
property, withholding of Shares that would otherwise be issued, cashless
exercise program of a broker or agent, or any combination thereof), as the
Committee shall determine, the value of which consideration, as established by
the Committee shall not be less than 100% of the Fair Market Value of such
Shares or other securities as of the date such purchase right is granted.

         (f)      General

                  (i) No Cash Consideration for Awards. Awards shall be granted
         for no cash consideration or for such minimal cash consideration as may
         be required by applicable law.

                  (ii) Awards May Be Granted Separately or Together. Awards may,
         in the discretion of the committee, be granted either alone or in
         addition to, in tandem with or in substitution for any other Award or
         any award granted under any plan of the Company or any Affiliate other
         than the Plan. Awards granted in addition to or in tandem with other
         Awards or in addition to or in tandem with awards granted under any
         such other plan of the Company or any Affiliate may be granted either
         at the same time as or at a different time from the grant of such other
         Awards or awards.

                  (iii) Forms of Payment under Awards. Subject to the terms of
         the Plan and of any applicable Award Agreement, payments or transfers
         to be made by the Company or an Affiliate upon the grant, exercise or
         payment of an Award may be made in such form or forms as the Committee
         shall determine (including, without limitation, cash, Shares,
         promissory notes, other securities, other Awards or other property or
         any combination thereof), and may be made in a single payment or
         transfer, in installments or on a deferred basis, in each case in
         accordance with rules and procedures established by the Committee. Such
         rules and procedures may include, without limitation, provisions for
         the payment or crediting of reasonable interest on installment or
         deferred payments.

                  (iv) Limits on Transfer of Awards. No Award and no right under
         any such Award shall be transferable by a Participant otherwise than by
         will or by the laws of descent and distribution; provided, however,
         that, if so determined by the Committee, a Participant may, in the
         manner established by the Committee, designate a beneficiary or
         beneficiaries to exercise the rights of the Participant and receive any
         property distributable with respect to any Award upon the death of the
         Participant. Each Award or right under any Award shall be exercisable
         during the Participant's lifetime only by the Participant. No Award or
         right under any such Award may be pledged, alienated, attached or
         otherwise encumbered, and any purported pledge, alienation, attachment
         or encumbrance thereof shall be void and unenforceable against the
         Company or any Affiliate.



                                    (d)(1)-6


   7



                  (v)  Term of  Awards. The term of each Award shall be for such
         period  as may be determined by the Committee.

                  (vi) Restrictions; Securities Exchange Listing. All
         certificates for Shares or other securities delivered under the Plan
         pursuant to any Award or the exercise thereof shall be subject to such
         stop transfer orders and other restrictions as the Committee may deem
         advisable under the Plan or the rules, regulations and other
         requirements of the Securities and Exchange Commission and any
         applicable federal or state securities laws, and the Committee may
         cause a legend or legends to be placed on any such certificates to make
         appropriate reference to such restrictions. If the Shares or other
         securities are traded on a securities exchange, the Company shall not
         be required to deliver any Shares or other securities covered by an
         Award unless and until such Shares or other securities have been
         admitted for trading on such securities exchange.

Section 7.  Amendment and Termination; Adjustments.

         Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an Award Agreement or in the Plan:

         (a) Amendments to the Plan. The Board of Directors of the Company may
amend, alter, suspend, discontinue or terminate the Plan; provided, however,
that, notwithstanding any other provision of the Plan or any Award Agreement,
without the approval of the shareholders of the Company, no such amendment,
alteration, suspension, discontinuation or termination shall be made that,
absent such approval:

                    (i) would cause Rule 16b-3 to become unavailable with
               respect to the Plan;

                    (ii) would violate the rules or regulations of the National
               Association of Securities Dealers, Inc. or any securities
               exchange that are applicable to the Company; or

                    (iii) would cause the Company to be unable, under the Code,
               to grant incentive Stock Options under the Plan.

         (b) Amendments to Awards. The Committee may waive any conditions of or
rights of the Company under any outstanding Award, prospectively or
retroactively. The Committee may not amend, alter, suspend, discontinue or
terminate any outstanding Award, prospectively or retroactively, without the
consent of the Participant or holder or beneficiary thereof, except as otherwise
herein provided.

         (c) Correction of Defects, Omissions and Inconsistencies. The Committee
may correct any defect, supply any omission or reconcile any inconsistency in
the Plan or any Award in the manner and to the extent it shall deem desirable to
carry the Plan into effect.



                                    (d)(1)-7


   8



Section 8.  Change in Control.

