Document:

Prepared by MerrillDirect

CREDIT AGREEMENT

BY AND AMONG

NORSTAN, INC.

U.S.  BANK NATIONAL ASSOCIATION

HARRIS TRUST AND SAVINGS BANK

M&I MARSHALL & ILSLEY BANK

WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION

 

Table of Contents

	
    
  	
    
  
	
  ARTICLE I
  DEFINITIONS AND ACCOUNTING TERMS
  
	
  Section 1.1
  	
  Defined Terms.
  
	
  Section 1.2
  	
  Accounting Terms and Calculations.
  
	
  Section 1.3
  	
  Computation of Time Periods.
  
	
  Section 1.4
  	
  Other Definitional Terms.
  
	
  ARTICLE II
  TERMS OF THE CREDIT FACILITIES
  
	
  Section 2.1
  	
  Lending Commitments; Purposes.
  
	
  Section 2.2
  	
  Procedure for Revolving Loans.
  
	
  Section 2.3
  	
  Notes.
  
	
  Section 2.4
  	
  Interest Rates, Interest Payments and Default Interest.

  
	
  Section 2.5
  	
  Repayment; Payment to Holding Account.
  
	
  Section 2.6
  	
  Mandatory and Optional Prepayments.
  
	
  Section 2.7
  	
  Issuance and Renewal of Letter of Credit Drawings; Repayments;
  Bank Participations.
  
	
  Section 2.8
  	
  Optional Reduction of Revolving Commitment Amounts or
  Termination of Revolving Commitments.
  
	
  Section 2.9
  	
  Unused Revolving Commitment Fees.
  
	
  Section 2.10
  	
  Letter of Credit Fees.
  
	
  Section 2.11
  	
  Computation.
  
	
  Section 2.12
  	
  Certain Fees.
  
	
  Section 2.13
  	
  Payments.
  
	
  Section 2.14
  	
  Revolving Commitment Ending Date.
  
	
  Section 2.15
  	
  Use of  Loan Proceeds.
  
	
  Section 2.16
  	
  Capital Adequacy.
  
	
  Section 2.17
  	
  Collection of Accounts and Payments.
  
	
  ARTICLE III CONDITIONS
  PRECEDENT
  
	
  Section 3.1
  	
  Conditions of Initial Loans.
  
	
  Section 3.2
  	
  Conditions Precedent to all Loans.
  
	
  ARTICLE IV
  REPRESENTATIONS AND WARRANTIES 
  
	
  Section 4.1
  	
  Organization, Standing, Etc.
  
	
  Section 4.2
  	
  Authorization and Validity.
  
	
  Section 4.3
  	
  No Conflict; No Default.
  
	
  Section 4.4
  	
  Government Consent.
  
	
  Section 4.5
  	
  Financial Statements and Condition.
  
	
  Section 4.6
  	
  Litigation.
  
	
  Section 4.7
  	
  Environmental, Health and Safety Laws.
  
	
  Section 4.8
  	
  ERISA.
  
	
  Section 4.9
  	
  Federal Reserve Regulations.
  
	
  Section 4.10
  	
  Title to Property; Leases; Liens; Subordination.

  
	
  Section 4.11
  	
  Taxes.
  
	
  Section 4.12
  	
  Trademarks, Patents.
  
	
  Section 4.13
  	
  Burdensome Restrictions.
  
	
  Section 4.14
  	
  Force Majeure.
  
	
  Section 4.15
  	
  Investment Company Act.
  
	
  Section 4.16
  	
  Public Utility Holding Company Act.
  
	
  Section 4.17
  	
  Retirement Benefits.
  
	
  Section 4.18
  	
  Full Disclosure.
  
	
  Section 4.19
  	
  Subsidiaries.
  
	
  Section 4.20
  	
  Primary Distribution Facilities.
  
				

 

 

	
  Section 4.21
  	
  Not less than 90% of the aggregate Inventory (determined at
  cost) of the Borrower and the Subsidiaries is stored at the Primary
  Distribution Facilities.
  
	
  ARTICLE V
  AFFIRMATIVE COVENANTS
  
	
  Section 5.1
  	
  Financial Statements and Reports.
  
	
  Section 5.2
  	
  Corporate Existence.
  
	
  Section 5.3
  	
  Insurance.
  
	
  Section 5.4
  	
  Payment of Taxes and Claims.
  
	
  Section 5.5
  	
  Inspection.
  
	
  Section 5.6
  	
  Maintenance of Properties.
  
	
  Section 5.7
  	
  Books and Records.
  
	
  Section 5.8
  	
  Compliance.
  
	
  Section 5.9
  	
  Notice of Litigation.
  
	
  Section 5.10
  	
  ERISA.
  
	
  Section 5.11
  	
  Environmental Matters; Reporting.
  
	
  Section 5.12
  	
  Landlord Waivers.
  
	
  Section 5.13
  	
  First Intercreditor Agreement.
  
	
  Section 5.14
  	
  Restructuring Plan.
  
	
  Section 5.15
  	
  Canadian Perfection Instruments.  Within 1- days of any
  written request by the Agent or its counsel, the Borrower shall, or will
  cause any applicable Subsidiary to execute and deliver to the Agent (a) such
  documents or instruments in a form prescribed by the Agent to perfect the
  Agent’s security interest in any Collateral located in Canada or any province
  thereof.
  
	
  ARTICLE VI NEGATIVE
  COVENANTS 
  
	
  Section 6.1
  	
  Merger.
  
	
  Section 6.2
  	
  Sale of Assets.
  
	
  Section 6.3
  	
  Plans.
  
	
  Section 6.4
  	
  Change in Nature of Business.
  
	
  Section 6.5
  	
  Subsidiaries.
  
	
  Section 6.6
  	
  Negative Pledges; Subsidiary Restrictions.
  
	
  Section 6.7
  	
  Restricted Payments.
  
	
  Section 6.8
  	
  Capital Expenditures.
  
	
  Section 6.9
  	
  Subordinated Debt.
  
	
  Section 6.10
  	
  Investments.
  
	
  Section 6.11
  	
  Indebtedness.
  
	
  Section 6.12
  	
  Liens.
  
	
  Section 6.13
  	
  Contingent Obligations.
  
	
  Section 6.14
  	
  Transactions with Affiliates.
  
	
  Section 6.15
  	
  Intentionally Omitted.
  
	
  Section 6.16
  	
  Minimum EBITDA.
  
	
  Section 6.17
  	
  Cash Flow Leverage Ratio.
  
	
  Section 6.18
  	
  Adjusted Leverage Ratio.
  
	
  Section 6.19
  	
  [Interest Coverage Ratio.
  
	
  Section 6.20
  	
  Loan Proceeds.
  
	
  Section 6.21
  	
  Ericsson Documents.
  
	
  ARTICLE VII
  EVENTS OF DEFAULT AND REMEDIES`
  
	
  Section 7.1
  	
  Events of Default.
  
	
  Section 7.2
  	
  Remedies.
  
	
  Section 7.3
  	
  Offset.
  
	
  ARTICLE VIII THE AGENT

  
	
  Section 8.1
  	
  Appointment and Authorization.
  
	
  Section 8.2
  	
  Note Holders.
  
	
  Section 8.3
  	
  Consultation With Counsel.
  
	
  Section 8.4
  	
  Loan Documents.
  
	
  Section 8.5
  	
  U.S. Bank and Affiliates.
  
	
  Section 8.6
  	
  Action by Agent.
  
	
  Section 8.7
  	
  Credit Analysis.
  
	
  Section 8.8
  	
  Notices of Event of Default, Etc.
  
	
  Section 8.9
  	
  Indemnification.
  
	
  Section 8.10
  	
  Payments and Collections.
  
	
  Section 8.11
  	
  Sharing of Payments.
  
	
  Section 8.12
  	
  Advice to Banks.
  
	
  Section 8.13
  	
  Resignation.
  
	
  Section 8.14
  	
  Defaulting Bank.
  

 

 

	
  ARTICLE IX MISCELLANEOUS
  
	
  Section 9.1
  	
  Modifications.
  
	
  Section 9.2
  	
  Expenses.
  
	
  Section 9.3
  	
  Waivers, etc.
  
	
  Section 9.4
  	
  Notices.
  
	
  Section 9.5
  	
  Taxes.
  
	
  Section 9.6
  	
  Successors and Assigns; Disposition of Loans; Transferees.

  
	
  Section 9.7
  	
  Confidentiality of Information.
  
	
  Section 9.8
  	
  Governing Law and Construction.
  
	
  Section 9.9
  	
  Consent to Jurisdiction.
  
	
  Section 9.10
  	
  Survival of Agreement.
  
	
  Section 9.11
  	
  Indemnification.
  
	
  Section 9.12
  	
  Captions.
  
	
  Section 9.13
  	
  Entire Agreement.
  
	
  Section 9.14
  	
  Counterparts.
  
	
  Section 9.15
  	
  Borrower Acknowledgements.
  
	
  Section 9.16
  	
  Effect of Existing Credit Agreement.
  
	
  Section 9.17
  	
  Reaffirmation of Security Documents.
  
	
  Section 9.18
  	
  General Release.
  
	
  Section 9.19
  	
  Events of Default under Existing Credit Agreement and Waiver.

