Document:

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                                                                   EXHIBIT 10(j)

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                            STOCK PURCHASE AGREEMENT

                                  BY AND AMONG

                             NETWOLVES CORPORATION,

                          NETWOLVES ACQUISITIONS, INC.,

                                  NORSTAN, INC.

                                       AND

                         NORSTAN NETWORK SERVICES, INC.

                                JANUARY 30, 2002

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          THIS STOCK PURCHASE AGREEMENT (this "Agreement") dated as of January
30, 2002, by and among NETWOLVES CORPORATION, a New York corporation
("NetWolves"), NETWOLVES ACQUISITIONS, INC., a Delaware corporation and wholly
owned subsidiary of NetWolves, as buyer (the "Buyer"), NORSTAN NETWORK SERVICES,
INC., a Minnesota corporation (the "Company"), and NORSTAN, INC., a Minnesota
corporation (the "Seller").

         WHEREAS, the Seller owns all of the issued and outstanding shares of
capital stock of the Company. The Company is in the business (the "Business") of
providing multiple source long-distance telephone services and related
consulting and professional services; and

         WHEREAS, the Buyer desires to purchase from the Seller all of the
issued and outstanding capital stock of the Company, and the Seller desires to
sell such shares in exchange for cash and a promissory note as described herein.
In addition, and in consideration of, the payments made by the Buyer hereunder,
the Seller has agreed to assume and retain certain liabilities of the Company.
Capitalized terms not otherwise defined herein shall have the meanings set forth
in Article VII hereof.

         NOW, THEREFORE, in consideration of the premises, the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the parties hereto agree as follows:

                                   ARTICLE I

                           PURCHASE AND SALE OF SHARES

1.1      SHARES.

         On and subject to the terms and conditions of this Agreement, at the
Closing, the Buyer shall purchase from the Seller, and the Seller shall sell,
transfer, assign, convey and deliver to the Buyer, all right, title and interest
in and to all of the Seller's shares (the "Shares") of the common stock, par
value $.01 per share, of the Company (the "Common Stock"), as more specifically
identified on Schedule 5.1(b) hereto.

1.2      PURCHASE PRICE.

         (a) The consideration to be paid by the Buyer for the Shares; (the
"Consideration") shall consist of $7,500,000.00 to be paid as follows: (i)
$400,000.00 concurrently with the execution and delivery of this Agreement (the
"Purchase Deposit"); (ii) a cash payment of $3,350,000.00 at the Closing and
(iii) a non-negotiable promissory note dated the Closing Date in the principal
amount of $3,750,000.00 in the form of Exhibit A attached hereto (the "Note"). A
portion of the Consideration shall be allocated pursuant to Sections 1.2(b) and
2.5 hereof. The cash portion of the Consideration will be payable at the Closing
by wire transfer or otherwise in immediately available funds to an account
specified by the Seller. Prior to the Closing, the Seller shall provide all
necessary information as to the account to which such payment shall be made.

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         (b) In accordance with the Section 338(h)(10) election, as provided in
Section 7.10(g) hereof, the Consideration shall be allocated among the assets of
the Company based upon the net tax value of the assets of the Company in
accordance with Section 1060 of the Code and the regulations thereunder.

         (c) In the event that the Agreement is terminated pursuant to Section
2.3 because of Buyer not obtaining the necessary financing to close the
transaction contemplated by this Agreement, the Seller shall retain the Purchase
Deposit (and any interest and income pertaining thereto) as liquidated damages
for all obligations of the Buyer and NetWolves hereunder. If this Agreement is
terminated for a reason other than Buyer not obtaining the necessary financing
to satisfy its closing obligations, Seller shall promptly refund the Purchase
Deposit to Buyer.

                                   ARTICLE II

                              CLOSING; TERMINATION

2.1      THE CLOSING.

         The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of Blau, Kramer, Wactlar & Lieberman,
P.C., 100 Jericho Quadrangle, Jericho, NY 11753, or at such other place as the
parties may agree, at 11:00 a.m. on the fifth business day following the
satisfaction (or waiver) of the conditions to closing set forth in Sections 3.1
and 3.2 hereof or as otherwise upon designation by a party in accordance with
the provisions of Section 3.3 hereof or at such other time and date as the
parties may agree, but no later than the ninetieth (90th) day following the
execution and delivery of this Agreement. The date on which the Closing occurs
shall be referred to hereinafter as the "Closing Date".

2.2      DELIVERIES AT THE CLOSING.

         (a) At the Closing, the Seller shall deliver to the Buyer:

                  (i) copies of all consents of third parties (excluding
Governmental Entities) that are (A) required for the purchase and sale hereunder
or that are required for the consummation of the transactions contemplated
hereby and for the Buyer's ownership of the Shares and the Company's continued
operation of the Business following the Closing and (B) that are required in
order to prevent a breach of or default under or a termination of any agreement,
contract, license, commitment or lease to which the Company or the Seller is a
party or to which the Shares or any of the assets of the Company are subject;

                  (ii) an opinion, dated the Closing Date, of Maslon Edelman
Borman & Brand, LLP, counsel to the Seller, in substantially the form of Exhibit
B attached hereto;

                  (iii) a written resignation, effective as of the Closing Date,
of each director of the Company;

                  (iv) a certificate as to the satisfaction of the conditions
described in Sections 3.1(a), 3.1(c), 3.1(d), 3.1(e), 3.1(f) and 3.1(j) hereof;

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                  (v) the Assignment and Assumption Agreement substantially in
the form attached hereto as Exhibit H;

                  (vi) certified copies of the Fundamental Documents, the
authorizing resolutions and incumbency certificates of the Company and the
Seller for the Documents; and

(vii) each other document required to be delivered to Buyer pursuant to this
Agreement.

         (b) At the Closing, the Buyer shall deliver to the Seller:

                  (i) the cash portion of the Consideration in accordance with
Section 1.2 hereof;

                  (ii) the Note;

                  (iii) a Security Agreement between the Company and the Seller
in substantially the form of Exhibit D-2 attached hereto;

                  (iv) a Pledge Agreement between the Buyer and Seller in
substantially the form of Exhibit D-1 hereto;

                  (v) an opinion, dated the Closing Date, of Blau, Kramer,
Wactlar & Lieberman, P.C., counsel to the Buyer, in substantially the form of
Exhibit C attached hereto; and

                  (vi) certified copies of the Fundamental Documents of the
Buyer, and the authorizing resolutions and incumbency certificates of the Buyer
for the Documents.

2.3      TERMINATION.

         Anything contained in this Agreement, other than in this Section 2.3,
to the contrary notwithstanding, this Agreement may be terminated in writing at
any time on or before the Closing:

         (a) without liability on the part of any party hereto by mutual written
consent of the Buyer and the Seller;

         (b) by the Buyer, if the Seller shall breach any of its material
representations, warranties or obligations hereunder and such breach shall not
have been cured or waived and the Seller shall not have provided reasonable
assurance that such breach will be cured on or before the Closing Date;

         (c) by the Buyer by written notice to the Seller given at any time
prior to the Closing Date stating that it has not obtained financing, sufficient
in its judgment, to permit it to close the transaction contemplated by this
Agreement, in which circumstance the Seller shall retain the Purchase Deposit as
liquidated damages for all obligations of Buyer and NetWolves arising under the
Agreement;

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         (d) by the Seller, if the Buyer shall breach any of its material
representations, warranties or obligations hereunder and such breach shall not
have been cured or waived and the Buyer shall not have provided reasonable
assurance that such breach will be cured on or before the Closing Date; or

         (e) without liability on the part of any party hereto if the Closing
shall not have occurred on or before the ninetieth (90th) day following the
execution and delivery of this Agreement (the "Termination Date") (or such later
date as may be agreed upon in writing by the parties hereto). Notwithstanding
any provision to the contrary stated herein, if the Closing shall not have
occurred on or before the Termination Date because Buyer has not obtained
sufficient financing to close the transaction contemplated by this Agreement,
Seller shall retain the Purchase Deposit (and any interest and income pertaining
thereto) as liquidated damages (and not as a penalty) for Seller resulting from
the failure of Buyer and NetWolves to complete the Closing. In the case of any
termination pursuant to this Section 2.3(e), the parties hereto acknowledge that
time is of the essence.

2.4      EFFECT OF TERMINATION.

         Except as provided in the next sentence of this paragraph, in the event
of the termination of this Agreement pursuant to any paragraph of Section 2.3
hereof, the obligations of the parties to consummate the transactions
contemplated hereby will expire, and none of the parties will have any further
obligations under this Agreement except pursuant to Sections 2.4, 7.4 and 7.6
hereof, which sections shall survive termination of this Agreement. In the event
of the termination of this Agreement pursuant to any paragraph of Section 2.3
hereof that is caused by a breach of a party, the party whose breach was the
basis for the termination will not be relieved from any liability for its breach
or its obligations pursuant to this Section 2.4 hereof, and the other party will
have no further obligations under this Agreement except as provided in Sections
7.4, 7.9 and Article IX hereof.

2.5      ALLOCATION OF PURCHASE PRICE.

         For Federal income tax purposes only, the Buyer shall be deemed to have
delivered cash in an amount to be determined by the parties prior to closing for
the non-competition covenant of Seller contained in Section 7.8 hereof and the
balance for the Shares. None of the parties shall take any action inconsistent
with the allocation set forth in this Section 2.5.

                                  ARTICLE III

                  CONDITIONS TO OBLIGATIONS OF PARTIES TO CLOSE

3.1      CONDITIONS TO OBLIGATION OF BUYER AND NETWOLVES. The obligation of the
Buyer and NetWolves to consummate the transactions to be performed by them in
connection with the Closing is subject to the full satisfaction and/or waiver of
the following conditions as of the Closing:

         (a) Representations and Warranties. The representations and warranties
of the Seller and the Company set forth in Article V hereof shall have been true
and correct in all material respects when made, and shall be true and correct in
all material respects as of the Closing Date.

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         (b) Consents. All consents by third parties (excluding Governmental
Entities) shall have been obtained that are (a) required for the purchase and
sale hereunder and/or that are required for the consummation of the transactions
contemplated hereby, and (b) that are required in order to prevent a breach of
or a default under or a termination of any material agreement, contract,
document, license, lease or commitment to which the Company or the Seller is a
party or to which the Shares or any portion of the assets of the Company are
subject (collectively, the "Contracts"), including, without limitation, duly
executed consents in form and substance reasonably satisfactory to the Buyer and
its counsel, to the sale of the Shares to the Buyer or to the extent such
consents are required under applicable Law or the terms of said Contracts or
Intellectual Property.

         (c) Absence of Material Adverse Change. Since October 31, 2001 there
shall have been no Material Adverse Change suffered by the Company or the
Business.

         (d) Absence of Litigation. As of the Closing, there shall not be (i)
any Order of any nature issued by a Governmental Entity with competent
jurisdiction directing that the transactions provided for herein or any material
aspect of them not be consummated as herein provided or (ii) any Proceeding
before any Governmental Entity pending or threatened wherein an unfavorable
Order (A) would prevent the performance of this Agreement or the other Documents
or the consummation of any material aspect of the transactions or events
contemplated hereby, (B) declare unlawful any material aspect of the
transactions or events contemplated by this Agreement or the other Documents,
(C) cause any material aspect of the transaction contemplated by this Agreement
or the other Documents to be rescinded or (D) materially affect the right of the
Buyer to own, operate or control the Shares or the right of the Company to
operate the Business following the Closing.

         (e) Proceedings. All corporate and other proceedings taken or required
to be taken by the Company and the Seller in connection with the transactions
contemplated by this Agreement and the other Documents to be consummated at or
prior to the Closing shall have been taken and all documents incident thereto
shall be reasonably satisfactory in form and substance to the Buyer and its
counsel.

         (f) Governmental Filings. All filings or registrations with and all
consents or approvals of any Governmental Entities which are required for or in
connection with the execution and delivery by the Company and the Seller of the
Documents or the consummation of the transactions contemplated thereby shall
have been effected and obtained.

         (g) Opinion of Counsel to Seller and the Company. The Buyer shall have
received an opinion, dated the Closing Date, of Maslon Edelman Borman & Brand,
LLP, counsel to the Seller and the Company, in substantially the form of Exhibit
B attached hereto.

         (h) Leases; Services Agreements; Co-Marketing Agreement. The following
agreements shall have been duly executed and delivered to the Buyer and shall be
in full force and effect: (i) the sublease agreement with respect to certain
premises at 5101 Shady Oak Road, Minnetonka, MN with the Seller in substantially
the form found in Exhibit E attached hereto (the "Subleases"); (ii) transition
services agreement with the Seller and its Affiliates, as applicable, in
substantially the form of Exhibit F attached hereto (the "Transition Services
Agreement"); (iii) a

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marketing agreement with the Seller in substantially the form of Exhibit G
attached hereto (the "Marketing Agreement"); and (iv) Assignment and Assumption
Agreement in substantially the form of Exhibit H.

         (i) Release of Liens. The Buyer shall have received duly executed
releases (including UCC-3 termination statements) of all Liens (other than
Permitted Liens) on the assets of the Company in form and substance reasonably
satisfactory to the Buyer and its counsel.

         (j) Performance by the Seller and the Company. The Company and the
Seller shall have performed in all material respects their respective
obligations under this Agreement.

         (k) Buyer shall have obtained sufficient financing to permit Buyer to
close the transaction contemplated by this Agreement.

3.2      CONDITIONS TO OBLIGATION OF SELLER.

         The obligations of the Seller to consummate the transactions to be
performed by it in connection with the Closing is subject to satisfaction of the
following conditions as of the Closing:

         (a) Representations and Warranties. The representations and warranties
of the Buyer and NetWolves set forth in Article VI hereof shall be true and
correct in all material respects when made, and shall be true and correct in all
material respects as of the Closing Date.

         (b) Absence of Litigation. As of the Closing, there shall not be (a)
any Order of any nature issued by a Governmental Entity with competent
jurisdiction directing that the transactions provided for herein or any material
aspect of them not be consummated as herein provided or (b) any Proceeding
before any Governmental Entity pending or threatened wherein an unfavorable
Order would prevent the performance of this Agreement or the other Documents or
the consummation in any material aspect of the transactions contemplated hereby,
declare unlawful any material aspect of the transactions or events contemplated
by this Agreement or the other Documents, or cause any material aspect of any
transaction contemplated by this Agreement or the other Documents to be
rescinded.

         (c) Governmental Filings. All filings or registrations with and all
consents or approvals of any Governmental Entities which are required for or in
connection with the execution and delivery by the Buyer of the Documents or the
consummation of the transactions contemplated thereby shall have been effected
and obtained.

         (d) Opinion of Counsel for Buyer and NetWolves. The Seller shall have
received an opinion, dated the Closing Date, of Blau, Kramer, Wactlar &
Lieberman, P.C., counsel to the Buyer and NetWolves, in substantially the form
of Exhibit C attached hereto.

         (e) Subleases, Services Agreement; Marketing Agreement. The following
agreements shall have been duly executed and delivered to the Seller and shall
be in full force and effect: (i) the Subleases; (ii) the Transition Services
Agreement; (iii) the Marketing Agreement; and (iv) the Assignment and Assumption
Agreement in substantially the form of Exhibit H.

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3.3      MINIMUM CLOSING CONDITION.

         (a) Notwithstanding the conditions to the respective obligations of
Buyer and NetWolves, on the one hand, and the Seller, on the other, to close as
set forth in Section 3.1(f) and Section 3.2(c) hereof, if all other conditions
to closing have been satisfied or waived, the parties agree that the conditions
set forth in Section 3.1(f) and Section 3.2(c) hereof will be deemed satisfied
upon (i) completion of all filings and registrations with Governmental Entities
in connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby and (ii) receipt of related
consents or approvals in the jurisdictions set forth on Schedule 3.3 hereto (the
"Minimum Closing Condition"). Following completion of such filings and
registrations and receipt of consents or approvals constituting the Minimum
Closing Condition, either party may by written notice given to the other parties
in accordance with Section 9.6 hereof, designate a Closing Date not sooner than
five (5) business days after the date of the notice.

         (b) If a Closing Date is designated pursuant to Section 3.3(a) hereof,
the parties, in addition to effecting the other deliveries specified in Sections
2.3 and 2.4 hereof, shall deliver appropriate evidence of filings and notices
with all Governmental Entities in the jurisdictions not identified on Schedule
3.3 so that the consummation of the transactions contemplated hereby will not
violate the Law in any such jurisdiction.

                                   ARTICLE IV

                     CONDUCT OF BUSINESS PENDING THE CLOSING

         The Seller and the Company covenant and agree that, on and after the
date hereof until the earlier to occur of the Closing or the termination of this
Agreement pursuant to Section 2.5 hereof, unless the Buyer shall otherwise agree
in writing:

4.1      ORDINARY COURSE.

         The Company shall, and shall cause its Subsidiaries to, carry on their
respective businesses in the usual, regular and ordinary course in substantially
the same manner as heretofore conducted and in compliance in all material
respects with all applicable laws and regulations and shall use all reasonable
efforts to preserve intact their present business organizations, keep available
the services of their present officers and employees and preserve their
relationships with customers, suppliers and others having business dealings with
the Company and its Subsidiaries.

4.2      DIVIDENDS; CHANGES IN STOCK.

         The Company shall not, and shall not permit any of its Subsidiaries to,
(i) declare or pay any dividends on or make other distributions in respect of
any of its capital stock, (ii) split, combine or reclassify any of its capital
stock or issue or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock or
(iii) repurchase, redeem or otherwise acquire any shares of capital stock of the
Company or any of its Subsidiaries or any other securities thereof or any
rights, warrants or options to acquire any such shares or other securities.

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4.3      ISSUANCE OF SECURITIES.

         The Company shall not, and shall not permit any of its Subsidiaries to,
issue, deliver, sell, pledge or encumber, or authorize the issuance, delivery,
sale, pledge or encumbrance of, any shares of its capital stock of any class or
any securities convertible into, or any rights, warrants, calls, subscriptions
or options to acquire, any such shares or convertible securities, or any other
ownership interest (including stock appreciation rights or phantom stock) in the
Company or any Subsidiary.

4.4      GOVERNING DOCUMENTS.

         The Company shall not, and shall not permit any of its Subsidiaries to,
amend its articles of incorporation or by-laws (or similar organizational
documents).

4.5      NO ACQUISITIONS.

         The Company shall not, and shall not permit any of its Subsidiaries to,
acquire or agree to acquire (i) by merging or consolidating with, or by
purchasing a substantial equity interest in or substantial portion of the assets
of, or by any other manner, any business organization or division thereof or
(ii) any assets that are material, individually or in the aggregate, to the
Company and its Subsidiaries taken as a whole, except purchases of inventory and
fixed assets in the ordinary course of business consistent with past practice.

4.6      NO DISPOSITIONS.

         Other than sales or licenses of its products in the ordinary course of
business consistent with past practice, the Company shall not, and shall not
permit any of its Subsidiaries to, sell, lease, license, encumber or otherwise
dispose of, or agree to sell, lease, license, encumber or otherwise dispose of,
any of its assets.

4.7      INDEBTEDNESS.

         The Company shall not, and shall not permit any of its Subsidiaries to,
(i) incur or suffer to exist any indebtedness for borrowed money or guarantee
any such indebtedness or issue or sell any debt securities or warrants or rights
to acquire any debt securities of the Company or any of its Subsidiaries,
guarantee any debt securities of others, enter into any agreement to maintain
any financial statement condition of another person or enter into any
arrangement having the economic effect of any of the foregoing, except for
working capital borrowings incurred in the ordinary course of business
consistent with past practice, or (ii) make any loans, advances or capital
contributions to, or investments in, any other person, other than to the
Company.

4.8      ADVICE OF CHANGES; FILINGS.

         The Seller and the Company shall confer on a regular and frequent basis
with NetWolves, as reasonably requested by NetWolves, and shall report on
operational matters and promptly advise NetWolves orally and in writing of any
material adverse change with respect to the business, operations, financial
condition or prospects of the Company. The Seller and the Company shall promptly
provide to, or make available for review by, NetWolves (or its counsel)

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copies of all filings made by the Seller or the Company with any Governmental
Entity. The Buyer shall have the right, directly and through its agents and
representatives to contact customers, suppliers and employees of the Company
upon prior notice to the Company of such intended contact but the Company may
require that any representative present at any meeting between the Buyer and any
customer, supplier or employee.

4.9      TAX MATTERS.

         Neither the Seller nor the Company shall make any tax election that
would have an adverse effect on the Tax Liability or tax attributes of the
Company or any of its Subsidiaries or settle or compromise any Tax Liability of
the Company or any of its Subsidiaries. The Seller and the Company shall, before
filing or causing to be filed any Tax Return of the Seller or the Company or any
of its Subsidiaries or settling any Tax Liability not described in the preceding
sentence, consult with NetWolves and its advisors as to the positions and
elections that may be taken or made with respect to such return, and shall take
such positions or make such elections as the Company and NetWolves shall jointly
agree.

4.10     CAPITAL EXPENDItURES.

         Except as set forth on Schedule 5.6, neither the Company nor any of its
Subsidiaries shall make or agree to make any new capital expenditure or
expenditures which capital expenditures would exceed $50,000 in the aggregate.

4.11     DISCHARGE OF LIABILITIES.

         The Company shall not, and shall not permit any of its Subsidiaries to,
pay, discharge, settle or satisfy any Liabilities, other than the payment,
discharge, settlement or satisfaction, in the ordinary course of business
consistent with past practice or in accordance with their terms, of Liabilities
recognized or disclosed in the Financial Statements (or the notes thereto) of
the Company or incurred since the date of such Financial Statements in the
ordinary course of business consistent with past practice.

4.12     MATERIAL CONTRACTS.

         Except in the ordinary course of business, neither the Company nor any
of its Subsidiaries shall (i) modify, amend or terminate any material contract
to which the Company or such Subsidiary is a party, (ii) waive, release or
assign any material rights or claims or (iii) waive the benefits of, or agree to
modify in any manner, any confidentiality, standstill or similar agreement to
which the Company or such Subsidiary is a party.

4.13     BENEFITS CHANGES.

         The Company shall not, and shall not permit any of its Subsidiaries to,
(i) increase the compensation or benefits of any director, officer or employee,
except for increases in the ordinary course that are consistent with past
practice, (ii) adopt any amendment to a benefit plan that materially increases
the cost thereof, (iii) enter into any employment or consulting agreement with
any director, officer or employee or (iv) accelerate the payment of compensation
or benefits to any director, officer or employee.

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4.14     GENERAL.

         Neither the Seller nor the Company shall authorize any of, or commit or
agree to take any of, the foregoing actions otherwise prohibited by this Article
IV.

                                   ARTICLE V

                    REPRESENTATIONS AND WARRANTIES OF SELLER

         As a material inducement to NetWolves and the Buyer to enter into and
perform its obligations under this Agreement, the Seller represents and warrants
to NetWolves and the Buyer as set forth below.

5.1      ORGANIZATION AND CAPITALIZATION OF THE COMPANY.

         (a) Each of the Seller and the Company is a corporation duly organized,
validly existing and in good standing under the laws of Minnesota, and the
Company is qualified to do business in every jurisdiction in which the failure
to so qualify could have a Material Adverse Effect on the Company. Schedule
5.1(a) lists all of the jurisdictions in which the Company is qualified to do
business as a foreign corporation. Schedule 5.1(b) sets forth all names under
which the Company has conducted the Business. The Seller owns all of the issued
and outstanding capital stock of the Company and no other Person has any right
to, or interest in, the outstanding capital stock of the Company or has any
right, contingent or otherwise, to purchase, acquire or own, directly or
indirectly, any equity interest in the Company. Schedule 5.1(a) lists all the
directors and officers of the Company. The Seller has delivered to the Buyer
correct and complete copies of the articles of incorporation and by-laws or
other similar governing documents of the Company (as amended to date). The
minute books (containing the records of meetings of the shareholders, the board
of directors (or any similar person or body of persons), and any committees of
the board of directors (or any similar person or body of persons)), the stock
certificate books, and the stock record books of the Company, copies of which
have been provided to the Buyer, are correct and complete in all respects. The
Company is not in default under, or in violation of, any provision of its
articles of incorporation or by-laws or other similar governing documents of the
Company.

         (b) The entire authorized capital stock of the Company consists of
1,000,000 shares of Common Stock, of which 1,000 shares are issued and
outstanding. All of the issued and outstanding shares have been duly authorized,
are validly issued, fully paid, and nonassessable, and are owned of record and
beneficially by the Seller in the amounts set forth on Schedule 5.1(b), free and
clear of any Lien. There are no outstanding or authorized options, warrants,
preemptive rights, purchase rights, subscription rights, conversion rights,
exchange rights, or other contracts or commitments that could require the
Company to issue, sell, or otherwise cause to become outstanding any of its
capital stock. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect to the
Company. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of the capital stock of the Company.

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5.2      AUTHORIZATION OF TRANSACTION.

         The Company has all requisite corporate power and authority to own and
operate the Business and to carry on the Business as now conducted. Each of the
Company and the Seller has all requisite corporate power and authority to
execute and deliver each Document to which it is a party and any and all
instruments necessary or appropriate in order to effectuate fully the terms and
conditions of each such Document and all related transactions and to perform its
obligations under each such Document. Each Document to which the Company is a
party has been duly and validly authorized by all necessary action (corporate or
otherwise) on the part of the Company, and each Document to which the Company
and/or the Seller is a party has been duly executed and delivered by the Company
and/or the Seller, as the case may be, and constitutes the valid and legally
binding obligation of the Company and/or the Seller, as the case may be,
enforceable against such parties in accordance with its terms and conditions.

5.3      NON-CONTRAVENTION.

         Except as set forth on Schedule 5.3, neither the execution, delivery
and performance of the Documents nor the consummation of the transactions
contemplated by the Documents by the Company and/or the Seller, shall (a)
violate any Law to which the Company, the Seller, the Business, the Shares or
the assets of the Company is subject, (b) violate any provision of the
Fundamental Documents of the Company, (c) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice
under, any of the Company's Intellectual Property or any Contract to which the
Company and/or the Seller is a party or (d) result in the imposition of any Lien
upon the Shares or any of the assets of the Company. Except as set forth on
Schedule 5.3, neither the Company nor the Seller is required to give any notice
to, make any filing with, or obtain any authorization, consent, or approval of
any Governmental Entity or any consent or approval of any other Person in order
for the parties to consummate the transactions contemplated by the Documents or
in order for the Buyer to own the Shares and the Company to conduct the Business
in the ordinary course following the Closing.

5.4      SUBSIDIARIES.

         Schedule 5.4 attached hereto is a list of all Subsidiaries of the
Company, setting forth (i) the name and percentage ownership by the Company of
each of its Subsidiaries, (ii) the name and ownership interests of all other
holders of the capital stock, partnership interests or other equity interests
thereof and (iii) the names of the officers and directors, members, managers or
partners, as the case may be, of each such Subsidiary. The Company is, directly
or indirectly, the record and beneficial owner of the number of shares of
capital stock, partnership interests, limited liability company membership
interests or other equity interests of each of its Subsidiaries as indicated on
Schedule 5.4, there are no proxies with respect to such securities, and, except
as set forth on Schedule 5.4, no securities of any of its Subsidiaries are or
may become required to be issued, transferred or sold for any reason and all of
the outstanding securities of each such Subsidiary have been duly authorized and
are validly issued, fully paid and nonassessable and were not issued in
violation of any preemptive rights and are owned free and clear of any Lien or
agreement with respect thereto (except as otherwise disclosed on Schedule 5.4).
Except for its Subsidiaries and except as otherwise set forth on Schedule 5.4,
the

                                      -11-
<PAGE>

Company does not, directly or indirectly, have any ownership interest in any
corporation, partnership, joint venture, limited liability company or other
entity. Except as set forth in Schedule 5.4, there are no outstanding
subscriptions, options, warrants, rights, calls, commitments, conversion rights,
rights of exchange, plans or other agreements to which the Company or any of its
Subsidiaries is a party providing for the purchase, issuance or sale of any
capital stock, partnership interests, limited liability company membership
interests or other equity interests of any of the Company's Subsidiaries or any
securities convertible into, exchangeable into or exercisable for, shares of
capital stock, partnership interests or other equity interests of any of the
Company's Subsidiaries and there are no outstanding written agreements to which
the Company or any of its Subsidiaries is a party with respect to the issuance,
transfer or voting of the securities of any of the Company's Subsidiaries.

5.5      FINANCIAL STATEMENTS.

         The following financial statements are referred to collectively herein
as the "Financial Statements":

         (a) the unaudited balance sheets of the Company dated as of April 30,
2000 and 2001, respectively, and the related statements of operations, and
shareholders' equity for the respective fiscal years then ended April 30, 2000
and 2001; the balance sheet dated April 30, 2001 is hereinafter referred to as
the "Balance Sheet"; and

         (b) the interim balance sheets of the Company dated as of December 31,
2001 (the "Latest Balance Sheet") and the interim balance sheet of the Company
dated as of October 31, 2001 and the related statements of operations, and
shareholders' equity, together with the accompanying supplementary information,
for the three-month period then ended.

         Schedule 5.5(a) contains the Financial Statements described in (a) and
(b) above. Except as specifically set forth on Schedule 5.5(b), each of the
Financial Statements (including the notes thereto) (A) has been prepared in
accordance with the books and records of the Company (which are true and correct
in all material respects), (B) is true, correct and complete in all material
respects, (C) fairly presents the financial condition, results of operations and
changes in shareholders' equity which it purports to present as of the dates
thereof and for the periods indicated thereon and (D) has been prepared in
accordance with GAAP consistently applied throughout the periods covered
thereby, subject, in the case of the Latest Balance Sheet, to the lack of
footnotes and other presentation items and normal annual accruals. Since May 1,
1999, except as required by applicable Law or GAAP, there has been no change in
any accounting principle, procedure or practice followed by the Company or in
the method of applying any such principle, procedure or practice.

5.6      EVENTS SUBSEQUENT TO OCTOBER 31, 2001.

         Since October 31, 2001, the Company has operated the Business in the
ordinary course consistent with past practice and the Company has not suffered
any Material Adverse Change. Since that date, except as set forth on Schedule
5.6:

         (a) no party (including the Company) has accelerated, terminated,
modified or canceled any agreement, contract, document, lease, or license (or
series of related agreements,

                                      -12-
<PAGE>

contracts, leases, and licenses) involving more than $20,000 to which the
Company is a party or by which the Company is bound or which is otherwise
material to the Company or the Business and, to the knowledge of Seller, no
party intends to take any such action;

         (b) the Company has not made any redemptions of, or dividends or
distributions in respect of, the outstanding shares of its capital stock or
increased the compensation of any director, officer or employee thereof;

         (c) exclusive of intracorporate cost sharing arrangements and transfers
of cash to Seller, the Company has not paid any fee, interest, royalty or any
other payment of any kind to the Seller or any Affiliate of the Company;

         (d) the Company has not incurred any material debt, Lien upon any of
its respective assets or any increase in the amount payable by the Company under
any credit or loan agreement to which the Company is a party;

         (e) there has not been any other material occurrence, event, incident,
action, failure to act or transaction outside the ordinary course of business
involving the Company;

         (f) the Company has not sold, leased, transferred, or assigned any of
its material assets, tangible or intangible, other than for a fair consideration
in the ordinary course of business;

         (g) the Company has not made any capital expenditure (or series of
related capital expenditures) either involving more than $50,000 or outside the
ordinary course of business;

         (h) the Company has not made any investment in, any loan to, or any
acquisition of the securities or assets of, any other Person (or series of
related capital investments, loans, and acquisitions) either involving more than
$20,000 or outside the ordinary course of business;

         (i) the Company has not delayed or postponed the payment of material
accounts payable and other Liabilities outside the ordinary course of business,
exclusive of delayed payments to Sprint Corporation;

         (j) the Company has not cancelled, compromised, waived, or released any
right or claim (or series of related rights and claims) either involving more
than $20,000 or outside the ordinary course of business;

         (k) the Company has not granted any license or sublicense of any rights
under, or with respect to, any Intellectual Property;

         (l) the Company has not entered into any employment contract or
collective bargaining agreement, written or oral (other than ordinary course
oral at-will employment arrangements, the generic terms of which are described
on an aggregate basis (i.e., ranges of wages or salary, typical benefits, etc.)
on Schedule 5.6 hereto), or modified the terms of any existing such contract or
agreement;

                                      -13-
<PAGE>

         (m) the Company has not made or pledged to make any charitable or other
capital contribution outside the ordinary course of business;

         (n) neither the Seller nor the Company has failed to maintain in force
the insurance policies referred to in Schedule 5.15 or insurance policies
providing the same or substantially similar coverage; and

         (o) the Company has not committed to do any of the foregoing, whether
orally or in writing.

5.7      ABSENCE OF UNDISCLOSED LIABILITIES.

         Except as set forth on Schedule 5.7, the Company has no Liabilities,
except for (a) Liabilities reflected on the face of the liabilities section of
the Latest Balance Sheet or the Balance Sheet, (b) Liabilities under any
agreements, contracts, commitments, licenses or leases which have arisen prior
to the date of the Latest Balance Sheet in the ordinary course of business (none
of which relates to a breach of contract, breach of warranty, tort,
infringement, violation of Law or Proceeding), and (c) Liabilities which have
arisen since the date of the Latest Balance Sheet in the ordinary course of
business (none of which relates to any breach of contract, breach of warranty,
tort, infringement, violation of Law or Proceeding).

5.8      CREDITORS; BANKRUPTCY, ETC.

         Neither the Company nor the Seller is involved in any proceeding by or
against the Company as a debtor in any court under the United States Bankruptcy
Code or any other insolvency or debtors' relief act, whether state or Federal,
or for the appointment of a trustee, receiver, liquidator, assignee,
sequestrator or other similar official of the Company or for any part of the
Company's property.

5.9      LEGAL COMPLIANCE.

         The Company has complied with all applicable Laws, Environmental and
Safety Requirements, Orders and Permits, and no Proceeding is pending or, to the
knowledge of Seller, threatened, alleging any failure to so comply. Schedule 5.9
sets forth a list of all Permits under which the Company is operating or bound.
Such Permits (a) constitute all Permits used or required in the conduct of the
Business as presently conducted, (b) are in full force and effect, (c) have not
been violated and (d) are not subject to any pending or, to the knowledge of
Seller, threatened Proceeding seeking their revocation or limitation.

5.10     TITLE TO PROPERTIES.

         (a) Except as set forth on Schedule 5.10(a), (A) the Company owns good
and marketable title, free and clear of all Liens (other than Permitted Liens),
to all of its respective assets, and (B) the assets of the Company include all
assets, properties and interests in properties presently used by, and necessary
for, the conduct of the Business by the Company in the ordinary course.

                                      -14-

<PAGE>

         (b) The facilities, machinery, equipment and other tangible assets of
the Company are in good condition (ordinary wear and tear expected) and repair
(subject to routine maintenance and repair for similar assets of like age), fit
for their particular purpose, and are usable in the ordinary course of the
Business. The Company owns or leases under valid leases all machinery, equipment
and other tangible assets necessary for the conduct of the Business as conducted
as of the date hereof and as of the date of the Latest Balance Sheet.

         (c) Attached as Schedule 5.10(c) is a true and complete listing of all
of the fixed assets of the Company. Schedule 5.10(c) specifies the locations of
the assets of the Company.

         (d) The Company owns no real estate. Schedule 5.10(d) contains a list
and brief description of all real property leased by the Company (the "Real
Property"), as well as all buildings and other structures and material
improvements located on such Real Property, the name of the lessor and any
requirement of consent of the lessor to assignment, if any. The Real Property
constitutes all real properties used or occupied by the Company in connection
with the Business. With respect to the Real Property, the Company is the owner
and holder of all of the leasehold estates purported to be granted by such lease
and each lease is in full force and effect and constitutes a valid and binding
obligation of the Company. The Company has delivered to the Buyer true and
complete copies of all leases referred to in Schedule 5.10(d).

         (e) With respect to the Real Property, except as set forth in Schedule
5.10(e):

                  (i) no portion thereof is subject to any pending condemnation
Proceeding by any public or quasi-public authority and, to the knowledge of
Seller, there is no threatened condemnation Proceeding with respect thereto;

                  (ii) no notice of any increase in the assessed valuation of
the Real Property and no notice of any contemplated special assessment has been
received by the Company, and, to the knowledge of Seller, there is no threatened
increase in the assessed valuation or special assessment pertaining to any of
the Real Property;

                  (iii) there are no leases or other agreements, written or
oral, to which the Company is a party, granting to any party or parties (other
than the Company) the right of use or occupancy of any portion of any parcel of
Real Property;

                  (iv) there are no parties (other than the Company or its
lessees disclosed pursuant to paragraph (iii) above) in possession of any of the
Real Property;

                  (v) with respect to the Real Property, there have been no
discussions or correspondence with the landlord thereof concerning renewal terms
for those leases scheduled to expire within twelve (12) months of the date of
this Agreement; and

                  (vi) the physical condition of the Real Property is sufficient
to permit the continued conduct of the Business as presently conducted subject
to the provision of usual and customary maintenance and repair performed in the
ordinary course with respect to similar properties of like age and construction.

                                      -15-

<PAGE>

5.11     BANK ACCOUNTS; POWERS OF ATTORNEY.

         Schedule 5.11 sets forth a true and complete list of (i) all bank
accounts and safe deposit boxes of the Company and all persons who are
signatories thereunder or who have access thereto and (ii) the names of all
Persons holding general or special powers of attorney from the Company and a
summary of the terms thereof.