         In case of a "Change in Control" (as such term is hereinafter defined),
each Participant shall be fully vested (as of the date of the Change in Control)
in all shares of Restricted Stock, Performance Awards, Stock Appreciation
Rights, Options and Other Awards granted or awarded under this Plan and any and
all restrictions or performance requirements on the issuance, exercise or sale
of said grants, awards, shares or rights under said Restricted Stock awards,
Stock Performance Awards, Stock Appreciation Rights, Options and Other Awards
shall be waived or removed as of the date of the Change in Control. For purposes
of this Plan, a Change in Control shall be deemed to occur when and if:

         (a) any Person (meaning any individual, firm, Corporation, partnership,
trust or other entity, and includes a "group" (as that term is used in Sections
13(d) and 14(d) of the Act), but excludes Continuing Directors (as defined
below) and benefit plans sponsored by the Company):

                  (i) makes a tender or exchange offer for any shares of the
Company's outstanding voting securities at any point in time (the "Company
Stock") pursuant to which any shares of the Company's Stock are purchased; or

                  (ii) together with its "affiliates" and "associates" (as those
terms are defined in Rule 12b-2 under the Securities Exchange Act of 1934 (the
"Act")) becomes the "beneficial owner" (within the meaning of Rule 13d-3 under
the Act) of at least 20% of Company's Stock; or

         (b) the shareholders of the Company approve a definitive agreement or
plan to merge or consolidate the Company with or into another unaffiliated
corporation, to sell or otherwise dispose of all or substantially all of its
assets, or to liquidate the Company; or

         (c) a majority of the members of the Board become individuals other
than Continuing Directors (as defined below).

                  A "Continuing Director" means: (a) any member of the Board as
of June 8, 1995, and (b) any other member of the Board, from time to time, who
was (i) nominated for election by the Board, or (ii) appointed by the Board to
fill a vacancy on the Board or to fill a newly-created directorship, in each
case excluding any individual nominated or appointed (y) at a Board meeting at
which the majority of directors present are not Continuing Directors or (z) by
unanimous written action of the Board unless a majority of the directors taking
such action are Continuing Directors.

         (d) Notwithstanding the foregoing provisions of Section 8, the
Committee may impose such additional restrictions, limitations or requirements
as it deems appropriate on the vesting of any Award in the event of a Change in
Control before such Award shall be deemed to be fully vested. In the event that
no such additional restrictions, limitations or requirements on the vesting of
any Award in the event of a Change in Control are imposed in the Award
Agreement, the Change in Control provisions set forth in the preceding
paragraphs of this Section 8 shall govern such Award.



                                    (d)(1)-8


   9



Section 9.  Income Tax Withholding.

         In order to comply with all applicable federal or state income tax laws
or regulations, the Company may take such action as it deems appropriate to
ensure that all applicable federal or state payroll, withholding, income or
other taxes, which are the sole and absolute responsibility of a Participant,
are withheld or collected from such Participant. In order to assist a
Participant in paying all or a portion of the federal and state taxes to be
withheld or collected upon exercise or receipt of (or the lapse of restrictions
relating to) an Award, the Committee, in its discretion and subject to such
additional terms and conditions as it may adopt, may permit the Participant to
satisfy such tax obligation by (i) electing to have the Company withhold a
portion of the Shares otherwise to be delivered upon exercise or receipt of (or
the lapse of restrictions relating to) such Award with a Fair Market Value equal
to the amount of such taxes or (ii) delivering to the Company Shares other than
Shares issuable upon exercise or receipt of (or the lapse of restrictions
relating to) such Award with a Fair Market Value equal to the amount of such
taxes.

Section 10.  General Provisions.

         (a) No Rights to Awards. No Eligible Person, Participant or other
Person shall have any claim to be granted any Award under the Plan, and there is
no obligation for uniformity of treatment of Eligible Persons, Participants or
holders or beneficiaries of Awards under the Plan. The terms and conditions of
Awards need not be the same with respect to any Participant or with respect to
different Participants.

         (b) Award Agreements. No Participant will have rights under an Award
granted to such Participant unless and until an Award Agreement shall have been
duly executed on behalf of the Company.

         (c) No Limit on Other Compensation Arrangements. Nothing contained in
the Plan shall prevent the Company or any Affiliate from adopting or continuing
in effect other or additional compensation arrangements, and such arrangements
may be either generally applicable or applicable only in specific cases.

         (d) No Right to Employment. The grant of an Award shall not be
construed as giving Participant the right to be retained in the employ of the
Company or any Affiliate, nor will it affect in any way the right of the Company
or an Affiliate to terminate such employment at any time, with or without cause.
In addition, the Company or an Affiliate may at any time dismiss a Participant
from employment free from any liability or any claim under the Plan, unless
otherwise expressly provided in the Plan or in any Award Agreement.

