EXHIBIT 10(a)

THIRD AMENDMENT TO
LOAN AND SECURITY AGREEMENT

               THIS THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT (this
“Amendment”) is entered into as of October 29, 2004 among NORSTAN COMMUNICATIONS
INC., a Minnesota corporation (“Communications (US)”), VIBES TECHNOLOGIES, INC.,
a Minnesota corporation (“Vibes”; Communications (US) and Vibes are referred to
hereinafter each individually as “Borrower”, and collectively, as “Borrowers”),
NORSTAN, INC., a Minnesota corporation (“Parent”), NORSTAN FINANCIAL SERVICES
INC., a Minnesota corporation (“Norstan Financial”), NORSTAN CANADA INC., a
Minnesota corporation (“Canada Holdings”), NORSTAN INTERNATIONAL, INC., a
Minnesota corporation (“UK Holdings”) and NORSTAN CANADA LTD., an Ontario
corporation (“Communications (Canada)”; Parent, Norstan Financial, Canada
Holdings, Norstan International, UK Holdings and Communications (Canada) are
referred to hereinafter each individually as a “ Credit Party”, and individually
and collectively, jointly and severally, as the “Credit Parties”) and WELLS
FARGO FOOTHILL, INC., a California corporation, as agent for lenders (“Agent”).

               WHEREAS, Borrowers, Credit Parties (Borrowers and Credit Parties
are referred to hereinafter each individually as “Company”, and collectively, as
“Companies”), Agent and Lenders are parties to a Loan and Security Agreement
dated as of December 10, 2003 (as amended, restated, supplemented or otherwise
modified from time to time, and as amended hereby, the “Loan Agreement”);

               WHEREAS, the Companies have requested that Agent amend the Loan
Agreement, and Agent has agreed to do so subject to the terms and conditions
contained herein.

               NOW THEREFORE, in consideration of the promises and mutual
agreements herein contained, the parties hereto agree as follows:

               1. Defined Terms. Unless otherwise defined herein, capitalized
terms used herein shall have the meanings ascribed to such terms in the Loan
Agreement.

               2. Amendments to Loan Agreement. Subject to the satisfaction of
the conditions set forth in Section 3 hereof, the Loan Agreement is hereby
amended as follows:

               (a) The definition of the term “Borrowing Base” contained in
Section 1.1 of the Loan Agreement is hereby amended and restated in its entirety
as follows:

               “Borrowing Base” means, as of any date of determination, the
result of:

               (a) the lowest of

               (i) the aggregate amount of Recurring Revenue for the most
recently ended 6 calendar month period as reflected on the reports delivered to

 

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Agent pursuant to Section 6.2(c) times the then applicable Recurring Revenue
Percentage,

(ii)   the Applicable Recurring Revenue Amount, and   (iii)   an amount equal to
the Collections of Companies with respect to Accounts for the immediately
preceding 50 day period, minus

               (b) the sum of

               (i) the Bank Product Reserve, and

               (ii) the aggregate amount of reserves, including without
limitation the Rent Reserve, if any, and the Market Share Reserve, if any, each
as established by Agent under Section 2.1(b).

               (b) A new clause (n) is hereby added to the definition of the
term “Permitted Liens” contained in Section 1.1 of the Loan Agreement as
follows:

               (n) the Market Share Lien.

               (c) A new definition of the term “Market Share Lien” is hereby
added to Section 1.1 of the Loan Agreement in appropriate alphabetical order as
follows:

         “Market Share Lien” means the Lien on the Inventory sold by MarketShare
Telecom, L.L.C. to Communications (US) that secures the payment in respect of
such Inventory by Communications (US) to MarketShare Telecom, L.L.C.

               (d) A new definition of the term “Market Share Reserve” is hereby
added to Section 1.1 of the Loan Agreement in appropriate alphabetical order as
follows:

         “Market Share Reserve” means a reserve equal to the amount owing by
Communications (US) to MarketShare Telecom, L.L.C. and secured by the Market
Share Lien.