  
	
  EXHIBIT A
  	
  Borrowing Base Certificate
  
	
  Exhibit B
  	
  Revolving Note
  
	
  Exhibit C
  	
  Term Note A
  
	
  Exhibit D
  	
  Term Note B
  
	
  Exhibit E
  	
  Term Note C
  
	
  Schedule 1.1B
  	
  Commitment Amounts
  
	
  Schedule 4.6
  	
  Litigation
  
	
  Schedule 4.19
  	
  Subsidiaries
  
	
  Schedule 4.20
  	
  Primary Distribution Facilities
  
	
  Schedule 6.10
  	
  Investments
  
	
  Schedule 6.11
  	
  Indebtedness
  
	
  Schedule 6.12
  	
  Liens
  
	
  Schedule 6.13
  	
  Contingent Obligations
  
	 
  	 
  	 
  	 
  
				

 

 

AMENDED
AND RESTATED CREDIT AGREEMENT

         
THIS AMENDED AND RESTATED CREDIT AGREEMENT, dated as of December 20, 2000, 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 and the Agent are
parties to a Credit Agreement dated as of July 23, 1996, as amended by a
First Amendment dated as of October 11, 1996, a Second Amendment dated as
of September 26, 1997, a Third Amendment dated as of March 20, 1998,
a Fourth Amendment dated as of July 23, 1998, a Fifth Amendment dated as
of September 28, 1998, a Sixth Amendment dated as of October 21,
1998, a Seventh Amendment dated as of May 31, 1999, an Eighth Amendment
dated January 25, 2000, a Ninth Amended dated as of April 26, 2000, a
Tenth Amendment dated as of June 30, 2000 and an Eleventh Amendment dated
as of July 28, 2000 (as so amended, the “Existing Credit Agreement”).

         
B.       Pursuant to the Existing Credit
Agreement, as of the Closing Date, the Banks have advanced, and there remain
outstanding, Revolving Loans (as defined in the Existing Credit Agreement) in
the aggregate principal amount of $67,950,000 (the “Existing Revolving
Loans”).  Further, pursuant to the Credit Agreement, the Existing Defaults
(as defined below) have occurred and are continuing as of the Closing Date.

         
C.      The Borrower has requested the Banks to waive
the Existing Defaults and restructure the credit facilities under the Existing
Credit Agreement.  The Banks are willing to waive the Existing Defaults
and restructure the credit facilities upon the terms and subject to the
conditions of this 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 amend and restate the Existing Credit Agreement in the
entirety and agree 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).

         
“Adjusted Leverage Ratio”:  At the time of any determination, the
ratio of (a) Total Indebtedness to (b) Tangible Net Worth, all as determined in
accordance with GAAP.

         
“Advance”:  Any portion of the outstanding Revolving Loans by a
Bank.

         
“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, five 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,
five percent of more of the voting stock (or if such Person is not a
corporation, five 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.

         
“Agent Fee”:  As defined in Section 2.12.

         
“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”:  With respect to:

         
(a)      the Revolving Loans – 2.50%;

         
(b)      the Term A Loans – 3.50%; provided, that, on
and after January 31, 2001, the Applicable Margin with respect to Term A
Loans shall be increased to 4.50%;

         
(c)      the Term B Loans – 3.50%; provided, that, on
and after January 31, 2001, the Applicable Margin with respect to the Term
B Loans shall be increased to 4.50%; and

         
(d)      the Term C Loans – 3.50%.

         
“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, the Warrant,
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)      70% 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, plus

         
(c)      the Borrowing Base Supplement.

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

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

         
“Borrowing Base Supplement”:  $5,000,000.

         
“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.

         
“Canadian Account”:  As defined in Section 2.17(d).

         
“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).

         
“Closing Date”:  December 20, 2000.

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

         
“Collateral Account”:  As defined in Section 2.17(a).

         
 “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.

         
“Deposit Day”:  As defined in Section 2.17(b).

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

         
“EBITDA”:  For any period of determination, the sum of the
consolidated net income of the Borrower before deductions for income taxes,
Interest Expense, depreciation and amortization, and calculated prior to
extraordinary gains, all as determined in accordance with GAAP.

         
“Eligible Accounts”:  The right of the Borrower or any Eligible
Subsidiary 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 or any Eligible Subsidiary 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 or any Eligible Subsidiary 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, (v) the United States or any department,
agency or instrumentality thereof, unless Borrower or such Subsidiary shall
have complied with the Assignment of Claims Act in the case of the United
States or any agency or instrumentality thereof, or (vi) a province, county or
local governmental authority (other than a state authority or any agency,
department or instrumentality thereof), or agency, department or
instrumentality thereof;

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

         
(d)      is subject to a perfected first security
interest in favor of the Agent and 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)       except as provided in subsection (h) of
this definition, is not unpaid more than 90 days (or, in the case of invoices
for goods sold, or services rendered, by Norstan Network Services, Inc., 60
days) from the date of the relevant invoice;

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

         
(h)      does not constitute progress or final payment
obligations for computer or telephone systems delivered, and to be installed,
by the Borrower or a Subsidiary, unless (i) the related inventory or equipment
has been sufficiently identified to the applicable invoice and (ii) the related
account is not unpaid  more than 60 days from the date of the applicable
invoice;

         
(i)       is not a right to payment arising under
a lease of equipment by the Borrower or any Eligible Subsidiary to any Person;

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

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

         
(l)       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 periods set forth in subsections (f) or (h), as applicable, of
this definition;

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 or any
Eligible Subsidiary 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)      is subject to a perfected, first priority
security interest in favor of the Agent free and clear of all other Liens and
is not leased to any Person;

         
(b)      is located at one of the locations set forth
in the Security Agreements or in any schedule delivered pursuant thereto as a
location at which inventory is kept, and if such location constitutes a Primary
Distribution Facility, the Agent has received a landlord's or warehouseman's
waiver in form and substance acceptable to the Agent covering the inventory
kept at such location,

         
(c)      is not in transit to any location other than
a location set forth in the Security Agreements or in any schedule delivered
pursuant thereto as a location at which inventory is kept;

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

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

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

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

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

         
(i)       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;

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

         
(k)      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; and

         
(l)       does not constitute over-ordered custom
switches;

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.

         
“Eligible Subsidiary”:  Any Guarantor other than (a) Norstan Canada
and Norstan-UK Limited and (b) with respect to any determination of Eligible
Inventory, NFS and Norstan  Consulting, Inc.

         
“Ericsson Acquisition”:  Any transaction or series of
contemporaneously consummated transactions to be completed pursuant to the
Ericsson Acquisition Documents whereby NCI shall acquire the assets comprising
the United States and Canada distribution channels of Ericsson, Inc.

         
“Ericsson Acquisition Documents”:  All agreements, instruments,
certificates and other documents, each in form and substance acceptable to the
Borrower and the Banks, to be executed and delivered by the Borrower or any
Subsidiary pursuant to or in connection with the Ericsson Acquisition, as the
same may be supplemented, amended or otherwise modified in a manner acceptable
to the Banks

         
“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.

         
“Event of Default”:  Any event described in Section 7.1.

         
“Excess Cash Flow”:  As of end of each fiscal quarter of the
Borrower, commencing with the fiscal quarter ending on or about January 31,
2001, determined for such quarter on a consolidated basis for the Borrower and
its Subsidiaries in accordance with GAAP, the remainder of

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

         
(b)      the sum, without duplication, of (i) income
taxes paid in cash or accrued by the Borrower or any Subsidiary during such
period, (ii) the aggregate amount of Capital Expenditures, if any (but only to
the extent such Capital Expenditures were permissible under Section 6.8 during
such period) minus Indebtedness incurred to finance such Capital
Expenditures and secured solely by Liens on the property acquired, and (iii)
Interest Expense actually paid during such period.

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

         
“Existing Defaults”:  As defined in Section 9.19.

         
“Existing Revolving Loans”:  As defined in Recital B of this
Agreement.

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

         
“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.

         
“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.

         
“Funding Reserve”:  As defined in Section 2.1(a).

         
“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.

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

         
“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.

         
“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 the Existing 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, (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 Coverage Ratio”:  As of the last day of any month, the
ratio of (a) EBITDA for such month, to (b) Interest Expense, in each case
determined for said period 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, 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 cost of goods sold incurred in the
ordinary course of business by the Borrower or any Subsidiary in connection
with any sale or discounting of the NFS Lease Accounts or Norstan Canada Lease
Accounts, in each case determined in accordance with GAAP.

         
“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.

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

         
“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.

         
“Loan”:  A Revolving Loan, a Term A Loan, a Term B Loan or a Term C
Loan.

         
“Loan Documents”:  This Agreement, the Notes, the Warrant Documents
and the Security Documents.

         
“Lock Box”:  As defined in Section 2.17(a).

         
“Majority Banks”:  As of any date of determination, such Banks,
other than Defaulting Banks, holding at least 100% 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 100% of the
Aggregate Revolving Outstandings (with Total Percentages being computed without
reference to the Revolving Commitment Amounts of Defaulting Banks).

         
“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) the unpaid principal balance on the date of any such sale or
offering of any Indebtedness that is secured by a Lien not proscribed by
Section 6.12 and affecting such property, and which is required to be repaid on
the date of such sale or offering, (ii) any closing costs or selling costs
arising in connection with such sale or offering, and (iii) any sales or income
tax paid or payable by the Borrower in connection with such transaction or
event (excluding any tax for which the  Borrower is reimbursed by the
purchaser).

         
“NFS”:  Norstan Financial Services, Inc., a Minnesota corporation.

         
“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 A Note, a Term B Note, a Term C Note or a Revolving
Note.

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

         
“Payment Item”:  As defined in Section 2.17(a).

         
“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.

         
“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.

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

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

         
“Reference Rate”:  The rate of interest from time to time publicly
announced by the Agent as its “reference rate.”  The Agent may lend to its
customers at rates that are at, above or below the Reference Rate.  For
purposes of determining any interest rate hereunder or under any other Loan
Document which is based on the Reference Rate, such interest rate shall change
as and when the Reference Rate shall change.

         
“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.

         
“Restructuring Plan”:  As defined in Section 3.1(b).

         
“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 in Section 2.6(d) or Section 2.8.

         
“Revolving Commitment Ending Date”:  As defined in Section 2.14.

         
“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 the Existing 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.

         
“Siemens”:  Siemens Business Communication Systems, Inc.

         
 “Security Documents”:  The Guaranties, the Security
Agreements and any collateral assignment documents executed and delivered by
the Borrower or any Subsidiary under Section 3.1(a)(xv).

         
“Subordinated Debt”:  Any 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 in a writing delivered by Majority Banks to the
Borrower on or prior to the Closing Date.

         
“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
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 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 A Loan”:  As defined in Section 2.1.