5.12     TAX MATTERS.

         Except as set forth on Schedule 5.12, the Company and each other
corporation included in any consolidated or combined tax return or part of an
affiliated group, within the meaning of Section 1504 of the Code, of which the
Company is or has been a member, (A) have timely paid all Taxes required to be
paid by them through the date hereof (including any Taxes shown due on any Tax
Return) and (B) have filed or caused to be filed in a timely manner (within any
applicable extension periods) all Tax Returns required to be filed by them with
the appropriate Governmental Entities in all jurisdictions in which such Tax
Returns are required to be filed, and all such Tax Returns are true and
complete. All Taxes shown to be due on each of the Tax Returns filed by the
Company have been timely paid in full. Except as set forth in Schedule 5.12: (i)
no Liens have been filed and the Company has not been notified by the Internal
Revenue Service or any other taxing authority that any issues have been raised
(and are currently pending) by the Internal Revenue Service or any other taxing
authority in connection with any Tax Return of the Company (or the failure to
file a Tax Return), and no waivers of statutes of limitations have been given or
requested with respect to the Company; (ii) there are no pending Tax audits of
any Tax Returns of the Company; (iii) no unresolved deficiencies or additions to
Taxes have been proposed, asserted or assessed against the Company or any member
of any affiliated or combined group of which the Company was or is a member;
(iv) the Company has made full and adequate provision (x) on the Latest Balance
Sheet for all Taxes payable by it for all periods prior to the date of the
Latest Balance Sheet and (y) on its books for all Taxes payable by it for all
periods beginning on or after the date of the Latest Balance Sheet; (v) the
Company has not nor will it incur any Liability with respect to any Taxes (a
"Tax Liability") from and after the date of the Latest Balance Sheet other than
Taxes incurred in the ordinary course of business and consistent with previous
years; (vi) the Company has not been nor is now a "personal holding company"
within the meaning of Section 542 of the Code or a United States real property
holding corporation within the meaning of Section 897 of the Code; (vii) the
Company and its predecessors have complied in all respects with all applicable
Laws relating to the collection or withholding of Taxes (such as sales Taxes or
withholding of Taxes from the wages of employees) and the Company is not liable
for any Taxes for failure to comply with such Laws; and (viii) the Company is
not now nor has the Company been a party to any Tax sharing agreement. The
Company has not agreed to and the Company is not required to make any
adjustments pursuant to Section 481 of the Code, and the Internal Revenue
Service has not proposed any such adjustments or changes in the accounting
methods of the Company.

5.13     INTELLECTUAL PROPERTY.

         (a) Schedule 5.13(a) identifies (i) all Intellectual Property
consisting of patents, patent applications, trademarks and service marks, logos,
trade names, corporate names, copyrights, computer programs and software, domain
names, and url's used in connection with

                                      -16-

<PAGE>

the Business, (ii) each license, agreement or other permission which the Company
has granted to any third party with respect to any Intellectual Property used in
connection with the Business, and (iii) excluding readily available "off the
shelf," "shrink wrapped" software, each item of Intellectual Property that any
third party owns and that the Company uses in connection with the Business
pursuant to license, sublicense, agreement or permission (clauses (ii) and (iii)
are collectively referred to as "Licensed Intellectual Property").

         (b) Except as set forth on Schedule 5.13(b),

                  (i) the Company has not interfered with, infringed upon,
misappropriated or otherwise come into conflict with any Intellectual Property
rights of third parties or committed any acts of unfair competition, and the
Company has not received any charge, complaint, claim, demand or notice alleging
any such interference, infringement, misappropriation, conflict or act of unfair
competition;

                  (ii) the Company owns, has the right to use, sell, license and
dispose of, and has the right to bring actions for the infringement of, and,
where necessary, has made timely and proper application for, all Intellectual
Property (other than the Licensed Intellectual Property) necessary or required
for the conduct of the Business as currently conducted and as proposed to be
conducted and such rights to use, sell, license, dispose of and bring actions
are exclusive with respect to such Intellectual Property;

                  (iii) there are no royalties, honoraria, fees or other
payments payable by the Company to any Person by reason of the ownership, use,
license, sale or disposition of the Intellectual Property;

                  (iv) no activity, service or procedure currently conducted or
proposed to be conducted by the Company violates or will violate any agreement
governing the use of Licensed Intellectual Property;

                  (v) the Company has taken reasonable and practicable steps
(including, without limitation, entering into confidentiality and nondisclosure
agreements with all officers, directors and employees of, and consultants to,
the Company with access to or knowledge of the Intellectual Property) designed
to safeguard and maintain the secrecy and confidentiality of, and their
proprietary rights in, all Intellectual Property;

                  (vi) no patent, formulation, invention, device, application or
principle nor any Law exists or, to the knowledge of Seller, is pending or
proposed that would have or could reasonably be expected to have a Material
Adverse Effect on the Business as presently conducted or as contemplated to be
conducted;

                  (vii) the Company has not sent to any third party in the past
five (5) years or otherwise communicated to another Person any charge,
complaint, claim, demand or notice asserting infringement or misappropriation
of, or other conflict with, any Intellectual Property right of the Company by
such other Person or any acts of unfair competition by such other Person, nor,
to the knowledge of Seller, is any such infringement, misappropriation, conflict
or act of unfair competition occurring or threatened; and

                                      -17-

<PAGE>

                  (viii) the consummation of the transactions contemplated by
the Documents will not result in a reduction, waiver or other diminishment of
any material legal right represented by the Company's Intellectual Property
utilized in the Business.

5.14     CONTRACTS AND COMMITMENTS.

         Except as set forth on Schedule 5.14 or as contemplated by this
Agreement, the Company is not a party to any written or oral:

         (a) contract, agreement or arrangement for the employment of, or
benefits to, any officer, individual employee, or other Person on a full-time,
part-time, consulting or other basis;

         (b) instrument, agreement or indenture relating to Funded Indebtedness
or to the mortgaging, pledging or otherwise placing a Lien on any material asset
or material group of assets of the Company;

         (c) factoring arrangement or other agreement involving the sale of the
Company's accounts receivable to a third party at a discount;

         (d) guarantee of any obligation for borrowed money or otherwise;

         (e) agreement with respect to the lending or investing of funds;

         (f) lease or agreement under which the Company is the lessee of or the
holder or operator of any real or personal property owned by any other party;

         (g) lease or agreement under which the Company is the lessor of or
permits any third party to hold or operate any real or personal property owned
or controlled by the Company;

         (h) assignment, license, indemnification or agreement with respect to
any form of intangible property, including, without limitation, any Intellectual
Property or confidential information;

         (i) contract or group of related contracts with the same party
(excluding purchase orders entered into in the ordinary course of business) for
the purchase or sale of products or services under which the undelivered balance
of such products and services has a selling price in excess of $20,000;

         (j) contract which prohibits the Company from freely engaging in
business anywhere in the world;

         (k) contract relating to the purchase, distribution, marketing or sales
of the Company or any other Person's products (other than purchase and sales
orders entered into in the ordinary course of business consistent with past
practices and the performance of which by the parties thereto is reasonably
expected to be substantially completed within sixty (60) days of the execution
thereof);

         (l) contract with any Affiliate; or

                                      -18-

<PAGE>

         (m) other agreement or instrument material to the Business.

         Each agreement, lease, license, contract or commitment disclosed on
Schedule 5.14 is valid and enforceable against the Company and the other parties
thereto. Except as specifically disclosed in Schedule 5.14, the Company has
performed in all material respects all obligations required to be performed by
it and is not in default under or in breach of nor in receipt of any claim of
default or breach under any such agreement, lease, license, contract or
commitment to which it is a party; and no event has occurred which with the
passage of time or the giving of notice or both would result in a default or
breach under any such document. To the knowledge of Seller, no other party to
any agreement, lease, license, contract, or commitment to which the Company is a
party is in default under or in breach of such document and no event has
occurred which with the passage of time or giving of notice or both would result
in a default or breach under any such document. The Company has supplied the
Buyer with (i) a true, correct and complete copy of each of the documents listed
on Schedule 5.14, together with all amendments, waivers or other changes
thereto, and (ii) a complete description of all oral agreements to which the
Company is a party.

5.15     INSURANCE.

         Schedule 5.15 lists and briefly describes each insurance policy and
self insurance arrangement maintained by or for the benefit of the Company with
respect to its properties, assets and business, and all currently pending claims
thereunder. All of such insurance policies are in full force and effect. Neither
the Seller nor the Company is in default with respect to their obligations under
any of such insurance policies and neither the Seller nor the Company has
received any notification of cancellation or modification of any of such
insurance policies or has any claim outstanding which could be expected to cause
a material increase in rates applicable for the Company's insurance. There are
no facts or circumstances which exist that might relieve any insurer under such
insurance policies of its obligations to satisfy in full claims thereunder. The
Company and/or the Seller, on behalf of the Company, maintains insurance
coverage of a type and amount customary for entities of similar size engaged in
similar lines of business as the Company. Schedule 5.15 lists each claim (and
the disposition thereof) submitted since May 1, 1999 under any insurance policy
and self insurance arrangement maintained by or for the benefit of the Company
with respect to its properties, assets and business during such period.

5.16     LITIGATION.

         Except as set forth on Schedule 5.16, there are no Proceedings pending
or, to the knowledge of Seller, threatened against the Company and there is no
Basis for any of the foregoing. Schedule 5.16 also sets forth all Proceedings
involving the Company during the last five (5) years which (i) alleged criminal
conduct by the Company, (ii) resulted in the Company paying or receiving an
amount in excess of $20,000 in connection with the adjudication or compromise of
such matter or (iii) had a Material Adverse Effect on the Company. All materials
provided to the Buyer relating to the matters described in Schedule 5.16 are
true, correct and complete.

                                      -19-

<PAGE>

5.17     EMPLOYEES.

         (a) Schedule 5.17(a) lists all current employees of the Company as of
the Closing Date, their permanent classifications (if applicable), their current
hourly rates of compensation or base salaries (as applicable) and the
commencement date of their employment. In addition, to the extent any current
employees are on leaves of absence, Schedule 5.17(a) indicates the nature of
such leave of absence and each such employee's anticipated date of return to
active employment. Schedule 5.17(a) also sets forth all former employees of the
Company who left the employ of the Company within the past twelve (12) months,
including their name and position. No executive, key employee or group of
employees of the Company listed on Schedule 5.17(a) has indicated any plans to
(i) terminate employment with the Company or (ii) not continue employment with
the Company immediately after the Closing. The Company has complied in all
material respects with all Laws relating to the hiring of employees and the
employment of labor, including provisions thereof relating to immigration and
citizenship (including proper completion and processing of Forms I-9 for all
employees), wages, hours, equal opportunity, collective bargaining and the
payment of social security and other Taxes.

         (b) Except as set forth on Schedule 5.17(b), (i) the Company is not
delinquent in payments to any of its employees for any wages, salaries,
commissions, bonuses or other direct compensation for any services performed by
them to date or amounts required to be reimbursed to such employees and upon
termination of the employment of any such employees, neither the Buyer nor the
Company will by reason of anything done prior to the Closing be liable to any of
such employees for severance pay or any other payments, (ii) there is no unfair
labor practice charge or complaint against the Company pending before the
National Labor Relations Board or any other Governmental Entity and none is or
has been threatened, (iii) there is no labor strike, dispute, request for
representation, slowdown or stoppage actually pending or threatened against or
involving the Company, (iv) no labor union currently represents the employees of
the Company, (v) to the knowledge of Seller, no labor union has taken any action
with respect to organizing the employees of the Company, and (vi) neither any
material grievance nor any arbitration proceeding arising out of employment by
the Company is pending and no claim thereto has been asserted against the
Company. Except as set forth in Schedule 5.17(b), the Company is not a party to,
or bound by, any collective bargaining agreement, union contract or singular
agreement.

         (c) Except as set forth on Schedule 5.17(c): (i) the Company is, and
has at all times been, in compliance in all material respects with all
applicable laws respecting employment and employment practices, including
without limitation, terms and conditions of employment, wages, hours of work,
employment discrimination and occupational safety and health, and are not
engaged in any unfair labor practices as defined in the National Labor Relations
Act or other applicable law, ordinance or regulation; (ii) to the knowledge of
Seller, no charges with respect to or relating to the Company are pending before
the Equal Employment Opportunity Commission or any other agency responsible for
the prevention of unlawful employment practices; (iii) the Company has provided
or will timely provide prior to the Closing Date all notices required by law to
be given prior to the Closing Date by the Company of the transactions
contemplated by this Agreement to all local, state or federal labor,
wage-payment, equal employment opportunity, unemployment-insurance and related
agencies; (iv) the transactions contemplated by this Agreement will not create
any liability under any local, state or federal law

                                      -20-

<PAGE>

respecting reductions in workforce or the impact on employees of plant closings
or sales of businesses; and (v) the Company and each member of its respective
business enterprise has complied with, in all material respects, the Worker
Adjustment and Retraining Notification Act.

         (d) Neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated (either alone or in conjunction
with any other event) hereby will: (i) result in any payment (including, without
limitation, severance, unemployment compensation, golden parachute, bonus or
otherwise) becoming due to any director or employee of the Company from the
Company under any Plan (defined in Section 5.18 below) or otherwise; (ii)
increase any benefits otherwise payable under any Plan or otherwise; or (iii)
result in the acceleration of the time of payment or vesting of any such
benefits.

         (e) The Company has no knowledge of any valid claim that may be
asserted by any third party against the Company or any of the Designated Persons
(as hereinafter defined) with respect to (i) the employment by, or association
with the Company of any of the present officers or employees of or consultants
to the Company (said officers, employees and/or consultants being hereinafter,
collectively referred to as the "Designated Persons") or (ii) the use, in
connection with the Business, by any of the Designated Persons of any
information which the Company or any of the Designated Persons is prohibited
from using, in each case under any prior agreements, arrangements or other
preexisting set of facts, including, without limitation, any such agreement or
arrangement between any of the Designated Persons, or any legal or equitable
considerations applicable to, among other things, unfair competition, trade
secrets or proprietary information.

5.18     EMPLOYEE BENEFITS.

         (a) Employee Benefit Plans. Schedule 5.18(a) sets forth a true and
complete list of all Employee Benefit Plans (as used in this Section 5.18, the
"Plans") (i) that cover any present or former employees or directors of the
Company (A) that are maintained, sponsored or contributed to by or on behalf of
the Company or (B) with respect to which the Company is obligated to contribute
or has any Liability or potential Liability, whether direct or indirect or (ii)
with respect to which the Company has any Liability or potential Liability on
account of the maintenance or sponsorship thereof or contribution thereto by any
present or former ERISA Affiliate of the Company.

         (b) Administration and Compliance of the Plans. Except as set forth on
Schedule 5.18(b), with respect to each Plan:

                  (i) there have been no violations of ERISA or other applicable
Laws with respect thereto (including, without limitation, any nonexempt
Prohibited Transactions); no fiduciary (as defined in Section 3(21) of ERISA)
has any Liability for breach of fiduciary duty or any other failure to act or
comply in connection with the administration or investment of the assets
thereof; no action, suit, proceeding, hearing or investigation with respect to
the administration or the investment of the assets thereof (other than routine
claims for benefits) is pending or threatened; and the Company has no knowledge
of any Basis for any such action, suit, proceeding, hearing, or investigation
and each Plan has been administered in all material respects in accordance with
its terms;

                                      -21-

<PAGE>

                  (ii) such Plan, if intended to be "qualified", within the
meaning of Section 401(a) of the Code, has been determined by the Internal
Revenue Service to be so qualified and the related trusts are exempt from Tax
under Section 501(a) of the Code, and nothing has occurred that has or could
adversely affect such qualification or exemption;

                  (iii) the Company has timely deposited all amounts withheld
from employees for pension, welfare or other benefits into the appropriate
trusts or accounts;

                  (iv) the Company has no liability for any post-employment or
post-retirement health or life insurance, accident or other "welfare-type"
benefits to former beneficiaries or dependents thereof, except for health
continuation coverage as required by Section 4980B of the Code or Part 6, Title
I of ERISA; there has been no communication to employees by the Company which
could reasonably be interpreted to promise or guarantee such employees retiree
health or life insurance or other such "welfare-type" benefits;

                  (v) the Company has provided the Buyer with true and complete
copies, to the extent applicable, of all documents pursuant to which such Plan
is maintained and administered, the current summary plan description and any
material modifications thereto, the two most recent annual reports (Form 5500
and attachments) and financial statements therefor, all governmental rulings,
determinations, and opinions (and pending requests therefor), and if such Plan
provides post-retirement or post-employment health and life insurance, accident,
or other "welfare-type" benefits, the most recent valuation of the present and
future obligations under such Plan; the foregoing documents accurately reflect
all material terms of such Plan; and

                  (vi) no benefit or amount payable or which may become payable
by the Company pursuant to any Plan, agreement or contract with any employee
shall constitute an "excess parachute payment" within the meaning of Section
280G of the Code (or any corresponding provision of state, local or foreign Tax
law), which is or may be subject to the imposition of an excise tax under
Section 4999 of the Code or which would not be deductible by reason of Section
280G of the Code.

         (c) Multi-Employer Plans, Controlled Group Liability, Etc. The Company
and each of its ERISA Affiliates are not and have not ever maintained or been
obligated to contribute to a Multiple Employer Plan, a Multi-Employer Plan, a
Defined Benefit Pension Plan or a "multiple employer welfare arrangement" as
that term is defined in Section 3(40) of ERISA. There does not now exist, nor do
any circumstances exist that could result in any liability of the Company
following the Closing (i) under Title IV of ERISA, (ii) under Section 302 of
ERISA, (iii) under Sections 412 and 4971 of the Code, (iv) as a result of a
failure to comply with the continuation coverage requirements of Section 601 et
seq. of ERISA and Section 4980B of the Code, and (v) under corresponding or
similar provisions of foreign laws or regulations. Without limiting the
foregoing, neither the Company nor any ERISA Affiliate of the Company has
engaged in any transaction described in Sections 4069, 4212 or 4204 of ERISA.

5.19     ENVIRONMENT AND SAFETY.

         (a) Except as set forth in Schedule 5.19, the Company has materially
complied and is in material compliance with all Environmental and Safety
Requirements (including, without

                                      -22-

<PAGE>

limitation, all permits, licenses and other authorizations that may be required
thereunder) for the occupation of the Real Property and the operation of the
Business or otherwise related to the Real Property or the Business. Schedule
5.19 contains a list of all permits, licenses and authorizations required under
all Environmental and Safety Requirements. The Company has accurately prepared
and timely filed with the appropriate Governmental Entities all reports,
notifications, and filings required pursuant to Environmental and Safety
Requirements affecting the Real Property or the Business. The Company has not
received notice of any action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand or notice against the Company alleging any violation
of, any liability (contingent or otherwise) or any corrective or remedial
obligation under any Environmental and Safety Requirements or involving any of
its current or past operations or any Real Property currently or formerly used
by the Company. The Company has not expressly or by operation of law assumed,
undertaken or become subject to any Liability of any other Person under any
Environmental and Safety Requirements. Schedule 5.10(d) sets forth a complete
and accurate list of all real property owned, leased or operated by the Company
in connection with the Business. None of the following exists nor, to the
knowledge of Seller, has ever existed, at any of the Real Property or any other
real property previously owned or operated by the Company: (i) underground
storage tanks; (ii) asbestos-containing material in any form or condition; (iii)
materials or equipment containing polychlorinated biphenyls; and (iv) landfills,
surface impoundments or disposal areas. No Environmental Lien has attached to
any property owned, leased or operated by the Company. The Company has not been
notified that it is potentially responsible or liable under or received any
requests for information or other correspondence concerning any site or facility
under CERCLA or any similar law. The Company has not entered into or received
any consent, decree, compliance order, or administrative order pursuant to
Environmental and Safety Requirements and under which there are continuing
obligations.

         (b) The Company has not treated, stored, disposed of, arranged for or
permitted the disposal of, transported, handled or released any substance,
including, without limitation, any hazardous substance, or owned or operated any
property or facility (and no such property or facility is contaminated by any
such substance) in a manner that has given or would give rise to Liabilities
pursuant to CERCLA, SWDA or any other Environmental and Safety Requirement,
including any Liability for response costs, corrective action costs, personal
injury, property damage, natural resources damage or attorney fees, or any
investigative, corrective or remedial obligations. The transactions contemplated
by this Agreement do not impose any obligations under any Environmental and
Safety Requirements for site investigation or cleanup, or notification to any
Governmental Entities or third parties. To the knowledge of Seller, no facts,
events or conditions relating to the past or present properties, operations or
facilities of the Company would prevent compliance by the Company or the Buyer
with, or give rise to any Liability or investigatory, corrective or remedial
obligation of the Buyer with respect to, Environmental and Safety Requirements,
including, without limitation, any Liability related to environmental
contamination or violations of health and safety requirements.

         (c) The Company has provided the Buyer with true, correct, and complete
copies of all environmental reports and studies in the possession, custody or
control of the Company with respect to the Business or any of the Real Property
or real property owned or leased by the Company and, to the knowledge of Seller,
there are no other environmental reports or studies with respect thereto.

                                      -23-

<PAGE>

5.20     CUSTOMERS AND SUPPLIERS.

         Schedule 5.20 lists all material customers and all material suppliers
of the Company during (i) the fiscal year ended 2000, (ii) the fiscal year ended
2001 and (iii) the fiscal year ending 2002 through September 30, 2001. Except as
set forth on Schedule 5.20, no such customer, supplier or subcontractor has
terminated or materially reduced its business with the Company since September
30, 2001. No changes have occurred to the customer base other than in the
ordinary course of business. The Company has not received any notice or
otherwise has any reason to believe that any of the customers, suppliers or
subcontractors listed in Schedule 5.20 intends to terminate or materially reduce
its business with the Company.

5.21     ACCOUNTS RECEIVABLE.

         The notes and accounts receivable reflected on the Latest Balance Sheet
(net of allowances for doubtful accounts as reflected thereon) are valid
receivables and, except as set forth on Schedule 5.21, have been collected or
are current and collectible within ninety (90) days after the due date related
to such receivables, subject to no valid counterclaims or set-offs, at the
aggregate recorded amount thereof as shown on the Latest Balance Sheet. The
notes and accounts receivable reflected on the books and records of the Company
as of the Closing Date are valid receivables and, except as set forth on
Schedule 5.21, are current and collectible within ninety (90) days after the due
date or the execution date related to such receivables, subject to no valid
counterclaims or set-offs, at the aggregate recorded amount thereof recorded on
each books and records, net of the recorded amount of allowances for doubtful
accounts computed in a manner consistent with the accounting practices used in
the preparation of the Latest Balance Sheet.

5.22     ACCOUNTS AND NOTES PAYABLE.

         Except as set forth on Schedule 5.22, all accounts payable and notes
payable by the Company to third parties as of the date hereof arose in the
ordinary course of business. Schedule 5.22 sets forth the payee, the due date
and the amount of all accounts and notes payable of the Company as of December
31, 2001.

5.23     WARRANTIES OF PRODUCTS AND SERVICES; PRODUCT LIABILITY; REGULATORY
         COMPLIANCE.

         (a) Except as set forth on Schedule 5.23, all products manufactured,
sold, distributed, leased, installed, used, delivered or held in inventory by
the Company (including, without limitation, all documentation furnished in
connection therewith) are free from any material defects and conform in all
material respects with all customary and reasonable standards for products of
such type, with all applicable contractual commitments and with all express and
implied warranties, and the Company has no Liability (and, to the knowledge of
Seller, there is no Basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim or demand against it giving
rise to any Liability) for replacement or repair in connection with its Business
or other damages, subject only to the reserve for warranty claims set forth on
the face of the Latest Balance Sheet (rather than in any notes thereto). No
product manufactured, sold, distributed, leased, installed, used or delivered
by, or service provided by, the Company is subject to any guaranty, warranty or
other indemnity beyond the applicable

                                      -24-

<PAGE>

standard terms and conditions of sale, lease or provision of services. Copies of
the standard terms and conditions of sale, lease or provision of services for
the Company (containing applicable guaranty, warranty and indemnity provisions)
are set forth on Schedule 5.23.

         (b) Except as set forth on Schedule 5.23, since May 1, 1999, no
Governmental Entity regulating the Business has commenced, or threatened to
commence, any investigation or proceeding relating to the Business, and the
Company has not been responsible for, subject to, become aware or otherwise been
notified of, and does not now have any Liability (and, to the knowledge of
Seller, there is no Basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim or demand against it giving
rise to any Liability), arising out of any injury to individuals or property as
a result of or in connection with any of the services performed by the Company
or any product manufactured, sold, distributed, leased, installed, used or
delivered by, or service provided by, the Company.

5.24     INSIDER INTERESTS.

         Except as set forth on Schedule 5.24, and except for compensation to
regular employees of the Company and with respect to intracorporate cost sharing
arrangements, no current or former Affiliate of the Company or any Associate
thereof, is now, or has been during the last five fiscal years, (i) a party to
any transaction or contract with the Company, (ii) indebted to the Company, or
(iii) to the knowledge of Seller the direct or indirect owner of an interest in
any Person which is a present or potential competitor, supplier, lessor,
subcontractor, or customer of the Company (other than non-affiliated holdings in
publicly held companies), nor does any such Person receive income from any
source other than the Company which should properly accrue to the Company.
Except as set forth on Schedule 5.24, the Company and its Affiliates are not the
guarantors or otherwise liable for any Liability (including indebtedness) of the
Seller.

 5.25    CONFLICTS OF INTERESTS.

         None of the Company or, to the knowledge of Seller, any officer,
director, employee, agent or any other Person acting on behalf of the Company
has, directly or indirectly, given or agreed to give any money, gift or similar
benefit (other than legal price concessions to customers in the ordinary course
of business) to any customer, supplier, employee or agent of a customer or
supplier, or official or employee of any Governmental Entity or other Person who
was, is, or may be in a position to help or hinder the business of the Company
(or assist in connection with any actual or proposed transaction) that (i) might
subject the Company to any damage or penalty in any Proceeding, (ii) if not
given in the past, might have had a Material Adverse Effect on the Company, or
(iii) if not continued in the future, might have a Material Adverse Effect on
the Company.

5.26     BROKERS.

         Schedule 5.26 sets forth a true and complete list of, and copies of all
agreements with (or descriptions of all oral arrangements with), each agent,
broker, investment banker, Person or firm who or which has acted on behalf, or
under the authority, of the Company or the Seller or will be entitled to any fee
or commission directly or indirectly from the Buyer or the Company in connection
with any of the transactions contemplated hereby.

                                      -25-

<PAGE>

5.27     CERTAIN PRACTICES.

         None of the Company, nor, to the knowledge of Seller, any officer,
director, employee, consultant or agent thereof acting on its behalf has made,
directly or indirectly, any payment or promise to pay, or gift or promise to
give or authorized such a promise or gift, of any money or anything of value,
directly or indirectly, to (a) any foreign, federal, state or local governmental
official for the purpose of influencing any official act or decision of such
official or inducing him or her to use his or her influence to affect any act or
decision of a foreign, federal, state or local governmental agency or
subdivision thereof or (b) any political party or official thereof or candidate
for political office for the purpose of influencing any official act or decision
of such party, official or candidate or inducing such party, official or
candidate to use his, her or its influence to affect any act or decision of a
foreign government or agency or subdivision thereof, in the case of both (a) and
(b) above in order to assist the Company to obtain or retain business for or
direct business to the Company under circumstances which would subject the
Company to Liability.

                                   ARTICLE VI

              REPRESENTATIONS AND WARRANTIES OF BUYER AND NETWOLVES

         As a material inducement to the Seller to enter into and perform its
obligations under this Agreement, the Buyer and NetWolves represent and warrant
to the Seller as follows:

6.1      ORGANIZATION.

         The Buyer and NetWolves are corporations duly organized, validly
existing and in good standing under the laws of the State of New York.

6.2      AUTHORIZATION OF TRANSACTION.

         Each of the Buyer and NetWolves have full corporate power and authority
to execute and deliver each Document to which it is a party and any and all
instruments necessary or appropriate in order to effectuate fully the terms and
conditions of the Documents and all related transactions and to perform its
obligations under the Documents. Each Document to which the Buyer or NetWolves
is a party has been duly authorized by all necessary corporate action on the
part of the Buyer or NetWolves, as the case may be, and has been duly executed
and delivered by such entity and constitutes the valid and legally binding
obligation of such entity, enforceable against such entity in accordance with
its terms and conditions.

6.3      NO RESTRICTIONS AGAINST PURCHASE OF SHARES.

         Neither the execution, delivery and performance of the Documents nor
the consummation of the transactions contemplated thereby, nor compliance by the
Buyer or NetWolves, as the case may be, with any of the provisions thereof, will
(i) violate, conflict with, or result in a material breach of any provision of,
or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under any of the terms, conditions or
provisions of the Fundamental Documents of the Buyer or NetWolves, as the case
may be, or under any note, bond, mortgage, indenture, deed of trust, or other
agreement to which the Buyer or NetWolves is

                                      -26-

<PAGE>

bound, or by which the Buyer or NetWolves or any of their respective properties
or assets may be bound or affected, which in either case would prevent the
Buyer's consummation of the transactions contemplated hereby, or (ii) violate
any Law applicable to the Buyer or NetWolves or any of their respective
properties or assets which would prevent the consummation of the transactions
contemplated hereby. To the knowledge of Buyer and NetWolves, except as set
forth on Schedule 6.3 no consent or approval by, notice to, or registration
with, any Governmental Entity is required on the part of the Buyer or NetWolves
in connection with the execution and delivery of this Agreement or the
consummation by the Buyer or NetWolves of the transactions contemplated hereby
which would prevent the consummation of the transactions contemplated hereby.

                                  ARTICLE VII

                    INDEMNIFICATION AND ADDITIONAL AGREEMENTS

7.1      SURVIVAL.

         The representations, warranties, covenants and other agreements set
forth in this Agreement or in any certificate or other writing delivered in
connection with this Agreement shall survive the Closing and the consummation of
the transactions contemplated hereby; provided, however, that any claim for
Damages arising out of, or with respect to, the inaccuracy of any such
representation or the breach of any such warranty must be asserted in writing by
notice given to the other party on or before the earlier of (i) sixty (60) days
following receipt by the parties hereto of an audit report prepared in the
ordinary course by an independent accounting firm with respect to the financial
statements of the Company for the first full fiscal year of the Company
following the Closing Date and (ii) the date that is two (2) years following the
Closing Date, failing which any such claim shall be waived and extinguished;
provided, however, claims for Damages with respect to the inaccuracy of
representations and breach of warranties contained in Sections 5.1, 5.2, 5.3,
5.10(a), 5.12, 5.18, 5.19, 5.26, 6.1, 6.2 and 6.3 hereof may be asserted until
the expiration of the applicable statute of limitations (giving effect to any
waivers or extensions thereof) for which any third party claims may be asserted.
No right of a party seeking indemnification hereunder shall be affected by any
examination made for or on behalf of such party, or the acceptance by such party
of any certificate or opinion; provided further, however, to the extent a party
has expressly waived compliance with a condition precedent to Closing, such
waiver shall also constitute a waiver of any claim for indemnification as to
such matter.

7.2      INDEMNIFICATION.

         (a) The Seller shall indemnify, defend and hold harmless the Buyer,
NetWolves, their Affiliates and their respective successors, assigns, officers,
directors, stockholders, and employees (collectively, the "Buyer Group") against
any Damages that any member of the Buyer Group may suffer, sustain or become
subject to as the result of, or arising from the breach by the Seller of any
representation, warranty, covenant or agreement contained in this Agreement, any
other Document or in any exhibit, schedule or attachment hereto or thereto or in
any certificate delivered by the Seller in connection herewith or therewith.

                                      -27-

<PAGE>

         (b) The Buyer and NetWolves shall indemnify and hold harmless the
Seller and its officers, directors and employees, and successors and assigns
(collectively, the "Seller Group") against any Damages which they may suffer,
sustain or become subject to as the result of or arising from a breach of any
representation, warranty, covenant or agreement by the Buyer contained in this
Agreement, any other Document or in any exhibit, schedule or attachment hereto
or thereto or in any certificate delivered by the Buyer in connection herewith
or therewith.

         (c) Anything in Section 7.2(a) or (b) hereof to the contrary
notwithstanding, a party shall not have the right to be indemnified for breaches
of representations and warranties under this Agreement unless and until such
party shall have incurred on a cumulative basis Damages in an amount exceeding
$75,000 (the "Deductible Amount") and in such event the party may recover
Damages in excess of the Deductible Amount; provided, however, that in no event
shall the limitations set forth in this Section 7.2(c) hereof apply with respect
to the representations and warranties set forth in Sections 5.1, 5.2, 5.3, 5.4,
5.10(a) or 5.26 hereof, any liability or obligation assumed by Seller pursuant
to the Assignment and Assumption Agreement, or willful breaches.

         (d) Except as provided in Section 7.2(c) hereof, the Buyer Group shall
first set off and apply against any amounts due and payable to the Seller
pursuant to the Note an amount equal to the amount of any Damages in excess of
the Deductible Amount suffered, sustained, incurred or required to be paid by
the Buyer Group (or their assigns) pursuant to Section 7.2(a) hereof.
Notwithstanding the foregoing, (i) the Buyer Group shall be obligated to set off
only one-half (1/2) of any Damages in excess of the Deductible Amount, if any,
resulting or arising from a breach of the representations and warranties
contained in Section 5.5 hereof, with the remainder to be paid by Seller in cash
and (ii) the Buyer Group shall not be obligated to set off any Damages incurred
in the defense of any third party claim or arising from any liability or
obligation assumed by Seller pursuant to the Assignment and Assumption Agreement
which Damages shall be paid by the Seller in full in cash.

         (e) No items as to which any indemnification claim or other remedy is
obtained by or on behalf of a party hereto can serve as the basis of an
additional claim for indemnification or other remedy hereunder. No party shall
be indemnified for Damages resulting from its own negligence.

7.3      INDEMNIFICATION PROCEDURES.

         (a) If any third party shall notify any party to this Agreement (the
"Indemnified Party") with respect to any matter which may give rise to a claim
for indemnification against any other party to this Agreement (the "Indemnifying
Party") under Section 7.2 hereof (a "Third Party Claim"), then the Indemnified
Party shall notify each Indemnifying Party thereof promptly; provided, however,
that no delay on the part of the Indemnified Party in notifying any Indemnifying
Party shall relieve the Indemnifying Party from any liability or obligation
hereunder unless (and then solely to the extent) the Indemnifying Party is
thereby prejudiced by the delay. Any Indemnifying Party will have the right to
defend the Indemnified Party against the Third Party Claim with counsel of its
choice reasonably satisfactory to the Indemnified Party so long as (A) the
Indemnifying Party notifies the Indemnified Party in writing within fifteen (15)
days after the Indemnified Party has given notice of the Third Party Claim that
the

                                      -28-

<PAGE>

Indemnifying Party will indemnify the Indemnified Party from and against the
entirety of any Damages the Indemnified Party may suffer resulting from, arising
out of, relating to, in the nature of, or caused by the Third Party Claim
(subject to the limitations set forth in Sections 7.2(c) and 7.2(d)), (B) the
Indemnifying Party provides the Indemnified Party with evidence reasonably
acceptable to the Indemnified Party that the Indemnifying Party will have the
financial resources to defend against the Third Party Claim and fulfill its
indemnification obligations hereunder, (C) the Third Party Claim involves only
money damages and does not seek an injunction or other equitable relief, (D)
settlement of, or an adverse judgment with respect to, the Third Party Claim is
not, in the good faith and reasonable judgment of the Indemnified Party, likely
to establish a precedential custom or practice adverse to the continuing
business interests of the Indemnified Party, and (E) the Indemnifying Party
conducts the defense of the Third Party Claim actively and diligently. The
Indemnified Party may participate in the defense of such claim with co-counsel
of its choice to the extent that the Indemnified Party believes in its sole
discretion that such matter shall affect its ongoing business; provided,
however, that the reasonable fees and expenses of the Indemnified Party's
counsel shall be at the expense of the Indemnified Party unless (A) the
Indemnifying Party has agreed in writing to pay such fees and expenses, (B) the
Indemnifying Party has failed to assume the defense and employ counsel as
provided herein or (C) a claim shall have been brought or asserted against the
Indemnifying Party as well as the Indemnified Party, and such Indemnified Party
shall have been advised in writing by counsel that there may be one or more
factual or legal defenses available to it that are in conflict with those
available to the Indemnifying Party, in which case such co-counsel shall be at
the expense of the Indemnifying Party; provided, however, that the Indemnifying
Party will not be required to pay the fees and expenses of more than one
separate principal counsel (and any appropriate local counsel) for all
Indemnified Parties. If, within such 15-day period, the Indemnifying Party does
not assume the defense of such matter or fails to defend the matter in the
manner set forth above, the Indemnified Party may defend against the matter in
any manner that it reasonably may deem appropriate and may consent to the entry
of any judgment with respect to the matter or enter into any settlement with
respect to such matter without the consent of the Indemnifying Party and,
subject to the limitations set forth in Sections 7.2(c) and 7.2(d), the
Indemnifying Party will reimburse the Indemnified Party promptly and
periodically for the costs of defending against such claim (including reasonable
attorneys' fees and expenses) and, subject to the limitations set forth in
Sections 7.2(c) and 7.2(d), the Indemnifying Party will remain responsible for
any Damages the Indemnified Party may suffer resulting from, arising out of,
relating to, in the nature of, or caused by the claim to the fullest extent
provided herein.

         (b) With respect to any claim for indemnification hereunder which does
not involve a Third Party Claim, the Indemnified Party will give the
Indemnifying Party written notice of such claim. The Indemnifying Party may
acknowledge and agree in writing to satisfy such claim within twenty (20) days
of receipt of notice of such claim from the Indemnified Party (a "Validated
Claim"). In the event that the Indemnifying Party shall dispute such a claim,
the Indemnifying Party shall provide written notice of such dispute to the
Indemnified Party within twenty (20) days of receipt of notice of such claim,
setting forth the basis of such dispute. Upon resolution of such dispute in
favor of indemnification pursuant to the arbitration provisions set forth in
Section 7.3(d) hereof, such claim shall then be a Validated Claim. With respect
to any Validated Claim, the Indemnifying Party shall be responsible for the
payment of such claim

                                      -29-
<PAGE>

(subject to the limits set forth in Sections 7.2(c) and 7.2(d)); provided,
however, that if the Seller is the Indemnifying Party, such claim shall first be
deducted from the total principal of the Note.