         (e) Governing Law. The validity, construction and effect of the Plan or
any Award, and any rules and regulations relating to the Plan or any Award,
shall be determined in accordance with the laws of the State of Minnesota.

         (f) Severability. If any provision of the Plan or any Award is or
becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction
or would disqualify the Plan or any Award under any law deemed applicable by the
Committee, such provision shall be construed or deemed amended to conform to
applicable laws, or if it cannot be so construed or deemed amended without, in
the determination of the Committee, materially altering the purpose or intent of
the Plan or the Award, such provision shall be stricken as to such jurisdiction
or Award, and the remainder of the Plan or any such Award shall remain in full
force and effect.


                                    (d)(1)-9


   10



         (g) No Trust or Fund Created. Neither the Plan nor any Award shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Affiliate and a Participant or
any other Person. To the extent that any Person acquires a right to receive
payments from the Company or any Affiliate pursuant to an Award, such right
shall be no greater than the right of any unsecured general creditor of the
Company or any Affiliate.

         (h) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Committee shall determine
whether cash shall be paid in lieu of any fractional Shares or whether such
fractional Shares or any rights thereto shall be canceled, terminated or
otherwise eliminated.

         (i) Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.

Section 11.  Section 16(b) Compliance.

         The Plan is intended to comply in all respects with Rule 16b-3 or any
successor provision, as in effect from time to time and in all events the Plan
shall be construed in accordance with the requirements of Rule 16b-3. If any
Plan provision does not comply with Rule 16b-3 as hereafter amended or
interpreted, the provision shall be deemed inoperative. Moreover, in the event
the Plan does not include a provision required by Rule 16b-3 to be stated
therein, such provision (other than one relating to eligibility requirements, or
the price and amount of awards) shall be deemed automatically to be incorporated
by reference into the Plan insofar as Participants subject to Section 16 are
concerned. The Board, in its absolute discretion, may bifurcate the Plan so as
to restrict, limit or condition the use of any provision of the Plan to
participants who are officers or directors subject to Section 16 of the
Securities and Exchange Act of 1934, as amended, without so restricting,
limiting or conditioning the Plan with respect to other participants.

Section 12.  Effective Date of the Plan.

         The Plan shall be effective as of August 8, 1995, subject to approval
by the shareholders of the Company within one year thereafter.

Section 13.  Term of the Plan.

         Awards shall only be granted under the Plan during a ten-year period
beginning on the effective date of the Plan. However, unless otherwise expressly
provided in the Plan or in an applicable Award Agreement, any Award theretofore
granted may extend beyond the end of such ten-year period, and the authority of
the Committee provided for hereunder with respect to the Plan and any Awards,
and the authority of the Board of Directors of the Company to amend the Plan,
shall extend beyond the end of such period.



                                   (d)(1)-10

EX-99.(D)(2)

   1

                                                                  EXHIBIT (d)(2)


                                                                  [NORSTAN LOGO]


STOCK OPTION AGREEMENT
--------------------------------------------------------------------------------
OPTIONEE:
GRANT DATE:                                 NUMBER OF OPTION SHARES:
EXPIRATION DATE:                            EXERCISE PRICE PER SHARE:
--------------------------------------------------------------------------------

THIS STOCK OPTION AGREEMENT is made between Norstan, Inc. (the "Company"), and
you (the "Optionee"), pursuant to the provisions of the Norstan, Inc. 1995
Long-Term Incentive Plan. Together, the parties agree as follows:

GRANT OF OPTION. The Company grants to the Optionee the right to purchase all or
any part of the total number of shares of Norstan common stock set forth above
(the "Option Shares").

PURCHASE PRICE. The purchase price of the shares of the common stock covered by
this option shall be the Exercise Price per share as stated above.

TERM OF OPTION. The term of this option is ten years beginning on the Grant Date
and continuing until the Expiration Date set forth above, unless earlier
terminated as provided in this document (see "Termination of Employment" and
"Death of Optionee" below).

EXERCISE OF OPTION. Except as otherwise provided in this agreement, this option
will be exercisable in cumulative installments based on the following vesting
schedule:

     1)   None of the Option Shares may be purchased prior to one year from the
          Grant Date;

     2)   Up to 33% (one-third) of the Option Shares may be purchased at any
          time after one year from the Grant Date;

     3)   Up to 66% (two-thirds) of the Option Shares (less any shares
          previously purchased pursuant to this option) may be purchased at any
          time after two years from the Grant Date;

     4)   Up to 100% of the Option Shares (less any shares previously purchased
          pursuant to this option) may be purchased at any time after three
          years from the Grant Date.