         
“Term B Loan”:  As defined in Section 2.1.

         
“Term C Loan”:  As defined in Section 2.1.

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

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

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

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

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

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

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

         
“Term B Note”:  A promissory note of the Borrower in the form of Exhibit D
hereto.

         
“Term C Note”:  A promissory note of the Borrower in the form of Exhibit
E hereto.

         
“Total Indebtedness”:  At the time of any determination, the
amount, on a consolidated basis, of all Indebtedness of the Borrower and its
Subsidiaries 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 A
Loans, Term B Loans and Term C Loans of such Bank and the denominator of which
is the sum of the Aggregate Revolving Commitment Amounts (or, if the Revolving
Commitments have terminated, the Aggregate Revolving Outstandings) and the
outstanding Term A Loans, Term B Loans and Term C Loans of all the Banks.

         
“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.

         
“Warrant Issuance Agreement”:  Warrant Issuance Agreement dated
concurrently herewith between the Borrower and the Banks, as the same may be
amended, restated or otherwise modified from time to time.

         
“Warrant Registration Agreement”:  Registration Rights Agreement
dated concurrently herewith between the Borrower and the Banks, as the same may
be amended, restated or otherwise modified from time to time.

         
“Warrants”:  Warrants for the purchase of the Borrower’s common
stock issued from time to time by the Borrower to the Banks pursuant to the
Warrant Issuance Agreement.

         
“Warrant Documents”:  The Warrant Registration Agreement, the
Warrant Issuance Agreement and the Warrants.

         
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, provided,
further, that the initial Revolving Loans will not be made if, after
giving effect to such Loans, the excess of the Borrowing Base (calculated
exclusive of the Borrowing Base Supplement) over the Aggregate Revolving
Outstandings is less than $3,000,000 (the “Funding Reserve”).

         
(b)      Term A Loans.  Upon
the Closing Date, each Bank shall make available to the Borrower a term loan
(each being a “Term A Loan” and, collectively, the “Term A Loans”) in an amount
by such Bank equal to its Term A Loan Commitment Amount, which Term A
Loans shall refinance $15,000,000 of the Existing Revolving Loan Obligations.

         
(c)      Term B Loans.  Upon
the Closing Date, each Bank shall make available to the Borrower a term loan
(each being a “Term B Loan” and, collectively, the “Term B Loans”) in an
amount by such Bank equal to its Term B Loan Commitment Amount, which
Term B Loans shall refinance $15,000,000 of the Existing Revolving Loan
Obligations.

         
(d)      Term C Loans.  Upon
the Closing Date, each Bank shall make available to the Borrower a term loan
(each being a “Term C Loan” and, collectively, the “Term C Loans”) in an
amount by such Bank equal to its Term C Loan Commitment Amount, which
Term C Loans shall refinance $18,000,000 of the Existing Revolving Loans
Obligations.

          Section 2.2  Procedure for Revolving Loans.

         
(a)      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) on the requested
Revolving Loan Date (which shall be a Business Day).  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) 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 (iv) 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
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.

         
(b)      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.  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 Reference Rate plus the Applicable Margin for Revolving Loans plus
two percent (2.00%).

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

         
(a)      Each Loan shall bear interest
on the unpaid principal amount thereof at a rate per annum equal to the sum of
(i) the Reference Rate, plus (ii) the Applicable Margin for such Loan.

         
(b)      Upon the occurrence of any
Event of Default, each Loan shall, at the option of the Majority Banks, bear
interest until paid in full at a rate per annum equal to the sum of the rate
otherwise applicable to such Loan plus 2.0%.  The Agent shall furnish the
Borrower with prompt written notice of the exercise of the option under the
foregoing sentence.

         
(c)      Interest shall be payable on
the last day of each month; provided, that interest under Section 2.4 (b) 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 A Loan.  The
Term A Loan, together with all accrued and unpaid interest thereon, shall be
due and payable on March 30, 2001;

         
(c)      Term B Loan.  The
Term B Loan shall be payable as follows (a) an installment of principal in the
amount of $10,000,000 shall be due and payable on March 30, 2001

         
and (b) an installment equal to all remaining principal thereon, and all
accrued and unpaid interest thereon, shall be due and payable on June 29, 2001;

         
(d)      Term C Loan.  The
Term C Loan, together with all accrued and unpaid interest thereon, shall be
due and payable on June 29, 2001; and

         
(e)      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 Existing Letter of Credit.

         
Section 2.6  Mandatory and Optional Prepayments.

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

          (b)      Mandatory
Prepayment of Revolving Loans.

         
(i)       If at any time the Aggregate Revolving
Outstandings exceed the Aggregate Revolving Commitment Amounts (including but
not limited to any excess caused by a reduction in the Revolving Commitment
Amounts pursuant to Section 2.6(d) or Section 2.8 hereof), the Borrower shall
repay the Revolving Notes in an aggregate amount equal to such excess, which
prepayment shall be apportioned among the Banks’ 

Revolving Notes in accordance with their respective Revolving Outstandings
Percentages.

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

         
(c)      Mandatory Prepayments Due to
Asset Sales and Securities Issuances.  On the date of the occurrence
of any of the following events, the Borrower shall prepay the Loans in an
aggregate amount of 100% of the Net Proceeds received in cash by the Borrower
or any Subsidiary as a result of any of the following events: (A) sales or
other transfers of NFS Lease Accounts and Norstan Canada Lease Accounts, and
the related leases and equipment that are authorized by Section 6.2(d) and (e);
(B) sales of any assets of the Borrower or any Subsidiary, other than sales of
inventory in the ordinary course of business or sales of obsolete or worn-out
equipment (but this subsection 2.6(c) does not authorize any such sales, which
are subject to Section 6.2 hereof); or (C) any public or private sale or
offering by the Borrower of its capital stock or debt securities.  Any
such prepayments shall be applied, in the following order by the Agent to the
Loans ratably to each Bank according to its Revolving Commitment Percentage,
Term A Loan Percentage, Term B Loan Percentage or Term C Loan
Percentage, as applicable:  (i) first, to unpaid principal balance of the
Term A Loan, (ii) second, to the unpaid principal balance of the Term B
Loan, in the order of the maturities of the installments thereon, (iii) third,
to the unpaid principal balance of the Term C Loan, (iv) fourth, to the unpaid
principal balance of the Revolving Loans (other than the reimbursement
obligations with respect to the Existing Letter of Credit) and (v) fifth,
to the Holding Account in the amount of the aggregate face amount of the
Existing Letter of Credit.

         
(d)      Permanent Reduction and
Conditional Increase of Revolving Commitments.  If and only if, prior
to March 30, 2001, the Term A Loans and Term B Loans are prepaid by prepayments
applied to such Loans pursuant to Section 2.6(c) in an amount not less than
$15,000,000, then the Revolving Commitment Amounts shall be increased ratably
by an amount equal to ten percent of the aggregate amount of such prepayments, provided,
that, notwithstanding the foregoing, the Revolving Commitment Amounts which are
from time to time in effect shall be reduced ratably by any prepayments applied
to the Revolving Loans or paid to the Holding Account pursuant to Section
2.6(c).  Except as provided in the preceding sentence, accounts prepaid
pursuant to Section 2.6(c) cannot be reborrowed.

         
(e)      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(e) 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.

         
(f)       Excess Cash Flow. 
On or before 30 days after the end of the Borrower’s fiscal quarters ending
January 31, 2001 and April 30, 2001, the Borrower shall prepay the Term C Loans
in an amount equal to 50% of the Excess Cash Flow for such fiscal quarter. 
Amounts paid on the Term C Loans under this Section 2.6(f) shall be for the
account of each Bank according to its Term C Loan Percentage.

         
Section 2.7  Issuance and Renewal of Letter of Credit Drawings;
Repayments; Bank Participations.

         
(a)      Existing Letter of Credit. 
The Existing Letter of Credit shall be deemed to be issued and outstanding
under this Agreement on the Closing Date.  U.S. Bank shall have no
obligation to renew or extend the Existing Letter of Credit or to issue any
other letter of credit for the account of the Borrower.

         
(b)      Repayment.  In the
event of any drawing on the Existing 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 Existing 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.”

         
(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 the Existing Letter of Credit, in all drawings
(including Unpaid Drawings) made and honored under the Existing Letter of
Credit, in U.S. Bank’s reimbursement rights with respect to drawings (including
Unpaid Drawings) made and honored under the Existing 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 the Existing 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, the Existing Letter of
Credit, or any action taken or omitted to be taken by U.S. Bank under this
Agreement or the Existing Letter of Credit, including, without limitation, any
amounts (herein 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 the Existing
Letters 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 the Existing 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 the Existing 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 the Existing 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 the Existing 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 the Existing 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 the Existing
Letter of Credit, this Agreement, the transactions contemplated hereby, or any
unrelated transaction; or

         
(iii)     Any statement or any other document presented
under the Existing 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 the Existing Letter of
Credit or for any acts or omissions of any beneficiary, transferee or holder
thereof in connection therewith;

         
(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 the Existing 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 the Existing Letter
of Credit comply with the terms thereof.

         
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 $500,000; 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 the
Existing Letters of Credit is no longer 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 Existing
Letter of Credit.

         
Section 2.9  Unused Revolving Commitment Fees. 
The Borrower shall pay to the Agent for the account of each Bank fees (the
“Unused Revolving Commitment Fees”) in an amount determined by applying a rate
of one-quarter of one percent (0.25%) per annum to 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 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.  On January
31, 2001, the Borrower shall pay to the Agent, for the account of the Banks,
fees (collectively, “Letter of Credit Fees”) with respect to the Existing
Letter of Credit in an amount equal to 2.5 percent of the original face amount
of the Existing Letter of Credit, provided, that, if, during the period from
January 31, 2001 to January 31, 2002, the Existing Letter of Credit is
cancelled without being drawn, each Bank shall severally refund to the Borrower
a portion of the Letter of Credit Fee previously paid to such Bank by the
Borrower equal to the product of (i) the amount of the Letter of Credit Fee
paid to such Bank multiplied by (ii) a fraction, the numerator of which is the
number of days between (but not including) 

the day the Existing Letter of Credit is cancelled and January 31, 2002 and the
denominator of which is 365.  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.  The
Borrower shall pay to U.S. Bank for its own account, on demand, all fees
customarily charged by U.S. Bank with respect to the issuance, renewal,
amendment, administration or payment of the Existing Letter of Credit.