         (c) Limitation on Remedies. The parties shall use reasonable efforts to
collect the proceeds of any insurance which would have the effect of reducing
Damages (in which case such proceeds shall reduce such Damages) and, if
indemnification payments shall have been received prior to the collection of
such proceeds, shall remit the amount of such proceeds (net of the cost of
collection thereof) to the extent of indemnification payments received in
respect of such Damages. To the extent that any Damages are reduced by receipt
of payment under insurance policies, such payments (net of the expenses of the
recovery thereof and any increase in premiums resulting therefrom) shall be
credited against such Damages.

         (d) Arbitration of Indemnification Disputes. Any disputes relating to
or arising under Sections 7.1 through 7.3 of this Agreement shall be resolved by
mutually binding arbitration pursuant to the procedures set forth in this
Section 7.3(d). Any party to this Agreement seeking resolution of any such
dispute hereunder shall submit written notice of such dispute to the other
parties hereto. Such notice shall be deemed to be a demand for arbitration. Such
dispute shall then be submitted to an arbitrator mutually agreeable to the
Seller and the Buyer. In the event the Seller and the Buyer are unable to
mutually agree upon an arbitrator, the Seller and the Buyer shall each choose
one arbitrator, and the two arbitrators chosen by the Seller and the Buyer will
together choose a third arbitrator. The final determination of the arbitrator
shall be binding upon the parties hereto, and the party who is liable to pay
such claim shall pay all of the costs and expenses of such arbitration. Such
arbitration shall be conducted in Minneapolis, Minnesota in accordance with the
then applicable rules of the American Arbitration Association. The judgment of
the arbitrator may be enforced in accordance with the laws in any Federal or
state court in Minnesota having jurisdiction over such controversy or claim.

7.4      TRANSACTION EXPENSES.

         (a) The Buyer shall pay all of its expenses incurred in connection with
the transactions contemplated hereby and the costs, including attorney's fees,
attendant to the process of notifying, registering and obtaining approvals and
consents from any Governmental Entities with jurisdiction in respect of the
execution and delivery of the Agreement and the consummation of the transactions
contemplated hereby. The Seller shall pay all of its expenses and the expenses
of the Company incurred in connection with the transactions contemplated hereby,
including all of the Liabilities of the Company for expenses or fees incident to
or arising out of the negotiation, preparation, approval or authorization of
this Agreement, the other Documents or the consummation (or preparation for the
consummation) of the transactions contemplated hereby or thereby (including all
attorneys' and accountants' fees, and brokerage fees incurred by or imposed upon
the Company).

         (b) In no event shall the Buyer or the Company be liable for any
income, capital gain, franchise or other similar Tax arising or imposed on the
Seller or the Company as a result of the transactions contemplated herein, and
the Seller shall pay all transfer, stamp (including documentary stamp taxes, if
any) and other similar Taxes or governmental charges with respect to the
transactions herein contemplated. Any Taxes imposed on the sale of the Shares at
the Closing shall be borne by the Seller.

                                      -30-
<PAGE>

7.5      EFFORTS TO CONSUMMATE; FURTHER ASSURANCES; TRANSITION ASSISTANCE.

         Subject to the terms and conditions herein provided, the parties hereto
shall do or cause to be done all such acts and things as may be necessary,
proper or advisable (including, without limitation, the completion and
effectuation of all filings and registrations with, and the obtaining of all
consents and approvals from, all applicable Governmental Entities), consistent
with all applicable Laws, to consummate and make effective the transactions
contemplated hereby as soon as reasonably practicable. Each of the parties
hereto agrees that it will from time to time on or after the Closing promptly
do, execute, acknowledge and deliver and will cause to be done, executed,
acknowledged and delivered, all such further acts, deeds, certificates, bills of
sale, assignments, transfers, conveyances, powers of attorney, assurances and
other documents as may be reasonably requested by any of the other parties
hereto for better assigning, transferring, granting, conveying, assuring and
conferring right, title and interest to the Buyer of the Shares. Without
limiting the generality of the foregoing, the parties hereto agree to cooperate
with each other and to provide each other with all information and documentation
reasonably necessary to (i) permit the preparation and filing of all federal,
state, local, and other Tax returns and Tax elections with respect to the
Business and (ii) effectuate all operational matters concerning operating the
Business by the Buyer after the Closing in an efficient manner and consistent
with the operation of the Business by the Company before the Closing.

7.6      CONFIDENTIALITY.

         (a) The Company and the Seller on the one hand and the Buyer on the
other hand (for a period of two (2) years after the date hereof, if the Closing
does not occur) shall keep confidential all information and materials regarding
the other reasonably designated by such party or parties as confidential at the
time of disclosure thereof; provided, that, the Buyer may disclose such
information and materials of the Company and/or the Seller to its officers,
directors, financing sources, Affiliates, representatives, accountants and
counsel who need to have such information or materials to consummate the
transactions contemplated by the Documents; provided, further, that the
provisions of this Section 7.6 shall not bind the Company or the Buyer from
using any of the information contained in their respective businesses. For
purposes of this Agreement, confidential business information that does not
constitute a trade secret under applicable law will not be treated as
confidential information under this Section 7.6 after the second anniversary of
the Closing, but will remain subject to any other limitation on use or
disclosure under any other agreement, applicable law, or otherwise.
Notwithstanding anything to the contrary contained herein, no party hereto shall
be required to maintain as confidential any information or material which:

                  (i) is now, or hereafter becomes, through no act or failure to
act on the part of such party which would constitute a breach of this Section
7.6, generally known or available to the public;

                  (ii) is known to such party at the time of the disclosure of
such information;

                  (iii) is hereafter furnished to such party by a third party,
who, to the best knowledge of such party, is not under obligations of
confidentiality to any other party, without restriction on disclosure;

                                      -31-
<PAGE>

                  (iv) is disclosed with the written approval of the party to
which such information or material pertains;

                  (v) is required to be disclosed by law, court order, or
similar compulsion (including the obligations of the Seller under the rules and
regulations of The Nasdaq Stock Market); provided, however, that, such
disclosure shall be limited to the extent so required or compelled; and
provided, further, however, that the party required to disclose such
confidential information and material shall give the other party notice of such
disclosure and cooperate with such other party in seeking suitable protection;
or

                  (vi) is pursuant to or in connection with any legal proceeding
involving the parties hereto.

         (b) The Seller acknowledges that the Buyer and NetWolves would be
irreparably damaged if the confidential knowledge and information possessed or
hereafter acquired by the Seller relating to the Company, the Business and/or
the Buyer (including, without limitation, the terms of any of the Documents and
all other information regarding the financial condition, results of operations
and prospects, and customer and supplier lists, pricing and terms relating to
the Business) were disclosed to or utilized on behalf of others. Accordingly,
the Seller shall not, and the Seller shall cause its Affiliates not to:

                  (i) disclose to any person, firm, corporation or other
business entity any non-public information concerning the Business or any of the
terms of any of the Documents, for any purpose other than to satisfy the
Seller's disclosure obligations under the Securities Exchange Act of 1934, as
amended, and the rules and regulations of The Nasdaq Stock Market;

                  (ii) make use of any such non-public information for such
Seller's own purpose or for the benefit of any Person (other than the Buyer or
the Company after the Closing); or

                  (iii) make any statements, observations or opinions or
communicate any information (whether oral or written) that disparages or is
likely in any way to harm the reputation of the Business, the Buyer, the Company
or their respective Affiliates or that is inconsistent with the purpose and
intent of the Documents.

7.7      BROKER'S FEES.

         Each of the Seller and the Buyer shall be responsible for, and shall
hold each of the other parties harmless against, any fees or commissions for
which such party is liable to any broker, finder or agent with respect to the
transactions contemplated by this Agreement.

7.8      NON-COMPETE; NON-SOLICITATION.

         The Seller hereby agrees, in consideration of a payment to be agreed
upon prior to closing and other good and valuable consideration:

         (a) During the Non-Compete Period, the Seller shall not (except on
behalf of the Buyer and the Company) engage in the Business directly or through
any Subsidiary or Affiliate,

                                      -32-
<PAGE>

or permit any Subsidiary or Affiliate to engage in the Business, within the
Restricted Territory (as defined below). As used in this Agreement, the term
"Restricted Territory" means North America. The parties acknowledge that the
territory consisting of the United States is the territory within which the
Company currently has offices, conducts the Business, or solicits substantially
all of its business. The parties further acknowledge that the Restricted
Territory is the territory into which the parties reasonably anticipate that the
Business will expand, and that Buyer's agreement to pay the Seller the
Consideration is specifically based and conditioned in part on the potential of
the Company to so expand. Nothing herein shall prohibit the Seller from being a
passive owner of not more than one percent (1%) of the outstanding stock of any
class of a corporation which is publicly traded, so long as the Seller has no
active participation in the business of such corporation.

         (b) During the Non-Compete Period, the Seller shall not directly or
indirectly through another Person (i) induce or attempt to induce any employee
of the Company or of the Buyer to leave the employ of the Company, or the Buyer,
as the case may be, or in any way interfere with the relationship between the
Company or the Buyer, on the one hand, and any employee thereof, on the other
hand, (ii) hire any person who is or was an employee of the Company or the Buyer
until six (6) months after such individual's employment relationship with the
Buyer or the Company has been terminated or (iii) induce or attempt to induce
any customer, supplier, subcontractor, licensee or other business relation of
the Company or the Buyer to cease doing business with the Company or the Buyer,
or in any way interfere with the relationship between any such customer,
supplier, subcontractor, licensee or business relation, on the one hand, and the
Company or the Buyer, on the other hand.

         (c) During the Non-Compete Period, the Seller shall not, except on
behalf of the Buyer, the Company or an Affiliate of the Buyer or the Company,
directly or indirectly, whether alone or with any other Person as a partner,
officer, director, employee, agent, shareholder, consultant, sales
representative or otherwise, solicit, or assist in the solicitation of, any
Person who is, or was during the period of the Seller's ownership of the
Company, a customer of the Company, for the purpose of selling such Person
services which are of the type provided by the Company as part of the Business;
provided, however, that this clause (c) will apply only with respect to any
Person with whom the Seller, or any other employee of the Company directly or
indirectly under the Seller's supervision, has had contact on behalf of the
Company at any time prior to the date hereof or at any time during the
Non-Compete Period or about whom the Seller has received confidential
information at any time prior to the date hereof or at any time during such
period; and provided, further, that Seller shall not be restricted from
marketing to customers of the Business products or services that do not in any
way relate to the Business as of the date of this Agreement or as contemplated
in the future.

         (d) If, at the time of enforcement of this Section 7.8, a court holds
that the restrictions stated herein are unreasonable under the circumstances
then existing, the parties hereto agree that the maximum period, scope or
geographical area reasonable under such circumstances shall be substituted for
the stated period, scope or area. The parties hereto acknowledge that money
damages would be an inadequate remedy for any breach of this Section 7.8.
Therefore, in the event of a breach or threatened breach of this Section 7.8,
the Company or the Buyer and/or their respective successors or assigns will be
entitled to injunctive relief, in addition to other rights and

                                      -33-

<PAGE>

remedies existing in their favor, in order to enforce, or prevent any violations
of, the provisions of this Section 7.8 (without posting a bond or other
security).

         The Seller's performance under the Co-Marketing Agreement shall not be
construed as a breach of any provisions of this Section 7.8.

7.9      PUBLIC ANNOUNCEMENTS.

         Except as required by law (including the rules and regulations of The
Nasdaq Stock Market), any public announcements regarding the transactions
contemplated hereby shall be made only with the mutual consent of Buyer and
Seller. The Buyer and Seller shall cooperate fully with each other in
effectuating the immediately preceding sentence.

7.10     TAX MATTERS.

         The following provisions shall govern the allocation of responsibility
as between Buyer and Seller for certain tax matters following the Closing Date:

         (a) Tax Periods Ending on or Before the Closing Date. Buyer shall
prepare or cause to be prepared and file or cause to be filed all Tax Returns
for the Company for all periods ending on or prior to the Closing Date which are
filed after the Closing Date, other than any Tax Return for the Company under
which the Company is a member of the Seller Group, in which case the Seller
shall prepare or cause to be prepared and file or cause to be filed such Tax
Return. Buyer shall permit Seller to review and comment on each Tax Return it
prepares and files described in the preceding sentence prior to filing and shall
make such revisions to such Tax Returns as are reasonably requested by Seller.
Seller shall reimburse Buyer for Taxes of the Company with respect to such
periods within fifteen (15) days after payment by Buyer or the Company of such
Taxes to the extent such Taxes are not reflected in the reserve for Tax
Liability (rather than any reserve for deferred Taxes established to reflect
timing differences between book and Tax income) shown on the face of the Final
Closing Balance Sheet. In the event that the amount of Tax owed is different
from that initially indicated by the Company, appropriate adjustments shall be
made to compensate for such discrepancy.

         (b) Tax Periods Beginning Before and Ending After the Closing Date.
Buyer shall prepare or cause to be prepared and file or cause to be filed any
Tax Returns of the Company for Tax periods which begin before the Closing Date
and end after the Closing Date. Seller shall pay to Buyer within fifteen (15)
days after the date on which Taxes are paid with respect to such periods an
amount equal to the portion of such Taxes which relates to the portion of such
Taxable period ending on the Closing Date to the extent such Taxes are not
reflected in the reserve for Tax Liability (rather than any reserve for deferred
Taxes established to reflect timing differences between book and Tax income)
shown on the face of the Final Closing Balance Sheet. For purposes of this
Section 7.10, in the case of any Taxes that are imposed on a periodic basis and
are payable for a Taxable period that includes (but does not end on) the Closing
Date, the portion of such Tax which relates to the portion of such Taxable
period ending on the Closing Date shall (x) in the case of any Taxes other than
Taxes based upon or related to income or receipts, be deemed to be the amount of
such Tax for the entire Taxable period multiplied by a fraction the numerator of
which is the number of days in the Taxable period ending on the

                                      -34-

<PAGE>

Closing Date and the denominator of which is the number of days in the entire
Taxable period, and (y) in the case of any Tax based upon or related to income
or receipts be deemed equal to the amount which would be payable if the relevant
Taxable period ended on the Closing Date. Any credits relating to a Taxable
period that begins before and ends after the Closing Date shall be taken into
account as though the relevant Taxable period ended on the Closing Date. All
determinations necessary to give effect to the foregoing allocations shall be
made in a manner consistent with prior practice of the Company.

         (c) Refunds and Tax Benefits. Any Tax refunds that are received by
Buyer or the Company, and any amounts credited against Tax to which Buyer or the
Company become entitled, that relate to Tax periods or portions thereof ending
on or before the Closing Date shall be for the account of Sellers, and Buyer
shall pay over to Seller any such refund or the amount of any such credit within
fifteen (15) days after receipt or entitlement thereto. In addition, to the
extent that a claim for refund or a proceeding results in a payment or credit
against Tax by a taxing authority to the Buyer or the Company of any amount
accrued on the Final Closing Balance Sheet, the Buyer shall pay such amount to
Seller within fifteen (15) days after receipt or entitlement thereto.

         (d) Cooperation on Tax Matters.

                  (i) Buyer, the Company and Seller shall cooperate fully, as
and to the extent reasonably requested by the other party, in connection with
the filing of Tax Returns pursuant to this Section 7.10 and any audit,
litigation or other proceeding with respect to Taxes. Such cooperation shall
include the retention and (upon the other party's request) the provision of
records and information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. The Company and Seller agree (A) to retain all
books and records with respect to Tax matters pertinent to the Company relating
to any taxable period beginning before the Closing Date until the expiration of
the statute of limitations (and, to the extent notified by Buyer or Seller, any
extensions thereof) of the respective taxable periods, and to abide by all
record retention agreements entered into with any taxing authority, and (B) to
give the other party reasonable written notice prior to transferring, destroying
or discarding any such books and records and, if the other party so requests,
the Company or Seller, as the case may be, shall allow the other party to take
possession of such books and records.

                  (ii) Buyer and Seller further agree, upon request, to use
their best efforts to obtain any certificate or other document from any
Governmental Entity or any other Person as may be necessary to mitigate, reduce
or eliminate any Tax that could be imposed (including, but not limited to, with
respect to the transactions contemplated hereby).

                  (iii) Buyer and Seller further agree, upon request, to provide
the other party with all information that either party may be required to report
pursuant to ss.6043 of the Code and all Treasury Department Regulations
promulgated thereunder.

                                      -35-

<PAGE>

         (e) Tax Sharing Agreements. All tax sharing agreements or similar
agreements with respect to or involving the Company shall be terminated as of
the Closing Date and, after the Closing Date, the Company shall not be bound
thereby or have any liability thereunder.

         (f) Certain Taxes. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement shall be paid by Seller
when due, and Seller will, at its own expense, file all necessary Tax Returns
and other documentation with respect to all such transfer, documentary, sales,
use, stamp, registration and other Taxes and fees, and, if required by
applicable law, Buyer will, and will cause its affiliates to, join in the
execution of any such Tax Returns and other documentation.

         (g) 338(h)(10) Election. The Buyer, NetWolves and Company and Seller
hereby affirmatively elect to have the transaction contemplated hereby taxed
under the provisions of Section 338(h)(10) of the Code with respect to the
Company, and the Seller will execute and deliver to the Buyer promptly upon the
Buyer's request all consents, elections and other documentation or filings which
the Buyer reasonably believes to be required or advisable in connection with the
making of said election, including Treasury Form 8594, together with a limited
power of attorney irrevocably authorizing the Buyer to file the same with the
Internal Revenue Service.

                                  ARTICLE VIII

                                   DEFINITIONS

         In addition to the words and terms defined elsewhere in this Agreement,
the following words and terms shall have the following meanings, respectively,
unless the context clearly requires otherwise:

         "Affiliate" means, with respect to any Person, any of (a) a director,
officer or stockholder of such Person, (b) a spouse, parent, sibling or
descendant of such Person (or a spouse, parent, sibling or descendant of any
director or officer of such Person) and (c) any other Person that, directly or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, another Person. The term "control" includes,
without limitation, the possession, directly or indirectly, of the power to
direct the management and policies of a Person, whether through the ownership of
voting securities, by contract or otherwise.

         "Agreement" has the meaning assigned to such term in the preamble of
this Agreement.

         "Assignment and Assumption Agreement" has the meaning assigned to such
term in Section 2.4.

         "Balance Sheet" has the meaning assigned to such term in Section 5.5.

         "Basis" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could form the basis for
any specified consequence.

                                      -36-
<PAGE>

         "Business" has the meaning assigned to such term in the preamble of
this Agreement.

         "Buyer" has the meaning assigned to such term in the preamble of this
Agreement.

         "Buyer Group" has the meaning assigned to such term in Section 7.2(a).

         "CERCLA" means the Comprehensive Environmental Response, Compensation,
and Liability Act, as amended, and the rules and regulations promulgated
thereunder.

         "Closing" has the meaning assigned to such term in Section 2.2.

         "Closing Date" has the meaning assigned to such term in Section 2.2.

         "COBRA" has the meaning assigned to such term in Section 5.18(b).

         "Code" means the Internal Revenue Code of 1986, as amended from time to
time, and the regulations promulgated thereunder.

         "Co-Marketing Agreement" has the meaning assigned to such term in
Section 3.1.

         "Common Stock" has the meaning assigned to such term in Section 1.1.

         "Company" has the meaning assigned to such term in the preamble of this
Agreement.

         "Consideration" has the meaning assigned to such term in Section 1.2.

         "Contracts" has the meaning assigned to such term in Section 3.1(b).

         "Damages" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, lost profits,
diminution in value, expenses, and fees, including court costs and reasonable
attorneys' fees and expenses (whether such attorneys' fees and expenses arise
out of a dispute or claim between the parties or out of a dispute involving
third parties), net of any related income tax benefit and insurance recoveries.

         "Defined Benefit Pension Plan" shall have the meaning set forth in
Section 3(35) of ERISA.

         "Deductible Amount" has the meaning assigned to such term in Section
7.2(c).

         "Designated Persons" has the meaning assigned to such term in Section
5.17(e).

         "Documents" means this Agreement, the Note, the Assignment and
Assumption Agreement, the Co-Marketing Agreement, the Leases, the Transition
Service Agreement, and any other agreements contemplated hereby and thereby.

         "Employee Benefit Plan" means any (a) qualified or non-qualified
Employee Pension Benefit Plan whether or not subject to ERISA (including any
Multiple Employer Plans or Multi-

                                      -37-
<PAGE>

Employer Plans), (b) Employee Welfare Benefit Plan or (c) employee benefit,
fringe benefit, bonus, incentive, deferred compensation, vacation, employment,
change in control, stock option or other equity-based, severance plan or other
plan, program, policy, practice or arrangement, whether or not subject to ERISA,
whether or not written and whether or not funded.

         "Employee Pension Benefit Plan" shall have the meaning set forth in
Section 3(2) of ERISA.

         "Employee Welfare Benefit Plan" shall have the meaning set forth in
Section 3(1) of ERISA.

         "Environmental and Safety Requirements" means all Laws, Orders,
contractual obligations and all common law concerning public health and safety,
worker health and safety, and pollution or protection of the environment,
including, without limitation, all those relating to the presence, use,
production, generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, release, threatened
release, control, or cleanup of any hazardous materials, substances or wastes,
chemical substances or mixtures, pesticides, pollutants, contaminants, toxic
chemicals, petroleum products or byproducts, asbestos, polychlorinated
biphenyls, noise or radiation, including, but not limited to, the Solid Waste
Disposal Act, as amended, 42 U.S.C.ss.ss.6901, et seq., the Clean Air Act, as
amended, 42 U.S.C.ss.ss.7401 et seq., the Federal Water Pollution Control Act,
as amended, 33 U.S.C.ss.ss.1251 et seq., the Emergency Planning and Community
Right-to-Know Act, as amended, 42 U.S.C.ss.ss. 11001 et seq., the Comprehensive
Environmental Response, Compensation, and Liability Act, as amended, 42
U.S.C.ss.ss.9601 et seq., the Hazardous Materials Transportation Uniform Safety
Act, as amended, 49 U.S.C.ss.ss.1804 et seq., the Occupational Safety and Health
Act of 1970, as amended, and the rules and regulations promulgated thereunder.

         "ERISA Affiliate" means, with respect to any Person, any other Person
that is a member of a "controlled group of corporations" with, or is under
"common control" with, or is a member of the same "affiliated service group"
with such Person as defined in Sections 414(b), 414(c), or 414(m) or 414(o) of
the Code.

         "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.

         "Financial Statements" has the meaning assigned to such term in Section
5.5.

         "Fundamental Documents" means the documents by which any Person (other
than an individual) establishes its legal existence or which govern its internal
affairs. For example, the "Fundamental Documents" of a corporation would include
its charter and by-laws and of a partnership would include its certificate of
partnership and partnership agreement.

         "GAAP" means United States generally accepted accounting principles,
applied on a consistent basis.

         "Governmental Entity" means any court, administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, Federal, state, county or local.

                                      -38-
<PAGE>

         "NetWolves" has the meaning assigned to such term in the preamble of
this Agreement.

         "Indemnified Party" has the meaning assigned to such term in Section
7.3(a).

         "Indemnifying Party" has the meaning assigned to such term in Section
7.3(a).

         "Intellectual Property" means (a) all inventions, all improvements
thereto and all patents, patent applications, and patent disclosures, together
with all reissuances, continuations, continuations-in-part, revisions,
extensions, and reexaminations thereof, (b) all registered and unregistered
trademarks, service marks, trade dress, logos, trade names, and corporate names
including all goodwill associated therewith, and all applications,
registrations, and renewals in connection therewith, (c) all copyrightable
works, all copyrights and all applications, registrations and renewals in
connection therewith, (d) all trade secrets, customer lists, supplier lists,
pricing and cost information, business and marketing plans and other
confidential business information, (e) all computer programs and related
software, (f) all other proprietary rights, (g) all domain names, url's, and
registrations in respect thereof and (h) all copies and tangible embodiments
thereof.

         "Latest Balance Sheet" has the meaning assigned to such term in Section
5.5.

         "Law" means any constitution, law, statute, treaty, rule, directive,
requirement or regulation or Order of any Governmental Entity.

         "Leases" has the meaning assigned to such term in Section 3.1.

         "Liability" means any liability or obligation, whether known or
unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued,
liquidated or unliquidated and whether due or to become due, regardless of when
asserted.

         "Licensed Intellectual Property" has the meaning assigned to such term
in Section 5.13(a).

         "Lien" means any security interest, pledge, bailment (in the nature of
a pledge or for purposes of security), mortgage, deed of trust, the grant of a
power to confess judgment, conditional sales and title retention agreement
(including any lease in the nature thereof), charge, encumbrance, easements,
reservations, restrictions, clouds, rights of first refusal or first offer,
options, or other similar arrangement or interest in real or personal property.

         "Material Adverse Change" means, with respect to any Person, any
material adverse change in the business, operations, assets (including levels of
working capital and components thereof), condition (financial or otherwise),
operating results, liabilities, customer, supplier or employee relations or
business prospects of such Person or any material casualty loss or damage to the
assets of such Person, whether or not covered by insurance.

         "Material Adverse Effect" means, with respect to any Person, a material
adverse effect on the business, operations, assets (including levels of working
capital and components thereof), condition (financial or otherwise), operating
results, liabilities, customer, supplier or employee relations or business
prospects of such Person.

                                      -39-
<PAGE>

         "Minimum Closing Condition" has the meaning assigned to such term in
Section 3.3.

         "Multi-Employer Plan" shall have the meaning set forth in Section 3(37)
of ERISA.

         "Multiple Employer Plan" shall have the meaning set forth in Section
413 of the Code.

         "Non-Compete Period" means the period ending on the third anniversary
of the Closing Date.

         "Note" has the meaning assigned to such term in Section 2.1.

         "Orders" means judgments, writs, decrees, compliance agreements,
injunctions or orders of and Governmental Entity or arbitrator.

         "Permits" means all permits, licenses, authorizations, registrations,
franchises, approvals, certificates, variances and similar rights obtained, or
required to be obtained, from Governmental Entities.

         "Permitted Liens" means (i) Liens for Taxes not yet due and payable or
being contested in good faith by appropriate proceedings and for which there are
adequate reserves on the books, (ii) workers or unemployment compensation Liens
arising in the ordinary course of business; (iii) mechanic's, materialman's,
supplier's, vendor's or similar Liens arising in the ordinary course of business
securing amounts that are not delinquent and (iv) zoning ordinances, easements
and other restrictions of legal record affecting real property which would be
revealed by a survey and would not, individually or in the aggregate, materially
interfere with the usefulness of such real property to the Business.

         "Person" shall be construed broadly and shall include an individual, a
partnership, a corporation, a limited liability company, an association, a joint
stock company, a trust, a joint venture, an unincorporated organization, or a
Governmental Entity (or any department, agency, or political subdivision
thereof).

         "Plans" has the meaning assigned to such term in Section 5.18(a).

         "Proceeding" means any action, suit, proceeding, complaint, charge,
hearing, inquiry or investigation before or by a Governmental Entity or
arbitrator.

         "Prohibited Transaction" has the meaning set forth in Section 406 of
ERISA and Section 4975 of the Code.

         "Purchase Price" means the Consideration.

         "Real Property" has the meaning assigned to such term in Section
5.10(d).

         "Restricted Territory" has the meaning assigned to such term in Section
7.8(a).

         "Seller" has the meaning assigned to such term in the preamble of this
Agreement.

         "Seller Group" has the meaning assigned to such term in Section 7.2(b).

                                      -40-
<PAGE>

         "Shares" has the meaning assigned to such term in Section 1.1.

         "Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) has the power to vote or direct the voting of
sufficient securities to elect a majority of the directors.

         "Tax" as used in this Agreement, means any of the Taxes, and "Taxes"
means, with respect to any Person, (a) all income taxes (including any tax on or
based upon net income, gross income, income as specially defined, earnings,
profits or selected items of income, earnings or profits) and all gross
receipts, sales, use, ad valorem, transfer, franchise, license, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, property or
windfall profits taxes, alternative or add-on minimum taxes, customs duties and
other taxes, fees, assessments or charges of any kind whatsoever, together with
all interest and penalties, additions to tax and other additional amounts
imposed by any taxing authority (domestic or foreign) on such Person (if any)
and (b) any liability for the payment of any amount of the type described in the
immediately preceding clause (a) as a result of being a "transferee" (within the
meaning of Section 6901 of the Code or any other applicable Law) of another
entity or a member of an affiliated or combined group.

         "Tax Liability" has the meaning assigned to such term in Section 5.12.

         "Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.

         "Third Party Claim" has the meaning assigned to such term in Section
7.3(a).

         "Transition Services Agreement" has the meaning assigned to such term
in Section 3.1.

         "Validated Claim" has the meaning assigned to such term in Section
7.3(b).

                                   ARTICLE IX

                                  MISCELLANEOUS

9.1      NO THIRD PARTY BENEFICIARIES.

         Except as expressly set forth in Section 7.2 hereof, this Agreement
shall not confer any rights or remedies upon any Person other than the parties
hereto and their respective successors and permitted assigns, personal
representatives, heirs and estates, as the case may be.

9.2      ENTIRE AGREEMENT.

         This Agreement and the other Documents referred to herein constitute
the entire agreement among the parties hereto and supersedes any prior
understandings, agreements or representations by or among the Parties, written
or oral, that may have related in any way to the subject matter of any Document
including, without limitation, the Letter of Intent dated August 24, 2001, as
heretofore amended, among The Hawkeye Group, Inc., the Company and the Seller.

                                      -41-

<PAGE>

9.3      SUCCESSORS AND ASSIGNS.

         This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. No party
may assign either this Agreement or any of its rights, interests, or obligations
hereunder without the prior written approval of the other parties hereto;
provided, however, that the Buyer may (i) assign any or all of its rights and
interests hereunder to one or more of its Affiliates, (ii) designate one or more
of its Affiliates to perform its obligations hereunder (in any or all of which
cases the Buyer nonetheless shall remain responsible for the performance of all
of its obligations hereunder), (iii) collaterally assign any or all of its
rights and interests hereunder to one or more lenders of the Buyer and/or the
Company, (iv) assign its rights hereunder in connection with the sale of all or
substantially all of its business or assets (whether by merger, sale of stock or
assets, recapitalization or otherwise) and (v) merge the Company with or into
the Buyer or one of their respective Subsidiaries.

9.4      COUNTERPARTS.

         This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument.

9.5      HEADINGS.

         The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.

9.6      NOTICES.

         All notices, requests, demands, claims, and other communications
hereunder shall be in writing. Any notice, request, demand, claim or other
communication hereunder shall be deemed duly given when delivered personally to
the recipient, telecopied to the intended recipient at the telecopy number set
forth therefor below (with hard copy to follow), or sent to the recipient by
reputable express courier service (charges prepaid) and addressed to the
intended recipient as set forth below:

         If to NetWolves or the Buyer:

         Thomas Elliott
         The Hawkeye Group, Inc.
         472 Wheelers Farms Road
         Milford, CT 06460
         Telephone:  (203) 882-4002
         Telecopy:  (203) 882-4051

         with copies to:

         Paul Bork, Esq.                 David H. Lieberman
         Foley, Hoag & Eliot LLP         Blau, Kramer, Wactlar & Lieberman, P.C.
         One Post Office Square          100 Jericho Quadrangle
         Boston, MA  02109               Jericho, NY 11753

                                      -42-
<PAGE>

         Telephone:  (617) 832-1000                  Telephone:  (516) 822-4820
         Telecopy:  (617) 832-7000                   Telecopy:  (516) 822-5609

         If to the Company or Seller:

         Scott G. Christian
         Norstan, Inc.
         5101 Shady Oak Road
         Minnetonka, MN 55343
         Telephone:  (952) 352-4034
         Telecopy:  (952) 352-4461

         with copies to:

         Philip J. Tilton, Esq.
         Maslon Edelman Borman & Brand, LLP
         3300 Wells Fargo Center
         Minneapolis, MN  55402
         Telephone:  (612) 672-8357
         Telecopy:  (612) 672-8397

         Jerry P. Lehrman, Esq.
         Norstan, Inc.
         5101 Shady Oak Road
         Minnetonka, MN 55343
         Telephone: (952) 352-4075
         Telecopy: (952) 352-4907

         Any party may send any notice, request, demand, claim or other
communication hereunder to the intended recipient at the address set forth above
using any other means, but no such notice, request, demand, claim or other
communication shall be deemed to have been duly given unless and until it
actually is received by the intended recipient. Any party may change the address
to which notices, requests, demands, claims, and other communications hereunder
are to be delivered by giving the other party notice in the manner herein set
forth.

9.7      GOVERNING LAW.

         This Agreement will be governed by and construed and enforced in
accordance with the substantive laws of Minnesota without regard to its
principles of conflicts of laws.

9.8      AMENDMENTS AND WAIVERS.

         No amendment of any provision of this Agreement shall be valid unless
the same shall be in writing and signed by all of the parties hereto. No waiver
by any party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty

                                      -43-
<PAGE>
or covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.

9.9      INCORPORATION OF EXHIBITS AND SCHEDULES.

         The Exhibits, Schedules and other attachments identified in this
Agreement are part of this Agreement as if set forth in full herein.

9.10     CONSTRUCTION.

         The parties have participated jointly in the negotiation and drafting
of this Agreement. In the event an ambiguity or question of intent arises, this
Agreement shall be construed as if drafted jointly by the parties and no
presumption or burden of proof shall a rise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement. The word
"including" shall mean including without limitation. Nothing in the Schedules
hereto shall be deemed to adequately disclose an exception to a representation
or warranty made herein unless the applicable Schedule identifies the exception
with reasonable particularity and describes the relevant facts in reasonable
detail. Without limiting the generality of the foregoing, the mere listing (or
inclusion of a copy) of a document or other item shall not be deemed to
adequately disclose an exception to a representation or warranty made herein
(unless the representation or warranty has to do with the existence of the
document or other item itself). The parties intend that each representation,
warranty, and covenant contained herein shall have independent significance. If
any party has breached any representation, warranty, or covenant contained
herein in any respect, the fact that there exists another representation,
warranty or covenant relating to the same subject matter (regardless of the
relative levels of specificity) which the party has not breached shall not
detract from or mitigate the fact that the Party is in breach of the first
representation, warranty, or covenant.

9.11     INDEPENDENCE OF COVENANTS AND REPRESENTATIONS AND WARRANTIES.

         All covenants hereunder shall be given independent effect so that if a
certain action or condition constitutes a default under a certain covenant, the
fact that such action or condition is permitted by another covenant shall not
affect the occurrence of such default, unless expressly permitted under an
exception to such initial covenant. In addition, all representations and
warranties hereunder shall be given independent effect so that if a particular
representation or warranty proves to be incorrect or is breached, the fact that
another representation or warranty concerning the same or similar subject matter
is correct or is not breached will not affect the incorrectness of or a breach
of a representation and warranty hereunder.

9.12     REMEDIES.

         The parties hereto shall each have and retain all other rights and
remedies existing in their favor at Law or equity, including, without
limitation, any actions for specific performance and/or injunctive or other
equitable relief to enforce or prevent any violations of the provisions of this
Agreement.

                                      -44-
<PAGE>

9.13     SEVERABILITY.

         It is the desire and intent of the parties hereto that the provisions
of this Agreement be enforced to the fullest extent permissible under the laws
and public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, if any particular provision of this Agreement shall be adjudicated
by a court of competent jurisdiction to be invalid, prohibited or unenforceable
for any reason, such provision, as to such jurisdiction, shall be ineffective,
without invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction. Notwithstanding the
foregoing, if such provision could be more narrowly drawn so as not to be
invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such
jurisdiction, be so narrowly drawn, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.

9.14     WAIVER OF JURY TRIAL.

         The Buyer and the Seller agree that neither of them nor any assignee or
successor shall (a) seek a jury trial in any lawsuit, proceeding, counterclaim
or any other action based upon or arising out of, this Agreement, the Documents,
any related instruments, or the dealings or the relationship between or among
any of them, or (b) seek to consolidate any such action with any other action in
which a jury trial cannot be or has been waived. The provisions of this
paragraph have been fully discussed by the Seller with its counsel, and these
provisions shall be subject to no exceptions. The Seller has not agreed with or
represented to any other party that the provisions of this paragraph will not be
fully enforced in all instances.

                  [remainder of page intentionally left blank]

                                      -45-
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have executed this Stock
Purchase Agreement as an instrument under seal as of the date first above
written.

                                        NETWOLVES CORPORATION

                                        By:    /s/ Peter C. Castle
                                               ------------------------------
                                        Name:  Peter C. Castle
                                        Title: President

                                        NETWOLVES ACQUISITIONS, INC.

                                        By:    /s/ Peter C. Castle
                                               ------------------------------
                                        Name:  Peter C. Castle
                                        Title: President

                                        NORSTAN, INC.

                                        By:    /s/ Scott G. Christian
                                               ------------------------------
                                        Name:  Scott G. Christian
                                        Title: EVP & CFO

                                        NORSTAN NETWORK SERVICES, INC.

                                        By:    /s/ Scott G. Christian
                                               ------------------------------
                                        Name:  Scott G. Christian
                                        Title: EVP & CFO

                                      -46-
<PAGE>

                                  SUPPLEMENT TO
                            STOCK PURCHASE AGREEMENT

         THIS SUPPLEMENT TO STOCK PURCHASE AGREEMENT (the "Supplement
Agreement") is entered into this 9th day of July, 2002 by and among Norstan,
Inc. ("Norstan") and Norstan Network Services, Inc. ("NNS"), both corporations
organized under the laws of the State of Minnesota, together with NetWolves
Corporation, a New York corporation ("NetWolves"), and NetWolves Acquisitions,
Inc., a corporation organized under the laws of the State of Delaware.