These Option Shares may be purchased at any time after they vest and prior to
termination of this option by providing to the Company the full purchase price
of such shares including all applicable taxes and exercise documents which are
available through the HR Service Center.*

TERMINATION OF EMPLOYMENT. If the Optionee shall cease to be employed by the
Company (or its Subsidiaries) as a result of retirement (at age 65 or older) or
disability, this option will become fully vested and may be exercised within a
period of one year after such termination of employment, but in no case later
than the Expiration Date. If termination of employment occurs for any other
reason (other than death) than this option may be exercised with respect to
vested shares only within a period of ninety days after such termination of
employment, but in no case later than the Expiration Date.

DEATH OF OPTIONEE. In the event of the death of the Optionee while employed by
the Company or by a subsidiary of the Company, this option will become fully
vested and may be exercised within a period of one year after the date of death,
but in no case later than the Expiration Date. In such event, this option shall
be exercisable only by the executors or administrators of the Optionee or by the
person or persons to whom the Optionee's rights under the option shall pass by
the Optionee's Will or the laws of descent and distribution, as applicable.

ADJUSTMENTS. In the event that the Compensation and Stock Option Committee of
the Company (the "Committee") determines, while any portion of this option is
outstanding and unexercised, that a change in capital or organization structure
or other similar corporate event which affects the shares of common stock has
occurred (e.g. stock split, recapitalization, etc.), then the Committee shall,
in such manner as it may deem equitable, adjust (i) the number of common stock
shares subject to this option and/or (ii) the exercise price with respect to
this option. Such adjustments may be required by the Committee in order to
prevent dilution or enlargement of the benefits intended to be made available
under this option.



                                    (d)(2)-1


   2




CHANGE IN CONTROL. In case any Change in Control occurs, this option, if then
outstanding, shall become immediately and fully exercisable (as of the date of
the Change in Control) whether or not otherwise exercisable by its terms. For
the purposes of this option, a Change in Control shall be deemed to occur when
and if:

     1)   any Person (meaning any individual, firm, corporation, partnership,
          trust or other entity, and includes a "group" (as that term is used in
          Sections 13(d) and 14(d) of the Act), but excludes Continuing
          Directors (as defined below) and benefit plans sponsored by the
          Company):

          a)   makes a tender or exchange offer for any shares of the Company's
               outstanding voting securities at any point in time (the "Company
               Stock") pursuant to which any shares of the Company's Stock are
               purchased; or

          b)   together with its "affiliates" and "associates" (as those terms
               are defined in Rule 12b-2 under the Securities Exchange Act of
               1934 (the "Act")) becomes the "beneficial owner" (within the
               meaning of Rule 13d-3 under the Act) of at least 20% of the
               Company's Stock; or

     2)   the shareholders of the Company approve a definitive agreement or plan
          to merge or consolidate the Company with or into another unaffiliated
          corporation, to sell or otherwise dispose of all or substantially all
          of its assets, or to liquidate the Company; or

     3)   a majority of the members of the Board become individuals other than
          Continuing Directors (as defined below).

       A "Continuing Director" means: (a) any member of the Board as of
September 13, 2001, and (b) any other member of the Board, from time to time,
who was (i) nominated for election by the Board or (ii) appointed by the Board
to fill a vacancy on the Board or to fill a newly-created directorship, in each
case excluding any individual nominated or appointed (y) at a Board meeting at
which the majority of directors present are not Continuing Directors or (z) by
unanimous written action of the Board unless a majority of the directors taking
such action are Continuing Directors.


         NORSTAN, INC.                                                 OPTIONEE



       /s/ James C. Granger
       --------------------
       PRESIDENT AND CEO
       NAME

-    This option is in all respects subject to and governed by all of the
     provisions of the Norstan, Inc. 1995 Long-Term Incentive Plan (the "Plan").
     The interpretation and construction of any provision of the Plan and this
     option shall be made by the Committee and shall be final, binding and
     conclusive.

-    This option is not intended to be and will not be treated as an "incentive
     stock option" within the meaning of section 422A of the Internal Revenue
     Code of 1986, as amended.

-    This option is not transferable by the Optionee.

-    Neither the Optionee nor his/her legal representatives will be deemed to be
     a holder of any Option Shares for any purpose until certificates for these
     shares are issued to him/her under the terms of this agreement.

-    This option will not confer upon the Optionee any right with respect to
     continuance of employment by the Company or a Subsidiary of the Company,
     nor will it interfere in any way with the Company's right or the
     Subsidiary's right to terminate his/her employment at any time.

*    THE NORSTAN, INC. 1995 LONG-TERM INCENTIVE PLAN, THE CURRENT PLAN
     PROSPECTUS, AND A FAQ'S SHEET ARE AVAILABLE IN NORNET OR BY CALLING MARY
     KIERNAN AT 952-352-4194.




                                    (d)(2)-2