         
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          Certain
Fees.  

         
2.12(a) Agent Fee.  The Borrower shall pay to the Agent, for its
separate account, fees (“Agent Fees”) as provided for in a separate letter
agreement between the Borrower and the Agent.

         
2.12(b) Borrowing Base Fee.  If at anytime during any calendar
month, the Aggregate Revolving Outstandings exceeds the Borrowing Base
(calculated exclusive of the Borrowing Base Supplement) by any amount, the
Borrower shall, on or before the 10th day of the next following month, pay to
the Agent for the ratable benefit of the Banks a non-refundable fee in the
amount of $2,000.00.

         
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 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 29, 2001.

         
Section
2.15          Use of  Loan Proceeds.  The Term A Loan,
the Term B Loan and Term C Loan shall each refinance a portion (equal to the
principal amount of such Loan) of the Existing Revolving Loans.   The
initial Revolving Loans shall be used to refinance the Existing Revolving 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          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 Revolving Commitment
and/or its Loans and/or the Existing Letter of Credit or any Bank’s obligations
to make Revolving Loans 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
five days after written notice and demand from such Bank (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
2.17          Collection of Accounts and Payments.

          
(a)      Collection of
Accounts and Payments; Collateral Accounts.  Prior to the Closing
Date, the Borrower has established three post office boxes maintained by the
Bank (each, a “Lock Box”). From and after the Closing Date, each Lock Box shall
be under the sole dominion and control of the Agent for the benefit of the
Banks.  The Borrower shall cause, and shall cause each Subsidiary (other
than Norstan Canada) to cause, all Account Debtors of the Borrower or such
Subsidiary to direct all monies, checks, notes, drafts or any other payment
relating to, or proceeds of, Accounts or other Collateral (individually, a
“Payment Item,” and collectively, “Payment Items”) to a Lock Box. When the
Borrower or any Subsidiary (other than Norstan Canada) (or any shareholders,
directors, officers, employees, agents or those Persons acting for or in
concert with the Borrower or such Subsidiary) shall receive or come into the
possession or control of any Payment Item or Payment Items, including without
limitation any Payment Item directed to a Lock Box, then, immediately upon
receipt thereof, except as otherwise permitted in a writing signed by the
Agent, the Borrower, such Subsidiary or other party shall deposit the same or
cause the same to be deposited, in kind in precisely the form in which such
Payment Item was received (with all Payment Items endorsed if necessary for
collection) to a Lock Box or deliver such Payment Items, so endorsed, to the
Agent for deposit into a Lock Box.  All Payment Items deposited to any
Lock Box will be transferred each Business Day by the Agent from such Lock Box
to a collateral account maintained by the Agent for the ratable benefit of the
Banks (the “Collateral Account”). All Payment Items, both before and after
deposit into the Collateral Account, shall be the sole and exclusive property
of the Agent for the ratable benefit of the Banks.

 

         
(b)      Distributions from
Collateral Account.  Each Business Day on which Payment Items have
been deposited into the Collateral Account (the “Deposit Day”), the Agent shall
apply the funds represented by the Payment Items by automated clearing house
transfer as follows: (a) first, to the Banks ratably in accordance with their
Revolving Commitment Percentages for application to the principal outstanding
upon the Revolving Loans, and (b) second, if no Event of Default is continuing,
to the Borrower; provided, that, if an Event of Default is continuing, the
Agent shall apply such funds to the Obligations in such order of application
deemed appropriate by the Majority Banks.  Such transmittal shall be
effective one (1) day Business Day after the Deposit Day.  In the event
that a Payment Item or Payment Items deposited in the Collateral Account are
returned uncollected, the Agent may debit any separate general or operating
account maintained with the Agent by the Borrower by an amount equal to the sum
of such returned or uncollected Payment Items or debit the Collateral Account,
and, if such returned or uncollected Payment Items are not satisfied by debit
against any separate general or operating account maintained with the Agent by
the Borrower, the Agent may seek direct reimbursement from the Borrower in an
amount or the Collateral Account equal to the sum of such returned or
uncollected Payment Items. The Borrower agrees to reimburse the Agent, for any
and all returned or uncollected Payment Items received by the Agent. If any
returned or uncollected Payment Items are not satisfied by a debit against the
separate general or operating accounts maintained with the Agent by the
Borrower or by direct reimbursement from the Borrower, the Agent may make an
Advance under the Revolving Commitments in an amount equal to the sum of the
returned or uncollected Payment Items. In the event that the Revolving
Commitments shall have been terminated, or if an Advance under the Revolving
Commitments is not made for any reason whatsoever, and to the extent that the
Borrower has failed to reimburse the Agent for such returned or uncollected
Payment Items, the Banks shall indemnify the Agent ratably from any liability
pursuant to such returned or uncollected Payment Items in accordance with
Section 8.9.

         
(c)      Fees and Expenses of Agent. 
The Borrower agrees to pay the Agent any and all reasonable fees, costs and
expenses, including without limitation, the Agent’s customary fee for lock box
account services, which the Agent incurs in connection with the Lock Boxes and
collection of any Payment Item hereunder. As to Payment Items received by the
Agent in currency other than U.S. Dollars, the Secured Party may, in the
Secured Party’s sole discretion, convert such Payment Items to U.S. Dollars in
accordance with its customary practices for the purpose of application of such
Payment Items in accordance with the provisions hereof.

         
(d)      Canadian Account. 
The Borrower shall cause Norstan Canada to direct all proceeds from the sale of
all Collateral owned by Norstan Canada to an account (the "Canadian
Account") maintained with Bank of Montreal.  Such account shall be an
operating account for Norstan Canada from which it may draw amounts necessary
for its operations subject to the provisions and limitations of this Agreement. 
Within fifteen days following execution and delivery of this Agreement, the
Borrower shall provide to the Agent a letter, in form and substance acceptable
to the Agent, signed by an authorized officer of the Borrower addressed to the
Bank of Montreal irrevocably authorizing such bank to honor the instructions of
the Agent with respect to disposition of amounts on deposit in the Canadian
Account. The Agent at any time may contact such bank to verify the amount of
the funds in the Canadian Account.  After the occurrence of an Event of
Default, and during the continuance thereof, the Agent may instruct such bank
to forward to the Agent for deposit in the Collection Account all amounts held
in the Canadian Account.

         
(e)      Effect of Security Agreement. 
The terms of this Section 2.17 shall apply notwithstanding anything to the
contrary contained in the Security Agreement of the Borrower.

ARTICLE
III

CONDITIONS PRECEDENT

         
Section 3.1  Conditions of Initial Loans.  The
making of the initial Revolving Loans, the Term A Loans, the Term B Loans and
the Term C 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
described in clause xxii below) for each Bank:

         
(i)       A Revolving Note, a Term A Note, a Term
B Note and a Term C 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

         
(iii)     The Warrant Issuance Agreement and the Warrant
Registration Agreement, each in the form prescribed by the Banks and dated the
Closing Date, each duly executed by the Borrower.

         
(iv)     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.

         
(v)      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

         
(vi)     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.

         
(vii)    A certificate of good standing for the Borrower in the
jurisdiction of its incorporation and in any state where the nature of its
operation requires it to obtain authorization to do business as a foreign
corporation, certified by the appropriate governmental officials as of a date
acceptable to the Banks.

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

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

         
(x)      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.

         
(xi)     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.

         
(xii)    A certificate of good standing for each Guarantor in
the jurisdiction of its incorporation and in any state in which the nature of
its operations requires it to obtain authorization to do business as a foreign
corporation, certified by the appropriate governmental officials as of a date
acceptable to the Agent.

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

         
(xiv)   The Borrower shall furnished to the Agent a list, in a form
reasonably acceptable to the Agent, of all patents, trademarks and copyrights
owned by the Borrower or any Subsidiary and recorded with the U.S. Office of
Patents and Trademarks or U.S. Office of Copyrights, as applicable.

         
(xv)    The Agent shall have received collateral assignment
documents in a form reasonably acceptable to the Agent, covering the security
interest granted to the Agent in the applicable Security Agreement in the
patents, trademarks and copyrights registered by the Borrower or any Subsidiary
and recordable with the U.S. Office of Patents and Trademarks or U.S. Office of
Copyrights, as applicable, duly executed by the Borrower or such Subsidiary.

         
(xvi)   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.

         
(xvii)   A completed field survey and collateral audit by the Agent’s
examiners in form and substance acceptable to the Banks.

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

         
(xix)   A certificate executed by a duly authorized officer of the
Borrower certifying that the agreements between NCI and Siemens, and between
certain affiliates of Siemens and Communications Networks, Inc have not been
amended or otherwise modified since copies of such agreements were previously
furnished to the Banks, that such agreements remain in full force and effect as
of the Closing Date, there exists no default or event of default under such
agreements and neither the Borrower nor any Subsidiary has received a notice of
termination of any such agreements.

         
(xx)    [Reserved].

         
(xxi)   [Reserved].

         
(xxii)   A fee letter setting forth the Agent Fee, duly executed by
the Borrower.

         
(xxiii)  Proper financing statements (Form UCC-1) executed and suitable
for filing under the Uniform Commercial Code for all jurisdictions as may be
necessary or, in the opinion of the Agent, desirable to perfect the Liens
created under the Security Agreements.

         
(xxiv)  Completed UCC, tax lien and judgment and Canadian lien 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.

         
(xxv)  A list in form and substance acceptable to the Banks showing all
locations where the Borrower or any Subsidiary stores any inventory or
equipment and the approximate value, on a cost basis, of all inventory and
equipment stored at such locations as of the Closing Date.