                                   WITNESSETH:

         WHEREAS, the parties have entered into that certain Stock Purchase
Agreement (the "Agreement"), dated as of January 30, 2002, and that certain
Amendment Agreement dated as of April 30, 2002 (the "First Amendment"),
providing for the purchase and sale of all of the issued and outstanding capital
stock of NNS;

         WHEREAS, the parties intend to close the transactions contemplated by
the Agreement and the First Amendment on this day; and

         WHEREAS, the parties desire that the transactions contemplated by the
Agreement be given effect as of the opening of business on July 1, 2002, and the
parties wish to memorialize their understanding on the terms and conditions set
forth below.

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

                                   AGREEMENT:

         Section 1. Effective Date. The parties agree that the effective date
for the purchase and sale of the capital stock of NNS, as provided in the
Agreement, shall be the opening of business on July 1, 2002.

         Section 2. Post-Effective Transactions. Certain cash transactions
effected by or on behalf of NNS during the period subsequent to June 30 shall be
accounted for and given effect by the parties as follows:

                  (a) All cash distributions from NNS to Norstan or any of
Norstan's subsidiaries, shall be reimbursed to NNS.

                  (b) All cash payments made by Norstan or its subsidiaries on
behalf of NNS shall be reimbursed to Norstan. This provision shall not apply to
payments by Norstan or its subsidiaries against liabilities assumed by Norstan
pursuant to

                                      -47-
<PAGE>

Section 3 of that certain Assignment and Assumption Agreement, dated as of July
9, 2002, by and between Norstan and NNS.

                  (c) On the 15th day of August 2002, NNS shall render to
Norstan an accounting of cash distributions made to Norstan and its subsidiaries
after June 30, 2002, and Norstan shall render to NNS an accounting of payments
made on behalf of NNS, together with reasonable support therefor, together with
a listing setting forth the amount due Norstan pursuant to Section 3 below.
Within three business days thereafter, the net debtor shall reimburse the other
party in immediately available funds.

         Section 3. Benefit Plans. As of midnight on June 30, 2002, the
employees of NNS ceased to participate in Norstan's employee benefit plans,
exclusive of plans relating to medical and dental benefits. With respect to
medical and dental benefits, Norstan plan coverage of NNS employees terminates
at midnight of July 10, 2002. NNS agrees to pay to Norstan in accordance with
Section 2 above, for each NNS employee determined as of July 1, 2002, an amount
equal to the product of (i) (10/31) multiplied by (ii) the monthly premium for
continued medical and dental insurance coverage payable pursuant to the
Consolidated Omnibus Budget Reconciliation Act ("COBRA").

         Section 4. Continued Effectiveness of Agreement. Except as supplemented
hereby, the Agreement remains in full force and effect without modification,
amendment or alternation and is binding upon and enforceable by the parties
thereto.

         Section 5. Governing Law. This Supplement Agreement shall be governed
by and construed in accordance with the laws of the State of Minnesota without
giving effect to principals of conflict of laws contained therein.

         Section 6. Counterparts. This Supplement Agreement may be executed in
multiple counterparts, each of which shall be an original, but all of which,
when taken together, shall be deemed one and the same instrument.

                                      -48-
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have executed this Amendment
Agreement as an instrument under seal as of the date first above written.

                                  NORSTAN, INC.

                                  BY: /s/ Philip Tilton
                                      -----------------------------------------
                                      Its: Attorney-in-Fact
                                           ------------------------------------

                                  NORSTAN NETWORK SERVICES, INC.

                                  BY: /s/ Philip Tilton
                                      -----------------------------------------
                                      Its: Attorney-in-Fact
                                           ------------------------------------

                                  NETWOLVES CORPORATION

                                  BY: /s/ Peter C. Castle
                                      -----------------------------------------
                                      Its: Secretary
                                           ------------------------------------

                                  NETWOLVES ACQUISITION, INC.

                                  BY: /s/ Peter C. Castle
                                      -----------------------------------------
                                      Its: Secretary
                                           ------------------------------------

                                      -49-
<PAGE>

                                 PROMISSORY NOTE

$3,750,000                                                     Jericho, New York
                                                                    July 9, 2002

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED UNLESS SO REGISTERED OR AN
EXEMPTION FROM REGISTRATION IS AVAILABLE.

         FOR VALUE RECEIVED, the undersigned, NetWolves Acquisitions, Inc. (the
"Company"), promises to pay to Norstan, Inc., or its assigns ("Norstan"), at its
offices at 5101 Shady Oak Road, Minnetonka, Minnesota 55343 or at such other
place as the holder of this Note may designate from time to time, the principal
sum of Three Million Seven Hundred Fifty Thousand and 00/100 Dollars
($3,750,000).

         1. The entire principal amount of this Note which is outstanding on the
first anniversary of the date hereof (the "Maturity Date"), shall be due and
payable in full on the Maturity Date. Payments of principal and all other sums
due and owing under this Note shall be made in lawful money of the United States
of America.

         2. This Note has been issued pursuant to that certain Stock Purchase
Agreement, dated January 30, 2002, by and among the Company, Norstan, Norstan
Network Services, Inc. ("NNS") and NetWolves Corporation (the "Stock Purchase
Agreement").

         3. The Note shall be subject to "Default Interest" after the Maturity
Date if the entire principal amount of the Note is not paid as of the Maturity
Date, irrespective of any early acceleration hereunder. The Default Interest
shall be interest of twelve percent (12%) per annum, compounded annually, on the
unpaid principal (including any previously accrued Default Interest one year
after the Maturity Date) of the Note.

         4. Notwithstanding anything in this Note to the contrary, on the
Maturity Date, Norstan shall be entitled to payment of all principal and Default
Interest, if applicable, and shall have any and all rights to ask, demand, sue
for, take or receive such payment.

         5. This Note is subject to certain setoff rights vested in the Company
pursuant to the terms and the conditions set forth in the Stock Purchase
Agreement.

         6. The Company's obligations hereunder are secured by: (i) that certain
security agreement by and between Norstan and NNS; and (ii) that certain pledge
agreement by and between the Company and Norstan, each of even date herewith.

         7. By its acceptance of this Note, Norstan represents and warrants that
it is acquiring this Note for its own account, for investment, and not with a
view to the distribution of the Note, and Norstan agrees not to sell, pledge,
hypothecate or otherwise transfer, dispose of, or offer for sale the Note in the
absence of an effective registration statement covering it under the Securities
Act of 1933, as amended, or a written opinion of counsel for Norstan that a
registration statement is not required.

                                      -50-
<PAGE>

         8. This Note shall be governed by and construed in accordance with the
laws of the State of Minnesota; this Note may not be amended or modified except
pursuant to a written instrument executed by each of Norstan and the Company.

         9. This Note may be assigned by Norstan without the consent of the
Company but no such assignment shall change the non-negotiable nature of this
Note.

         10. This Note may not be amended by Norstan and the Company in any
manner adverse to the interests of the holder of the Superior Indebtedness
without the consent of such holder.

                                              NETWOLVES ACQUISITIONS, INC.

                                              By:   /s/ Walter M. Groteke
                                                    ------------------------
                                               Its: President

                                      -51-<PAGE>

                                                                   EXHIBIT 10(k)

                          SECOND AMENDED AND RESTATED

                                CREDIT AGREEMENT

                                  by and among

                                 NORSTAN, INC.,

                            the Banks party thereto

                                      and

                        U.S. BANK NATIONAL ASSOCIATION,

                         as Agent and as Lead Arranger

                           Dated as of July 12, 2002

<PAGE>

                  SECOND AMENDED AND RESTATED CREDIT AGREEMENT

     THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT, dated as of July 12,
2002, is by and among NORSTAN, INC., a Minnesota corporation (the "Borrower"),
the banks which are signatories hereto (individually, a "Bank" and,
collectively, the "Banks") and U.S. BANK NATIONAL ASSOCIATION, a national
banking association, one of the Banks, as agent for the Banks (in such capacity,
the "Agent").

                                    RECITALS

     A. The Borrower, the Banks, the Exiting Banks (defined below) and the Agent
are parties to an Amended and Restated Credit Agreement dated as of December 20,
2000, as amended by a First Amendment dated as of March 19, 2001, a Second
Amendment dated as of March 30, 2001, a Third Amendment dated as of April 4,
2001, a Fourth Amendment dated as of May 15, 2001 and a Fifth Amendment dated as
of June 29, 2001 (as so amended, the "Existing Credit Agreement").

     B. Pursuant to the Existing Credit Agreement, as of the Closing Date, the
Banks and the Exiting Banks advanced, and there remain outstanding, Revolving
Loans and Term B Loans (each as defined in the Existing Credit Agreement) (the
"Existing Loans").

     C. The Borrower has requested the Banks to restructure the credit
facilities under the Existing Credit Agreement and the Borrower has requested,
and, upon receipt by them of the Payoff Amount (defined below), the Exiting
Lenders (defined below) have each agreed, to cease to be Banks under the
Existing Credit Agreement.

     NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration the receipt and adequacy of which is hereby acknowledged,
the parties hereto hereby agree to amend and restate the Existing Credit
Agreement in the entirety as follows:

                                   ARTICLE I
                        DEFINITIONS AND ACCOUNTING TERMS

     SECTION 1.1 DEFINED TERMS. As used in this Agreement the following terms
shall have the following respective meanings (and such meanings shall be equally
applicable to both the singular and plural form of the terms defined, as the
context may require):

                  "Accounts": With respect to any Person, the aggregate unpaid
         obligations of customers and other account debtors to such Person
         arising out of the sale or lease of goods or rendition of services by
         such Person on an open account or deferred payment basis.

                  "Account Debtors":  As defined in the Security Agreement
         executed by the Borrower or any Subsidiary (as the context may
         require).

                  "Acquisition": Any transaction or series of transactions by
         which the Borrower acquires, either directly or through a Subsidiary or
         otherwise, (a) any or all of the stock or other securities of any class
         of any Person or (b) a substantial portion of the assets, or a division
         or line of business of any Person.

<PAGE>

                   "Adjusted Eurodollar Rate": With respect to each Interest
         Period applicable to a Eurodollar Rate Advance, the rate (rounded
         upward, if necessary, to the next one hundredth of one percent)
         determined by dividing the Eurodollar Rate for such Interest Period by
         1.00 minus the Eurodollar Reserve Percentage.

                  "Advance":  Any portion of the outstanding Revolving Loans or
         Term Loan by a Bank as to which one of the available interest rate
         options and, if pertinent, an Interest Period, is applicable.  An
         Advance may be a Eurodollar Rate Advance or a Prime Rate Advance.

                  "Affiliate": When used with reference to any Person, (a) each
         Person that, directly or indirectly, controls, is controlled by or is
         under common control with, the Person referred to, (b) each Person
         which beneficially owns or holds, directly or indirectly, ten percent
         or more of any class of voting stock of the Person referred to (or if
         the Person referred to is not a corporation, five percent or more of
         the equity interest), (c) each Person, ten percent of more of the
         voting stock (or if such Person is not a corporation, ten percent or
         more of the equity interest) of which is beneficially owned or held,
         directly or indirectly, by the Person referred to, and (d) each of such
         Person's officers, directors, joint venturers and partners. The term
         control (including the terms "controlled by" and "under common control
         with") means the possession, directly, of the power to direct or cause
         the direction of the management and policies of the Person in question.

                  "Agent":  As defined in the opening paragraph hereof.

                  "Aggregate Revolving Commitment Amounts":  As of any date,
         the sum of the Revolving Commitment Amounts of all the Banks on such
         date.

                  "Aggregate Revolving Outstandings":  As of any date, the sum
         of the Revolving Outstandings of all Banks on such date.

                  "Applicable Lending Office": For each Bank, the office of such
         Bank identified pursuant to Section 9.4 or such other domestic or
         foreign office of such Bank (or of an Affiliate of such Bank) as such
         Bank may specify from time to time to the Agent and the Borrower as the
         office by which its Advances are to be made and maintained.

                  "Applicable Margin": For each Prime Rate Advance, for each
         Eurodollar Rate Advance (as in effect on the first day of the
         applicable Interest Period for such Eurodollar Rate Advance) and for
         each Unused Revolving Commitment Fee, the Applicable Margin set forth
         in the table below as in effect on the date of determination,
         determined based on the Cash Flow Leverage Ratio calculated as of the
         end of the most recent fiscal quarter of the Borrower (adjustment to
         the Applicable Margins to become effective on the first day of the
         first month following the date the Borrower is required to deliver its
         financial statements for the last month of any fiscal quarter under
         Section 5.1(c)):

                                       3

<PAGE>

<TABLE>
<CAPTION>
                                       Eurodollar Rate         Prime Rate          Unused Revolving
   Cash Flow Leverage Ratio               Advances              Advances            Commitment Fees
   ------------------------               --------              --------            ---------------
<S>                                     <C>                     <C>                <C>
   Greater than 1.75 to 1.00                 3.00%                 1.00%                 0.375%

   Less than or equal to 1.75 to             2.50%                0.500%                 0.375%
   1.00, but greater than 1.50 to
   1.00

   Less than or equal to 1.50 to             2.00%                0.000%                 0.250%
   1.00
</TABLE>

Notwithstanding the foregoing, (a) if the Borrower has not furnished the
financial statements and reports required under Section 5.1(c) for the last
month of any fiscal quarter by the time specified in such section, the
Applicable Margins shall be calculated as if the Cash Flow Leverage Ratio as of
the end of such fiscal quarter was greater than 1.75 to 1.00 for the period from
the first day of the first month following the date the Borrower is required to
deliver its financial statements for the last month of any fiscal quarter under
Section 5.1(c) until the first day of the month following the month in which
such financial statements and reports are delivered and (b) until and including
December 31, 2002, the Applicable Margin for Eurodollar Rate Advances shall be
3.00%, the Applicable Margin for Prime Rate Advances shall be 1.00% and the
Applicable Margin for Unused Revolving Commitment Fees shall be 0.375%.

                  "Bank":  As defined in the opening paragraph hereof.

                  "Board":  The Board of Governors of the Federal Reserve System
         or any successor thereto.

                  "Borrower":  As defined in the opening paragraph hereof.

                  "Borrower Loan Documents":  This Agreement, the Notes, and the
         Security Documents to which the Borrower is a party.

                  "Borrowing Base": As of any date of determination, the sum of
         the following:

                           (a) 75% of the lower of face amount or fair market
                  value of Eligible Accounts, plus

                           (b) 30% of the lower of cost (determined on a
                  first-in, first-out basis) or fair market value of Eligible
                  Inventory.

                  "Borrowing Base Availability": As of any date of
         determination, the positive amount, if any (and not to exceed the
         Unused Revolving Commitments of all the Banks), by which the Borrowing
         Base exceeds the Revolving Outstandings of all the Banks.

                  "Borrowing Base Certificate":  A certificate in the form of
         Exhibit A hereto.

                                       4

<PAGE>

                  "Borrowing Base Deficiency":  At the time of any
         determination, the amount, if any, by which Aggregate Revolving
         Outstandings exceed the Borrowing Base.

                  "Business Day": Any day (other than a Saturday, Sunday or
         legal holiday in the State of Minnesota) on which national banks are
         permitted to be open in Minneapolis, Minnesota, and Chicago, Illinois.

                  "Capital Expenditures": For any period, the sum of all amounts
         that would, in accordance with GAAP, be included as additions to
         property, plant and equipment on a consolidated statement of cash flows
         for the Borrower during such period, in respect of (a) the acquisition,
         construction, improvement, replacement or betterment of land,
         buildings, machinery, equipment or of any other fixed assets or
         leaseholds, (b) to the extent related to and not included in (a) above,
         materials, contract labor (excluding expenditures properly chargeable
         to repairs or maintenance in accordance with GAAP), and (c) other
         capital expenditures and other uses recorded as capital expenditures or
         similar terms having substantially the same effect (including
         expenditures for nonrecurrent tangible assets such as software).

                  "Capitalized Lease": A lease of (or other agreement conveying
         the right to use) real or personal property with respect to which at
         least a portion of the rent or other amounts thereon constitute
         Capitalized Lease Obligations.

                  "Capitalized Lease Obligations": As to any Person, the
         obligations of such Person to pay rent or other amounts under a lease
         of (or other agreement conveying the right to use) real or personal
         property which obligations are required to be classified and accounted
         for as a capital lease on a balance sheet of such Person under GAAP
         (including Statement of Financial Accounting Standards No. 13 of the
         Financial Accounting Standards Board) and, for purposes of this
         Agreement, the amount of such obligations shall be the capitalized
         amount thereof, determined in accordance with GAAP (including such
         Statement No. 13).

                  "Cash Flow Leverage Ratio":  As of the last day of any fiscal
         quarter of the Borrower, the ratio of

                           (a) Total Interest-bearing Debt as of such date
                  (excluding Indebtedness existing on the date hereof secured by
                  NFS Lease Accounts or Norstan Canada Lease Accounts and
                  related leases, equipment and servicing arrangements), to

                           (b) EBITDA for the period of four consecutive fiscal
                  quarters of the Borrower ended on such date.

                  "Closing Date":  July 12, 2002.

                  "Collateral":  As defined in the Security Agreement executed
         by the Borrower or any Subsidiary (as the context may require).

                                       5

<PAGE>

                   "Contingent Obligation": With respect to any Person at the
         time of any determination, without duplication, any obligation,
         contingent or otherwise, of such Person guaranteeing or having the
         economic effect of guaranteeing any Indebtedness of any other Person
         (the "primary obligor") in any manner, whether directly or otherwise:
         (a) to purchase or pay (or advance or supply funds for the purchase or
         payment of) such Indebtedness or to purchase (or to advance or supply
         funds for the purchase of) any direct or indirect security therefor,
         (b) to purchase property, securities or services for the purpose of
         assuring the owner of such Indebtedness of the payment of such
         Indebtedness, (c) to maintain working capital, equity capital or other
         financial statement condition of the primary obligor so as to enable
         the primary obligor to pay such Indebtedness or otherwise to protect
         the owner thereof against loss in respect thereof, or (d) entered into
         for the purpose of assuring in any manner the owner of such
         Indebtedness of the payment of such Indebtedness or to protect the
         owner against loss in respect thereof; provided, that the term
         "Contingent Obligation" shall not include endorsements for collection
         or deposit, in each case in the ordinary course of business.

                  "Default": Any event which, with the giving of notice (whether
         such notice is required under Section 7.1, or under some other
         provision of this Agreement, or otherwise) or lapse of time, or both,
         would constitute an Event of Default.

                  "Defaulting Bank": At any time, any Bank that, at such time
         (a) has failed to make a Loan or any Advances thereunder required
         pursuant to the terms of this Agreement, including the funding of any
         participation in accordance with the terms of this Agreement, (b) has
         failed to pay to the Agent or any Bank an amount owed by such Bank
         pursuant to the terms of this Agreement, or (c) has been deemed
         insolvent or has become subject to a bankruptcy, receivership or
         insolvency proceeding, or to a receiver, trustee or similar official.

                  "Dollars" and "$": Lawful money of the United States of
         America.

                  "Dormant Subsidiaries":  Norstan-UK Limited, Norstan
         Information Systems, Inc. and Summit Gear, Inc.

                  "EBT": For any period of determination, the sum of the
         consolidated net income of the Borrower and its Subsidiaries plus
         income taxes (to the extent that income taxes were deducted in
         calculating consolidated net income), and calculated prior to
         extraordinary gains and losses and prior to gains and losses arising
         from discontinued operations, all as determined in accordance with
         GAAP.

                  "EBITDA": For any period of determination, the sum of the
         consolidated net income of the Borrower and its Subsidiaries plus
         income taxes, Interest Expense, depreciation and amortization (in each
         case, to the extent that such amounts were deducted in calculating
         consolidated net income), and calculated prior to extraordinary gains
         and losses and prior to gains and losses arising from discontinued
         operations, all as determined in accordance with GAAP, provided that,
         for purposes of calculating the Cash Flow Leverage Ratio, the economic
         impact of Permitted Acquisitions by the Borrower or any Subsidiary
         which occur in the four fiscal quarters immediately preceding the last
         day of such period of determination shall be included, based upon the
         financial impact (as shown on financial statements to and in a form
         acceptable to the Banks) of such acquisition as if such business
         operations comprising such Permitted Acquisition had been under the
         Borrower's or such Subsidiary's ownership for such four fiscal quarter
         period.

                                       6

<PAGE>

                  "Eligible Accounts": The right of the Borrower, any Guarantor
         or Norstan Canada to receive payment for goods sold or services
         rendered, including any such right evidenced by instruments or chattel
         paper and any such right constituting retainage items or costs in
         excess of billings, provided such right to payment:

                           (a) has arisen out of the sale of goods or the
                  performance of services by the Borrower, such Guarantor or
                  Norstan Canada within the United States or Canada, or, if such
                  goods are sold or services performed outside the United States
                  or Canada, is backed by a letter of credit issued or confirmed
                  by a bank chartered under the laws of the United States or of
                  any State;

                           (b) is the valid, binding and legally enforceable
                  obligation of the obligor and such right to payment has not
                  been subordinated by the Borrower, such Guarantor or Norstan
                  Canada to any other claim against the obligor and such obligor
                  is not (i) the Borrower, or a Subsidiary or an Affiliate of
                  the Borrower, (ii) a Person who is a shareholder, director,
                  officer or employee of the Borrower, (iii) a debtor under any
                  proceeding under the Bankruptcy Code or comparable provision
                  of state or foreign law, (iv) an assignor for the benefit of
                  creditors; and (v) the United States, a province, state,
                  county or local government authority, or any department,
                  agency or instrumentality of the forgoing, unless the Borrower
                  such Subsidiary or Norstan Canada shall have instructed such
                  entity to either (a) deposit all payments upon the Accounts
                  owed by such entity into a lockbox acceptable to the Agent or
                  (b) make such payments by other means acceptable to the Agent;

                           (c) is assignable pursuant to the Uniform Commercial
                  Code;

                           (d) (i) except for accounts owing to Norstan Canada,
                  is subject to a perfected first security interest in favor of
                  the Agent and (ii) is free and clear of any other Lien;

                           (e) is not subject to any claimed offset,
                  counterclaim or other defense with respect thereto, but only
                  to the extent of such claimed offset, counterclaim or other
                  defense;

                           (f) is not unpaid more than 90 days from the date of
                  the relevant invoice;

                           (g) is evidenced by a written invoice delivered to
                  the Account Debtor with respect thereto;

                                       7

<PAGE>

                           (h) is not a right to payment arising under a lease
                  of equipment by the Borrower, such Guarantor or Norstan Canada
                  to any Person;

                           (i) is not owed by an obligor located in New Jersey,
                  Minnesota or Indiana, unless the Borrower, such Guarantor or
                  Norstan Canada is in compliance with applicable laws of the
                  same states with respect to which failure to comply would
                  impair the Borrower's, such Guarantor's or Norstan Canada's
                  ability to enforce its rights with respect to such Account;

                           (j) is not subject to any repurchase obligations
                  (other than normal customer service warranties relating to
                  inventory sold by the Borrower, such Guarantor or Norstan
                  Canada which have not been invoked by the applicable customer)
                  on the part of the Borrower, such Guarantor or Norstan Canada
                  or any accrued return privilege on the part of such obligor;

                           (k) is not owing by an obligor for which 25% or more
                  of the aggregate Accounts (measured based upon the face amount
                  of such Accounts) owing by such obligor to the Borrower or any
                  Subsidiary are past due beyond the period set forth in
                  subsection (f) of this definition; and

                           (l) does not comprise that portion of the Eligible
                  Accounts owed to Norstan Canada which would cause the total
                  Eligible Accounts owed to Norstan Canada to exceed 10% of the
                  aggregate Eligible Accounts owed to each of the Borrower, the
                  Guarantors and Norstan Canada, in each case but for this
                  subclause (l) and in each case based upon the lower of face
                  amount or fair market value of such Accounts;

         provided, that the Majority Banks shall, notwithstanding the foregoing,
         have the right, in the reasonable exercise of their discretion, to
         establish reserves against the aggregate amount of Eligible Accounts.
         Satisfaction of the conditions specified in clauses (a) through (l) of
         this definition shall be determined each month by the Agent in the
         reasonable exercise of its discretion.

                  "Eligible Inventory": All inventory held by the Borrower, any
         Guarantor or Norstan Canada as raw materials or finished product held
         for sale in the ordinary course of business (including work in process,
         but excluding supplies) and which:

                         (a) (i) except for inventory held by Norstan Canada, is
                    subject to a perfected first security interest in favor of
                    the Agent and (ii) is free and clear of any other Lien and
                    is not leased to any Person;

                         (b) is located at one of the Borrower's, such
                    Guarantor's or Norstan Canada's business locations or is in
                    transit to one of such business locations;

                         (c) is not so identified to a contract to sell that it
                    is evidenced by an Account;

                                       8

<PAGE>

                         (d) is of good and merchantable quality free from any
                    defects which would affect the market value thereof;

                         (e) is not, as reasonably determined by the Agent,
                    nonsaleable in the ordinary course of the Borrower's or any
                    Subsidiary's business;

                         (f) is insured against loss or damage in accordance
                    with the provisions of this Agreement and the applicable
                    Security Agreement;

                         (g) is not subject to or covered by a negotiable
                    document of title, including, without limitation, negotiable
                    warehouse receipts and negotiable bills of lading;

                         (h) is not stored in a public warehouse or held by any
                    Person as bailee, unless the terms of such storage or
                    bailment are satisfactory to the Agent;

                         (i) complies with all standards imposed by any
                    governmental agency having regulatory authority over such
                    goods and/or their use, manufacture or sale;

                         (j) does not constitute slow-selling or obsolete
                    inventory which have been identified as such on the
                    Borrower's books and records in accordance with its past
                    practices and with GAAP;

                         (k) does not constitute over-ordered custom switches;
                    and

                         (l) does not comprise that portion of the Eligible
                    Inventory held by Norstan Canada which would cause the total
                    Eligible Inventory held by Norstan Canada to exceed 15% of
                    the aggregate Eligible Inventory held by each of the
                    Borrower, the Guarantors and Norstan Canada, in each case
                    but for this subclause (l) and in each case based upon the
                    lower of cost (determined on a first-in, first-out basis) or
                    fair market value unpaid balance of such inventory;

         provided, that the Majority Banks shall, notwithstanding the foregoing,
         have the right, in the reasonable exercise of their discretion, to
         establish reserves against the aggregate amount of Eligible Inventory.
         Satisfaction of the conditions specified in clauses (a) through (l) of
         this definition shall be determined each month by the Agent in the
         reasonable exercise of its discretion.

                  "ERISA":  The Employee Retirement Income Security Act of 1974,
         as amended.

                  "ERISA Affiliate": Any trade or business (whether or not
         incorporated) that is a member of a group of which the Borrower is a
         member and which is treated as a single employer under Section 414 of
         the Code.

                  "Eurodollar Business Day": A Business Day which is also a day
         for trading by and between banks in United States dollar deposits in
         the interbank Eurodollar market and a day on which banks are open for
         business in New York City.

                                       9

<PAGE>

                  "Eurodollar Rate Advance":  An Advance with respect to which
         the interest rate is determined by reference to the Eurodollar Rate.

                  "Eurodollar Rate": With respect to each Interest Period
         applicable to a Eurodollar Rate Advance, the average offered rate for
         deposits in United States dollars (rounded upward, if necessary, to the
         nearest 1/16 of 1%) for delivery of such deposits on the first day of
         such Interest Period, for the number of days in such Interest Period,
         which appears on Telerate page 3750 as of 11:00 AM, London time (or
         such other time as of which such rate appears) two Eurodollar Business
         Days prior to the first day of such Interest Period, or the rate for
         such deposits determined by the Agent at such time based on such other
         published service of general application as shall be selected by the
         Agent for such purpose; provided, that in lieu of determining the rate
         in the foregoing manner, the Agent may determine the rate based on
         rates at which United States dollar deposits are offered to the Agent
         in the interbank Eurodollar market at such time for delivery in
         Immediately Available Funds on the first day of such Interest Period in
         an amount approximately equal to the Advance by the Agent to which such
         Interest Period is to apply (rounded upward, if necessary, to the
         nearest 1/16 of 1%). "Telerate page 3750" means the display designated
         as such on the Telerate reporting system operated by Telerate System
         Incorporated (or such other page as may replace page 3750 for the
         purpose of displaying London interbank offered rates of major banks for
         United States dollar deposits).

                  "Eurodollar Reserve Percentage": As of any day, that
         percentage (expressed as a decimal) which is in effect on such day, as
         prescribed by the Board for determining the maximum reserve requirement
         (including any basic, supplemental or emergency reserves) for a member
         bank of the Federal Reserve System, with deposits comparable in amount
         to those held by the Agent, in respect of "Eurocurrency Liabilities" as
         such term is defined in Regulation D of the Board. The rate of interest
         applicable to any outstanding Eurodollar Rate Advances shall be
         adjusted automatically on and as of the effective date of any change in
         the Eurodollar Reserve Percentage.

                  "Event of Default":  Any event described in Section 7.1.

                  "Existing Credit Agreement":  As defined in Recital A of this
         Agreement.

                  "Existing Loans":  As defined in Recital B of this Agreement.

                  "Exiting Lenders":  Harris Trust and Savings Bank and Wells
         Fargo Bank Minnesota, National Association.

                  "Federal Funds Rate": For any day, the rate per annum (rounded
         upwards, if necessary, to the nearest 1/100 of 1%) equal to the
         weighted average of the rates on overnight Federal funds transactions
         with members of the Federal Reserve System arranged by Federal funds
         brokers on such day, as published by the Federal Reserve Bank of New
         York on the Business Day next succeeding such day, provided that (a) if
         the day for which such rate is to be determined is not a Business Day,
         the Federal Funds Rate for such day shall be such rate on such
         transactions on the next preceding Business Day as so published on the
         next succeeding Business Day and (b) if such rate is not so published
         for any Business Day, the Federal Funds Rate for such Business Day
         shall be the average rate quoted to U.S. Bank on such Business Day on
         such transactions as determined by the Agent.

                                       10

<PAGE>

                  "Fixed Charge Coverage Ratio":  As of the last day of any
         fiscal quarter of the Borrower, the ratio of

                         (i) EBITDA, plus to the extent not included in EBITDA,
                    all payments on all NFS Lease Accounts and Norstan Canada
                    Lease Accounts received by the Borrower or a Subsidiary (net
                    of payments upon any Indebtedness secured thereby), minus
                    Capital Expenditures not financed with Indebtedness (other
                    than Indebtedness under this Agreement), minus income taxes
                    paid in cash, minus Restricted Payments,

                    to

                         (ii) Mandatory Debt Repayments plus Interest Expense

         in each case determined in accordance with GAAP on a consolidated basis
         for the Borrower and its Subsidiaries for the last four fiscal quarters
         of the Borrower.

                  "Fleet": Fleet Business Credit Corporation.

                  "Fleet Intercreditor Agreement": An intercreditor agreement
         between the Agent, Fleet, the Borrower and any appropriate Subsidiary
         in form and substance acceptable to the Banks and Fleet, as the same
         may be amended, restated or otherwise modified from time to time.

                  "GAAP": Generally accepted accounting principles set forth in
         the opinions and pronouncements of the Accounting Principles Board of
         the American Institute of Certified Public Accountants and statements
         and pronouncements of the Financial Accounting Standards Board or in
         such other statements by such other entity as may be approved by a
         significant segment of the accounting profession, which are applicable
         to the circumstances as of any date of determination.

                  "Guaranties":  Separate Guaranties given by the Guarantors in
         favor of the Agent and the Banks, as any of the same may be amended,
         restated or otherwise modified from time to time.

                  "Guarantors": Norstan Financial Services, Inc., a Minnesota
         corporation; Norstan Communications, Inc., a Minnesota corporation;
         Norstan International, Inc., a Minnesota corporation; Vibes
         Technologies, Inc., a Minnesota corporation; and Norstan Canada, Inc.
         a Minnesota corporation.

                                       11

<PAGE>

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

                  "Immediately Available Funds":  Funds with good value on the
         day and in the city in which payment is received.

                  "Indebtedness": With respect to any Person at the time of any
         determination, without duplication, all obligations, contingent or
         otherwise, of such Person which in accordance with GAAP should be
         classified upon the balance sheet of such Person as liabilities, but in
         any event including: (a) all obligations of such Person for borrowed
         money, (b) all obligations of such Person evidenced by bonds,
         debentures, notes or other similar instruments, (c) all obligations of
         such Person upon which interest charges are customarily paid or
         accrued, (d) all obligations of such Person under conditional sale or
         other title retention agreements relating to property purchased by such
         Person, (e) all obligations of such Person issued or assumed as the
         deferred purchase price of property or services (other than trade
         payables incurred in the ordinary course of such Person's business and
         not more than 90 days past due), (f) all obligations of others secured
         by any Lien on property owned or acquired by such Person, whether or
         not the obligations secured thereby have been assumed, (g) all
         Capitalized Lease Obligations of such Person, (h) all obligations of
         such Person in respect of interest rate protection agreements, (i) all
         obligations of such Person, actual or contingent, as an account party
         in respect of letters of credit or bankers' acceptances, (j) all
         obligations of any partnership or joint venture as to which such Person
         is or may become personally liable, and (k) all Contingent Obligations
         of such Person to the extent that such Contingent Obligations are or
         should be classified as liabilities on the balance sheet of such Person
         in accordance with GAAP.

                  "Interest Expense": For any period of determination, the
         aggregate consolidated amount, without duplication, of interest paid,
         accrued or scheduled to be paid in respect of any Indebtedness of the
         Borrower and the Subsidiaries, including (a) all but the principal
         component of payments in respect of conditional sale contracts,
         Capitalized Leases and other title retention agreements, (b)
         commissions, discounts and other fees and charges with respect to
         letters of credit and bankers' acceptance financings and (c) net costs
         under interest rate protection agreements, but excluding the interest
         paid or accrued upon Indebtedness existing on the date hereof secured
         by NFS Lease Accounts or Norstan Canada Lease Accounts, in each case
         determined in accordance with GAAP.

                  "Interest Period": With respect to each Eurodollar Rate
         Advance, the period commencing on the date of such Advance or on the
         last day of the immediately preceding Interest Period, if any,
         applicable to an outstanding Advance and ending one, two, three or six
         months thereafter, as the Borrower may elect in the applicable notice
         of borrowing, continuation or conversion; provided that:

                           (1) Any Interest Period that would otherwise end on a
                  day which is not a Eurodollar Business Day shall be extended
                  to the next succeeding Eurodollar Business Day unless such
                  Eurodollar Business Day falls in another calendar month, in
                  which case such Interest Period shall end on the next
                  preceding Eurodollar Business Day;

                                       12

<PAGE>

                           (2) Any Interest Period that begins on the last
                  Eurodollar Business Day of a calendar month (or a day for
                  which there is no numerically corresponding day in the
                  calendar month at the end of such Interest Period) shall end
                  on the last Eurodollar Business Day of a calendar month; and

                           (3) Any Interest Period applicable to an Advance on a
                  Revolving Loan that would otherwise end after the Revolving
                  Commitment Ending Date shall end on the Revolving Commitment
                  Ending Date, and any Interest Period applicable to an Advance
                  on a Term Loan that would otherwise end after the scheduled
                  maturity of such Term Loan shall end on such maturity.

         Interest Periods shall be selected so that the installment payments on
         the Term Notes can be paid without having to pay a Eurodollar Rate
         Advance prior to the last day of the Interest Period applicable
         thereto. For purposes of determining an Interest Period, a month means
         a period starting on one day in a calendar month and ending on the
         numerically corresponding day in the next calendar month; provided,
         however, that if there is no numerically corresponding day in the month
         in which such an Interest Period is to end or if such an Interest
         Period begins on the last Business Day of a calendar month, then such
         Interest Period shall end on the last Business Day of the calendar
         month in which such Interest Period is to end.

                  "Inventory": With respect to any Person, goods held for sale
         or lease or to be furnished under contracts of service by such entity,
         raw materials, and work in process or materials used or consumed in the
         business of such Person.

                  "Investment": The acquisition, purchase, making or holding of
         any stock or other security, any loan, advance, contribution to
         capital, extension of credit (except for trade and customer accounts
         receivable for inventory sold or services rendered in the ordinary
         course of business and payable in accordance with customary trade
         terms), any acquisitions of real or personal property (other than real
         and personal property acquired in the ordinary course of business) and
         any purchase or commitment or option to purchase stock or other debt or
         equity securities of or any interest in another Person or any integral
         part of any business or the assets comprising such business or part
         thereof. The amount of any Investment shall be the original cost of
         such Investment plus the cost of all additions thereto, without any
         adjustments for increases or decreases in value, or write-ups,
         write-downs or write-offs with respect to such Investment.

                  "Letter of Credit":  Any irrevocable issued by the Agent
         pursuant to this Agreement for the account of the Borrower or a
         Guarantor.

                  "Letter of Credit Fee":  As defined in Section 2.10.

                  "Lien": With respect to any Person, any security interest,
         mortgage, pledge, lien, charge, encumbrance, title retention agreement
         or analogous instrument or device (including the interest of each
         lessor under any Capitalized Lease), in, of or on any assets or
         properties of such Person, now owned or hereafter acquired, whether
         arising by agreement or operation of law.

                                       13

<PAGE>

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

                  "Loan Documents":  This Agreement, the Notes and the Security
         Documents.

                  "Majority Banks": As of any date of determination, such Banks,
         other than Defaulting Banks, holding at least 66.67% of the aggregate
         unpaid principal amount of the Notes, excluding Notes held by
         Defaulting Banks or, if no Loans are at the time outstanding hereunder,
         such Banks other than Defaulting Banks whose Total Percentages
         aggregate at least 66.67% of the Aggregate Revolving Outstandings (with
         Total Percentages being computed without reference to the Revolving
         Commitment Amounts of Defaulting Banks), provided that, if at any date
         of determination, there are two or fewer Banks, the "Majority Banks"
         shall constitute 100% of the Banks other than Defaulting Banks.