               (e) The first sentence of Section 2.1(b) of the Loan Agreement is
hereby amended and restated as follows:

         (b) Anything to the contrary in this Section 2.1 notwithstanding, Agent
shall have the right to establish reserves including the Rent Reserves and the
Market Share Reserve in such amounts, and with respect to such matters, as Agent
in its Permitted Discretion shall deem necessary or appropriate, against the
Borrowing Base, including reserves with respect to (i) sums that Companies are
required to pay (such as taxes, assessments, insurance premiums, or, in the case
of leased assets, rents or other amounts payable

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under such leases) and has failed to pay under any Section of this Agreement or
any other Loan Document, and (ii) amounts owing by Companies to any Person to
the extent secured by a Lien on, or trust over, any of the Collateral (other
than any existing Permitted Lien set forth on Schedule P-1 which is specifically
identified thereon as entitled to have priority over the Agent’s Liens other
than the Market Share Lien), which Lien or trust, in the Permitted Discretion of
Agent likely would have a priority superior to the Agent’s Liens (such as Liens
or trusts in favor of landlords, warehousemen, carriers, mechanics, materialmen,
laborers, or suppliers, or Liens or trusts for ad valorem, excise, sales, or
other taxes where given priority under applicable law) in and to such item of
the Collateral.

               3. Conditions Precedent to Amendment. The satisfaction of each of
the following, unless waived by Agent in its sole discretion, shall constitute
conditions precedent to the effectiveness of this Amendment:

               (a) Agent shall have received this Amendment, duly executed by
each Company;

               (b) Agent shall have received an Intercreditor Agreement, duly
executed by MarketShare Telecom, L.L.C.; and

               (c) No Event of Default or event which with the giving of notice
or passage of time would constitute an Event of Default shall have occurred and
be continuing on the date hereof, nor shall result from the consummation of the
transaction contemplated herein.

               4. Miscellaneous.

               (a) Warranties and Absence of Defaults. In order to induce Agent
to enter into this Amendment, each Company hereby warrants to Agent, as of the
date hereof, that:

         (i) The representations and warranties of each Company contained in the
Loan Agreement are true and correct as of the date hereof as if made on the date
hereof; and

         (ii) No Event of Default or event which, with giving of notice or the
passage of time or both, would become an Event of Default, exists as of the date
hereof.

               (b) Expenses. Each Company agrees, on a joint and several basis,
to pay on demand all costs and expenses of Agent (including the fees and
expenses of outside counsel for Agent) in connection with the preparation,
negotiation, execution, delivery and administration of this Amendment and all
other instruments or documents provided for herein or delivered or to be
delivered hereunder or in connection herewith. In addition, each Company agrees,
on a joint and several basis, to pay, and save Agent harmless from all liability
for, any stamp or other taxes which may be payable in connection with the
execution or delivery of this Amendment or

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the Loan Agreement and the execution and delivery of any instruments or
documents provided for herein or delivered or to be delivered hereunder or in
connection herewith. All obligations provided in this Section 5(b) shall survive
any termination of this Amendment and the Loan Agreement.

               (c) Governing Law. This Amendment shall be a contract made under
and governed by the internal laws of the State of Illinois.

               (d) Counterparts. This Amendment may be executed in any number of
counterparts, and by the parties hereto on the same or separate counterparts,
and each such counterpart, when executed and delivered, shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same Amendment.

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

     

  NORSTAN COMMUNICATIONS INC.,

  an Minnesota corporation
 
   

  By /s/ Alice S Vazquez

  Title VP Treasurer
 
   

  VIBES TECHNOLOGIES, INC.,

  an Minnesota corporation
 
   

  By /s/ Alice S Vazquez

  Title VP Treasurer
 
   

  NORSTAN, INC.,

  a Minnesota corporation
 
   

  By /s/ Alice S Vazquez

  Title VP Treasurer
 
   

  NORSTAN FINANCIAL SERVICES INC.,

  a Minnesota corporation
 
   

  By /s/ Alice S Vazquez

  Title VP Treasurer
 
   

  NORSTAN CANADA INC.,

  a Minnesota corporation
 
   

  By /s/ Alice S Vazquez

  Title VP Treasurer

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  NORSTAN INTERNATIONAL, INC.,

  a Minnesota corporation
 
   

  By /s/ Alice S Vazquez

  Title VP Treasurer
 
   

  NORSTAN CANADA LTD.,

  an Ontario corporation
 
   

  By /s/ Alice S Vazquez

  Title VP Treasurer
 
   

  WELLS FARGO FOOTHILL, INC.,

  a California corporation, as Agent
 
   

  By /s/ John T Leonard

  Title Vice President

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