         
(xxvi)  The Banks shall have confirmed that, upon the funding of the Loans
including the initial Revolving Loans, all accrued and unpaid interest upon the
existing revolving 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.

         
(b)      Retention of Advisor. 
The Borrower shall have retained an investment banker or other financial
advisor reasonably acceptable to the Banks, by one or more agreements
reasonably acceptable to the Banks, for the purpose of assisting the Borrower
in developing a strategy to maximize the value of the Borrower's assets and
minimize the Obligations, by asset dispositions (including identifying any
non-strategic assets for divestiture), financing or re-financing from other
lenders or otherwise, and in any event including specific actions to be taken
to reduce the Obligations, the dates by which such actions are to be completed,
and the expected dollar amounts of such reductions (the "Restructuring
Plan"), and either such Restructuring Plan has been delivered to the Banks
or the Borrower and its advisor have set a date acceptable to the Lenders for
delivery of the Restructuring Plan.

         
(c)      Amendment Fee.  The
Borrower shall have paid to the Agent for the ratable benefit of the Banks a
nonrefundable, amendment fee in the amount of 0.25% of the sum of the Aggregate
Revolving Commitments, the Term A Loans, the Term B Loans and the Term C Loans,
which amount shall be fully earned.

         
(d)      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.

         
(e)      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.

         
(f)       Funding Reserve. 
As a condition to the making of the initial Revolving Loan, the Borrower shall
satisfy the requirements of Section 2.1(a) with respect to the Funding
Reserve.

         
(g)      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.

         
(h)      Fees and Expenses. 
The Agent shall have received for itself and for the account of the Banks and
PriceWaterhouse Coopers, as applicable, 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, the Banks, PriceWaterhouse Coopers or counsel to the
Agent or the Banks 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 A Loans, Term B Loans and Term C Loans and the renewal of the
Existing 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 renewal of the Existing 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 renewal of
the Existing Letter of Credit or will exist after giving effect to the
Revolving Loans made on such date or the date the Existing Letter of Credit is
renewed.

         
(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)).

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 renew
the Existing Letter 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 (except for the transaction documents
existing on the Closing Date between NFS and Fleet) 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.

         
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, 2000
and its unaudited financial statements as at October 28, 2000 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 October 28, 2000 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.

         
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.

         
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.  The collateral
assignment documents furnished by the Borrower or any Subsidiary to the Agent
pursuant to Section 3.1(a)(xv) list all patents, trademarks and copyrights
registered by the Borrower or any Subsidiary and recorded with the U.S. Office
of Patents and Trademarks or U.S. Office of Copyrights, as applicable.

ARTICLE
V

AFFIRMATIVE COVENANTS

         
Until any obligation of the Banks hereunder to make the Loans, and any obligation
of U.S. Bank to renew the Existing 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 Existing
Letter 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 and consolidating 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 Arthur Andersen or other independent
certified public accountants of recognized national standing selected
by the Borrower and acceptable to the Agent, (ii) the consolidated financial
statements of the Borrower and the Subsidiaries consisting of at least
statements of operations and a consolidated balance sheet as at the end of such
year, and (iii) 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 45 days after the end of each month of the Borrower, (i) unaudited
consolidated and consolidating statements of operations for the Borrower and
the Subsidiaries for such month and for the year to date and 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 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.

         
(d)      As soon as practicable and in
any event within 45 days after the end of each month of the Borrower, a
statement signed by the chief financial officer of the Borrower demonstrating
in reasonable detail compliance (or noncompliance, as the case may be) with
Sections 6.8, 6.16, 6.18 and 6.19 as at the end of such month and stating that
as at the end of such month 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)      [Reserved].

         
(f)       Immediately upon 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)      Immediately upon 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)      [Reserved].

         
(l)       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.

         
(m)     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 quarterly audit of the Borrowing Base to be
conducted by the Agent.

         
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, all 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.

         
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
Section 8 of the Security Agreements.

         
Section 5.13         
Intercreditor Agreements.  Upon the written request by the
Agent, the Borrower will undertake its commercially reasonable best efforts to
obtain the execution and delivery of (a) the Fleet Intercreditor Agreement by
Fleet, the Borrower and any Subsidiary party thereto and (b) the LaSalle
Intercreditor Agreement by LaSalle, the Borrower and any Subsidiary party thereto.

         
Section 5.14         
Restructuring Plan.  The Borrower shall furnish the
completed Restructuring Plan to the Banks by the date specified pursuant to
Section 3.1(b), which Restructuring Plan shall: (i) contain the Borrower's and
its advisor's estimate of the value of the Borrower's assets, (ii) detail the
expected timing for implementation and completion of the Restructuring Plan and
the manner in which the Borrower proposes to operate its business during the
period through completion of the Restructuring Plan, and (iii) identify any
advisors, brokers or other professionals proposed to be retained by the
Borrower to implement the transactions contemplated by the Restructuring Plan.

         
Section 5.15         
Canadian Perfection Instruments.  Within 5 days of any
written request by the Agent or its counsel, the Borrower shall, or shall cause
any applicable Subsidiary to, execute and deliver to the Agent such documents
or instruments in a form prescribed by the Agent to perfect the Agent’s security
interest in any Collateral located in Canada or any province thereof.  In
addition to its obligations under Section 9.2, the Borrower shall pay upon
demand the reasonable fees and expenses of counsel retained by the Agent in
Canada to prepare and record the documents and instruments referred to in the
forgoing sentence and to prepare any customary opinion letters reflecting the
perfection of the Agent’s security interests effected by such documents and
instruments.

ARTICLE
VI

NEGATIVE COVENANTS

         
Until any obligation of the Banks hereunder to make the Loans, and any
obligation of U.S. Bank to renew the Existing 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 Existing
Letter 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, any Subsidiary may be merged with or liquidated
into the Borrower or any wholly-owned Subsidiary (if the Borrower or such
wholly-owned Subsidiary is the surviving corporation).

         
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 wholly-owned subsidiary;

         
(c)      [Reserved].

         
(d)      sales or other transfers of
(including the granting of security interests in) NFS Lease Accounts and
related leases, equipment and servicing arrangements made by NFS or NCI in
connection with the financing of NFS Lease Accounts (and related NFS leases),
subject to the following conditions: (i) the Net Proceeds of such financing are
applied pursuant to Section 2.6(c), (ii) the terms of such financing are (A)
without recourse to the Borrower (except as provided in Section 6.13(d)) and
(B) either without recourse to NFS and NCI or with recourse to NFS only in an
amount which does not exceed 20% of the amount of the financing with respect to
such NFS leases (exclusive of damages resulting from the gross negligence or
willful misconduct of NFS or breach of representations or warranties by NFS),
(iii) the advance rate on such NFS leases under such financing must be at least
80% of the total present value of the rental streams under such NFS leases and
(iv) no Event of Default is continuing or would result therefrom; and

         
(e)      sales or other transfers of
(including the granting of security interests in) Norstan Canada Lease Accounts
and related leases and equipment made by Norstan Canada in connection with the
financing of Norstan Canada Lease Accounts (and related Norstan Canada leases),
subject to the following conditions: (i) the terms of such financing are
(A) without recourse to the Borrower (except as provided in Section 6.13(d))
and (B) either without recourse to Norstan Canada or with recourse to Norstan
Canada only in an amount which does not exceed 30% of the amount of the
financing with respect to such Norstan Canada leases (exclusive of damages
resulting from the gross negligence or willful misconduct of Norstan Canada or
breach of representations or warranties by Norstan Canada), (ii) the advance
rate on such Norstan Canada leases under such financing must be at least 80% of
the total present value of the rental streams under such Norstan Canada leases,
(iii) the Net Proceeds of any such financing are applied pursuant to Section
2.6(c) and (iv) no Event of Default is continuing or would result therefrom.

         
Upon the consummation of any transaction of the type specified in
Sections 6.2(d) and (e) between NFS or Norstan Canada (as applicable) and a
financial institution, the Agent will execute and deliver to such financial
institution UCC-3 financing statements in form and substance reasonably
acceptable to such financial institution to partially release its security
interest in the property subject to such transaction, provided that the
Agent shall have no obligation to deliver any such release if such delivery is
not required pursuant to the Fleet Intercreditor Agreement, LaSalle
Intercreditor Agreement or other intercreditor agreement applicable to such
transaction.  The Borrower will furnish to the Agent not less than 10
days' written notice prior to the consummation of any transaction specified in Sections
6.2(d) and 6.2(e).

         
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 the
communications and information technology industries.

         
Section 6.5  Subsidiaries.  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 rohibit 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 incurred by NFS or Norstan Canada in
connection with any financing of NFS Lease Accounts and Norstan Canada Lease
Accounts (and related leases) permitted under Section 6.2, with respect to the
NFS Lease Accounts and Norstan Canada Lease Accounts so financed and any
related service 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.

         
Section 6.8  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 period: (a) during the period from the Closing Date
through January 31, 2001, $1,350,000, (b) during the period from February
1, 2001 through April 20, 2001, $1,350,000 and (c) during the period from May
1, 2001 through June 30, 2001, $1,350,000.

         
Section 6.9  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 6.10         
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;

         
(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 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 which are reasonably acceptable to the Majority
Banks;

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

         
(i)       Loans and advances by the
Borrower in the ordinary course of business (i) to NFS that do not exceed at
any one time an aggregate of (A) prior the consummation of any financing
pursuant to Section 6.2(d) occurring after the Closing Date, $9,000,000 and (B)
from and after the consummation of any financing pursuant to Section 6.2(d)
occurring after the Closing Date, $8,000,000; and (ii) to Norstan Canada to
finance lease account receivables that do not exceed at any one time an
aggregate of $6,000,000; provided that, in each case, no Event of Default is
then continuing or would result therefrom;

         
(j)       Loans and advances by the
Borrower to any Subsidiary (other than those specified in the forgoing
paragraph (i)) made in the ordinary course of business to finance the normal
operations of such Subsidiary, provided that no Event of Default is then
continuing or would result therefrom;

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

         
(l)       Loans to officers and
employees of the Borrower or any Subsidiary in the ordinary course of business
(other than indebtedness of the kind described in the following paragraph (m))
not exceeding at any one time an aggregate amount of $1,350,000 as to the
Borrower and all Subsidiaries combined;

         
(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)      Investments comprised of leases
of Inventory to, and outstanding contracts with, customers of the Borrower or
any Subsidiary, each in the ordinary course of business;

         
(p)      Such other investments of the
Borrower exceeding $10,000 in market value for each such investment, as are in
existence on the date hereof and listed in Schedule 6.10 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); and

         
(q)      The Ericsson Acquisition,
provided that each Bank has consented in writing in advance in its sole
discretion to the form and substance of the Ericsson Acquisition Documents.