                  "Mandatory Debt Repayments": For any period of determination,
         the sum of (a) all required principal payments upon all Indebtedness of
         the Borrower or any Subsidiary (including all payments, without
         duplication, with respect to Capitalized Lease Obligations of the
         Borrower and the Subsidiaries, but excluding (x) any mandatory
         prepayments applied to the Term Loans under Section 2.6(d) and (y)
         payments upon Indebtedness existing on the date hereof secured by NFS
         Lease Accounts or Norstan Canada Lease Accounts and related leases,
         equipment and servicing arrangements), provided, that (i) for the
         fiscal quarters ending on or about July 31, 2002, October 31, 2002,
         January 31, 2003 and April 30, 2003, the required principal payments
         with respect to the Term Loan shall be assumed to be $4,000,000 for the
         four fiscal quarters then ended and (ii) for all periods, the required
         principal payments with respect to the Existing Loans shall be assumed
         to be zero.

                  "Multiemployer Plan": A multiemployer plan, as such term is
         defined in Section 4001 (a) (3) of ERISA, which is maintained (on the
         Closing Date, within the five years preceding the Closing Date, or at
         any time after the Closing Date) for employees of the Borrower or any
         ERISA Affiliate.

                  "NCI":  Norstan Communications, Inc.

                  "Net Proceeds": With respect to the sale or disposition of
         property, sale of capital stock and offering of debt securities by the
         Borrower or a Subsidiary, or other non-recurring event, an amount equal
         to (a) the cash (including deferred cash proceeds) and other
         consideration received by the Borrower or a Subsidiary in connection
         with such transaction or event, minus (b) the sum of (i) any closing
         costs or selling costs arising in connection with such sale or offering
         and (ii) any sales or income tax paid or payable by the Borrower in
         connection with such transaction or event (excluding any tax for which
         the Borrower is reimbursed by the purchaser).

                  "NFS":  Norstan Financial Services, Inc., a Minnesota
         corporation.

                                       14
<PAGE>

                  "NFS Lease Account":  An Account arising from a lease of
         Inventory by NFS.

                  "Norstan Canada":  Norstan Canada, Ltd., a Canadian
         corporation.

                  "Norstan Canada Lease Account":  An Account arising from a
         lease of Inventory by Norstan Canada.

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

                  "NNS Note":  That certain Promissory Note to be made by
         NetWolves Acquisitions, Inc. in favor of the Borrower in the amount
         of $3,750,000.

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

                  "NNS Sale Agreement": That certain Stock Purchase Agreement
         dated as of January 30, 2002 between the Borrower, NetWolves
         Corporation, a New York corporation and NetWolves Acquisitions, Inc., a
         Delaware corporation.

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

                  "Operating Lease": A lease of (or other agreement conveying
         the right to use) real or personal property classified as an operating
         lease in accordance with GAAP.

                  "PBGC":  The Pension Benefit Guaranty Corporation, established
         pursuant to Subtitle A of Title IV of ERISA, and any successor thereto
         or to the functions thereof.

                  "Permitted Acquisition": Any Acquisition by the Borrower or
         any Subsidiary of the stock or assets of Persons conducting businesses
         in the same general line of business as the Borrower, so long as (a)
         the Agent is notified of such Acquisition not less than 15 days prior
         to the proposed consummation thereof and is provided with such
         information as the Agent may request on the acquired business, (b) both

                                       15

<PAGE>

         before and after giving effect to such Acquisition, no Default or Event
         of Default will have occurred and be continuing, (c) without limiting
         the generality of clause (b) above, after giving effect to any
         additional Revolving Loans to finance such Acquisition, the Borrowing
         Base Availability will not be less than $5,000,000, (d) the Borrower
         demonstrates to the satisfaction of the Majority Banks pro forma
         compliance with Sections 6.13, 6.14, 6.15, 6.16, 6.17 and 6.18 for the
         first four fiscal quarters ending after the closing of such
         Acquisition, (e) concurrently with the consummation of such
         Acquisition, the Agent shall have received the documents specified in
         Section 5.14, and (f) after giving effect to such Acquisition, the
         total consideration paid by the Borrower in connection with all
         Permitted Acquisitions completed during the four fiscal quarters
         preceding such Acquisition does not exceed the Permitted Acquisition
         Limit. For purposes of the foregoing, (a) "total consideration" shall
         mean, without duplication, cash or other consideration paid, the fair
         market value of property or stock exchanged (or the face amount, if
         preferred stock), the total amount of any deferred payments or purchase
         money debt, all Indebtedness incurred to the seller, and the total
         amount of any Indebtedness or other acquisition-related obligations
         (including, without limitation, obligations pursuant to non-compete or
         consulting arrangements) assumed or undertaken in such transactions and
         (b) "pro forma" means such financial covenants shall be calculated
         after giving effect to such Acquisition and any Indebtedness and
         Capitalized Lease Obligations incurred or assumed in connection
         therewith from any source (including any additional Revolving Loans to
         finance such Acquisition).

                  "Permitted Acquisition Limit": With respect to any proposed
         Acquisition, (a) $2,500,000, if the pro forma Cash Flow Leverage Ratio
         (calculated in the manner set forth in the definition of Permitted
         Acquisition) is greater than or equal to 1.50 to 1.00 and (b)
         $5,000,000, if the pro forma Cash Flow Leverage Ratio (calculated in
         the manner set forth in the definition of Permitted Acquisition) is
         less than 1.50 to 1.00.

                  "Person": Any natural person, corporation, partnership, joint
         venture, firm, association, trust, unincorporated organization,
         government or governmental agency or political subdivision or any other
         entity, whether acting in an individual, fiduciary or other capacity.

                  "Plan": Each employee benefit plan (whether in existence on
         the Closing Date or thereafter instituted), as such term is defined in
         Section 3 of ERISA, maintained for the benefit of employees, officers
         or directors of the Borrower or of any ERISA Affiliate.

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

                  "Primary Distribution Facilities":  The primary distribution
         facilities of the Borrower and the Subsidiaries described on Schedule
         1.1A.

                                       16

<PAGE>

                  "Prime Rate": The rate of interest from time to time publicly
         announced by the Agent as its "prime rate." The Agent may lend to its
         customers at rates that are at, above or below the Prime Rate. For
         purposes of determining any interest rate hereunder or under the Note
         which is based on the Prime Rate, such interest rate shall change as
         and when the Prime Rate changes.

                  "Prime Rate Advance":  An Advance with respect to which the
         interest rate is determined by reference to the Prime Rate.

                  "Prohibited Transaction":  The respective meanings assigned to
         such term in Section 4975 of the Code and Section 406 of ERISA.

                  "Regulatory Change": Any change after the Closing Date in
         federal, state or foreign laws, regulations, guidelines or orders or
         the adoption or making after such date of any interpretations,
         directives or requests applying to a class of banks including any Bank
         under any federal, state or foreign laws, regulations, guidelines or
         orders (whether or not having the force of law) by any court or
         governmental or monetary authority charged with the interpretation or
         administration thereof.

                  "Reportable Event": A reportable event as defined in Section
         4043 of ERISA and the regulations issued under such Section, with
         respect to a Plan, excluding, however, such events as to which the PBGC
         by regulation has waived the requirement of Section 4043(a) of ERISA
         that it be notified within 30 days of the occurrence of such event,
         provided that a failure to meet the minimum funding standard of Section
         412 of the Code and of Section 302 of ERISA shall be a Reportable Event
         regardless of the issuance of any such waivers in accordance with
         Section 412(d) of the Code.

                  "Restricted Payments": With respect to the Borrower,
         collectively, all dividends or other distributions of any nature (cash,
         securities other than common stock of the Borrower, assets or
         otherwise), and all payments on any class of equity securities
         (including warrants, options or rights therefor) issued by the
         Borrower, whether such securities are authorized or outstanding on the
         Closing Date or at any time thereafter and any redemption or purchase
         of, or distribution in respect of, any of the foregoing, whether
         directly or indirectly.

                  "Revolving Commitment": With respect to a Bank, the agreement
         of such Bank to make Revolving Loans to the Borrower in an aggregate
         principal amount outstanding at any time not to exceed such Bank's
         Revolving Commitment Amount upon the terms and subject to the
         conditions and limitations of this Agreement.

                  "Revolving Commitment Amount": With respect to a Bank,
         initially the amount set opposite such Bank's name on Schedule 1.1B
         hereto (as such Schedule may from time to time be amended) as its
         Revolving Commitment Amount, but as the same may be from time to time
         increased or reduced as provided by Sections 2.6(e) or 2.8.

                  "Revolving Commitment Ending Date":  As defined in Section
         2.14.

                                       17

<PAGE>

                  "Revolving Commitment Percentage": With respect to any Bank,
         the percentage equivalent of a fraction, the numerator of which is the
         Revolving Commitment Amount of such Bank and the denominator of which
         is the Aggregate Revolving Commitment Amounts.

                  "Revolving Loan":  As defined in Section 2.1.

                  "Revolving Loan Date":  The date of the making of any
         Revolving Loans hereunder.

                  "Revolving Note":  A promissory note of the Borrower in the
         form of Exhibit B hereto.

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

                  "Revolving Outstandings Percentage": As of any date of
         determination with respect to any Bank, the percentage equivalent of a
         fraction the numerator of which is the Revolving Outstandings of such
         Bank on such date and the denominator of which is the Aggregate
         Revolving Outstandings on such date.

                  "Security Agreements": Collectively, the separate Security
         Agreements of the Borrower and the Guarantors pursuant to which the
         Agent is granted, for the benefit of the Banks, a security interest in
         the personal property described therein, as the same may hereafter be
         amended, supplemented, extended, restated or otherwise modified from
         time to time, each in form and substance satisfactory to the Agent.

                   "Security Documents": The Guaranties, the Security
         Agreements, the Pledge Agreements, any collateral assignment documents
         executed and delivered by the Borrower or any Subsidiary in any
         registered intellectual property and any other documents or instruments
         executed and delivered by any Person to secure or guaranty all or any
         part of the Obligations.

                  "Subordination Agreement (Norstan Canada)": Subordination
         Agreement dated concurrently herewith given by Norstan Canada in favor
         of the Banks, as the same may be amended, restated or otherwise
         modified from time to time.

                  "Subordinated Debt": The indebtedness of the Borrower to
         Norstan Canada which is subordinated to the Obligations pursuant to the
         Subordination Agreement (Norstan Canada) and any other Indebtedness of
         the Borrower or any Subsidiary, now existing or hereafter created,
         incurred or arising, which is subordinated in right of payment to the
         payment of the Obligations in a manner and to an extent (a) that
         Majority Banks have approved in writing prior to the creation of such
         Indebtedness, or (b) as to any Indebtedness of the Borrower or any
         Subsidiary existing on the date of this Agreement, that Majority Banks
         have approved as Subordinated Debt  a writing delivered by Majority
         Banks to the Borrower on or prior to the Closing Date.

                                       18

<PAGE>

                  "Subsidiary": Any corporation or other entity of which
         securities or other ownership interests having ordinary voting power
         for the election of a majority of the board of directors or other
         Persons performing similar functions are owned by the Borrower either
         directly or through one or more Subsidiaries.

                  "Tangible Net Worth": As of any date of determination, the sum
         of (a) the amounts set forth on the consolidated balance sheet of the
         Borrower as the sum of the common stock, preferred stock, additional
         paid-in capital, retained earnings, unamortized cost of stock and
         foreign currency translation adjustments of the Borrower (excluding
         treasury stock), less (b) the book value of all assets of the Borrower
         and its Subsidiaries that would be treated as intangibles under GAAP,
         including all such items as goodwill, trademarks, trade names, service
         marks, copyrights, patents, licenses, unamortized debt discount and
         expenses and the excess of the purchase price of the assets of any
         business acquired by the Borrower or any of its Subsidiaries over the
         book value of such assets.

                  "Termination Date": The earliest of (a) the Revolving
         Commitment Ending Date, (b) the date on which the Revolving Commitments
         are terminated pursuant to Section 7.2 hereof or (c) the date on which
         the Revolving Commitment Amounts are reduced to zero pursuant to
         Section 2.8 hereof.

                  "Term Loan":  As defined in Section 2.1.

                  "Term Loan Commitment": With respect to a Bank, the agreement
         of such Bank to make a Term Loan to the Borrower in an amount equal to
         such Bank's Term Loan Commitment Amount upon the terms and subject to
         the conditions of this Agreement.

                   "Term Loan Commitment Amount":  With respect to a Bank, the
         amount set opposite such Bank's name on Schedule 1.1B as its Term Loan
         Commitment Amount.

                  "Term Loan Percentage": With respect to any Bank, the
         percentage equivalent of a fraction, the numerator of which is the
         amount of the Term Loan Commitment Amount of such Bank and the
         denominator of which is the sum of the Term Loan Commitment Amounts of
         all the Banks.

                  "Term Note":  A promissory note of the Borrower in the form of
         Exhibit C hereto.

                  "Total Interest-bearing Debt": At the time of any
         determination, the amount, on a consolidated basis, of all Indebtedness
         of the Borrower for borrowed money or the deferred purchase price of
         property, or which bears interest on such date, after elimination of
         intercompany transactions, as determined in accordance with GAAP.

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

                                      19

<PAGE>

                  "Unpaid Drawing":  As defined in Section 2.7(b).

                  "Unpaid Drawing Repayment Loan":  As defined in Section 2.15.

                  "Unused Revolving Commitment": With respect to any Bank as of
         any date of determination, the amount by which such Bank's Revolving
         Commitment Amount exceeds such Bank's Revolving Outstandings on such
         date.

                  "Unused Revolving Commitment Fees":  As defined in Section
         2.9.

                  "U.S. Bank":  U.S. Bank National Association, in its
         individual corporate capacity.

     SECTION 1.2 ACCOUNTING TERMS AND CALCULATIONS. Except as may be expressly
provided to the contrary herein, all accounting terms used herein shall be
interpreted and all accounting determinations hereunder shall be made in
accordance with GAAP. To the extent any change in GAAP affects any computation
or determination required to be made pursuant to this Agreement, such
computation or determination shall be made as if such change in GAAP had not
occurred unless the Borrower and Majority Banks agree in writing on an
adjustment to such computation or determination to account for such change in
GAAP.

     SECTION 1.3 COMPUTATION OF TIME PERIODS. In this Agreement, in the
computation of a period of time from a specified date to a later specified date,
unless otherwise stated the word "from" means "from and including" and the word
"to" or "until" each means "to but excluding."

     SECTION 1.4 OTHER DEFINITIONAL TERMS. The words "hereof," "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement. References to Sections, Exhibits, schedules and like references are
to this Agreement unless otherwise expressly provided. The words "include",
"includes" and "including" shall be deemed to be followed by the phrase "without
limitation". Unless the context in which used herein otherwise clearly requires,
"or" has the inclusive meaning represented by the phrase "and/or".

                                   ARTICLE II
                         TERMS OF THE CREDIT FACILITIES

     SECTION 2.1 LENDING COMMITMENTS; PURPOSES. On the terms and subject to the
conditions hereof, each Bank severally agrees to make the following lending
facilities available to the Borrower:

          (a) Revolving Loans. Each Bank severally shall make available a
     revolving credit facility available as loans (each, a "Revolving Loan" and,
     collectively, the "Revolving Loans") to the Borrower on a revolving basis
     at any time and from time to time from the Closing Date to the Termination
     Date, during which period the Borrower may borrow, repay and reborrow in
     accordance with the provisions hereof, provided, that no Revolving Loan
     will be made in any amount which, after giving effect thereto, would cause
     the Aggregate Revolving Outstandings to exceed the lesser of Aggregate
     Revolving Commitment Amounts or the Borrowing Base.

                                       20

<PAGE>

          (b) Term Loans. Upon the Closing Date, each Bank shall make available
     to the Borrower a term loan (each being a "Term Loan" and, collectively,
     the "Term Loans") in an amount by such Bank equal to its Term Loan
     Commitment Amount.

     SECTION 2.2 PROCEDURE FOR LOANS; NOTES.

          (a) Revolving Loans.

               (i) Any request by the Borrower for Revolving Loans hereunder
          shall be in writing, or by telephone promptly confirmed in writing or
          by facsimile transmission, and must be given so as to be received by
          the Agent not later than 1:00 P.M. (Minneapolis time) two Eurodollar
          Business Days prior to the requested Revolving Loan Date (which shall
          be a Business Day) if the Revolving Loans (or any portion thereof) are
          requested as Eurodollar Rate Advances and not later than 1:00 P.M.
          (Minneapolis time) on the requested Revolving Loan Date if the
          Revolving Loans are requested as Prime Rate Advances. Each request for
          Revolving Loans hereunder shall be irrevocable and shall be deemed a
          representation by the Borrower that on the requested Revolving Loan
          Date and after giving effect to the requested Revolving Loans the
          applicable conditions specified in Article III have been and will be
          satisfied. Each request for Revolving Loans hereunder shall specify
          (i) the requested Revolving Loan Date, (ii) the aggregate amount of
          Revolving Loans to be made on such date, which shall be in a minimum
          amount of $200,000 or, if more, an integral multiple of $100,000,
          (iii) whether such Revolving Loans are to be funded as Prime Rate
          Advances or Eurodollar Rate Advances, (iv) in the case of Eurodollar
          Rate Advances, the duration of the initial Interest Period applicable
          thereto, (v) a calculation acceptable to the Agent of the availability
          under the Borrowing Base on the requested Revolving Loan Date, after
          giving effect to the requested Revolving Loans, and (vi) if such
          Revolving Loans are to be Unpaid Drawing Repayment Loans, the Unpaid
          Drawing or Unpaid Drawings which are to be repaid with the proceeds of
          such Unpaid Drawing Repayment Loans. Without in any way limiting the
          Borrower's obligation to confirm in writing any telephone request for
          Revolving Loans hereunder, the Agent may rely on any such request
          which it believes in good faith to be genuine; and the Borrower hereby
          waives the right to dispute the Agent's record of the terms of such
          telephone request, absent gross negligence or willful misconduct on
          the part of the Agent. The Agent shall promptly notify each other Bank
          of the receipt of such request, the matters specified therein, and of
          such Bank's ratable share (based on such Bank's Revolving Commitment
          Percentage) of the requested Revolving Loans. On the date of the
          requested Revolving Loans, each Bank shall provide its share of the
          requested Revolving Loans to the Agent in Immediately Available Funds

                                       21

<PAGE>

          not later than 4:00 P.M. (Minneapolis time). Unless the Agent
          determines that any applicable condition specified in Article III has
          not been satisfied, the Agent will make available to the Borrower at
          the Agent's principal office in Minneapolis, Minnesota in Immediately
          Available Funds not later than 5:00 P.M. (Minneapolis time) on the
          requested Revolving Loan Date the amount of the requested Revolving
          Loans. If the Agent has made a Revolving Loan to the Borrower on
          behalf of a Bank but has not received the amount of such Revolving
          Loan from such Bank by the time herein required, such Bank shall pay
          interest to the Agent on the amount so advanced at the Federal Funds
          Rate from the date of such Revolving Loan to the date funds are
          received by the Agent from such Bank, such interest to be payable with
          such remittance from such Bank of the principal amount of such
          Revolving Loan (provided, however, that the Agent shall not make any
          Revolving Loan on behalf of a Bank if the Agent has received prior
          notice from such Bank that it will not make such Revolving Loan). If
          the Agent does not receive payment from such Bank by the next Business
          Day after the date of any Revolving Loan, the Agent shall be entitled
          to recover such Revolving Loan, with interest thereon at the rate then
          applicable to such Revolving Loan, on demand, from the Borrower,
          without prejudice to the Agent's and the Borrower's rights against
          such Bank. If such Bank pays the Agent the amount herein required with
          interest at the overnight Federal Funds rate before the Agent has
          recovered from the Borrower, such Bank shall be entitled to the
          interest payable by the Borrower with respect to the Revolving Loan in
          question accruing from the date the Agent made such Revolving Loan.
          The Borrower shall provide to the Agent each Business Day, by not
          later than 4:00 P.M. (Minneapolis time) on such Business Day, a
          reconciliation in writing or by telecopier showing (i) the total
          amount of Revolving Loans on such day, (ii) whether such Revolving
          Loans constituted Unpaid Drawing Repayment Loans, and (iii) in the
          case of Unpaid Drawing Repayment Loans, the Unpaid Drawing or Unpaid
          Drawings repaid with the proceeds of such Unpaid Drawing Repayment
          Loans. The Agent shall provide copies of such reconciliation to the
          Banks on a monthly basis.

               (ii) Whenever any Unpaid Drawing exists for which there are not
          then funds in the Holding Account to cover the same and with respect
          to which the Agent has not otherwise received a request from the
          Borrower for Unpaid Drawing Repayment Loans pursuant to Section
          2.2(a), the Borrower shall nevertheless, be deemed to have requested
          the Banks to make Unpaid Drawing Repayment Loans to pay such Unpaid
          Drawing and the Agent shall give the other Banks notice to that
          effect, specifying the amount of such Unpaid Drawing and the amount of
          the Unpaid Drawing Repayment Loan to be made by such Bank with respect
          thereto, in which event each Bank is authorized (and the Borrower does
          here so authorize each Bank) to, and shall, make an Unpaid Drawing
          Repayment Loan to the Borrower in an amount equal to such Bank's
          Revolving Commitment Percentage of the balance of the Unpaid Drawing
          which remains unpaid after applying any funds in the Holding Account
          to the payment thereof. The Agent shall notify each Bank by 1:00 P.M.
          (Minneapolis time) on the date such Unpaid Drawing occurs of the
          amount of the Unpaid Drawing Repayment Loan to be made by such Bank.

                                       22

<PAGE>

          Notices received after such time shall be deemed to have been received
          on the next Business Day. Each Bank shall then make such Unpaid
          Drawing Repayment Loan (regardless of noncompliance with the
          applicable conditions precedent specified in Article III hereof and
          regardless of whether an Event of Default then exists) and each Bank
          shall provide the Agent with the proceeds of such Unpaid Drawing
          Repayment Loan in Immediately Available Funds, at the office of the
          Agent, not later than 4:00 P.M. (Minneapolis time) on the day on which
          such Bank received such notice (or, in the case of notices received
          after 1:00 P.M., Minneapolis time, is deemed to have received such
          notice). The Agent shall apply the proceeds of such Unpaid Drawing
          Repayment Loans directly to reimburse itself for such Unpaid Drawing.
          If any portion of any such amount paid to the Agent is recovered by or
          on behalf of the Borrower from the Agent in bankruptcy, by assignment
          for the benefit of creditors or otherwise, the loss of the amount so
          recovered shall be ratably shared between and among the Banks in the
          manner contemplated by Section 8.11 hereof. If at the time the Banks
          make funds available to the Agent pursuant to the provisions of this
          Section, the applicable conditions precedent specified in Article III
          shall not have been satisfied, the Borrower shall pay to the Agent for
          the account of the Banks interest on the funds so advanced at a
          floating rate per annum equal to the sum of the Prime Rate plus the
          Applicable Margin for Revolving Loans plus two percent (2.00%).

          (b) Term Loans. Not later than 1:00 P.M. Minneapolis time) two
     Eurodollar Business Days prior to the requested Closing Date if the Term
     Loans are requested as Eurodollar Rate Advances and not later than 1:00
     P.M. (Minneapolis time) one Business Day prior to the requested Closing
     Date if the Term Loans are requested as Prime Rate Advances, the Borrower
     shall deliver to the Agent a written notice of borrowing. Such notice of
     borrowing shall be irrevocable and shall be deemed a representation by the
     Borrower that on the Closing Date and after giving effect to the Term Loans
     the applicable conditions specified in Article III have been and will be
     satisfied. Such notice of borrowing shall specify (i) the requested Closing
     Date, (ii) whether such Term Loans are to be funded as Eurodollar Rate
     Advances or Prime Rate Advances, and (iii) in the case of Eurodollar Rate
     Advances, the duration of the initial Interest Period applicable thereto.
     The Agent shall promptly notify each Bank of the receipt of such notice and
     the matters specified therein. On the requested Closing Date, each Bank
     shall provide to the Agent the amount of such Bank's Term Loan in
     Immediately Available Funds not later than 1:00 P.M., Minneapolis time.
     Unless the Agent determines that any applicable condition specified in
     Article III has not been satisfied, the Agent will make the proceeds of the
     Term Loans available to the Borrower at the Agent's main office on the
     requested date.

          (c) Conversions and Continuations. On the terms and subject to the
     limitations hereof, the Borrower shall have the option at any time and from
     time to time to convert all or any portion of the Advances into Prime Rate
     Advances or Eurodollar Rate Advances or to continue a Eurodollar Rate
     Advance as such; provided, however, that a Eurodollar Rate Advance may be
     converted or continued only on the last day of the Interest Period
     applicable thereto and, at the option of the Majority Banks, no Advance may
     be made as, converted to or continued as a Eurodollar Rate Advance if a
     Default or an Event of Default has occurred and is continuing on the

                                       23

<PAGE>

     proposed date of continuation or conversion. Advances may be converted to,
     or continued as, Eurodollar Rate Advances only in an amount equal to
     $200,000 or an integral multiple of $200,000 in excess thereof. The
     Borrower shall give the Bank written notice of any continuation or
     conversion of any Advances and such notice must be given so as to be
     received by the Bank not later than 1:00 P.M. (Minneapolis time) two
     Eurodollar Business Days prior to the date of the requested date of
     conversion or continuation in the case of the continuation of, or
     conversion to, Eurodollar Rate Advances and not later than 1:00 p.m.
     (Minneapolis time) on the date of the requested conversion to Prime Rate
     Advances. Each such notice shall specify (a) the amount to be continued or
     converted, (b) the date for the continuation or conversion (which must be
     (i) the last day of the current Interest Period for any continuation or
     conversion of Eurodollar Rate Advances, (ii) a Eurodollar Business Day in
     the case of conversions to or continuations as Eurodollar Rate Advances,
     and (iii) a Business Day in the case of conversions to Prime Rate
     Advances), and (c) in the case of conversions to or continuations as
     Eurodollar Rate Advances, the Interest Period applicable thereto. Any
     notice given by the Borrower under this Section shall be irrevocable. If
     the Borrower shall fail to notify the Bank of the continuation of any
     Eurodollar Rate Advance within the time required by this Section, such
     Advance shall, at any time after the last day of the Interest Period
     applicable thereto, at the option of the Agent (a) automatically be
     converted into a Prime Rate Advance of the same principal amount or (b)
     automatically be continued as a Eurodollar Rate Advance having an Interest
     Period selected by the Agent. Notwithstanding anything to the contrary in
     the this Agreement, the Borrower will not permit there to be more than (a)
     five different Interest Periods for Term Loans constituting Eurodollar Rate
     Advances in effect at any one time and (b) five different Interest Periods
     for Revolving Loans constituting Eurodollar Rate Advances in effect at any
     time.

     SECTION 2.3 NOTES. The Revolving Loans of each Bank shall be evidenced by a
single Revolving Note payable to the order of such Bank in a principal amount
equal to such Bank's Revolving Commitment Amount originally in effect plus such
Bank's ratable amount of the conditional increase of the Revolving Commitment
Amounts contemplated by Section 2.6(e). The Term Loan of each Bank shall be
evidenced by a Term Note payable to the order of such Bank in the principal
amount equal to such Bank's Term Loan Commitment Amount. Each Bank shall enter
in its ledgers and records the amount of its Term Loan and each Revolving Loan,
the various Advances made and the payments made thereon, and each Bank is
authorized by the Borrower to enter on a schedule attached to its Term Note or
Revolving Note, as appropriate, a record of such Term Loan, Revolving Loans,
Advances and payments; provided, however that the failure by any Bank to make
any such entry or any error in making such entry shall not limit or otherwise
affect the obligation of the Borrower hereunder and on the Notes, and, in all
events (a) the principal amounts owing by the Borrower in respect of the
Revolving Notes shall be the aggregate amount of all Revolving Loans made by the
Banks less all payments of principal thereof made by the Borrower and (b) the
principal amount owing by the Borrower in respect of the Term Notes shall be the
aggregate amount of all Term Loans made by the Banks less all payments of
principal thereof made by the Borrower.

     SECTION 2.4 INTEREST RATES, INTEREST PAYMENTS AND DEFAULT INTEREST.
Interest shall accrue and be payable on the Loans as follows:

                                       24

<PAGE>

          (a) Subject to paragraph (c) below, each Eurodollar Rate Advance shall
     bear interest on the unpaid principal amount thereof during the Interest
     Period applicable thereto at a rate per annum equal to the sum of (i) the
     Adjusted Eurodollar Rate for such Interest Period, plus (ii) the Applicable
     Margin.

          (b) Subject to paragraph (c) below, each Prime Rate Advance shall bear
     interest on the unpaid principal amount thereof at a varying rate per annum
     equal to the sum of (i) the Prime Rate, plus (ii) the Applicable Margin.

          (c) Upon the occurrence of any Event of Default, each Advance shall,
     at the option of the Majority Banks, bear interest until paid in full (i)
     during the balance of any Interest Period applicable to such Advance, at a
     rate per annum equal to the sum of the rate applicable to such Advance
     during such Interest Period plus 2.0%, and (ii) otherwise, at a rate per
     annum equal to the sum of (A) the Prime Rate, plus (B) the Applicable
     Margin for Prime Rate Advances, plus (C) 2.0%.

          (d) Interest shall be payable (i) with respect to each Eurodollar Rate
     Advance having an Interest Period of three months or less, on the last day
     of the Interest Period applicable thereto; (ii) with respect to any
     Eurodollar Rate Advance having an Interest Period greater than three
     months, on the last day of the Interest Period applicable thereto and on
     each day that would have been the last day of the Interest Period for such
     Advance had successive Interest Periods of three months duration been
     applicable to such Advance; (iii) with respect to any Prime Rate Advance,
     on the last day of each month; (iv) with respect to all Advances, upon any
     permitted prepayment (on the amount prepaid); and (v) with respect to all
     Advances, on the Termination Date; provided that interest under Section
     2.4(c) shall be payable on demand.

     SECTION 2.5 REPAYMENT; PAYMENT TO HOLDING ACCOUNT.

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

          (b) Term Loan. The principal of the Term Loan shall be due and payable
     (a) in installments of $1,000,000 due and payable on each of October 25,
     2002, January 24, 2003, April 30, 2003, August 1, 2003, October 31, 2003,
     January 30, 2004, April 30, 2004 and July 30, 2004 and (b) a final
     installment in the amount of all remaining principal of and interest upon
     the Term Loan due and payable on October 29, 2004, provided, however, that
     (y) any installment of principal due on any date specified above shall be
     reduced by any prepayments of principal applied to such installment
     pursuant to this Agreement and (z) if the aggregate principal amount
     outstanding under the Term Loan as of the date any principal payment is due
     is less than the amount specified for such date above, then the principal
     amount payable on such date shall be such amount outstanding.

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

                                       25

<PAGE>

     SECTION 2.6 MANDATORY AND OPTIONAL PREPAYMENTS.

          (a) Optional Prepayments. The Borrower may prepay Prime Rate Advances,
     in whole or in part, at any time, without premium or penalty. Except upon
     an acceleration following an Event of Default or upon termination of the
     Revolving Commitment in whole, the Borrower may pay Eurodollar Rate
     Advances only on the last day of the Interest Period applicable thereto.
     Any such prepayment must, in the case of a Eurodollar Rate Advance, be
     accompanied by accrued and unpaid interest on the amount prepaid. Each
     prepayment shall be in an aggregate amount of (i) $200,000 or an integral
     multiple of $200,000 in excess thereof, in the case of any prepayment of
     Revolving Loans and (ii) $250,000 or an integral multiple of $250,000, in
     the case of any prepayment of Term Loans. Amounts paid (unless following an
     acceleration or upon termination of the Revolving Commitment in whole) or
     prepaid on Revolving under this Section 2.6 may be reborrowed upon the
     terms and subject to the conditions and limitations of this Agreement.
     Amounts paid or prepaid on the Term Loans may not be reborrowed. Amounts
     paid or prepaid on the Loans under this Section 2.6 shall be for the
     account of each Bank in proportion to its share of Loans being prepaid. Any
     prepayments of the Term Loans made pursuant to Section 2.6(a) shall be
     applied to the unpaid installments upon the Term Loan in inverse order of
     their maturities, provided that, with respect to any particular prepayment,
     the Borrower may give written notice to the Banks that such prepayment
     shall be applied to the principal installments of the Term Loan in order of
     their maturities and, so long as no Event of Default is then continuing,
     the Banks shall apply such prepayment in such manner.

          (b) Mandatory Prepayment of Revolving Loans. If at any time the
     Aggregate Revolving Outstandings exceed the Aggregate Revolving Commitment
     Amounts (including but not limited to any excess caused by a reduction in
     the Revolving Commitment Amounts pursuant to Sections 2.6(e) or 2.8
     hereof), the Borrower shall repay the Revolving Notes in an aggregate
     amount equal to such excess, which prepayment shall be apportioned among
     the Banks' Revolving Notes in accordance with their respective Revolving
     Outstandings Percentages.

          (c) Mandatory Prepayments Due to Certain Transactions. At any time
     during the continuation of any Default or Event of Default, immediately
     upon the receipt thereof by the Borrower or any Subsidiary, the Borrower
     shall prepay the Loans in an aggregate amount of 100% of the Net Proceeds
     received in cash by the Borrower or any Subsidiary as a result of any
     public or private sale or offering by the Borrower of its capital stock .

          (d) Application of Certain Prepayments. Any prepayments made pursuant
     to Section 2.6(c), and any amounts received by the Agent upon the NNS Note
     Collateral pursuant to Section 5.13, shall in each case be applied in the
     following order by the Agent to the Loans ratably to each Bank according to
     its Revolving Commitment Percentage or Term Loan Percentage, as applicable:
     (x) first, to the unpaid principal installments upon the Term Loan in
     inverse order of their maturities, (y) second, to the unpaid principal
     balance of the Revolving Loans (other than reimbursement obligations with
     respect to letters of credit), and (z) third, to the Holding Account in the
     amount of the aggregate face amount of the Letters of Credit.

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          (e) Permanent Reduction and Conditional Increase of Revolving
     Commitments. The Revolving Commitment Amounts that are from time to time in
     effect shall be reduced ratably by any prepayments made by the Borrower
     under Section 2.6(c) that are applied to the Revolving Loans or paid to the
     Holding Account pursuant to Section 2.6(d). Further, if the Term Loan is
     paid or prepaid under this Agreement so that the unpaid balance of the Term
     Loan is not more than $5,000,000, then, so long as no Default or Event of
     Default is then continuing, the Borrower shall have the one-time option
     (exercisable upon 5 Business Days' written notice to the Banks given at any
     time after the Term Loans have been so paid or prepaid) to increase ratably
     the Revolving Commitment Amounts which are then in effect by $4,000,000.
     Upon the effective date of an increase in the Revolving Commitment Amounts
     in the manner set forth in this Section, the Agent shall deliver to the
     Borrower and each Bank a revised Schedule 1.1B reflecting the increased
     Revolving Commitment Amounts.

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

     SECTION 2.7 ISSUANCE AND RENEWAL OF LETTERS OF CREDIT; DRAWINGS;
REPAYMENTS; BANK PARTICIPATIONS.

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

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

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

               (iii) Without the prior written consent of all of the Banks, no
          Letter of Credit shall expire later than 365 days after the date of
          issuance thereof.

          (b) Repayment. In the event of any drawing on any Letter of Credit,
     the Borrower shall reimburse U.S. Bank for such drawing by 12:00 noon
     (Minneapolis time) on the day such drawing is honored by U.S. Bank. Any
     amount by which the Borrower has failed to reimburse U.S. Bank for the full
     amount of such drawing under the Letter of Credit by 12:00 noon
     (Minneapolis time) on the date U.S. Bank honored such drawing, until
     reimbursed from the proceeds of Unpaid Drawing Repayment Loans or out of
     funds available in the Holding Account, is an "Unpaid Drawing."

                                       27

<PAGE>

          (c) Participations. Each Bank hereby purchases, and U.S. Bank hereby
     sells to each Bank, an undivided fractional risk participation interest,
     equal to such Bank's Revolving Percentage of each Letter of Credit, in all
     drawings (including Unpaid Drawings) made and honored under each Letter of
     Credit, in U.S. Bank's reimbursement rights with respect to drawings
     (including Unpaid Drawings) made and honored under each Letter of Credit
     (as set forth herein and in any letter of credit application and
     reimbursement agreement form executed by the Borrower in favor of U.S. Bank
     in connection with the issuance of each Letter of Credit). Upon receipt of
     the notice given by the Agent pursuant to Section 2.2(b) hereof, each Bank
     shall pay to U.S. Bank its pro rata share, based on its Revolving
     Commitment Percentage, of any Unpaid Drawing, less the amount, if any, of
     the Unpaid Drawing Repayment Loan made by such Bank with respect to such
     Unpaid Drawing, by not later than 3:00 p.m. (Minneapolis time) on the day
     on which such Bank received such notice (or, in the case of notices
     received after 1:00 p.m., Minneapolis time, is deemed to have received such
     notice). If U.S. Bank has not received such participation payment from such
     Bank by the time required in the preceding sentence such Bank shall pay
     interest to U.S. Bank at the Federal Funds Rate on the amount of such
     participation payment from the date on which such notice was received or
     was deemed to have been received, as the case may be, to the date such
     participation payment is received by U.S. Bank, such interest to be payable
     with the remittance of such participation payment by such Bank. If U.S.
     Bank does not receive such participation payment from such Bank by the next
     Business Day after the date such notice was given (or was deemed given) by
     U.S. Bank to such Bank, U.S. Bank shall be entitled to receive interest on
     such participation payment at the Federal Funds Rate, without prejudice to
     U.S. Bank's rights against such Bank. The obligations of each Bank to make
     payment to U.S. Bank of such Bank's participation payments with respect to
     Unpaid Drawings pursuant to this Section 2.7(c), and U.S. Bank's right to
     receive the same, shall be absolute and unconditional under any and all
     circumstances and irrespective of any rights of setoff, counterclaim,
     withholding, reduction or other defense to payment which any Bank may have
     or have had against U.S. Bank, the Borrower or any other Person.