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 6.11         
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)      Current Liabilities, other than
for borrowed money, incurred in the ordinary course of business.

         
(c)      Indebtedness existing on the
date of this Agreement and disclosed on Schedule 6.11 hereto, but not
including any extension or refinancing thereof.

         
(d)      Indebtedness secured by Liens
permitted under Section 6.12 hereof.

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

         
(f)       Indebtedness of NFS
incurred in connection with any financing of NFS Lease Accounts permitted under
Section 6.2(d).

         
(g)      Indebtedness of Norstan Canada
incurred in connection with any financing of Norstan Canada Lease Accounts
permitted under Section 6.2(e).

         
(h)      Indebtedness incurred by
Norstan Canada for working capital which is secured by the Existing Letter of
Credit; provided that the aggregate principal amount of such Indebtedness shall
not exceed the aggregate face amount of the Existing Letter of Credit.

         
(i)       Subordinated Indebtedness
and renewals thereof.

         
(j)       Contingent Obligations
permitted under Section 6.13.

         
(k)      Indebtedness of any Subsidiary
to the Borrower permitted by Section 6.10.

         
(l)       Indebtedness constituting
seller financing incurred in connection with the Ericsson Acquisition, provided
that each Bank has consented in writing in advance in its sole discretion to
the form and substance of the Ericsson Acquisition Documents.

         
Section 6.12         
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 6.12 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.

         
(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)      Purchase money mortgages,
liens, or security interests (which term for purposes of this subsection shall
include conditional sale agreements or other title retention agreements and
leases in the nature of title retention agreements) upon or in property
acquired after the date hereof, or mortgages, liens or security interests
existing in such property at the time of acquisition thereof, or, in the case
of any corporation which thereafter becomes a Subsidiary, mortgages, liens or
security interests upon or in its property, existing at the time such
corporation becomes a Subsidiary, provided that no such mortgage, lien or
security interest extends or shall extend to or cover any property of the
Borrower or any Subsidiary, as the case may be, other than the property then
being acquired and fixed improvements then or thereafter erected thereon.

         
(i)       Mortgages, liens, pledges
and security interests created by any Subsidiary as security for Indebtedness
owing to the Borrower or to another Subsidiary.

         
(j)       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.

         
(k)      Liens against the NFS Lease
Accounts, Norstan Canada Lease Accounts and related servicing arrangements
securing any financing permitted under Sections 6.2(d) or 6.2(e).

         
(l)       Purchase money liens
granted by NCI to Ericsson, Inc. against inventory sold by Ericsson, Inc. or
its affiliates to NCI, provided that each Bank has consented in writing in
advance in its sole discretion to the form and substance of the Ericsson
Acquisition Documents.

         
Section 6.13         
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 existing
on the date of this Agreement and described on Schedule 6.13
hereto; and;

         
(b)      The Borrower’s guaranty of the
indemnity obligations of NFS and Norstan Canada under any financing permitted to
be incurred by NFS or Norstan Canada under Section 6.2 and which indemnity
obligations relate to breaches of obligations, representations and warranties,
failure to perfect security interests and breaches of
administration or other services to be performed by NFS or Norstan Canada under
any lease.

         
Section 6.14         
Transactions with Affiliates.  Except as expressly
permitted by this Agreement, the Borrower will not, nor will it permit any of
its Subsidiaries to, directly or indirectly:  (a) make any Investment in
an Affiliate; (b) transfer, sell, lease, assign or otherwise dispose of any
Property to an Affiliate if the aggregate book value of all properties
transferred, sold, leased, assigned or otherwise disposed of at any time would
exceed $100,000; (c) merge into or consolidate with or purchase or acquire
Property from an Affiliate; or (d) enter into any other transaction directly or
indirectly with or for the benefit of an Affiliate (including, without
limitation, guarantees and assumptions of obligations of an Affiliate);
provided that (x) any Affiliate who is an individual may serve as a director,
officer or employee of the Borrower or any of its Subsidiaries and receive
reasonable compensation for his or her services in such capacity and (y) the
Borrower and its Subsidiaries may enter into transactions (other than
extensions of credit by the Borrower or any of its Subsidiaries to an
Affiliate) providing for the leasing of Property, the rendering or receipt of
services or the purchase or sale of inventory and other Property in the
ordinary course of business if the monetary or business consideration arising
therefrom would be substantially as advantageous to the Borrower and its
Subsidiaries as the monetary or business consideration which would obtain in a
comparable transaction with a Person not an Affiliate.

         
Section 6.15         
Intentionally Omitted.

         
Section 6.16         
Minimum EBITDA.  The Borrower will not permit EBITDA, as of
the last day of the Borrower’s fiscal months ended on or about the following
dates for such fiscal month, to be less than the following indicated amounts:

	 

  	
  Fiscal Month Ended On or About
  
  

  
  	
  Minimum EBITDA
  
  

  
  
	 
  	
     December
  31, 2000
  	
  ($250,000)
  
	 
  	
     January
  31, 2001
  	
  ($150,000)
  
	 
  	
     February
  28, 2001
  	
  $2,195,000
  
	 
  	
     March
  31, 2001
  	
  $2,359,000
  
	 
  	
     April
  30, 2001
  	
  $2,095,000
  
	 
  	
     May
  31, 2001
  	
  $1,659,000
  
	 
  	
     June
  30, 2001
  	
  $1,685,000
  

 

         
Section 6.17         
[Reserved].

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

 

	 

  	
  Fiscal Month Ended On or About
  
  

   
  	
  Maximum Adjusted Leverage Ratio
  
  

   
  
	 
  	
     December
  31, 2000
  	
  12.1 to 1.0
  
	 
  	
     January
  31, 2001
  	
  14.0 to 1.0
  
	 
  	
     February
  28, 2001
  	
  13.7 to 1.0
  
	 
  	
     March
  31, 2001
  	
  13.2 to 1.0
  
	 
  	
     April
  30, 2001
  	
  12.9 to 1.0
  
	 
  	
     May
  31, 2001
  	
  12.9 to 1.0
  
	 
  	
     June
  30, 2001
  	
  13.0 to 1.0
  

 

         
Section 6.19         
Interest Coverage Ratio.  The Borrower will not permit the
Interest Coverage Ratio, as of the last day of the Borrower’s fiscal months
ended on or about the following dates for such fiscal month, to be less than
the following indicated amounts:

	 

  	
  Fiscal Month Ended
  On or About
  
  

   
  	
  Minimum Interest Coverage Ratio
  
  

   
  
	 
  	
     December
  31, 2000
  	
  (0.3) to 1.0
  
	 
  	
     January
  31, 2001
  	
  (0.3) to 1.0
  
	 
  	
     February
  28, 2001
  	
  3.9 to 1.0
  
	 
  	
     March
  31, 2001
  	
  3.6 to 1.0
  
	 
  	
     April
  30, 2001
  	
  4.2 to 1.0
  
	 
  	
     May
  31, 2001
  	
  3.5 to 1.0
  
	 
  	
     June
  30, 2001
  	
  2.8 to 1.0
  

 

         
Section
6.20          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
6.21          Ericsson Documents.  The Borrower
will not default under any Ericsson Acquisition Document, nor agree to any
amendment, modification, cancellation, or termination of any Ericsson
Acquisition Document.

         
Section
6.22          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.

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 2.17, 5.2, 5.3, 5.12, 5.13, 5.14 or 5.15 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.

         
(h)      A judgment or judgments for the
payment of money in excess of the sum of $300,000 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 (other than Indebtedness under this
Agreement and any Indebtedness existing on the Closing Date of NFS to Fleet) 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 shall cease to be the
sole shareholder of the stock of any Guarantor.

         
(n)      Any distribution agreement
pursuant to which the Borrower or any Subsidiary sells, installs and/or
services new private communications systems for Siemens is canceled or
terminates and is not renewed; provided, however, that an Event of Default
shall not exist under this Section 7.1(n) if and for so long as both the
Borrower and Siemens are negotiating for a renewal of such distribution
agreement in good faith and with reasonable diligence.

         
(o)      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.

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

         
(q)      The maturity of any
Indebtedness existing on the date hereof of NFS to Fleet shall be accelerated
by reason of default, or NFS shall fail to pay any such Indebtedness when due
(after the lapse of any applicable grace period), or any event shall occur or
condition shall exist (other than an event of default existing on the Closing
Date arising due to any act or omission occurring on or prior to the Closing
Date) shall continue for more than the period of grace, if any, applicable
thereto and shall have the effect of permitting the holder of any such
Indebtedness to cause such Indebtedness to become due prior to its stated
maturity, or the holder of such Indebtedness shall take any action (other than
acceleration) to realize upon any collateral given as security therefor.

         
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 the Existing Letters 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 the Existing Letters 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.

         
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.

         
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 A 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 A
Loan Percentage.  All funds received by the Agent in respect of any
payments made by the Borrower on the Term B Notes shall be distributed
forthwith by the Agent among the Banks, in the currency and funds as received,
ratably according to each Bank's Term B Loan Percentage.  All funds
received by the Agent in respect of any payments made by the Borrower on the
Term C Notes shall be distributed forthwith by the Agent among the Banks, in
the currency and funds as received, ratably according to each Bank's Term C
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 Existing Letter 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 Agent Fee under Section 2.12,
respectively.