          (d) Indemnification of U.S. Bank. To the extent that U.S. Bank is not
     reimbursed or indemnified by the Borrower or to the extent that any amounts
     so received by U.S. Bank are required to be returned to the Borrower or any
     statutory representative of the Borrower for any reason whatsoever, each
     other Bank will reimburse and indemnify U.S. Bank on demand for and against
     its pro rata share, based on its Revolving Commitment Percentage, of the
     amount of any and all liabilities, obligations, losses, damages, penalties,
     actions, judgments, suits, costs, expenses or disbursements of any kind or
     nature whatsoever which may be imposed upon, incurred by or asserted
     against U.S. Bank in its capacity as such, acting pursuant hereto or in any
     way relating to or arising out of this Agreement, any Letter of Credit, or
     any action taken or omitted to be taken by U.S. Bank under this Agreement
     or any Letter of Credit, including, without limitation, any amounts (herein

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<PAGE>

     called "Disgorgement Amounts") received by U.S. Bank from or on behalf of
     the Borrower in reimbursement of an Unpaid Drawing which are rescinded in
     whole or in part or which U.S. Bank may be otherwise required to pay or
     repay in whole or in part to the Borrower, any statutory representative of
     the Borrower or creditors of the Borrower acting as such statutory
     representative; provided, however, that except with respect to Disgorgement
     Amounts, as to which the liability of each Bank to reimbursement and
     indemnify U.S. Bank in accordance with its Revolving Commitment Percentage
     shall be absolute and unconditional under all circumstances whatsoever, no
     other Bank shall be liable for any portion of such liabilities,
     obligations, losses, damages, penalties, actions, judgments, suits, costs,
     expenses or disbursements resulting from U.S. Bank's own gross negligence
     or willful misconduct. The obligations of the Banks to U.S. Bank under this
     Section 2.7(d) shall survive the termination of this Agreement and the
     expiration of any Letter of Credit. Nothing in this Section 2.7(d) shall be
     deemed to prejudice the right of any Bank to recover from U.S. Bank any
     amounts paid by such Bank to U.S. Bank pursuant to this Section 2.7(d) in
     the event that it is determined by a court of competent jurisdiction that
     the payment with respect to any Letter of Credit by U.S. Bank, in respect
     of which payment was made by such Bank, constituted gross negligence or
     willful misconduct on the part of U.S. Bank.

          (e) Obligations Absolute. The obligation of the Borrower under Section
     2.7(b) to repay U.S. Bank for any amount drawn on any Letter of Credit and
     to repay the Banks for any Unpaid Drawing Repayment Loans shall be
     absolute, unconditional and irrevocable, shall continue for so long as any
     Letter of Credit is outstanding notwithstanding any termination of this
     Agreement, and shall be paid strictly in accordance with the terms of this
     Agreement, under all circumstances whatsoever, including without limitation
     the following circumstances:

               (i) Any lack of validity or enforceability of any Letter of
          Credit;

               (ii) The existence of any claim, setoff, defense or other right
          which the Borrower may have or claim at any time against any
          beneficiary, transferee or holder of any Letter of Credit (or any
          Person for whom any such beneficiary, transferee or holder may be
          acting), the Agent or any Bank or any other Person, whether in
          connection with any Letter of Credit, this Agreement, the transactions
          contemplated hereby, or any unrelated transaction; or

               (iii) Any statement or any other document presented under any
          Letter of Credit proving to be forged, fraudulent, invalid or
          insufficient in any respect or any statement therein being untrue or
          inaccurate in any respect whatsoever.

         Neither the Agent nor any Bank nor officers, directors or employees of
         any thereof shall be liable or responsible for, and the obligations of
         the Borrower to the Agent and the Banks shall not be impaired by:

                         (A) The use which may be made of any Letter of Credit
                    or for any acts or omissions of any beneficiary, transferee
                    or holder thereof in connection therewith;

                                       29

<PAGE>

                         (B) The validity, sufficiency or genuineness of
                    documents, or of any endorsements thereon, even if such
                    documents or endorsements should, in fact, prove to be in
                    any or all respects invalid, insufficient, fraudulent or
                    forged;

                         (C) The acceptance by the Agent of documents that
                    appear on their face to be in order, without responsibility
                    for further investigation, regardless of any notice or
                    information to the contrary; or

                         (D) Any other action of the Agent in making or failing
                    to make payment under any Letter of Credit if in good faith
                    and in conformity with U.S. or foreign laws, regulations or
                    customs applicable thereto.

     Notwithstanding the foregoing, the Borrower shall have a claim against U.S.
     Bank, and U.S. Bank shall be liable to the Borrower, to the extent, but
     only to the extent, of any direct, as opposed to consequential, damages
     suffered by the Borrower which the Borrower proves were caused by the U.S.
     Bank's own willful misconduct or gross negligence in determining whether
     documents presented under any Letter of Credit comply with the terms
     thereof.

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

     SECTION 2.8 OPTIONAL REDUCTION OF REVOLVING COMMITMENT AMOUNTS OR
TERMINATION OF REVOLVING COMMITMENTS. The Borrower may, at any time, upon not
less than three Business Days prior written notice to the Banks, reduce the
Revolving Commitment Amounts, ratably, with any such reduction in a minimum
aggregate amount for all the Banks of $1,000,000, or, if more, in an integral
multiple of $1,000,000; provided, however, that the Borrower may not at any time
reduce the Aggregate Revolving Commitment Amounts below the Aggregate Revolving
Outstandings. The Borrower may, at any time when no Letters of Credit is
outstanding, upon not less than three Business Days prior written notice to the
Banks, terminate the Revolving Commitments in their entirety. Upon termination
of the Revolving Commitments pursuant to this Section, the Borrower shall pay to
the Agent for the account of the Banks the full amount of all outstanding
Advances, all accrued and unpaid interest thereon, all unpaid Unused Revolving
Commitment Fees accrued to the date of such termination, and all other unpaid
obligations of the Borrower to the Agent and the Banks hereunder and shall pay
into the Holding Account an amount equal to the aggregate face amount of the
Letters of Credit.

                                       30

<PAGE>

     SECTION 2.9 UNUSED REVOLVING COMMITMENT FEES. The Borrower shall pay to the
Agent for the account of each Bank, in arrears at the end of each fiscal quarter
of the Borrower, fees (the "Unused Revolving Commitment Fees") in an equal to
the Applicable Margin for Unused Revolving Commitment Fees (on a per annum
basis) of the average daily Unused Revolving Commitment of such Bank for the
period from the Closing Date to the Termination Date. Such Unused Revolving
Commitment Fees are payable fiscal quarterly in arrears on each January 31,
April 30, July 31 and October 31 and on the Termination Date.

     SECTION 2.10 LETTER OF CREDIT FEES.

          (a) For each Letter of Credit issued, the Borrower shall pay to the
     Agent for the account of the Banks, in advance on the date of issuance, a
     fee (a "Letter of Credit Fee") in an amount determined by applying a per
     annum rate of equal to the Applicable Margin for Eurodollar Rate Advance in
     effect on such date to the original face amount of the Letter of Credit for
     the period from the date of issuance to the scheduled expiration date of
     such Letter of Credit. Notwithstanding the forgoing, if any Letter of
     Credit is cancelled, or is drawn, prior to the earlier of the Termination
     Date or expiration date thereof (and any such draw does not give rise to an
     Unpaid Draw that is not satisfied with the proceeds of a Revolving Loan),
     then, so long as no Event of Default is then continuing, each Bank shall
     severally refund to the Borrower a portion of the Letter of Credit Fee
     previously paid to such Bank by the Borrower with respect to such Letter of
     Credit equal to the product of (i) the amount of the Letter of Credit Fee
     paid to such Bank with respect to such Letter of Credit multiplied by (ii)
     a fraction, the numerator of which is the number of days between (but not
     including) the day the such Letter of Credit is cancelled or so drawn and
     the scheduled expiration date of such Letter of Credit and the denominator
     of which is the number of days between (but not including) the date of the
     issuance of such Letter of Credit and the scheduled expiration date of such
     Letter of Credit. Each Bank may set off any refund of the Letter of Credit
     Fees contemplated by the forgoing sentence against any amounts due and
     payable to such Bank on the date such refund is payable.

          (b) In addition to the Letter of Credit Fee, the Borrower shall pay to
     U.S. Bank (i) upon issuance of each Letter of Credit issued from and after
     the Closing Date, for the account of U.S. Bank a "fronting fee" in the
     amount of 0.125% times the amount available to be drawn upon such Letter of
     Credit and (ii) for the account of U.S. Bank, on demand, all issuance,
     amendment, drawing and other fees regularly charged by the U.S. Bank to its
     letter of credit customers and all out-of-pocket expenses incurred by U.S.
     Bank in connection with the issuance, amendment, administration or payment
     of any Letter of Credit.

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<PAGE>

     SECTION 2.11 COMPUTATION. Unused Revolving Commitment Fees and interest on
Loans shall be computed on the basis of actual days elapsed and a year of 360
days.

     SECTION 2.12 FEE LETTER. The Borrower shall pay to the Agent fees in
accordance with the terms of a letter agreement between the Borrower and the
Agent concerning such fees. The Agent may separately agree with any Bank to pay
a portion of such fees to such Bank, but shall not be obligated to pay such
portion to such Bank unless and until the same is received from the Borrower.

     SECTION 2.13 PAYMENTS. Payments and prepayments of principal of, and
interest on, the Notes and all fees, expenses and other obligations under this
Agreement payable to the Agent or the Banks shall be made without setoff or
counterclaim in Immediately Available Funds not later than 1:00 P.M.
(Minneapolis time) on the dates called for under this Agreement and the Notes to
the Agent at its main office in Minneapolis, Minnesota. Funds received after
such time shall be deemed to have been received on the next Business Day. The
Agent will promptly distribute in like funds to each Bank its ratable share of
each such payment of principal, interest, Unused Revolving Commitment Fees and
Letter of Credit Fees received by the Agent for the account of the Banks.
Whenever any payment to be made hereunder or on the Revolving Notes or Term
Notes shall be stated to be due on a day which is not a Business Day, such
payment shall be made on the next succeeding Business Day and such extension of
time, in the case of a payment of principal, shall be included in the
computation of any interest on such principal payment.

     SECTION 2.14 REVOLVING COMMITMENT ENDING DATE. The "Revolving Commitment
Ending Date" is June 28, 2004.

     SECTION 2.15 USE OF LOAN PROCEEDS. The Term Loan shall continue a portion
(equal to the principal amount of such Loan) of the Borrower's Existing Loans
outstanding under the Existing Credit Agreement. The initial Revolving Loans
shall be used to refinance the Existing Loans and to pay the fees, costs and
expenses of the Agent and the Banks payable pursuant to this Agreement. The
proceeds of any subsequent Revolving Loans shall be used for (i) repayment to
U.S. Bank of Unpaid Drawings (any such Revolving Loan being also referred to
herein as an "Unpaid Drawing Repayment Loan") and (ii) other general corporate
purposes of the Borrower. No part of the proceeds of any Loans shall be used,
directly or indirectly, to purchase or carry any margin stock (as defined in
Regulation U of the Board) or to extend credit to others for the purpose of
purchasing or carrying such margin stock.

     SECTION 2.16 INTEREST RATE NOT ASCERTAINABLE, ETC. If, on or prior to the
date for determining the Adjusted Eurodollar Rate in respect of the Interest
Period for any Eurodollar Rate Advance, any Bank determines (which determination
shall be conclusive and binding, absent error) that:

          (a) deposits in dollars (in the applicable amount) are not being made
     available to such Bank in the relevant market for such Interest Period, or

          (b) the Adjusted Money Market Rate or the Adjusted Eurodollar Rate, as
     the case may be, will not adequately and fairly reflect the cost to such
     Bank of funding or maintaining Eurodollar Rate Advances for such Interest
     Period,

                                       32

<PAGE>

such Bank shall forthwith give notice to the Borrower and the other Banks of
such determination, whereupon the obligation of such Bank to make or continue,
or to convert any Advances to, Eurodollar Rate Advances shall be suspended until
such Bank notifies the Borrower and the Agent that the circumstances giving rise
to such suspension no longer exist. While any such suspension continues, all
further Advances by such Bank shall be made with an interest rate option to
which such suspension does not apply. No such suspension shall affect the
interest rate then in effect during the applicable Interest Period for any
Eurodollar Rate Advance outstanding at the time such suspension is imposed.

     SECTION 2.17 INCREASED COST. If any Regulatory Change:

          (a) shall subject any Bank (or its Applicable Lending Office) to any
     tax, duty or other charge with respect to its Eurodollar Rate Advances, its
     Notes or its obligation to make Eurodollar Rate Advances or shall change
     the basis of taxation of payment to any Bank (or its Applicable Lending
     Office) of the principal of or interest on its Eurodollar Rate Advances or
     any other amounts due under this Agreement in respect of its Eurodollar
     Rate Advances or its obligation to make Eurodollar Rate Advances (except
     for changes in the rate of tax on the overall net income of such Bank or
     its Applicable Lending Office imposed by the jurisdiction in which such
     Bank's principal office or Applicable Lending Office is located); or

          (b) shall impose, modify or deem applicable any reserve, special
     deposit or similar requirement (including, without limitation, any such
     requirement imposed by the Board, but excluding any such requirement to the
     extent included in calculating the applicable Adjusted Eurodollar Rate)
     against assets of, deposits with or for the account of, or credit extended
     by, any Bank's Applicable Lending Office or against Letters of Credit
     issued by the Agent or shall impose on any Bank (or its Applicable Lending
     Office) or on the United States market for certificates of deposit or the
     interbank Eurodollar market any other condition affecting its Eurodollar
     Rate Advances, its Notes or its obligation to make Eurodollar Rate Advances
     or affecting any Letter of Credit;

and the result of any of the foregoing is to increase the cost to such Bank (or
its Applicable Lending Office) of making or maintaining any Eurodollar Rate
Advance or issuing or maintaining any Letter of Credit, or to reduce the amount
of any sum received or receivable by such Bank (or its Applicable Lending
Office) under this Agreement or under its Notes, then, within 30 days after
demand by such Bank (with a copy to the Agent), the Borrower shall pay to such
Bank such additional amount or amounts as will compensate such Bank for such
increased cost or reduction. Each Bank will promptly notify the Borrower and the
Agent of any event of which it has knowledge, occurring after the date hereof,
which will entitle such Bank to compensation pursuant to this Section and will
designate a different Applicable Lending Office if such designation will avoid
the need for, or reduce the amount of, such compensation and will not, in the
judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate
of any Bank claiming compensation under this Section, setting forth the
additional amount or amounts to be paid to it hereunder and stating in
reasonable detail the basis for the charge and the method of computation, shall
be conclusive in the absence of error. In determining such amount, any Bank may
use any reasonable averaging and attribution methods. Failure on the part of any
Bank to demand compensation for any increased costs or reduction in amounts
received or receivable with respect to any Interest Period shall not constitute
a waiver of such Bank's rights to demand compensation for any increased costs or
reduction in amounts received or receivable in any subsequent Interest Period.

                                       33

<PAGE>

     SECTION 2.18 ILLEGALITY. If any Regulatory Change shall make it unlawful or
impossible for any Bank to make, maintain or fund any Eurodollar Rate Advances,
such Bank shall notify the Borrower and the Agent, whereupon the obligation of
such Bank to make or continue, or to convert any Advances to, Eurodollar Rate
Advances shall be suspended until such Bank notifies the Borrower and the Agent
that the circumstances giving rise to such suspension no longer exist. Before
giving any such notice, such Bank shall designate a different Applicable Lending
Office if such designation will avoid the need for giving such notice and will
not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. If
such Bank determines that it may not lawfully continue to maintain any
Eurodollar Rate Advances, as the case may be, to the end of the applicable
Interest Periods, all of the affected Advances shall be automatically converted
to Prime Rate Advances as of the date of such Bank's notice, and upon such
conversion the Borrower shall indemnify such Bank in accordance with Section
2.20.

     SECTION 2.19 CAPITAL ADEQUACY. In the event that any Regulatory Change
reduces or shall have the effect of reducing the rate of return on any Bank's
capital or the capital of its parent corporation (by an amount such Bank deems
material) as a consequence of its Commitments and/or its Loans and/or any
Letters of Credit or any Bank's obligations to make Advances to cover Letters of
Credit to a level below that which such Bank or its parent corporation could
have achieved but for such Regulatory Change (taking into account such Bank's
policies and the policies of its parent corporation with respect to capital
adequacy), then the Borrower shall, within 30 days after written notice and
demand from such Bank to the Borrower (with a copy to the Agent), pay to such
Bank additional amounts sufficient to compensate such Bank or its parent
corporation for such reduction. Any determination by such Bank under this
Section and any certificate as to the amount of such reduction given to the
Borrower by such Bank shall be final, conclusive and binding for all purposes,
absent manifest error.

     SECTION 2.20 FUNDING LOSSES; EURODOLLAR RATE ADVANCES. The Borrower shall
compensate each Bank, upon its written request to the Borrower, for all losses,
expenses and liabilities (including any interest paid by such Bank to lenders of
funds borrowed by it to make or carry Eurodollar Rate Advances to the extent not
recovered by such Bank in connection with the re-employment of such funds and
including loss of anticipated profits) which such Bank may sustain: (i) if for
any reason, other than a default by such Bank, a funding of a Eurodollar Rate
Advance does not occur on the date specified there for in the Borrower's request
or notice as to such Advance under Section 2.2, or (ii) if, for whatever reason
(including, but not limited to, acceleration of the maturity of Advances
following an Event of Default), any repayment of a Eurodollar Rate Advance, or a
conversion pursuant to Section 2.18, occurs on any day other than the last day
of the Interest Period applicable thereto. A Bank's request for compensation
shall set forth the basis for the amount requested and shall be final,
conclusive and binding, absent error.

                                       34

<PAGE>

     SECTION 2.21 DISCRETION OF BANKS AS TO MANNER OF FUNDING. Each Bank shall
be entitled to fund and maintain its funding of Eurodollar Rate Advances in any
manner it may elect, it being understood, however, that for the purposes of this
Agreement all determinations hereunder (including, but not limited to,
determinations under Section 2.20) shall be made as if such Bank had actually
funded and maintained each Eurodollar Rate Advance during the Interest Period
for such Advance through the issuance of its certificates of deposit, or the
purchase of deposits, having a maturity corresponding to the last day of the
Interest Period and bearing an interest rate equal to the Eurodollar Rate, as
the case may be, for such Interest Period.

     SECTION 2.22 REPLACEMENT OF CERTAIN BANKS. If any Bank shall become
affected by any of the changes or events described in Section 2.16, 2.17, 2.18,
2.19 or 2.20 (any such Bank hereinafter referred to as a "Subject Bank") and
shall give notice to the Borrower of any of the changes or events thereunder,
the Borrower may, so long as no Default or Event of Default has occurred and is
continuing, upon at least five (5) Business Days' notice to the Agent and such
Subject Bank by the Borrower, designate a replacement lender (a "Replacement
Bank") acceptable to the Agent, to which such Subject Bank shall, subject to its
receipt (unless a later date for the remittance thereof shall be agreed upon by
Borrower and the Subject Bank) of all amounts due and owing to such Subject Bank
under Section 2.16, 2.17, 2.18, 2.19 or 2.20 assign all (but not less than all)
of its rights, obligations, Loans, Revolving Commitment and Term Loan Commitment
pursuant to an Assignment Agreement in the form of Exhibit E; provided, that all
amounts owed to such Subject Bank by the Borrower (except liabilities which by
the terms hereof survive the payment in full of the Loans and termination of
this Agreement) shall be paid in full as of the date of such assignment. Upon
any assignment by any Bank pursuant to this Section becoming effective, the
Replacement Bank shall thereupon be deemed to be a "Bank" for all purposes of
this Agreement and such Subject Bank shall thereupon cease to be a "Bank" for
all purposes of this Agreement and shall have no further rights or obligations
hereunder (other than pursuant to Sections 2.16, 2.17, 2.18, 2.19 or 2.20 while
such Subject Bank was a Bank).

                                  ARTICLE III
                              CONDITIONS PRECEDENT

     SECTION 3.1 CONDITIONS OF INITIAL LOANS. The making of the initial
Revolving Loans and the Term Loans shall be subject to the prior or simultaneous
fulfillment of the following conditions:

          (a) Documents. The Agent shall have received the following, in form
     and substance acceptable to the Agent, in sufficient counterparts (except
     for the Notes and the fee letter):

               (i) A Revolving Note and a Term Note, drawn to the order of each
          Bank in the appropriate amount, executed by a duly authorized officer
          (or officers) of the Borrower and dated the Closing Date.

               (ii) A Consent and Agreement of Guarantors in the form prescribed
          by the Banks and dated the Closing Date, executed by a duly authorized
          officer of such Guarantor.

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               (iii) Separate Amended and Restated Security Agreements, each in
          the form prescribed by the Agent and dated the Closing Date and
          executed by a duly authorized officer of the Borrower and each
          Guarantor.

               (iv) Separate Amended and Restated Pledge Agreements, each in the
          form prescribed by the Agent and dated the Closing Date, executed by a
          duly authorized officer of the Borrower, Norstan Canada, NCI and
          Norstan International, Inc.

               (v) A copy of the corporate resolution of the Borrower
          authorizing the execution, delivery and performance of the Borrower
          Loan Documents, certified as of the Closing Date by the Secretary or
          an Assistant Secretary of the Borrower.

               (vi) An incumbency certificate showing the names and titles and
          bearing the signatures of the officers of the Borrower authorized to
          execute the Borrower Loan Documents and to request Revolving Loans
          hereunder, certified as of the Closing Date by the Secretary or an
          Assistant Secretary of the Borrower

               (vii) A copy of the Articles of Incorporation of the Borrower
          with all amendments thereto, certified by the appropriate governmental
          official of the jurisdiction of its incorporation as of a date
          acceptable to the Agent.

               (viii) A certificate of good standing for the Borrower in the
          jurisdiction of its incorporation, and in the other states identified
          on Schedule 4.22 for which the Borrower was in good standing on the
          Closing Date, certified by the appropriate governmental officials as
          of a date acceptable to the Banks.

               (ix) A copy of the bylaws of the Borrower, certified as of the
          Closing Date by the Secretary or an Assistant Secretary of the
          Borrower.

               (x) A copy of the corporate resolution of each Guarantor
          authorizing the execution, delivery and performance of the Guarantor's
          Consent.

               (xi) An incumbency certificate for each Guarantor showing the
          names and titles and bearing the signatures of the officers of such
          Guarantor authorized to execute the Guarantor's Consent, certified as
          of the Closing Date by the Secretary or an Assistant Secretary of such
          Guarantor.

               (xii) A copy of the Articles of Incorporation of each Guarantor
          with all amendments thereto, certified by the appropriate governmental
          official of the jurisdiction of its incorporation as of a date
          acceptable to the Agent.

               (xiii) A certificate of good standing for each Guarantor in the
          jurisdiction of its incorporation, and in the other states identified
          on Schedule 4.22 for which such Guarantor was in good standing on the
          Closing Date, certified by the appropriate governmental officials as
          of a date acceptable to the Agent.

                                       36

<PAGE>

               (xiv) A copy of the bylaws of each Guarantor, certified as of the
          Closing Date by the Secretary or an Assistant Secretary of such
          Guarantor.

               (xv) Insurance certificates in form and substance acceptable to
          the Agent and listing the Agent as loss payee thereon and as
          additional insured, indicating that the Borrower and each Subsidiary
          has obtained insurance of the type specified in this Agreement and in
          the Security Agreements.

               (xvi) An initial Borrowing Base Certificate, completed as of the
          Closing Date and otherwise in form and substance acceptable to the
          Agent.

               (xvii) A fee letter in favor of the Agent setting forth the fees
          contemplated by Section 2.12, duly executed by the Borrower.

               (xviii) Completed UCC searches for the Borrower and the
          Subsidiaries in such jurisdications deemed appropriate by the Banks
          and otherwise satisfactory to the Banks demonstrating that there are
          no Liens superior to the Liens of the Banks in the property of the
          Borrower.

               (xix) An Acknowledgment of Exiting Lender, substantially in the
          form of Exhibit D hereto, duly executed by the applicable Exiting
          Lender.

               (xx) A written confirmation calculating of all Obligations owing
          to each Bank (other than the Exiting Banks) under the Existing Credit
          Agreement as of the Closing Date prepared by such Bank's business
          group responsible for administering the Existing Loans.

               (xxi) The Banks shall have received draft audited consolidated
          financial statements of the Borrower of type specified in Section
          5.1(a) for the fiscal year ending April 30, 2002.

               (xxii) The Agent shall have received the original Promissory Note
          given by Michael A. Vadini in favor of the Borrower in the amount of
          $1,000,000, duly endorsed in blank to the Agent pursuant to an
          endorsement in the form prescribed by the Agent.

               (xxiii) The Agent shall have received a reaffirmation of the
          Fleet Intercreditor Agreement in the form prescribed by the Agent,
          duly executed by Fleet.

               (xxiv) The Agent shall have received a subordination agreement in
          the form prescribed by the Agent, duly executed by Norstan Canada,
          Ltd.

               (xxv) The Agent shall have confirmed that, upon the funding of
          the Loans including the initial Revolving Loans, all accrued and
          unpaid interest upon the Existing Loans under the Existing Credit
          Agreement shall be paid in full on the Closing Date, either from the
          proceeds of such Loans or from cash furnished by the Borrower at
          Closing Date.

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<PAGE>

          (b) Certain Fees. The Borrower shall have paid to the Agent the fees
     payable in accordance with the fee letter set forth in Section 2.12.

          (c) Opinion. The Borrower shall have requested Maslon, Edelman Borman
     & Brand, its counsel, to prepare a written opinion, addressed to the Banks
     and dated the Closing Date, covering matters acceptable to the Banks and
     their counsel, and such opinion shall have been delivered to the Agent in
     sufficient counterparts for each Bank.

          (d) Compliance. The Borrower shall have performed and complied with
     all agreements, terms and conditions contained in this Agreement required
     to be performed or complied with by the Borrower prior to or simultaneously
     with the Closing Date.

          (e) Other Matters. All corporate and legal proceedings relating to the
     Borrower and the Guarantors and all instruments and agreements in
     connection with the transactions contemplated by this Agreement shall be
     satisfactory in scope, form and substance to the Agent, the Banks and their
     special counsel, and the Agent shall have received all information and
     copies of all documents, including records of corporate proceedings, as any
     Bank or such special counsel may reasonably have requested in connection
     therewith, such documents where appropriate to be certified by proper
     corporate or governmental authorities.

          (f) Fees and Expenses. The Agent shall have received all fees and
     other amounts due and payable by the Borrower on or prior to the Closing
     Date, including the fees and expenses of the Agent or counsel to the Agent
     payable pursuant to Section 9.2.

     SECTION 3.2 CONDITIONS PRECEDENT TO ALL LOANS. The making hereunder of any
Revolving Loans (including the initial Revolving Loans), Term Loans and the
issuance of any Letter of Credit shall be subject to the fulfillment of the
following conditions:

          (a) Representations and Warranties. The representations and warranties
     contained in Article IV shall be true and correct on and as of the Closing
     Date and on the date of each Revolving Loan or the date of the issuance of
     any Letter of Credit, with the same force and effect as if made on such
     date.

          (b) No Default. No Default or Event of Default shall have occurred and
     be continuing on the Closing Date and on the date of each Revolving Loan or
     the date of the issuance of any Letter of Credit or will exist after giving
     effect to the Revolving Loans made on such date or the date any Letter of
     Credit is issued.

          (c) Notices and Requests. In the case of Revolving Loans the Agent
     shall have received the Borrower's request for such Revolving Loans as
     required under Section 2.2 (except as otherwise provided in Section 2.2
     (b)).

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<PAGE>

                                   ARTICLE IV
                         REPRESENTATIONS AND WARRANTIES

     To induce the Banks to enter into this Agreement, to grant the
Revolving Commitments and to make the Loans hereunder, and to induce U.S. Bank
to issue Letters of Credit, the Borrower represents and warrants to the Banks:

     SECTION 4.1 ORGANIZATION, STANDING, ETC. The Borrower is a corporation duly
incorporated and validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to carry on its business as now conducted, to enter into this
Agreement and to issue the Notes and to perform its obligations under the
Borrower Loan Documents. Each Subsidiary is a corporation duly incorporated and
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to carry on
its business as now conducted, to enter into the Loan Documents to which it is a
party and to perform its obligations under such Loan Documents. Each of the
Borrower and the Subsidiaries (a) holds all certificates of authority, licenses
and permits necessary to carry on its business as presently conducted in each
jurisdiction in which it is carrying on such business, except where the failure
to hold such certificates, licenses or permits would not have a material adverse
effect on the business, operations, property, assets or condition, financial or
otherwise, of the Borrower and the Subsidiaries taken as a whole, and (b) is
duly qualified and in good standing as a foreign corporation in each
jurisdiction in which the character of the properties owned, leased or operated
by it or the business conducted by it makes such qualification necessary and the
failure so to qualify would permanently preclude the Borrower or such Subsidiary
from enforcing its rights with respect to any assets or expose the Borrower or
such Subsidiary to any liability, which in either case would be material to the
Borrower and the Subsidiaries taken as a whole.

     SECTION 4.2 AUTHORIZATION AND VALIDITY. The execution, delivery and
performance by the Borrower and each Subsidiary of the Loan Documents to which
it is a party have been duly authorized by all necessary corporate action by the
Borrower or such Subsidiary, and this Agreement constitutes, and the Notes and
other Loan Documents when executed will constitute, the legal, valid and binding
obligations of the Borrower or each Subsidiary party thereto, enforceable
against the Borrower or such Subsidiary in accordance with their respective
terms, subject to limitations as to enforceability which might result from
bankruptcy, insolvency, moratorium and other similar laws affecting creditors'
rights generally and subject to limitations on the availability of equitable
remedies.

     SECTION 4.3 NO CONFLICT; NO DEFAULT. The execution, delivery and
performance by the Borrower or any Subsidiary of the Loan Documents to which it
is a party will not (a) violate any provision of any law, statute, rule or
regulation or any order, writ, judgment, injunction, decree, determination or
award of any court, governmental agency or arbitrator presently in effect having
applicability to the Borrower or such Subsidiary, (b) violate or contravene any
provision of the Articles of Incorporation, bylaws or other organizational
documents of the Borrower or such Subsidiary, or (c) result in a breach of or
constitute a default under any indenture, loan or credit agreement or any other
agreement, lease or instrument to which the Borrower or such Subsidiary is a
party or by which it or any of its properties may be bound or result in the
creation of any Lien thereunder. Neither the Borrower nor any Subsidiary is in
default under or in violation of any such law, statute, rule or regulation,
order, writ, judgment, injunction, decree, determination or award or (except as
provided in the forgoing sentence) any such indenture, loan or credit agreement
or other agreement, lease or instrument in any case in which the consequences of
such default or violation could have a material adverse effect on the business,
operations, properties, assets or condition (financial or otherwise) of the
Borrower and its Subsidiaries taken as a whole.

                                       39

<PAGE>

     SECTION 4.4 GOVERNMENT CONSENT. No order, consent, approval, license,
authorization or validation of, or filing, recording or registration with, or
exemption by, any governmental or public body or authority is required on the
part of the Borrower or any Subsidiary to authorize, or is required in
connection with the execution, delivery and performance of, or the legality,
validity, binding effect or enforceability of, the Loan Documents to which it is
a party.

     SECTION 4.5 FINANCIAL STATEMENTS AND CONDITION. The Borrower's audited
consolidated financial statements as at April 30, 2001 and its unaudited
financial statements as at April 30, 2002 as heretofore furnished to the Banks,
have been prepared in accordance with GAAP on a consistent basis (except for
year-end audit adjustments as to the interim statements) and fairly present the
financial condition of the Borrower and its Subsidiaries as at such dates and
the results of their operations and changes in financial position for the
respective periods then ended. As of the dates of such financial statements,
neither the Borrower nor any Subsidiary had any material obligation, contingent
liability, liability for taxes or long-term lease obligation which is not
reflected in such financial statements or in the notes thereto. Other than as
may have been previously disclosed to the Banks in writing, since April 30, 2002
there has been no material adverse change in the business, operations, property,
assets or condition, financial or otherwise, of the Borrower and its
Subsidiaries taken as a whole.

     SECTION 4.6 LITIGATION. Except as disclosed in Schedule 4.6 hereto, there
are no actions, suits or proceedings pending or, to the knowledge of the
Borrower, threatened against or affecting the Borrower or any Subsidiary or any
of their properties before any court or arbitrator, or any governmental
department, board, agency or other instrumentality which, if determined
adversely to the Borrower or such Subsidiary, would have a material adverse
effect on the business, operations, property or condition (financial or
otherwise) of the Borrower and the Subsidiaries taken as a whole or on the
ability of the Borrower or any Subsidiary to perform its obligations under the
Loan Documents.

     SECTION 4.7 ENVIRONMENTAL, HEALTH AND SAFETY LAWS. Except as disclosed on
Schedule 4.7, there does not exist any violation by the Borrower or any
Subsidiary of any applicable federal, state or local law, rule or regulation or
order of any government, governmental department, board, agency or other
instrumentality relating to environmental, pollution, health or safety matters
which will or threatens to impose a material liability on the Borrower or a
Subsidiary or which would require a material expenditure by the Borrower or such
Subsidiary to cure. Except as disclosed on Schedule 4.7, neither the Borrower
nor any Subsidiary has received any notice to the effect that any part of its
operations or properties is not in material compliance with any such law, rule,
regulation or order or notice that it or its property is the subject of any
governmental investigation evaluating whether any remedial action is needed to
respond to any release of any toxic or hazardous waste or substance into the
environment, which non-compliance or remedial action could reasonably be
expected to have a material adverse effect on the business, operations,
properties, assets or condition (financial or otherwise) of the Borrower and its
Subsidiaries taken as a whole.

                                       40

<PAGE>

     SECTION 4.8 ERISA. Each Plan complies with all material applicable
requirements of ERISA and the Code and with all material applicable rulings and
regulations issued under the provisions of ERISA and the Code setting forth
those requirements. No Reportable Event has occurred and is continuing with
respect to any Plan. All of the minimum funding standards applicable to such
Plans have been satisfied and there exists no event or condition which would
permit the institution of proceedings to terminate any Plan under Section 4042
of ERISA. The current value of the Plans' benefits guaranteed under Title IV of
ERISA does not exceed the current value of the Plans' assets allocable to such
benefits.

     SECTION 4.9 FEDERAL RESERVE REGULATIONS. Neither the Borrower nor any
Subsidiary is engaged principally or as one of its important activities in the
business of extending credit for the purpose of purchasing or carrying margin
stock (as defined in Regulation U of the Board). The value of all margin stock
owned by the Borrower does not constitute more than 25% of the value of the
assets of the Borrower.

     SECTION 4.10 TITLE TO PROPERTY; LEASES; LIENS; SUBORDINATION. Each of the
Borrower and the Subsidiaries has (a) good and marketable title to its real
properties and (b) good and sufficient title to, or valid, subsisting and
enforceable leasehold interest in, its other material properties, including all
real properties, other properties and assets, referred to as owned by the
Borrower and its Subsidiaries in the most recent financial statement referred to
in Section 4.5 (other than property disposed of since the date of such financial
statements in the ordinary course of business). None of such properties owned by
the Borrower or any Subsidiary is subject to a Lien, except as allowed under
Section 6.12. Neither the Borrower nor any Subsidiary subordinated any of its
rights under any obligation owing to it to the rights of any other person.

     SECTION 4.11 TAXES. Each of the Borrower and the Subsidiaries has filed all
federal, state and local tax returns required to be filed and has paid or made
provision for the payment of all taxes due and payable pursuant to such returns
and pursuant to any assessments made against it or any of its property and all
other taxes, fees and other charges imposed on it or any of its property by any
governmental authority (other than taxes, fees or charges the amount or validity
of which is currently being contested in good faith by appropriate proceedings
and with respect to which reserves in accordance with GAAP have been provided on
the books of the Borrower). No material tax Liens have been filed and no
material claims are being asserted with respect to any such taxes, fees or
charges. The charges, accruals and reserves on the books of the Borrower in
respect of taxes and other governmental charges are adequate and the Borrower
knows of no proposed material tax assessment against it or any Subsidiary or any
basis therefor.

     SECTION 4.12 TRADEMARKS, PATENTS. Each of the Borrower and the Subsidiaries
possesses or has the right to use all of the patents, trademarks, trade names,
service marks and copyrights, and applications therefor, and all technology,
know-how, processes, methods and designs used in or necessary for the conduct of
its business, without known conflict with the rights of others.

                                       41

<PAGE>

     SECTION 4.13 BURDENSOME RESTRICTIONS. Neither the Borrower nor any
Subsidiary is a party to or otherwise bound by any indenture, loan or credit
agreement or any lease or other agreement or instrument or subject to any
charter, corporate or partnership restriction which would foreseeably have a
material adverse effect on the business, properties, assets, operations or
condition (financial or otherwise) of the Borrower or such Subsidiary or on the
ability of the Borrower or any Subsidiary to carry out its obligations under any
Loan Document.

     SECTION 4.14 FORCE MAJEURE. Since the date of the most recent financial
statement referred to in Section 4.5, the business, properties and other assets
of the Borrower and the Subsidiaries have not been materially and adversely
affected in any way as the result of any fire or other casualty, strike,
lockout, or other labor trouble, embargo, sabotage, confiscation, condemnation,
riot, civil disturbance, activity of armed forces or act of God.

     SECTION 4.15 INVESTMENT COMPANY ACT. Neither the Borrower nor any
Subsidiary is an "investment company" or a company "controlled" by an investment
company within the meaning of the Investment Company Act of 1940, as amended.

     SECTION 4.16 PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Borrower nor
any Subsidiary is a "holding company" or a "subsidiary company" of a holding
company or an "affiliate" of a holding company or of a subsidiary company of a
holding company within the meaning of the Public Utility Holding Company Act of
1935, as amended.

     SECTION 4.17 RETIREMENT BENEFITS. Under Statement of Financial Accounting
Standard No. 106 of the Financial Accounting Standards Board and the accounting
rules with respect thereto, the present value of the expected cost to the
Borrower and the Subsidiaries of post-retirement medical and insurance benefits
with respect to employees, as estimated by the Borrower in accordance with GAAP
is not material.

     SECTION 4.18 FULL DISCLOSURE. Subject to the following sentence, neither
the financial statements referred to in Section 4.5 nor any other certificate,
written statement, exhibit or report furnished by or on behalf of the Borrower
in connection with or pursuant to this Agreement contains any untrue statement
of a material fact or omits to state any material fact necessary in order to
make the statements contained therein not misleading. Certificates or statements
furnished by or on behalf of the Borrower to the Banks consisting of projections
or forecasts of future results or events have been prepared in good faith and
based on good faith estimates and assumptions of the management of the Borrower,
and the Borrower has no reason to believe that such projections or forecasts are
not reasonable. SECTION 4.19 SUBSIDIARIES. Schedule 4.19 sets forth as of the
date of this Agreement a list of all Subsidiaries and the number and percentage
of the shares of each class of capital stock owned beneficially or of record by
the Borrower or any Subsidiary therein, and the jurisdiction of incorporation of
each Subsidiary. Except as otherwise indicated in Schedule 4.19, all shares of
each Subsidiary owned by the Borrower or by any other Subsidiary are validly
issued and fully paid and nonassessable.

     SECTION 4.20 REGISTERED INTELLECTUAL PROPERTY. Schedule 4.20 hereto lists
all patents, trademarks and copyrights owned by the Borrower or any Guarantor as
of the Closing Date and recorded with the U.S. Office of Patents and Trademarks
or U.S. Office of Copyrights, as applicable.

                                       42

<PAGE>

     Section 4.21 DORMANT SUBSIDIARIES. None of the Dormant Subsidiaries has any
business operations or any liabilities or assets having a book value in excess
of $50,000.

Section 4.22 HIGH REVENUE STATES. Schedule 4.22 hereto lists, for the Borrower
and each Guarantor, each state in which such Borrower's or such Guarantor's
business operations generated 5% or more of the Borrower's consolidated gross
revenues as of the Closing Date.

                                   ARTICLE V
                              AFFIRMATIVE COVENANTS

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

     SECTION 5.1 FINANCIAL STATEMENTS AND REPORTS. The Borrower will furnish to
the Banks:

          (a) As soon as available and in any event within 90 days after the end
     of each fiscal year of the Borrower, (i) the consolidated financial
     statements of the Borrower and the Subsidiaries consisting of at least
     statements of operations, cash flows and shareholders' equity and a
     consolidated balance sheet as at the end of such year, setting forth in
     each case in comparative form corresponding figures from the previous
     annual audit, and with respect to the consolidated statements, certified
     without qualification by Deloitte & Touche or other independent certified
     public accountants of recognized national standing selected by the Borrower
     and acceptable to the Agent and (ii) a statement of the Borrower's
     Contingent Obligations as at the end of such fiscal year.

          (b) Together with the audited financial statements required under
     Section 5.1 (a)(i), a statement by the accounting firm performing such
     audit to the effect that it has reviewed this Agreement and that in the
     course of performing its examination nothing came to its attention that
     caused it to believe that any Default or Event of Default exists, or, if
     such Default or Event of Default exists, describing its nature.

          (c) As soon as available and in any event within 30 days after the end
     of each calendar month (or 45 days in the case of the last month of any
     fiscal quarter), (i) unaudited consolidated statements of operations for
     the Borrower and the Subsidiaries for such month and for the year to date
     and statements of cash flows for the period from the beginning of such
     fiscal year to the end of such month and a consolidated balance sheet of
     the Borrower and the Subsidiaries as at the end of such month, setting
     forth in comparative form (i) figures for the corresponding period for the
     preceding fiscal year and (ii) figures for the corresponding period
     appearing in the budgeted financial statements furnished by the Borrower to
     the Banks as of the Closing Date, each accompanied by a certificate signed
     by the chief financial officer of the Borrower stating that such financial
     statements present fairly the financial condition of the Borrower and the
     Subsidiaries and that the same have been prepared in accordance with GAAP.

                                       43

<PAGE>

          (d) As soon as practicable and in any event within 45 days after the
     end of each fiscal quarter of the Borrower (or, with respect to its fiscal
     quarter ended on or about April 20, 2002, by July 31, 2002), a Compliance
     Certificate in the form of Exhibit E hereto signed by the chief financial
     officer of the Borrower demonstrating in reasonable detail compliance (or
     noncompliance, as the case may be) with Sections 6.13, 6.14, 6.15, 6.16,
     6.17 and 6.18 as at the end of such fiscal quarter and stating that as at
     the end of such fiscal quarter there did not exist any Default or Event of
     Default or, if such Default or Event of Default existed, specifying the
     nature and period of existence thereof and what action the Borrower
     proposes to take with respect thereto.

          (e) As soon as practicable and in any event within 60 days after the
     beginning of each fiscal year of the Borrower, statements of forecasted
     consolidated income for the Borrower and the Subsidiaries for each fiscal
     quarter in such fiscal year and a forecasted consolidated balance sheet of
     the Borrower and the Subsidiaries, together with supporting assumptions, as
     at the end of each fiscal quarter, all in reasonable detail and reasonably
     satisfactory in scope to Majority Banks.

          (f) Within one Business Day of any officer of the Borrower becoming
     aware of any Default or Event of Default, a notice describing the nature
     thereof and what action the Borrower proposes to take with respect thereto.

          (g) Within one Business Day of any officer of the Borrower becoming
     aware of the occurrence, with respect to any Plan, of any Reportable Event
     or any Prohibited Transaction, a notice specifying the nature thereof and
     what action the Borrower proposes to take with respect thereto, and, when
     received, copies of any notice from PBGC of intention to terminate or have
     a trustee appointed for any Plan.

          (h) Promptly upon the mailing or filing thereof, copies of all
     financial statements, reports and proxy statements mailed to the Borrower's
     shareholders, and copies of all registration statements, periodic reports
     and other documents filed with the Securities and Exchange Commission (or
     any successor thereto) or any national securities exchange.

          (i) Promptly upon their distribution, copies of all financial
     statements, reports and proxy statements which the Borrower or any
     Subsidiary shall have sent to its stockholders.

          (j) Promptly after the sending or filing thereof, copies of all
     regular and periodic financial reports (including all Form 10-K and Form
     10-Q reports) which the Borrower or any Subsidiary shall file with the
     Securities and Exchange Commission or any national securities exchange.

          (k) As soon as practicable and in any event within 30 days after the
     end of each month, a Borrowing Base Certificate signed by an appropriate
     financial officer of the Borrower, reporting the Borrowing Base as of the
     last day of the month just ended, and on the first Business Day of each
     week updated information with respect to the gross amount of Accounts
     together with a calculation of the amount available for borrowing,
     certified by an appropriate financial officer of the Borrower.

                                       44

<PAGE>

          (l) From time to time, such other information regarding the business,
     operation and financial condition of the Borrower and the Subsidiaries as
     any Bank may reasonably request.

     SECTION 5.2 CORPORATE EXISTENCE. The Borrower will maintain, and cause each
Subsidiary to maintain, its corporate existence in good standing under the laws
of its jurisdiction of incorporation and its qualification to transact business
in each jurisdiction where failure so to qualify would permanently preclude the
Borrower or such Subsidiary from enforcing its rights with respect to any
material asset or would expose the Borrower or such Subsidiary to any material
liability; provided, however, that nothing herein shall prohibit the merger or
liquidation of any Subsidiary allowed under Section 6.1.

     SECTION 5.3 INSURANCE. The Borrower shall maintain, and shall cause each
Subsidiary to maintain, with financially sound and reputable insurance companies
such insurance as may be required by law and such other insurance in such
amounts and against such hazards as is customary in the case of reputable firms
engaged in the same or similar business and similarly situated.

     SECTION 5.4 PAYMENT OF TAXES AND CLAIMS. The Borrower shall file, and cause
each Subsidiary to file, all tax returns and reports which are required by law
to be filed by it and will pay, and cause each Subsidiary to pay, before they
become delinquent all taxes, assessments and governmental charges and levies
imposed upon it or its property and all claims or demands of any kind (including
but not limited to those of suppliers, mechanics, carriers, warehouses,
landlords and other like Persons) which, if unpaid, might result in the creation
of a Lien upon its property; provided that the foregoing items need not be paid
if they are being contested in good faith by appropriate proceedings, and as
long as the Borrower's or such Subsidiary's title to its property is not
materially adversely affected, its use of such property in the ordinary course
of its business is not materially interfered with and adequate reserves with
respect thereto have been set aside on the Borrower's or such Subsidiary's books
in accordance with GAAP.

     SECTION 5.5 INSPECTION. The Borrower shall permit any Person designated by
the Agent or any Bank to visit and inspect any of the properties, corporate
books and financial records of the Borrower and the Subsidiaries, to examine and
to make copies of the books of accounts and other financial records of the
Borrower and the Subsidiaries, and to discuss the affairs, finances and accounts
of the Borrower and the Subsidiaries with, and to be advised as to the same by,
its officers at such reasonable times and intervals as the Agent or such Bank
may designate. So long as no Event of Default exists, such visits, inspections,
audits and examinations shall be at the expense of the Agent and the Banks, but
any such visits, inspections, audits and examinations shall be at the expense of
the Borrower if such visits, inspections, audits and examinations (a) are made
while any Event of Default is continuing, or (b) constitute the semi-annual
collateral audit to be conducted by the Agent.

                                       45

<PAGE>

     SECTION 5.6 MAINTENANCE OF PROPERTIES. The Borrower will maintain, and
cause each Subsidiary to maintain, its properties used or useful in the conduct
of its business in good condition, repair and working order, and supplied with
all necessary equipment, and make all necessary repairs, renewals, replacements,
betterments and improvements thereto, to the extent and as may be necessary so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times.

     SECTION 5.7 BOOKS AND RECORDS. The Borrower will keep, and will cause each
Subsidiary to keep, adequate and proper records and books of account in which
full and correct entries will be made of its dealings, business and affairs.

     SECTION 5.8 COMPLIANCE. The Borrower will comply, and will cause each
Subsidiary to comply, in all material respects with all laws, rules,
regulations, orders, writs, judgments, injunctions, decrees or awards to which
it may be subject; provided, however, that failure so to comply shall not be a
breach of this covenant if such failure does not have, or is not reasonably
expected to have, a materially adverse effect on the properties, business,
prospects or condition (financial or otherwise) of the Borrower or such
Subsidiary and the Borrower or such Subsidiary is acting in good faith and with
reasonable dispatch to cure such noncompliance.

     SECTION 5.9 NOTICE OF LITIGATION. The Borrower will give prompt written
notice to the Agent of the commencement of any action, suit or proceeding before
any court or arbitrator or any governmental department, board, agency or other
instrumentality affecting the Borrower or any Subsidiary or any property of the
Borrower or a Subsidiary or to which the Borrower or a Subsidiary is a party in
which an adverse determination or result could have a material adverse effect on
the business, operations, property or condition (financial or otherwise) of the
Borrower and the Subsidiaries taken as a whole or on the ability of the Borrower
or any Subsidiary to perform its obligations under this Agreement and the other
Loan Documents, stating the nature and status of such action, suit or
proceeding.

     SECTION 5.10 ERISA. The Borrower will maintain, and cause each Subsidiary
to maintain, each Plan in compliance with all material applicable requirements
of ERISA and of the Code and with all material applicable rulings and
regulations issued under the provisions of ERISA and of the Code and will not
and not permit any of the ERISA Affiliates to (a) engage in any transaction in
connection with which the Borrower or any of the ERISA Affiliates would be
subject to either a civil penalty assessed pursuant to Section 502(i) of ERISA
or a tax imposed by Section 4975 of the Code, in either case in an amount
exceeding $50,000, (b) fail to make full payment when due of all amounts which,
under the provisions of any Plan, the Borrower or any ERISA Affiliate is
required to pay as contributions thereto, or permit to exist any accumulated
funding deficiency (as such term is defined in Section 302 of ERISA and Section
412 of the Code), whether or not waived, with respect to any Plan in an
aggregate amount exceeding $100,000 or (c) fail to make any payments in an
aggregate amount exceeding $100,000 to any Multiemployer Plan that the Borrower
or any of the ERISA Affiliates may be required to make under any agreement
relating to such Multiemployer Plan or any law pertaining thereto.

                                       46

<PAGE>

     SECTION 5.11 ENVIRONMENTAL MATTERS; REPORTING. The Borrower will observe
and comply with, and cause each Subsidiary to observe and comply with, all laws,
rules, regulations and orders of any government or government agency relating to
health, safety, pollution, hazardous materials or other environmental matters to
the extent non-compliance could result in a material liability or otherwise have
a material adverse effect on the Borrower and the Subsidiaries taken as a whole.
The Borrower will give the Agent prompt written notice of any violation as to
any environmental matter by the Borrower or any Subsidiary and of the
commencement of any judicial or administrative proceeding relating to health,
safety or environmental matters (a) in which an adverse determination or result
could result in the revocation of or have a material adverse effect on any
operating permits, air emission permits, water discharge permits, hazardous
waste permits or other permits held by the Borrower or any Subsidiary which are
material to the operations of the Borrower or such Subsidiary, or (b) which will
or threatens to impose a material liability on the Borrower or such Subsidiary
to any Person or which will require a material expenditure by the Borrower or
such Subsidiary to cure any alleged problem or violation.

     SECTION 5.12 LANDLORD WAIVERS. Upon the written request of the Agent, the
Borrower shall undertake its commercially reasonable best efforts to obtain, and
to cause its Subsidiaries that have granted security interests to the Agent to
obtain, the execution of landlord waivers in form and substance acceptable to
the Agent by the lessor with respect to any of the Borrower's or such
Subsidiaries' business premises (each, a "Lessor"), whereby each such Lessor
would, among other things, acknowledge the security interest in favor of the
Agent and the Banks in the Borrower's or such Subsidiaries' assets and agree to
allow the Agent and the Banks to have access to the leased premises in order to
enforce such security interest or protect such collateral. The foregoing
obligations of the Borrower are in addition to its obligations under the
Security Agreements.

     SECTION 5.13 NNS NOTE COLLATERAL.

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

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

                                       47

<PAGE>

     SECTION 5.14 PLEDGE OF ASSETS IN PERMITTED ACQUISITIONS. Unless otherwise
agreed by the Majority Banks, immediately upon the closing of a Permitted
Acquisition, the Borrower, any Subsidiary and any Person acquired in such
Permitted Acquisition shall execute and deliver to the Agent documents and
instruments in the form reasonably prescribed by the Agent (i) to pledge to the
Agent for the benefit of the Banks the stock or other equity interests of any
Person acquired in such Permitted Acquisition and the assets of such Person, in
each case as security for the Obligations and (ii) whereunder any Person
acquired in such Acquisition shall absolutely and unconditionally guaranty the
Obligations.

     SECTION 5.15 PLEDGE OF ASSETS IN AND GUARANTY OF NORSTAN CANADA. Upon the
occurrence of any Event of Default, at the request of the Majority Banks, the
Borrower will cause Norstan Canada to execute and deliver to the Agent documents
and instruments in the form reasonably prescribed by the Agent (i) to pledge to
the Agent for the benefit of the Banks the assets of such Person as security for
the Obligations and (ii) whereunder such Person shall absolutely and
unconditionally guaranty the Obligations.

     SECTION 5.16 GOOD STANDING CERTIFICATES. Within 30 days after the Closing
Date, the Borrower will furnish to the Agent good standing certificates or the
equivalent for each Borrower and each Guarantor in each state identified on
Schedule 4.22 hereof for which the Borrower did not furnish to the Agent a good
standing certificate or the equivalent on the Closing Date.

     SECTION 5.17 REGISTERED INTELLECTUAL PROPERTY. Within 30 days of any
request therefor by the Agent, the Borrower will execute, or cause to be
executed, and deliver to the Agent, collateral assignment documents in form and
substance acceptable to the Agent sufficient to cover all patents, trademarks
and copyrights listed on Schedule 4.22 hereto that are not subject to an
existing collateral assignment document in favor of the Agent.

                                   ARTICLE VI
                               NEGATIVE COVENANTS

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

     SECTION 6.1 MERGER. The Borrower will not merge or consolidate or enter
into any analogous reorganization or transaction with any Person or liquidate,
wind up or dissolve itself (or suffer any liquidation or dissolution) or permit
any Subsidiary to do any of the foregoing; provided, however, (a) any Subsidiary
may be merged with or liquidated into the Borrower or any Guarantor (if the
Borrower or such Guarantor is the surviving corporation) and (b) any Person
acquired in a Permitted Acquisition may be merged or liquidated into the
Borrower or any Guarantor (if the Borrower or such Guarantor is the surviving
corporation).

                                       48

<PAGE>

     SECTION 6.2 SALE OF ASSETS. The Borrower will not, and will not permit any
Subsidiary to, sell, transfer, lease or otherwise convey all or any substantial
part of its assets except for:

          (a) sales and leases of Inventory in the ordinary course of business
     or ordinary course sales of obsolete or worn-out equipment;

          (b) sales or transfers by a Subsidiary to the Borrower or a Guarantor;

          (c) other sales or transfers of assets by the Borrower or a Subsidiary
     so long as (i) such sales or transfers do not exceed $1,000,000 in the
     aggregate in any fiscal year and (ii) no Default or Event of Default is
     then continuing or would arise therefrom.

     SECTION 6.3 PLANS. The Borrower will not permit, and will not allow any
Subsidiary to permit, any event to occur or condition to exist which would
permit any Plan to terminate under any circumstances which would cause the Lien
provided for in Section 4068 of ERISA to attach to any assets of the Borrower or
any Subsidiary; and the Borrower will not permit the underfunded amount of Plan
benefits guaranteed under Title IV of ERISA to exceed $100,000.

     SECTION 6.4 CHANGE IN NATURE OF BUSINESS. The Borrower will not, and will
not permit any Subsidiary to, make any material change in the nature of the
business of the Borrower or such Subsidiary, as carried on at the date hereof,
except for changes in business related to and necessitated by changes in the
communications and information technology industries generally.

     SECTION 6.5 SUBSIDIARIES. Except for Subsidiaries acquired in Permitted
Acquisitions, after the date of this Agreement, the Borrower will not, and will
not permit any Subsidiary to, form or acquire any corporation or limited
liability company which would thereby become a Subsidiary.

     SECTION 6.6 NEGATIVE PLEDGES; SUBSIDIARY RESTRICTIONS. The Borrower will
not, and will not permit any Subsidiary to, enter into any agreement, bond, note
or other instrument with or for the benefit of any Person other than the Banks
which would prohibit the Borrower or such Subsidiary from granting, or otherwise
limit the ability of the Borrower or such Subsidiary to grant, to the Banks any
Lien on any assets or properties of the Borrower or such Subsidiary (except as
may be provided in any documents evidencing or securing Indebtedness existing on
the date hereof secured by NFS Lease Accounts or Norstan Canada Lease Accounts
and related leases, equipment and servicing arrangements). The Borrower will not
permit any Subsidiary to place or allow any restriction, directly or indirectly,
on the ability of such Subsidiary to (a) pay dividends or any distributions on
or with respect to such Subsidiary's capital stock or (b) make loans or other
cash payments to the Borrower.

     SECTION 6.7 RESTRICTED PAYMENTS. The Borrower will not make any Restricted
Payments.

                                       49

<PAGE>

     SECTION 6.8 SUBORDINATED DEBT. The Borrower will not, and will not permit
any Subsidiary to, (a) make any scheduled payment of the principal of or
interest on any Subordinated Debt which would be prohibited by the terms of such
Subordinated Debt and any related subordination agreement; (b) directly or
indirectly make any prepayment on or purchase, redeem or defease any
Subordinated Debt or offer to do so (whether such prepayment, purchase or
redemption, or offer with respect thereto, is voluntary or mandatory); (c) amend
or cancel the subordination provisions applicable to any Subordinated Debt; (d)
take or omit to take any action if as a result of such action or omission the
subordination of such Subordinated Debt, or any part thereof, to the Obligations
might be terminated, impaired or adversely affected; or (e) omit to give the
Agent prompt notice of any notice received from any holder of Subordinated Debt,
or any trustee therefor, or of any default under any agreement or instrument
relating to any Subordinated Debt by reason whereof such Subordinated Debt might
become or be declared to be due or payable.

     SECTION 6.9 INVESTMENTS. The Borrower will not, and will not permit any
Subsidiary to, acquire for value, make, have or hold any Investments, except:

          (a) Investments existing on the date of this Agreement and listed in
     Schedule 6.9 hereto, but not any renewal or extension thereof (except for
     renewals or extensions of Investments reasonably determined by the Borrower
     to be not material in amount).

          (b) Travel advances to management personnel and employees in the
     ordinary course of business.

          (c) Investments in readily marketable direct obligations issued or
     guaranteed by the United States or any agency thereof and supported by the
     full faith and credit of the United States.

          (d) Certificates of deposit or bankers' acceptances issued by any
     commercial bank organized under the laws of the United States or any State
     thereof which has (i) combined capital and surplus of at least
     $100,000,000, and (ii) a credit rating with respect to its unsecured
     indebtedness from a nationally recognized rating service that is
     satisfactory to the Agent.

          (e) Commercial paper given the highest or next to highest rating by a
     nationally recognized rating service.

          (f) Repurchase agreements relating to securities issued or guaranteed
     as to principal and interest by the United States of America.

          (g) Other readily marketable Investments in debt securities and money
     market funds which are reasonably acceptable to the Majority Banks.

          (h) Any Investment by the Borrower or any Subsidiary in the stock of
     any Subsidiary.

          (i) Loans and advances by the Borrower to any Guarantor made in the
     ordinary course of business to finance the normal operations of such
     Guarantor, provided that no Event of Default is then continuing or would
     result therefrom.

          (j) Loans and advances by the Borrower to Norstan Canada made in the
     ordinary course of business to finance the normal operations of Norstan
     Canada, provided that (i) no Event of Default is then continuing or would
     result therefrom and (ii) the principal amount of such loans and advances
     does not exceed $2,000,000 at any time.

                                       50

<PAGE>

          (k) Loans and advances by Norstan Canada to the Borrower made in the
     ordinary course of business, provided that (i) no Event of Default is then
     continuing or would arise therefrom and (ii) such loans and advances have
     been subordinated to the Obligations pursuant to the Subordination
     Agreement (Norstan Canada).

          (l) Indebtedness of any Subsidiary to the Borrower on account of
     unpaid dividends owed by that Subsidiary to the Borrower.

          (m) Indebtedness of employees to the Borrower arising under the
     Borrower's employee personal computer purchase program in the ordinary
     course of business, so long as the aggregate amount of such Indebtedness
     outstanding at any one time does not exceed $50,000.

          (n) Advances in the form of progress payments, prepaid rent or
     security deposits, each in the ordinary course of business.

          (o) The NNS Note Collateral and other promissory notes or other
     amounts payable to the Borrower or any Subsidiary by a Person other than
     the Borrower or a Subsidiary and in existence on the date hereof.

          (p) Permitted Acquisitions.

          (q) Other Investments in an aggregate amount not exceeding $1,000,000
     outstanding at any time.

provided, however, that any Investments under clauses (c), (d), (e) or (f) above
shall mature within one year of the acquisition thereof by the Borrower or a
Subsidiary.

     SECTION 6.10 INDEBTEDNESS. The Borrower will not, and will not permit any
Subsidiary to, incur, create, issue, assume or suffer to exist any Indebtedness,
except:

          (a) The Obligations.

          (b) Indebtedness existing on the date of this Agreement (other than
     Indebtedness of the type specified in Section 6.10(c)) and disclosed on
     Schedule 6.10(a) hereto, but not including any extension or refinancing
     thereof.

          (c) Indebtedness existing on the date hereof secured by NFS Lease
     Accounts or Norstan Canada Lease Accounts and related leases, equipment and
     servicing arrangements and disclosed on Schedule 6.10(b), but not including
     any extension or refinancing thereof.

          (d) Indebtedness secured by Liens permitted under Section 6.11(g)
     hereof, provided that the principal amount of Indebtedness secured by Liens
     permitted by Section 6.11(g) shall not exceed (i) $3,000,000 at any time on
     or before April 30, 2003 and (ii) $5,000,000 at any time after April 30,
     2003.

                                       51

<PAGE>

          (e) Indebtedness of the Borrower under lines of credit for foreign
     exchange transactions and for wire transfers and daylight overdrafts.

          (f) Subordinated Indebtedness and renewals thereof.

          (g) Contingent Obligations permitted under Section 6.12.

          (h) Indebtedness incurred as seller financing of Permitted
     Acquisitions, provided, that (i) such Indebtedness is unsecured, and (ii)
     such Indebtedness is Subordinated Debt.

          (i) Current liabilities, other than for borrowed money, incurred in
     the ordinary course of business and calculated in accordance with GAAP.

          (j) Intercompany Indebtedness of the type specified in Sections
     6.9(i), (j), (k) and (l).

          (k) Other unsecured Indebtedness in an aggregate principal amount not
     exceeding $1,000,000 outstanding at any time.

     SECTION 6.11 LIENS. The Borrower will not, and will not permit any
Subsidiary to, create, incur, assume or suffer to exist any Lien, or enter into,
or make any commitment to enter into, any arrangement for the acquisition of any
property through conditional sale, lease-purchase or other title retention
agreements, with respect to any property now owned or hereafter acquired by the
Borrower or a Subsidiary, except:

          (a) Liens existing on the date of this Agreement and disclosed on
     Schedule 6.11 hereto.

          (b) Deposits or pledges to secure payment of workers' compensation,
     unemployment insurance, old age pensions or other social security
     obligations, in the ordinary course of business of the Borrower or a
     Subsidiary.

          (c) Liens for taxes, fees, assessments and governmental charges not
     delinquent or to the extent that payment therefor shall not at the time be
     required to be made in accordance with the provisions of Section 5.4.

          (d) Liens of carriers, warehousemen, mechanics and materialmen, and
     other like Liens arising in the ordinary course of business, for sums not
     due or to the extent that payment therefor shall not at the time be
     required to be made in accordance with the provisions of Section 5.4.

          (e) Liens incurred or deposits or pledges made or given in connection
     with, or to secure payment of, indemnity, performance or other similar
     bonds.

                                       52

<PAGE>

          (f) Encumbrances in the nature of zoning restrictions, easements and
     rights or restrictions of record on the use of real property and landlord's
     Liens under leases on the premises rented, which do not materially detract
     from the value of such property or impair the use thereof in the business
     of the Borrower or a Subsidiary.

          (g) The interest of any lessor under any Capitalized Lease entered
     into after the Closing Date or purchase money Liens on property acquired
     after the Closing Date; provided, that, (i) the Indebtedness secured
     thereby is otherwise permitted by this Agreement and (ii) such Liens are
     limited to the property acquired and do not secure Indebtedness other than
     the related Capitalized Lease Obligations or the purchase price of such
     property.

          (h) Liens arising out of a judgment or judgments against the Borrower
     or any Subsidiary for the payment of money in an aggregate amount not
     exceeding $300,000 with respect to which an appeal is being prosecuted and
     a stay of execution pending such appeal has been secured.

          (i) Liens against the NFS Lease Accounts, Norstan Canada Lease
     Accounts and related leases, equipment and servicing arrangements securing
     any financing permitted under Section 6.10(c).

     SECTION 6.12 CONTINGENT OBLIGATIONS. The Borrower will not, and will not
permit any Subsidiary to, be or become liable on any Contingent Obligations
except:

          (a) Contingent Obligations (other than Guaranties set forth in Section
     6.12(b) hereof) existing on the date of this Agreement and described on
     Schedule 6.12(a) hereto.

          (b) Guaranties by the Borrower guaranties existing on the date of this
     Agreement with respect to the Indebtedness permitted by Section 6.10(c) and
     described on Schedule 6.12(b) hereto.

          (c) normal product warranties and indemnities in favor of suppliers
     and customers entered into in the ordinary course of business and relating
     to inventory sold by the Borrower or a Subsidiary.

     SECTION 6.13 OPERATING LEASES. The Borrower will not, and will not permit
any Subsidiary to become liable for, whether directly or by assignment, for rent
or other amounts (exclusive of customary reimbursements for taxes, insurance or
maintenance expenses) under any Operating Leases in an amount exceeding, on a
consolidated basis, $9,000,000 in any fiscal year.

     SECTION 6.14 CAPITAL EXPENDITURES. The Borrower will not, and will not
permit any Subsidiary to, make Capital Expenditures in an amount exceeding, on a
consolidated basis in the following amounts for the following periods: (a)
$10,000,000 during the fiscal year ending on or about April 30, 2003, (b)
$11,000,000 during the fiscal year ending on or about April 30, 2004 and (c)
$12,000,000 during the fiscal year ending on or about April 30, 2005.

                                       53

<PAGE>

     SECTION 6.15 TANGIBLE NET WORTH. The Borrower will not permit the Tangible
Net Worth to be less than:

          (i) as of the last day of any fiscal quarter during the fiscal year
     ending April 30, 2003, $12,500,000;

          (ii) as of the last day of any fiscal quarter during the fiscal year
     ending April 30, 2004 and each fiscal year thereafter, the greater of (A)
     the Tangible Net Worth required to be maintained by the Borrower to be in
     compliance with this Section 6.15 as of the last day of the preceding
     fiscal year and (B) 95 percent (95%) of the Borrower's Tangible Net Worth
     as at the last day of the preceding fiscal year,

provided that, the minimum amount of Tangible Net Worth required to be
maintained pursuant to this Section shall be automatically and permanently
increased by the amount of the Net Proceeds received by the Borrower in
connection with the issuance of any equity securities of the Borrower from and
after the Closing Date.

     SECTION 6.16 QUARTERLY EARNINGS. The Borrower shall not permit EBT,
calculated on a cumulative basis for the two preceding fiscal quarters, to be
less than $0.00 as of the last day of any fiscal quarter (commencing with the
last day of the fiscal quarter ending on or about October 31, 2002).

     SECTION 6.17 FIXED CHARGE COVERAGE RATIO. The Borrower will not permit the
Fixed Charge Coverage Ratio to be less than (a) 1.20 to 1.00 as of the last day
of the Borrower's fiscal quarters ending on or about January 31, 2003 and April
30, 2003 and (b) 1.30 to 1.00 as of the last day of each other fiscal quarter of
the Borrower.

     SECTION 6.18 CASH FLOW LEVERAGE RATIO. The Borrower will not permit the
Cash Flow Leverage Ratio at any time to be more than: (i) 2.25 to 1.00 as of the
last day of the Borrower's fiscal quarters ending on or about July 31, 2002 and
October 31, 2002, (ii) 2.00 to 1.00 as of the last day of the Borrower's fiscal
quarter ending on or about January 31, 2003, and (iii) 1.75 to 1.00 as of the
last day of the Borrower's fiscal quarter ending on or about April 30, 2003 and
each fiscal quarter ending thereafter.

     SECTION 6.19 LOAN PROCEEDS. The Borrower will not, and will not permit any
Subsidiary to, use any part of the proceeds of any Loan directly or indirectly,
and whether immediately, incidentally or ultimately, (a) to purchase or carry
margin stock (as defined in Regulation U of the Board) or to extend credit to
others for the purpose of purchasing or carrying margin stock or to refund
Indebtedness originally incurred for such purpose or (b) for any purpose which
entails a violation of, or which is inconsistent with, the provisions of
Regulations G, U or X of the Board.

     SECTION 6.20 INVENTORY VALUE. As of any date of determination, the Borrower
will not, and will not permit any Subsidiary to, permit any Inventory of the
Borrower or any Subsidiary having an aggregate value at cost in excess of 30% of
the aggregate value at cost of all of the Inventory of the Borrower and the
Subsidiaries to be stored at a location other than the Primary Distribution
Facilities.

                                       54

<PAGE>

                                  ARTICLE VII
                         EVENTS OF DEFAULT AND REMEDIES

     SECTION 7.1 EVENTS OF DEFAULT. The occurrence of any one or more of the
following events shall constitute an Event of Default:

          (a) The Borrower shall fail to make when due, whether by acceleration
     or otherwise, any payment of principal of or interest on any Note or any
     other Obligation required to be made to the Agent or any Bank pursuant to
     this Agreement.

          (b) Any representation or warranty made by or on behalf of the
     Borrower, any Subsidiary or any Guarantor in this Agreement or any other
     Loan Document or by or on behalf of the Borrower, any Subsidiary or any
     Guarantor in any certificate, statement, report or document herewith or
     hereafter furnished to any Bank or the Agent pursuant to this Agreement or
     any other Loan Document shall prove to have been false or misleading in any
     material respect on the date as of which the facts set forth are stated or
     certified.

          (c) The Borrower shall fail to comply with Sections 2.6, 5.2, 5.3,
     5.12, 5.13 or 5.14 hereof, or any Section of Article VI hereof.

          (d) The Borrower shall fail to comply with any other agreement,
     covenant, condition, provision or term contained in this Agreement (other
     than those hereinabove set forth in this Section 7.1) and such failure to
     comply shall continue for 30 calendar days after whichever of the following
     dates is the earliest: (i) the date the Borrower gives notice of such
     failure to the Banks, (ii) the date the Borrower should have given notice
     of such failure to the Banks pursuant to Section 5.1, or (iii) the date the
     Agent or any Bank gives notice of such failure to the Borrower.

          (e) The Borrower, any Subsidiary or any Guarantor shall become
     insolvent or shall generally not pay its debts as they mature or shall
     apply for, shall consent to, or shall acquiesce in the appointment of a
     custodian, trustee or receiver of the Borrower, such Subsidiary or such
     Guarantor or for a substantial part of the property thereof or, in the
     absence of such application, consent or acquiescence, a custodian, trustee
     or receiver shall be appointed for the Borrower, a Subsidiary or a
     Guarantor or for a substantial part of the property thereof and shall not
     be discharged within 30 days, or the Borrower, any Subsidiary or a
     Guarantor shall make an assignment for the benefit of creditors.

          (f) Any bankruptcy, reorganization, debt arrangement or other
     proceedings under any bankruptcy or insolvency law shall be instituted by
     or against the Borrower, a Subsidiary or any Guarantor, and, if instituted
     against the Borrower, a Subsidiary or any Guarantor, shall have been
     consented to or acquiesced in by the Borrower, such Subsidiary or such
     Guarantor, or shall remain undismissed for 30 days, or an order for relief
     shall have been entered against the Borrower, such Subsidiary or such
     Guarantor.

          (g) Any dissolution or liquidation proceeding not permitted by Section
     6.1 shall be instituted by or against the Borrower or a Subsidiary or any
     dissolution or liquidation proceeding shall be instituted by or against any
     Guarantor, and, if instituted against the Borrower, any Subsidiary or any
     Guarantor, shall be consented to or acquiesced in by the Borrower, such
     Subsidiary or such Guarantor or shall remain for 45 days undismissed.

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<PAGE>

          (h) A judgment or judgments for the payment of money in excess of the
     sum of $1,000,000 in the aggregate shall be rendered against the Borrower
     or a Subsidiary and the Borrower or such Subsidiary shall not discharge the
     same or provide for its discharge in accordance with its terms, or procure
     a stay of execution thereof, prior to any execution on such judgment by
     such judgment creditor, within 30 days from the date of entry thereof, and
     within said period of 30 days, or such longer period during which execution
     of such judgment shall be stayed, appeal therefrom and cause the execution
     thereof to be stayed during such appeal.

          (i) The maturity of any material Indebtedness of the Borrower or a
     Subsidiary shall be accelerated by reason of default, or the Borrower or a
     Subsidiary shall fail to pay any such material Indebtedness when due (after
     the lapse of any applicable grace period) or, in the case of such
     Indebtedness payable on demand, when demanded (after the lapse of any
     applicable grace period), or any event shall occur or condition shall exist
     shall continue for more than the period of grace, if any, applicable
     thereto and shall have the effect of causing, or permitting the holder of
     any such Indebtedness or any trustee or other Person acting on behalf of
     such holder to cause, such material Indebtedness to become due prior to its
     stated maturity or to realize upon any collateral given as security
     therefor. For purposes of this Section, Indebtedness of the Borrower or a
     Subsidiary shall be deemed "material" if it exceeds $1,000,000 as to any
     item of Indebtedness or in the aggregate for all items of Indebtedness with
     respect to which any of the events described in this Section 7.1(i) has
     occurred.

          (j) Any execution or attachment shall be issued whereby any
     substantial part of the property of the Borrower or any Subsidiary shall be
     taken or attempted to be taken and the same shall not have been vacated or
     stayed within 30 days after the issuance thereof.

          (k) Any Guarantor shall repudiate or purport to revoke its Guaranty,
     or any Guaranty for any reason shall cease to be in full force and effect
     as to the Guarantor executing and delivering the same or shall be
     judicially declared null and void as to such Guarantor.

          (l) 50% or more of any class of the capital stock of the Borrower
     shall come to be owned by a single Person, or by two or more Persons acting
     together in holding such stock for a common purpose.

          (m) The Borrower or a Subsidiary shall cease to be the sole
     shareholder of the stock of any Guarantor or of Norstan Canada.

          (n) Any Security Document shall, at any time, cease to be in full
     force and effect or shall be judicially declared null and void, or the
     validity or the enforceability thereof shall be contested by the Borrower
     or any Guarantor.

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<PAGE>

          (o) Any default or event of default (however denominated) shall occur
     under any Security Document.