         
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 ayment 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.  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

         
(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 Sections 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 Existing Letter 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 and each Bank upon demand for all reasonable out-of-pocket
expenses paid or incurred by the Agent or such Bank (including filing and
recording costs and fees and expenses of Dorsey & Whitney, counsel to the
Agent and the fees and expenses of PriceWaterhouse Coopers, financial
consultant to the Banks), 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.

         
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; Disposition of Loans;
Transferees.  This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, except that the Borrower may not assign its rights or delegate its
obligations hereunder or under any other Borrower Loan Document without the
prior written consent of all the Banks.  Each Bank may at any time, with
the written consent of the Agent sell, assign, transfer, grant participations
in, or otherwise dispose of equivalent pro rata portions of its Revolving
Commitment, the Loans and/or Advances (each such interest so disposed of being
herein called a “Transferred Interest”) to banks or other financial
institutions (“Transferees”).  The Borrower agrees that each Transferee
shall be entitled to the benefits of Sections 2.16 and 9.2 with respect to its
Transferred Interest and that each Transferee may exercise any and all rights
of banker’s Lien, setoff and counterclaim as if such Transferee were a direct
lender to the Borrower.  If any Bank makes any assignment to a Transferee,
then upon notice to the Borrower such Transferee, to the extent of such
assignment (unless otherwise provided therein), shall become a “Bank” hereunder
and shall have all the rights and obligations of such Bank hereunder and such
Bank shall be released from its duties and obligations under this Agreement to
the extent of such assignment.  Notwithstanding the sale by any Bank of
any participation hereunder, no participant shall be deemed to be or have the
rights and obligations of a Bank hereunder except that any participant shall
have a right of setoff under Section 7.3 as if it were such Bank and the amount
of its participation were owing directly to such participant by the Borrower.

         
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.

         
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
and 9.11 

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:

         
(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.

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

         
Section
9.19          Events of Default under Existing Credit Agreement and
Waiver.  Upon the Closing Date, each Bank and the Agent
hereby waives all Defaults and Events of Defaults existing on the Closing Date
(the “Existing Defaults”) under the Existing Credit Agreement.  The Bank’s
and the Agent’s agreement to waive the Existing Defaults is limited to the
express terms thereof, and nothing herein shall be deemed a waiver or
forbearance by the Banks or the Agent of any other term, condition,
representation or covenant applicable to the Borrower or any Guarantor under
the Existing Credit Agreement or this Agreement and related loan documents
(including but not limited to any Defaults or Events of Default that may occur
from and after the Closing Date under this Agreement).  Neither any prior
waivers or forbearance periods granted by the Agent and the Banks, nor the
waivers by the Banks and the Agent set forth herein (x) shall constitute a
waiver of or any agreement to forbear with respect to any Default or Event of
Default (if any) under any Loan Document, other than the waiver provided herein
with respect to the Existing Defaults under the Existing Credit Agreement, or
(y) shall be, or be deemed to be, a course of action with respect thereto
upon which the Borrower may rely in the future, and the Borrower hereby
expressly waives any claim to such effect.

[THE
REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

 

         
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.

NORSTAN, INC.

By: ___/s/ James C. Granger___________

Its:  ____President & CEO____________

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

 

U.S. 
BANK NATIONAL

ASSOCIATION,

as Agent and as a Bank

By: __/s/ David C. Larsen_____________

Its:  __Vice President_ ______________

Address:

U.S. Bank Place

601 Second Avenue South

Minneapolis, MN 55402-4302

Attention:  David Larsen

MPFP2516

 

HARRIS TRUST
AND SAVINGS

BANK

By: ___/s/
Lawrence Mizera____________

Its:  _____Vice President________________

Address:

111 West Monroe Street

4th Floor East

Chicago, IL 60603

Attention:  Catherine C. Ciolek

Telecopier:  (312) 461-2591

 

M&I
MARSHALL & ILSLEY

BANK

By: __/s/ John W. Howard_____________

Its:  ____V.P.________________________

By: __/s/ Doug Pudvah_______________

Its:  ____V. P._______________________

 Address for Notices:

4135 Multifoods Tower

33 South Sixth Street

Minneapolis, MN  55402

Attention:  John (Chip) Howard

Telecopier:  (612) 332-6745

 

WELLS FARGO
BANK MINNESOTA,

NATIONAL ASSOCIATION

By: ____/s/ William J. Kennedy________

Its:  ____Vice President _______________

Address:

MAC N9314-050

730 Second
Avenue South, #500

Minneapolis,
MN  55479

Attention: William J. Kennedy

Telecopier:  (612) 667-1054Prepared by MerrillDirect

AMENDED
AND RESTATED

ASSET PURCHASE AGREEMENT

by and between

NORSTAN
COMMUNICATIONS, INC.

as Buyer

and

ERICSSON INC.

as Seller

Effective as of December ___, 2000

AMENDED AND RESTATED

ASSET PURCHASE AGREEMENT

          This AMENDED AND RESTATED ASSET PURCHASE
AGREEMENT (the "Agreement") is entered into effective as of December
___, 2000, by and between NORSTAN COMMUNICATIONS, INC., a Minnesota corporation
(hereinafter referred to as "Buyer"), and ERICSSON INC., a
corporation organized under the laws of the State of Delaware
("Seller").

W I T N E S S E T H:

          WHEREAS,
Seller
operates, among other businesses, a direct distribution channel for Seller's
MD110 PBX product line and associated peripheral devices (the
"Products") within the United States and Canada (the "Distribution
Channel");

          WHEREAS,
Seller desires
to transfer the Distribution Channel to Buyer, and Buyer is willing to accept
the Distribution Channel on the terms, and subject to the conditions, set forth
in that certain Distribution Agreement executed by and between the parties (the
"Distribution Agreement");

          WHEREAS,
Seller
maintains a service business (the "Service Business") to provide
maintenance and warranty support, moves, adds, changes and upgrades for
Products sold through the Distribution Channel;

          WHEREAS,
Seller desires
to sell certain assets Seller currently utilizes in connection with the Service
Business, as conducted as of the date hereof, which assets include contract
rights, furniture, fixtures and equipment, and inventories;

          WHEREAS,
Buyer wishes
to:  (i) purchase the assets so used by
Seller in its Service Business and (ii) retain certain persons currently
employed by Seller in the Service Business; and

          WHEREAS,
Seller and
Buyer have entered into that certain Asset Purchase Agreement, dated as of
October ____, 2000 (the "Original Agreement"); and

          WHEREAS,
the parties
were unable to consummate the transactions contemplated by the Original
Agreement, and the passage of time and other circumstances mandate that certain
modifications be made with respect to the Original Agreement as set forth
herein.

          NOW,
THEREFORE, in
consideration of the foregoing and the mutual covenants, agreements and
representations and warranties herein contained, and for other good and legal
consideration, the receipt and sufficiency of which is hereby acknowledged,
Seller and Buyer, intending to be legally bound hereby, agree as follows:

ARTICLE 1

DEFINITIONS

          1.1     When
used in this Agreement, the following terms, in their singular and plural
forms, shall have the meanings assigned to them below:

          "Accrued
Retention Bonus Liability" is defined in Section 2.5(c).

          "Accrued
Vacation Liability" is defined in Section 2.5(a).

          "Agreement"
is defined in the initial paragraph hereof.

                    "Assets" means all of
Seller's right, title and interest in and to all of the following described
holdings:

          (a)      all
of Seller’s interest in (including all rights and benefits) the written and
oral commitments, contracts, leases, licenses, agreements and understandings in
connection with the Service Business identified in Schedule 1.1(a)
hereto (the "Assumed Contracts");

          (b)      all
operating data and records of Seller, including without limitation, customer
lists and records, referral sources, operating guides and manuals, sales
literature, correspondence and other similar documents relating to the Service
Business;

          (c)      all
of Seller's interest in all inventories for the Products and other associated
applications, subsystems identified in Schedule 1.1(c) hereto (the
"Inventories");

          (d)      all
of Seller's interest in the pagers, cellular telephones, personal computers,
printers, tools, test equipment, furniture, copiers, fax machines and fixtures
identified in Schedule 1.1(d) hereto (the "Furniture, Fixtures and
Equipment"); and

          (e)      certain
tangible assets previously expensed by Seller and enumerated in Schedule
1.1(e) (the "Other Tangible Assets").

"Assumed Contracts" is defined in Section 1.1(a).

"Back to Back Agreement" is defined in Section 2.6.

"Buyer" is defined in the initial paragraph hereof.

"Claim" means a claim or demand for any and all
damages, losses, penalties, costs and expenses, including reasonable attorneys'
fees, resulting from, related to or arising out of (i) any misrepresentation,
breach of warranty or non-fulfillment of any covenant set forth in this
Agreement; (ii) Seller's ownership of the Assets prior to the Closing Date;
(iii) Seller's operation of the Service Business prior to the Closing Date; and
(iv) any and all Proceedings, demands, assessments, judgments and claims arising
out of any of the foregoing.

          "Closing" and "Closing Date"
are defined in Section 6.1.

          "Closing
Account Balance" is defined in Section 3.1.

          "Compete"
is defined in Section 11.1.

                    "Contract" means any
agreement, contract, obligation, promise, or undertaking (whether written or
oral and whether express or implied) that is legally binding.

          "Customer
Prepayments" is defined in Section 2.3.

          "Defective
Items" is defined in Section 8.10.

"Distribution Agreement" is defined in the recitals to
this Agreement.

          "Employee
Plan" is defined in Section 4.17.

          "ERISA"
is defined in Section 4.17.

                    "Financial Information"
means the unaudited financial information provided by Seller to Buyer
concerning the Service Business as of, and for the eleven month period ended,
November 30, 2000.

                    "Former Ericsson Employees"
means the persons identified in Exhibit A hereto who will have also accepted
Buyer's offer of employment on or before the Closing Date.