     SECTION 7.2 REMEDIES. If (a) any Event of Default described in Sections
7.1(e), (f) or (g) shall occur with respect to the Borrower, the Revolving
Commitments shall automatically terminate (except as provided in Section 2.2(b))
and the Notes and all other Obligations shall automatically become immediately
due and payable, the Borrower shall without demand pay into the Holding Account
an amount equal to the aggregate face amount of each Letter of Credit; or (b)
any other Event of Default shall occur and be continuing, then, upon receipt by
the Agent of a request in writing from the Majority Banks, the Agent shall (i)
declare the Revolving Commitments terminated, whereupon the Revolving
Commitments shall terminate (except as provided in Section 2.2(b)), (ii) declare
the outstanding unpaid principal balance of the Notes, the accrued and unpaid
interest thereon and all other Obligations to be forthwith due and payable,
whereupon the Notes, all accrued and unpaid interest thereon and all such
Obligations shall immediately become due and payable, in each case without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived, anything in this Agreement or in the Notes to the
contrary notwithstanding, (iii) demand that the Borrower pay into the Holding
Account an amount equal to the aggregate face amount of each Letter of Credit,
whereupon the Borrower shall pay such amount, (v) exercise all rights and
remedies under any of the Loan Documents, and (vi) enforce all rights and
remedies under any applicable law.

     SECTION 7.3 OFFSET. In addition to the remedies set forth in Section 7.2,
upon the occurrence of any Event of Default and thereafter while the same be
continuing, the Borrower hereby irrevocably authorizes each Bank to set off any
Obligations owed to such Bank against all deposits and credits of the Borrower
with, and any and all claims of the Borrower against, such Bank. Such right
shall exist whether or not such Bank shall have made any demand hereunder or
under any other Loan Document, whether or not the Obligations, or any part
thereof, or deposits and credits held for the account of the Borrower is or are
matured or unmatured, and regardless of the existence or adequacy of any
collateral, guaranty or any other security, right or remedy available to such
Bank or the Banks. Each Bank agrees that, as promptly as is reasonably possible
after the exercise of any such setoff right, it shall notify the Borrower of its
exercise of such setoff right; provided, however, that the failure of such Bank
to provide such notice shall not affect the validity of the exercise of such
setoff rights. Nothing in this Agreement shall be deemed a waiver or prohibition
of or restriction on any Bank to all rights of banker's Lien, setoff and
counterclaim available pursuant to law.

                                  ARTICLE VIII
                                    THE AGENT

     The following provisions shall govern the relationship of the Agent with
the Banks.

     SECTION 8.1 APPOINTMENT AND AUTHORIZATION. Each Bank appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such respective powers under the Loan Documents as are delegated to the Agent by
the terms thereof, together with such powers as are reasonably incidental
thereto. Neither the Agent nor any of its directors, officers or employees shall
be liable for any action taken or omitted to be taken by it under or in
connection with the Loan Documents, except for its own gross negligence or
willful misconduct. The Agent shall act as an independent contractor in
performing its obligations as Agent hereunder and nothing herein contained shall
be deemed to create any fiduciary relationship among or between the Agent, the
Borrower or the Banks.

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<PAGE>

     SECTION 8.2 NOTE HOLDERS. The Agent may treat the payee of any Note as the
holder thereof until written notice of transfer shall have been filed with it,
signed by such payee and in form satisfactory to the Agent.

     SECTION 8.3 CONSULTATION WITH COUNSEL. The Agent may consult with legal
counsel selected by it with reasonable care and shall not be liable for any
action taken or suffered in good faith by it in accordance with the advice of
such counsel.

     SECTION 8.4 LOAN DOCUMENTS. The Agent shall not be under a duty to examine
or pass upon the validity, effectiveness, genuineness or value of any of the
Loan Documents or any other instrument or document furnished pursuant thereto,
and the Agent shall be entitled to assume that the same are valid, effective and
genuine and what they purport to be.

     SECTION 8.5 U.S. BANK AND AFFILIATES. With respect to its Revolving
Commitment and the Loans made by it, U.S. Bank shall have the same rights and
powers under the Loan Documents as any other Bank and may exercise the same as
though it were not the Agent consistent with the terms thereof, and U.S. Bank
and its Affiliates may accept deposits from, lend money to and generally engage
in any kind of business with the Borrower as if it were not the Agent.

     SECTION 8.6 ACTION BY AGENT. Except as may otherwise be expressly stated in
this Agreement, the Agent shall be entitled to use its discretion with respect
to exercising or refraining from exercising any rights which may be vested in it
by, or with respect to taking or refraining from taking any action or actions
which it may be able to take under or in respect of, the Loan Documents. The
Agent shall be required to act or to refrain from acting (and shall be fully
protected in so acting or refraining from acting) upon the instructions of the
Majority Banks, and such instructions shall be binding upon all holders of
Notes; provided, however, that the Agent shall not be required to take any
action which exposes the Agent to personal liability or which is contrary to the
Loan Documents or applicable law. The Agent shall incur no liability under or in
respect of any of the Loan Documents by acting upon any notice, consent,
certificate, warranty or other paper or instrument believed by it to be genuine
or authentic or to be signed by the proper party or parties and to be consistent
with the terms of this Agreement.

     SECTION 8.7 CREDIT ANALYSIS. Each Bank has made, and shall continue to
make, its own independent investigation or evaluation of the operations,
business, property and condition, financial and otherwise, of the Borrower in
connection with entering into this Agreement and has made its own appraisal of
the creditworthiness of the Borrower. Except as explicitly provided herein, the
Agent has no duty or responsibility, either initially or on a continuing basis,
to provide any Bank with any credit or other information with respect to such
operations, business, property, condition or creditworthiness, whether such
information comes into its possession on or before the first Event of Default or
at any time thereafter.

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     SECTION 8.8 NOTICES OF EVENT OF DEFAULT, ETC. In the event that the Agent
shall have acquired actual knowledge of any Event of Default or Default, the
Agent shall promptly give notice thereof to the Banks.

     SECTION 8.9 INDEMNIFICATION. Each Bank agrees to indemnify the Agent, as
Agent (to the extent not reimbursed by the Borrower), ratably according to such
Bank's share of the Aggregate Revolving Commitment Amounts from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on or incurred by the Agent in any way relating
to or arising out of the Loan Documents or any action taken or omitted by the
Agent under the Loan Documents, provided that no Bank shall be liable for any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from the Agent's
gross negligence or willful misconduct. No payment by any Bank under this
Section shall relieve the Borrower of any of its obligations under this
Agreement.

     SECTION 8.10 PAYMENTS AND COLLECTIONS. All funds received by the Agent in
respect of any payments made by the Borrower on the Term Notes shall be
distributed forthwith by the Agent among the Banks, in like currency and funds
as received, ratably according to each Bank's Term Loan Percentage. All funds
received by the Agent in respect of (a) any payments made by the Borrower on the
Revolving Notes, (b) any reimbursement payments made by the Borrower with
respect to Unpaid Drawings that were funded by Unpaid Drawing Repayment Loans
and/or participation payments made by the Banks under Section 2.7(b), and (c)
any payments by the Bank of Revolving Commitment Fees, shall be distributed
forthwith by the Agent among the Banks, in like currency and funds as received,
ratably according to each Bank's Revolving Outstandings Percentage. All funds
received by the Agent in respect of any payments made by the Borrower for Letter
of Credit Fees shall be distributed forthwith by the Agent among the Banks, in
like currency and funds as received, ratably according to each Bank's Revolving
Commitment. After any Event of Default has occurred, all funds received by the
Agent, whether as payments by the Borrower or as realization on collateral or on
any Guaranties, shall (except as may otherwise be required by law) be
distributed by the Agent in the following order: (a) first to the Agent or any
Bank who has incurred unreimbursed costs of collection with respect to any
Obligations hereunder, ratably to the Agent and each Bank in the proportion that
the costs incurred by the Agent or such Bank bear to the total of all such costs
incurred by the Agent and all Banks; (b) next to the Agent for the account of
the Banks (in accordance with their respective Revolving Percentages) for
application on the Notes and Unpaid Drawings; (c) next to the Agent for the
account of the Banks (in accordance with their respective Revolving Outstandings
Percentages) for any unpaid Revolving Commitment Fees owing by the Borrower
hereunder; (d) next to the Agent for the account of the Banks (in accordance
with their respective Revolving Commitment Percentages) for any unpaid Letter of
Credit Fees owing by the Borrower; and (e) last to the Agent to be held in the
Holding Account to cover the Letters of Credit. The provisions of this Section
8.10 shall not apply to payments of the issuance, amendment, drawing and other
fees and out-of-pocket expenses of U.S. Bank under Section 2.10, and the fees
set forth in the fee letter under Section 2.12, respectively.

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     SECTION 8.11 SHARING OF PAYMENTS. If any Bank shall receive and retain any
payment, voluntary or involuntary, whether by setoff, application of deposit
balance or security, or otherwise, in respect of the Obligations owing to such
Bank under this Agreement or the Notes in excess of such Bank's share, as
determined under this Agreement, of the Obligations then due and payable to the
Banks under this Agreement, then such Bank shall purchase from the other Banks
for cash and at face value and without recourse, such participation in the Notes
held by such other Banks as shall be necessary to cause such excess payment to
be shared ratably as aforesaid with such other Banks; provided, that if such
excess payment or part thereof is thereafter recovered from such purchasing
Bank, the related purchases from the other Banks shall be rescinded ratably and
the purchase price restored as to the portion of such excess payment so
recovered, but without interest. Subject to the participation purchase
obligation above, each Bank agrees to exercise any and all rights of setoff,
counterclaim or banker's lien first fully against any Notes and participations
therein held by such Bank, next to any other Indebtedness of the Borrower to
such Bank arising under or pursuant to this Agreement and to any participations
held by such Bank in Obligations of the Borrower arising under or pursuant to
this Agreement, and only then to any other Obligations of the Borrower to such
Bank.

     SECTION 8.12 ADVICE TO BANKS. The Agent shall forward to the Banks copies
of all notices, financial reports and other communications received hereunder
from the Borrower by it as Agent, excluding, however, notices, reports and
communications which by the terms hereof are to be furnished by the Borrower
directly to each Bank.

     SECTION 8.13 RESIGNATION. If at any time U.S. Bank shall deem it advisable,
in its sole discretion, it may submit to each of the Banks and the Borrower a
written notification of its resignation as Agent under this Agreement, such
resignation to be effective upon the appointment of a successor Agent, but in no
event later than 30 days from the date of such notice. Upon submission of such
notice, the Majority Banks may appoint a successor Agent.

     SECTION 8.14 DEFAULTING BANK.

     (a)  Remedies Against a Defaulting Bank. In addition to the rights and
          remedies that may be available to the Agent or the Borrower under this
          Agreement or applicable law, if at any time a Bank is a Defaulting
          Bank such Defaulting Bank's right to participate in the administration
          of the Loans, this Agreement and the other Loan Documents, including
          without limitation, any right to vote in respect of, to consent to or
          to direct any action or inaction of the Agent or to be taken into
          account in the calculation of the Majority Banks, shall be suspended
          while such Bank remains a Defaulting Bank. If a Bank is a Defaulting
          Bank because it has failed to make timely payment to the Agent of any
          amount required to be paid to the Agent hereunder (without giving
          effect to any notice or cure periods), in addition to other rights and
          remedies which the Agent or the Borrower may have under the
          immediately preceding provisions or otherwise, the Agent shall be
          entitled (i) to collect interest from such Defaulting Bank on such
          delinquent payment for the period from the date on which the payment
          was due until the date on which the payment is made at the Federal
          Funds Rate, (ii) to withhold or setoff and to apply in satisfaction of
          the defaulted payment and any related interest, any amounts otherwise
          payable to such Defaulting Bank under this Agreement or any other Loan
          Document until such defaulted payment and related interest has been
          paid in full and such default no longer exists and (iii) to bring an
          action or suit against such Defaulting Bank in a court of competent
          jurisdiction to recover the defaulted amount and any related interest.

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          Any amounts received by the Agent in respect of a Defaulting Bank's
          Loans shall not be paid to such Defaulting Bank and shall be held
          uninvested by the Agent and either applied against the purchase price
          of such Loans under the following subsection (b) or paid to such
          Defaulting Bank upon the default of such Defaulting Bank being cured.

               (b) Purchase from Defaulting Bank. Any Bank that is not a
          Defaulting Bank shall have the right, but not the obligation, in its
          sole discretion, to acquire all of a Defaulting Bank's Commitments. If
          more than one Bank exercises such right, each such Bank shall have the
          right to acquire such proportion of such Defaulting Bank's Commitments
          on a pro rata basis. Upon any such purchase, the Defaulting Bank's
          interest in its Loans and its rights hereunder (but not its liability
          in respect thereof or under the Loan Documents or this Agreement to
          the extent the same relate to the period prior to the effective date
          of the purchase) shall terminate on the date of purchase, and the
          Defaulting Bank shall promptly execute all documents reasonably
          requested to surrender and transfer such interest to the purchaser.
          The purchase price for the Commitments of a Defaulting Bank shall be
          equal to the amount of the principal balance of the Loans outstanding
          and owed by the Borrower to the Defaulting Bank. The purchaser shall
          pay to the Defaulting Bank in Immediately Available Funds on the date
          of such purchase the principal of and accrued and unpaid interest and
          fees on the Loans made by such Defaulting Bank hereunder (it being
          understood that such accrued and unpaid interest and fees may be paid
          pro rata to the purchasing Bank and the Defaulting Bank by the Agent
          at a subsequent date upon receipt of payment of such amounts from the
          Borrower). Prior to payment of such purchase price to a Defaulting
          Bank, the Agent shall apply against such purchase price any amounts
          retained by the Agent pursuant to the last sentence of the immediately
          preceding subsection (a). The Defaulting Bank shall be entitled to
          receive amounts owed to it by the Borrower under the Loan Documents
          which accrued prior to the date of the default by the Defaulting Bank,
          to the extent the same are received by the Agent from or on behalf of
          the Borrower. There shall be no recourse against any Bank or the Agent
          for the payment of such sums except to the extent of the receipt of
          payments from any other party or in respect of the Loans.

                                   ARTICLE IX
                                  MISCELLANEOUS

     SECTION 9.1 MODIFICATIONS. Notwithstanding any provisions to the contrary
herein, any term of this Agreement may be amended with the written consent of
the Borrower; provided that no amendment, modification or waiver of any
provision of this Agreement or any other Loan Document or consent to any
departure therefrom by the Borrower or other party thereto shall in any event be
effective unless the same shall be in writing and signed by the Majority Banks,
and then such amendment, modification, waiver or consent shall be effective only
in the specific instance and for the purpose for which given. Notwithstanding
the foregoing, no such amendment, modification, waiver or consent shall:

          (a) Reduce the rate or extend the time of payment of interest thereon,
     or reduce the amount of the principal thereof, or modify any of the
     provisions of any Note with respect to the payment or repayment thereof,
     without the consent of the holder of each Note so affected; or

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<PAGE>

          (b) Increase the amount or extend the time of any Revolving Commitment
     of any Bank, without the consent of such Bank; or

          (c) Reduce the rate or extend the time of payment of any fee payable
     to a Bank, without the consent of the Bank affected; or

          (d) Amend the definition of Majority Banks or otherwise reduce the
     percentage of the Banks required to approve or effectuate any such
     amendment, modification, waiver, or consent, without the consent of all the
     Banks; or

          (e) Amend any of Article 2 or any of the foregoing Sections 9.1 (a)
     through (d) or this Section 9.1 (e) without the consent of all the Banks;
     or

          (f) Amend any provision of this Agreement relating to the Agent in its
     capacity as Agent without the consent of the Agent; or

          (g) Amend any provision of this Agreement relating to the Letters of
     Credit without the consent of U.S. Bank; or

          (h) Release any Guarantor from its obligations under its Guaranty; or

          (i) Except as may otherwise be expressly provided in any of the other
     Loan Documents, release any material portion of collateral securing all or
     any part of the Obligations without the consent of all the Banks.

     SECTION 9.2 EXPENSES. Whether or not the transactions contemplated hereby
are consummated, the Borrower agrees to reimburse the Agent upon demand for all
reasonable out-of-pocket expenses paid or incurred by the Agent (including
filing and recording costs and fees and expenses of Dorsey & Whitney, counsel to
the Agent), in connection with the negotiation, preparation, approval, review,
execution, delivery, amendment, modification and interpretation of this
Agreement and the other Loan Documents and any commitment letters, letters of
intent, financial analyses or term sheets relating thereto. The Borrower shall
also reimburse the Agent and, after the occurrence of an Event of Default, each
Bank upon demand for all reasonable out-of-pocket expenses (including expenses
of legal counsel) paid or incurred by the Agent or any Bank in connection with
the collection and enforcement of this Agreement and any other Loan Document.
The obligations of the Borrower under this Section shall survive any termination
of this Agreement.

     SECTION 9.3 WAIVERS, ETC. No failure on the part of the Agent or the holder
of a Revolving Note to exercise and no delay in exercising any power or right
hereunder or under any other Loan Document shall operate as a waiver thereof;
nor shall any single or partial exercise of any power or right preclude any
other or further exercise thereof or the exercise of any other power or right.
The remedies herein and in the other Loan Documents provided are cumulative and
not exclusive of any remedies provided by law.

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<PAGE>

     SECTION 9.4 NOTICES. Except when telephonic notice is expressly authorized
by this Agreement, any notice or other communication to any party in connection
with this Agreement shall be in writing and shall be sent by manual delivery,
telegram, telex, facsimile transmission, overnight courier or United States mail
(postage prepaid) addressed to such party at the address specified on the
signature page hereof, or at such other address as such party shall have
specified to the other party hereto in writing. All periods of notice shall be
measured from the date of delivery thereof if manually delivered, from the date
of sending thereof if sent by telegram, telex or facsimile transmission, from
the first Business Day after the date of sending if sent by overnight courier,
or from four days after the date of mailing if mailed; provided, however, that
any notice to the Agent or any Bank under Article II hereof shall be deemed to
have been given only when received by the Agent or such Bank.

     SECTION 9.5 TAXES. The Borrower agrees to pay, and save the Agent and the
Banks harmless from all liability for, any stamp or other taxes which may be
payable with respect to the execution or delivery of this Agreement or the
issuance of the Revolving Notes, which obligation of the Borrower shall survive
the termination of this Agreement.

     SECTION 9.6 SUCCESSORS AND ASSIGNS; PARTICIPATIONS; FOREIGN AND PURCHASING
BANKS.

          (a) This Agreement shall be binding upon and inure to the benefit of
     the Borrower, the Agent, the Banks, all future holders of the Notes, and
     their respective successors and assigns, except that the Borrower may not
     assign or transfer any of its rights or obligations under this Agreement
     without the prior written consent of each Bank.

          (b) Any Bank may, in the ordinary course of its commercial banking
     business and in accordance with applicable law, at any time sell to one or
     more banks or other financial institutions ("Participants") participating
     interests in a minimum aggregate amount of $3,000,000 in any Revolving Loan
     or Term Loan or other Obligation owing to such Bank, any Revolving Note or
     Term Note held by such Bank, and any Revolving Commitment or Term Loan
     Commitment of such Bank, or any other interest of such Bank hereunder. In
     the event of any such sale by a Bank of participating interests to a
     Participant, (i) such Bank's obligations under this Agreement to the other
     parties to this Agreement shall remain unchanged, (ii) such Bank shall
     remain solely responsible for the performance thereof, (iii) such Bank
     shall remain the holder of any such Revolving Note or Term Note for all
     purposes under this Agreement, (iv) the Borrower and the Agent shall
     continue to deal solely and directly with such Bank in connection with such
     Bank's rights and obligations under this Agreement and (v) the agreement
     pursuant to which such Participant acquires its participating interest
     herein shall provide that such Bank shall retain the sole right and
     responsibility to enforce the Obligations, including, without limitation
     the right to consent or agree to any amendment, modification, consent or
     waiver with respect to this Agreement or any other Loan Document, provided
     that such agreement may provide that such Bank will not consent or agree to
     any such amendment, modification, consent or waiver with respect to the
     matters set forth in Sections 9.1(a)(e) without the prior consent of such

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<PAGE>

     Participant. Each Borrower agrees that if amounts outstanding under this
     Agreement, the Revolving Notes, the Term Notes and the Loan Documents are
     due and unpaid, or shall have been declared or shall have become due and
     payable upon the occurrence of an Event of Default, each Participant shall
     be deemed to have, to the extent permitted by applicable law, the right of
     setoff in respect of its participating interest in amounts owing under this
     Agreement and any Revolving Note, Term Note or other Loan Document to the
     same extent as if the amount of its participating interest were owing
     directly to it as a Bank under this Agreement or any Revolving Note or Term
     Note or other Loan Document; provided, that such right of setoff shall be
     subject to the obligation of such Participant to share with the Banks, and
     the Banks agree to share with such Participant, as provided in Section
     8.11. Each Borrower also agrees that each Participant shall be entitled to
     the benefits of Sections 2.16, 2.17, 2.18, 2.19, 2.20 and 9.2 with respect
     to its participation in the Revolving Commitments, Term Loan Commitments,
     Revolving Loans and Term Loans; provided, that no Participant shall be
     entitled to receive any greater amount pursuant to such subsections than
     the transferor Bank would have been entitled to receive in respect of the
     amount of the participation transferred by such transferor Bank to such
     Participant had no such transfer occurred.

          (c) Each Bank may, from time to time, with the consent of the Agent
     and the Borrower (neither of which consents shall be unreasonably withheld
     or delayed; and if an Event of Default shall have occurred and be
     continuing, then consent of the Borrower shall not be required), assign to
     other lenders ("Assignees") all or part of its rights or obligations
     hereunder or under any Loan Document in a minimum aggregate amount of
     $3,000,000 evidenced by any Revolving Note then held by that Bank, together
     with equivalent proportions of its Revolving Commitment, any Term Note then
     held by that Bank, its Term Loan Commitment pursuant to written agreements
     executed by such assigning Bank, such Assignee(s), the Borrower and the
     Agent in substantially the form of Exhibit F, which agreements shall
     specify in each instance the portion of the Obligations evidenced by the
     Revolving Notes and Term Notes which is to be assigned to each Assignee and
     the portion of the Revolving Commitment and Term Loan Commitment of such
     Bank to be assumed by each Assignee (each, an "Assignment Agreement");
     provided, however, that the assigning Bank must pay to the Agent a
     processing and recordation fee of $3,500. Upon the execution of each
     Assignment Agreement by the assigning Bank, the relevant Assignee, the
     Borrower and the Agent, payment to the assigning Bank by such Assignee of
     the purchase price for the portion of the Obligations being acquired by it
     and receipt by the Borrower of a copy of the relevant Assignment Agreement,
     (x) such Assignee lender shall thereupon become a "Bank" for all purposes
     of this Agreement with a pro rata share of the Revolving Commitment and a
     Term Loan Commitment Amount in the amount set forth in such Assignment
     Agreement and with all the rights, powers and obligations afforded a Bank
     under this Agreement, (y) such assigning Bank shall have no further
     liability for funding the portion of its Commitment assumed by such
     Assignee and (z) the address for notices to such Assignee shall be as
     specified in the Assignment Agreement executed by it. Concurrently with the
     execution and delivery of each Assignment Agreement, the assigning Bank
     shall surrender to the Agent the Revolving Note and Term Note a portion of
     which is being assigned, and the Borrower shall execute and deliver a
     Revolving Note and Term Note to the Assignee in the amount of its Revolving
     Commitment and its Term Loan Commitment Amount, respectively, and a new
     Revolving Note and Term Note to the assigning Bank in the amount of its
     Revolving Commitment and Term Loan Commitment, respectively, after giving
     effect to the reduction occasioned by such assignment, all such Notes to
     constitute "Revolving Notes" and "Term Notes" for all purposes of this
     Agreement and of the other Loan Documents.

                                       64

<PAGE>

          (d) The Borrower shall not be liable for any costs incurred by the
     Banks in effecting any participation under subparagraph (b) of this
     subsection or by the Banks in effecting any assignment under subparagraph
     (c) of this subsection except with respect to the Agent as provided in this
     Section 9.6.

          (e) Each Bank may disclose to any Assignee or Participant and to any
     prospective Assignee or Participant any and all financial information in
     such Bank's possession concerning the Borrower or any of the Subsidiaries
     which has been delivered to such Bank by or on behalf of the Borrower or
     any of the Subsidiaries pursuant to this Agreement or which has been
     delivered to such Bank by or on behalf of the Borrower or its Subsidiaries
     in connection with such Bank's credit evaluation of such Borrower or any of
     its Subsidiaries prior to entering into this Agreement, provided that prior
     to disclosing such information, such Bank shall first obtain the
     agreement of such prospective Assignee or Participant to comply with the
     provisions of Section 9.7.

          (f) Notwithstanding any other provision in this Agreement, any Bank
     may at any time create a security interest in, or pledge, all or any
     portion of its rights under and interest in this Agreement and any note
     held by it in favor of any federal reserve bank in accordance with
     Regulation A of the Board or U. S. Treasury Regulation 31 CFR ss. 203.14,
     and such Federal Reserve Bank may enforce such pledge or security interest
     in any manner permitted under applicable law.

     SECTION 9.7 CONFIDENTIALITY OF INFORMATION. The Agent and each Bank shall
use reasonable efforts to assure that information about the Borrower and its
operations, affairs and financial condition, not generally disclosed to the
public or to trade and other creditors, which is furnished to the Agent or such
Bank pursuant to the provisions hereof is used only for the purposes of this
Agreement and any other relationship between any Bank and the Borrower and shall
not be divulged to any Person other than the Banks, their Affiliates and their
respective officers, directors, employees and agents, except: (a) to their
attorneys and accountants, (b) in connection with the enforcement of the rights
of the Banks hereunder and under the Notes and the Guaranties or otherwise in
connection with applicable litigation, (c) in connection with assignments and
participations and the solicitation of prospective assignees and participants
referred to in the immediately preceding Section, and (d) as may otherwise be
required or requested by any regulatory authority having jurisdiction over any
Bank or by any applicable law, rule, regulation, judicial process or legal
process, the opinion of such Bank's counsel concerning the making of such
disclosure to be binding on the parties hereto. No Bank shall incur any
liability to the Borrower by reason of any disclosure permitted by this Section
9.7.

                                       65

<PAGE>

     SECTION 9.8 GOVERNING LAW AND CONSTRUCTION. THE VALIDITY, CONSTRUCTION AND
ENFORCEABILITY OF THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY THE INTERNAL
LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS
PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE UNITED STATES
APPLICABLE TO NATIONAL BANKS. Whenever possible, each provision of this
Agreement and the other Loan Documents and any other statement, instrument or
transaction contemplated hereby or thereby or relating hereto or thereto shall
be interpreted in such manner as to be effective and valid under such applicable
law, but, if any provision of this Agreement, the other Loan Documents or any
other statement, instrument or transaction contemplated hereby or thereby or
relating hereto or thereto shall be held to be prohibited or invalid under such
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement, the other Loan Documents or any
other statement, instrument or transaction contemplated hereby or thereby or
relating hereto or thereto.

     SECTION 9.9 CONSENT TO JURISDICTION. AT THE OPTION OF THE AGENT, THIS
AGREEMENT AND THE OTHER BORROWER LOAN DOCUMENTS MAY BE ENFORCED IN ANY FEDERAL
COURT OR MINNESOTA STATE COURT SITTING IN HENNEPIN COUNTY, MINNESOTA; AND THE
BORROWER CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY
ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE BORROWER
COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT
THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS
AGREEMENT, THE AGENT AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE
TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH
TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE
DISMISSED WITHOUT PREJUDICE.

     SECTION 9.10 SURVIVAL OF AGREEMENT. All representations, warranties,
covenants and agreement made by the Borrower herein or in the other Borrower
Loan Documents and in the certificates or other instruments prepared or
delivered in connection with or pursuant to this Agreement or any other Loan
Document shall be deemed to have been relied upon by the Banks and shall survive
the making of the Revolving Loans by the Banks and the execution and delivery to
the Banks by the Borrower of the Notes, regardless of any investigation made by
or on behalf of the Banks, and shall continue in full force and effect as long
as any Obligation is outstanding and unpaid and so long as the Revolving
Commitments have not been terminated; provided, however, that the obligations of
the Borrower under Section 9.2, 9.5, 9.11 and 9.18 shall survive payment in full
of the Obligations and the termination of the Revolving Commitments.

     SECTION 9.11 INDEMNIFICATION. The Borrower hereby agrees to defend,
protect, indemnify and hold harmless the Agent and the Banks and their
respective Affiliates and the directors, officers, employees, attorneys and
agents of the Agent and the Banks and their respective Affiliates (each of the
foregoing being an "Indemnitee" and all of the foregoing being collectively the
"Indemnitees") from and against any and all claims, actions, damages,
liabilities, judgments, costs and expenses (including all reasonable fees and
disbursements of counsel which may be incurred in the investigation or defense
of any matter) imposed upon, incurred by or asserted against any Indemnitee,
whether direct, indirect or consequential and whether based on any federal,
state, local or foreign laws or regulations (including securities laws,
environmental laws, commercial laws and regulations), under common law or on
equitable cause, or on contract or otherwise:

                                       66

<PAGE>

          (a) by reason of, relating to or in connection with the execution,
     delivery, performance or enforcement of any Loan Document, any commitments
     relating thereto, or any transaction contemplated by any Loan Document; or

          (b) by reason of, relating to or in connection with any credit
     extended or used under the Loan Documents or any act done or omitted by any
     Person, or the exercise of any rights or remedies thereunder, including the
     acquisition of any collateral by the Banks by way of foreclosure of the
     Lien thereon, deed or bill of sale in lieu of such foreclosure or
     otherwise;

provided, however, that the Borrower shall not be liable to any Indemnitee for
any portion of such claims, damages, liabilities and expenses resulting from
such Indemnitee's gross negligence or willful misconduct. In the event this
indemnity is unenforceable as a matter of law as to a particular matter or
consequence referred to herein, it shall be enforceable to the full extent
permitted by law.

         This indemnification applies, without limitation, to any act, omission,
event or circumstance existing or occurring on or prior to the later of the
Termination Date or the date of payment in full of the Obligations, including
specifically Obligations arising under clause (b) of this Section. The
indemnification provisions set forth above shall be in addition to any liability
the Borrower may otherwise have. Without prejudice to the survival of any other
obligation of the Borrower hereunder the indemnities and obligations of the
Borrower contained in this Section shall survive the payment in full of the
other Obligations.

     SECTION 9.12 CAPTIONS. The captions or headings herein and any table of
contents hereto are for convenience only and in no way define, limit or describe
the scope or intent of any provision of this Agreement.

     SECTION 9.13 ENTIRE AGREEMENT. This Agreement and the other Borrower Loan
Documents embody the entire agreement and understanding between the Borrower,
the Agent and the Banks with respect to the subject matter hereof and thereof.
This Agreement supersedes all prior agreements and understandings relating to
the subject matter hereof. Nothing contained in this Agreement or in any other
Loan Document, expressed or implied, is intended to confer upon any Persons
other than the parties hereto any rights, remedies, obligations or liabilities
hereunder or thereunder.

     SECTION 9.14 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.

     SECTION 9.15 BORROWER ACKNOWLEDGEMENTS. The Borrower hereby acknowledges
that (a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement, the other Loan Documents, (b) neither the Agent nor
any Bank has any fiduciary relationship to the Borrower, the relationship being
solely that of debtor and creditor, (c) no joint venture exists between the
Borrower and the Agent or any Bank, and (d) neither the Agent nor any Bank
undertakes any responsibility to the Borrower to review or inform the Borrower
of any matter in connection with any phase of the business or operations of the
Borrower and the Borrower shall rely entirely upon its own judgment with respect
to its business, and any review, inspection or supervision of, or information
supplied to, the Borrower by the Agent or any Bank is for the protection of the
Banks and neither the Borrower nor any third party is entitled to rely thereon.

                                       67

<PAGE>

     SECTION 9.16 EFFECT OF EXISTING CREDIT AGREEMENT. This Agreement amends and
replaces in its entirety the Existing Credit Agreement, provided, that the
obligations of the Borrower incurred under the Existing Credit Agreement shall
continue under this Agreement, and shall not in any circumstance be terminated,
extinguished or discharged hereby but shall hereafter be governed by the terms
of this Agreement.

     SECTION 9.17 REAFFIRMATION OF SECURITY DOCUMENTS AND WARRANT DOCUMENTS. The
Borrower confirms to and agrees with the Banks and the Agent that (a) the
Obligations are and continue to be secured by the security interest granted by
the Borrower in favor of the Agent under the Security Documents to which it is a
party, and all of the terms, conditions, provisions, agreements, requirements,
promises, obligations, duties, covenants and representations of the Borrower
under such documents and any and all other documents and agreements entered into
with respect to the Obligations are incorporated herein by reference and are
hereby ratified and affirmed in all respects by the Borrower and (b) each
reference to the "Credit Agreement" in each Security Document to which it is a
party shall be deemed to be a reference to this Agreement, as the same may be
amended, restated or modified from time to time.

     SECTION 9.18 GENERAL RELEASE. The Borrower hereby releases and discharges
the Agent, each Bank, each Exiting Bank, and each of their officers, directors,
employees, agents and attorneys, from any and all claims, actions and
liabilities of any kind or nature that it or any one claiming through or under
the Borrower ever had or may now have, whether now known or hereafter
discovered, arising out of any acts or omissions occurring prior to the date of
this Agreement that relate to: (i) any lending relationship or loan commitment
between the Agent, the Banks, each Exiting Bank and the Borrower prior to the
date of this Agreement; (ii) the Existing Credit Agreement and the "Loan
Documents" (as defined in the Existing Credit Agreement"); or (iii) the
negotiations preceding the execution and delivery of this Agreement.
Notwithstanding anything to the contrary herein, the Borrower further confirms
to and agrees with the Banks and the Exiting Lenders that the Warrant Documents
(as defined in the Existing Credit Agreement) and the Registration Rights
Agreement relating thereto shall each remain in full force and effect and are
hereby ratified and affirmed in all respects by the Borrower.

     SECTION 9.19 EXITING LENDERS. On the Closing Date, the aggregate unpaid
principal amount of the Existing Loans made by each Exiting Lender under the
Existing Credit Agreement and related Note issued to such Exiting Lender
thereunder, together with all interest and fees provided for in the Existing
Credit Agreement (as to any Exiting Lender, its "Payoff Amount"), shall be
repaid in full from the proceeds of Loans made by the Banks and other funds
provided by the Borrower, and the commitments of the Exiting Lenders under the
Existing Credit Agreement or hereunder, as the case may be, shall terminate. The
Borrower shall give the Agent notice with respect to such Payoff Amount with
respect to each Exiting Lender. The Agent shall distribute to each Exiting
Lender by not later than 5:00 P.M. (Minneapolis time) on the Exit Date out of
the proceeds of the Loans made for such purpose and from the other funds
provided by the Borrower, the amount required to pay such Exiting Lender's
Payoff Amount in full, whereupon: (a) such Exiting Lender shall no longer be a
party to the Existing Credit Agreement or this Agreement, as the case may be
(except to the extent provided in Section 9.10 thereof with respect to the
survival of certain provisions, which shall remain in effect as to the Exiting
Lenders); and (b) such Exiting Lenders shall not be deemed to be a "Bank"
hereunder (except for purposes of the forgoing clause (a).

                                       68

<PAGE>

     SECTION 9.20 RELEASE OF NORSTAN CANADA SECURITY DOCUMENTS. Upon and after
the Closing Date, (a) the Guaranty and Security Agreement (each as defined in
the Existing Credit Agreement) of Norstan Canada are hereby released and
discharged and (b) the Agent authorizes the Borrower to file with the
appropriate filing authorities financing statements and other appropriate
termination documents or notices (each in the form approved in advance by the
Agent's counsel in its reasonable discretion) terminating the financing
statements and Canadian lien perfection notices filed by the Agent with respect
to the Security Agreement of Norstan Canada.

            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

                                       69

<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.

                                                    NORSTAN, INC.

                                                    By:  /s/ Scott G. Christian
                                                         -----------------------
                                                    Its: EVP & CFO

                                                    Address:

                                                    5101 Shady Oak Road
                                                    Minnetonka, MN  55343
                                                    Attention:  Robert J. Vold

                                                    With copies to:

                                                    Mr. Clark Whitmore
                                                    Maslon Edelman Borman &Brand
                                                    3300 Norwest Center
                                                    Minneapolis, MN  55402

                 Signature Page to Second Amended and Restated
                      Credit Agreement dated July 12, 2002

                                       S-1

<PAGE>

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

                                                   By:  /s/ Nicholas G. Myers
                                                        ------------------------
                                                   Its: Assistant Vice President

                                                   Address:

                                                   U.S. Bank Place
                                                   601 Second Avenue South
                                                   Minneapolis, MN 55402-4302
                                                   Attention:  Nicholas Myers
                                                   Telecopier:612/973-0823

                 Signature Page to Second Amended and Restated
                      Credit Agreement dated July 12, 2002

                                       S-2

<PAGE>

                                                  M&I MARSHALL & ILSLEY
                                                  BANK

                                                  By:  /s/ John W. Howard  Jr.
                                                       -------------------------
                                                  Its: Senior Vice President

                                                  By:  /s/ Gene Bygd
                                                       -------------------------
                                                  Its: Vice President

                                                  Address for Notices:

                                                  651 Nicollet Mall
                                                  Minneapolis, MN  55402
                                                  Attention:  John (Chip) Howard
                                                  Telecopier:  612/904-8015

                 Signature Page to Second Amended and Restated
                      Credit Agreement dated July 12, 2002

                                       S-3

<PAGE>

                                                 SCHEDULE 1.1B TO SECOND AMENDED
                                                   AND RESTATED CREDIT AGREEMENT

                               LENDING COMMITMENTS

<TABLE>
<CAPTION>
--------------------------------------- ------------------------- --------------------------
Bank                                    Revolving                 Term Loan
                                        Commitment                Commitment
                                        Amount                    Amount
--------------------------------------- ------------------------- --------------------------
<S>                                     <C>                       <C>
U.S. Bank National Association          $14,000,000               $6,000,000
--------------------------------------- ------------------------- --------------------------
M&I Marshall &
Ilsley Bank                             $7,000,000                $3,000,000
--------------------------------------- ------------------------- --------------------------
Totals                                  $21,000,000               $9,000,000
--------------------------------------- ------------------------- --------------------------
</TABLE>

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