                    "Governmental Authority"
means any foreign, federal, state, regional or local authority, agency, body,
court or instrumentality, regulatory or otherwise, which, in whole or in part,
was formed by or operates under the auspices of any foreign, federal, state,
regional or local government.

          "Indemnification
Period" is defined in Section 12.1.

          "Indemnitee"
is defined in Section 12.5.

          "Indemnitor"
is defined in Section 12.5.

          "Inspection
Notice" is defined in Section 8.10.

          "Inventories"
is defined in Section 1.1(c).

                    "Knowledge" - an individual
will be deemed to have "Knowledge" of a particular fact or other
matter if such individual is actually aware of such fact or other matter.  A Person (other than an individual) will be
deemed to have "Knowledge" of a particular fact or other matter if
any individual who is serving, or who has at any time served, as a director,
officer, partner, executor, or trustee of such Person (or in any similar
capacity) has, or at any time had, Knowledge of such fact or other matter.  Seller will be deemed to have
"Knowledge" of a particular fact or other matter if any director or
officer of Seller has, or at any time had, Knowledge of such fact or other
matter, or if such director or officer would have had Knowledge of a particular
fact or matter if such director or officer had made all reasonable inquiries
into the particular fact or matter.

                    "Law" means
any common law and any federal, state, regional, local or foreign law, rule,
statute, ordinance, rule, order or regulation.

                    "Liabilities" means
liabilities, obligations, or debts of Seller of any type or nature, whether
matured, unmatured, contingent or unknown, which are based on acts or omissions
occurring before the Closing Date.

                    "Lien" means any lien,
charge, adverse claim, encumbrance, security interest, option, pledge, or any
other title defect or restriction of any kind.

                    "Losses" is defined in
Section 12.2.

"Net Purchase Price" is defined in Section 3.1.

          "Non-Assigned
Contract" is defined in Section 2.6.

          "Notice"
is defined in Section 12.5

          "Notice of
Dispute" is defined in Section 13.7(a).

                    "Order" means any award,
decision, injunction, judgment, order, ruling, subpoena, or verdict entered,
issued, made, or rendered by any Governmental Authority or by any arbitrator.

                    "Other Assets" is defined in
Section 8.10

                    "Person" means any individual,
corporation (including any non-profit corporation), general or limited
partnership, limited liability company, joint venture, estate, trust,
association, organization, labor union, or other entity or Governmental
Authority.

                    "Proceeding" means any
action, arbitration, audit, hearing, investigation, litigation, or suit
(whether civil, criminal, administrative, investigative, or informal)
commenced, brought, conducted, or heard by or before, or otherwise involving,
any Governmental Authority or arbitrator.

                    "Promissory Note" is defined
in Section 3.1.

                    "Purchase Price Adjustment"
is defined in Section 3.1.

                    "Records" means all
financial, accounting and personnel records of Seller relating to the Service
Business, including without limitation, customer historical profiles and access
to information stored in Seller's SAP information systems.

                    "Seller" is
defined in the initial paragraph of this Agreement.

          "Seller's
Portion" is defined in Section 2.5(a).

          "Service
Business" is defined in the recitals to this Agreement.

          "Service
Business Worker(s)" is defined in Section 8.8.

          "Shortfall
Positions" is defined in Section 8.8(b).

                    "Tax" means any federal,
state, local, or foreign income, gross receipt, license, payroll, employment,
excise, severance, stamp, occupation, premium, windfall profits, environmental,
custom duties, capital stock franchise, profits, withholding, social security,
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative, add-on minimum, estimated, or
other tax of any kind whatsoever, including any interest, penalty or addition
thereto, whether disputed or not.

                    "Threshold Amount" is
defined in Section 12.3.

                    "Warranty Obligations" is
defined in Section 2.4.

                    "Year 2000 Compliant" is
defined in Section 4.7.

ARTICLE 2

SALE AND PURCHASE OF ASSETS

          2.1     Agreement
to Sell and Purchase Assets.

                    (a)      Subject
to the terms and conditions hereof and on the basis of and in reliance upon the
covenants, agreements and representations and warranties set forth herein, on
the Closing Date Seller shall sell and deliver the Assets to Buyer, and Buyer
shall purchase the Assets from Seller. 
The Assets shall be sold, transferred and conveyed by Seller to Buyer
free and clear of any and all Liens.

                    (b)      In addition to the
foregoing, Seller will, upon request and without additional consideration, at
and subsequent to the Closing Date, execute and deliver all such further
instruments of conveyance and transfer and confirmation thereof as may be
reasonably requested by Buyer in order to make further effective the provisions
of this Agreement and to assure the transfers and vesting of title provided for
by this Agreement. All such transfers and assignments of title shall vest and
be effective on the Closing Date.

          2.2     Assumption
of Contract Duties and Obligations. 
Subject to the following provisions, Buyer shall assume and accept all
of Seller's duties and performance obligations that arise on or after the
Closing Date in connection with the Assumed Contracts.  Neither the California Polytechnic Institute
nor the United Nations contracts appearing on Schedule 1.1(a) shall be
transferred to Buyer on the Closing Date. 
Seller shall retain the California Polytechnic Institute contract and
all rights and obligations associated therewith until such time as Seller has,
in the reasonable judgment of both Seller and Buyer, resolved Seller's dispute
with the other contracting party, at which time Seller shall provide written
notice thereof to Buyer in accordance with the provisions of Section 14.7
hereof, and the California Polytechnic Institute contract shall be deemed
transferred to and assumed by Buyer on the first day of the month following the
month such notice was delivered to Buyer. 
Until such time as the California Polytechnic Institute contract has
been transferred, Buyer shall provide Seller with parts and services required
by Seller to service the contract at Buyer's usual and ordinary terms and
conditions.  That portion of the United
Nations contract attributable to work to be performed in the United States and
Canada shall be deemed a Non-Assigned Contract within the meaning of Section
2.6 hereof and the benefits and obligations associated therewith shall be
conveyed to and assumed by Buyer through the Back to Back Agreement described
in such Section 2.6.

          2.3     Contracts in Progress.  Pursuant to the provisions of Sections 3.1
and 3.2 hereof, Seller shall remit to Buyer the aggregate amount of prepaid
customer maintenance fees as of the Closing Date, together with the aggregate
amount of payments received by Seller with respect to other customer contracts
in progress at the Closing Date in excess of revenues earned by Seller at such
date, all as set forth in Schedule 2.3 (inclusive of prepaid customer
maintenance fees, the "Customer Prepayments").  Buyer agrees to remit to Seller, promptly
upon Buyer's receipt thereof, customer payments attributable to revenues earned
by Seller as of the Closing Date as calculated pursuant to Schedule 2.3.

          2.4     Warranty Obligation.  Buyer shall assume and accept Seller's
warranty obligations  relating to the
Assumed Contracts determined as of the Closing Date (the "Warranty
Obligations").  Pursuant to the
provisions of Sections 3.1 and 3.2 hereof, Seller shall remit to Buyer the
amount of Seller's accrued warranty liabilities determined as of the Closing
Date.

          2.5     Buyer's
Assumption of Certain Obligations to Employees.

                    (a)      Buyer
shall assume 50 percent of Seller's accrued vacation obligation (the "Accrued
Vacation Liability") relating to the Former Ericsson Employees
determined as of the Closing Date. 
Seller shall retain the remaining 50 percent of the Accrued Vacation
Liability ("Seller's Portion").  Former Ericsson Employees will be given the option to (i) receive
their Accrued Vacation Liability in a single payment prior to becoming employed
by Buyer or (ii) roll over their Accrued Vacation Liability to Buyer.  In the event that any Former Ericsson
Employee chooses to receive his or her Accrued Vacation Liability in a single
payment, Seller will pay such Former Ericsson Employee, in cash or by company
check, an amount equal to each such Former Ericsson Employee’s Accrued Vacation
Liability ("Seller Payout") and the Net Purchase Price (as
herein defined) shall be increased by an amount equal to 50 percent of such
Seller Payout.  In the event that a
Former Ericsson Employee chooses to roll over his or her Accrued Vacation
Liability to Buyer, all vacations taken by such Former Ericsson Employee during
the period from the Closing Date to June 30, 2001 shall be attributed to (i)
vacation earned under Buyer’s vacation policy and (ii) the Accrued Vacation
Liability assumed by Buyer (the "Buyer’s Portion") pursuant to this Section
2.5(a).  Any vacation taken in
excess of the amount earned under Buyer’s vacation policy during such period
and the Buyer’s Portion shall be drawn from Seller’s Portion and Seller shall
reimburse Buyer for Buyer’s related compensation expense within ten (10) days
after receipt of Buyer’s invoice for same. 
Seller shall pay to each of the Former Ericsson Employees any remaining
Seller’s Portion 10 business days following Seller’s receipt of Buyer’s written
notice of termination from Buyer’s employment; provided, however,
that if any such Former Ericsson Employee remains in Buyer’s employ on June 30,
2001, Seller shall remit the amount of remaining Seller’s Portion to Buyer on
June 30, 2001.

                    (b)      During the period from
the Closing Date to and including June 30, 2001, Buyer will honor Seller's employee
severance program (one week of pay for each year of completed service and
minimum four week prior notice of termination) relating to the Former Ericsson
Employees and, for purposes thereof, Buyer shall give the Former Ericsson
Employees credit for years of service rendered to Seller.  Following the expiration of such period,
Buyer shall have no further obligation in connection with Seller's employee
severance program.

                    (c)      Buyer shall assume 100
percent of Seller's retention bonus liability attributable to the Former
Ericsson Employees determined as of the Closing Date (the "Accrued
Retention Bonus Liability"). 
Pursuant to the provisions of Sections 3.1 and 3.2, Seller shall remit
to Buyer 75 percent of the Accrued Retention Bonus Liability attributable to
the Former Ericsson Employees identified on Schedule 2.5(c)(1) and 100 percent
of the Accrued Retention Bonus Liability attributable to the Former Ericsson
Employees identified on Schedule 2.5(c)(2) (collectively, "Seller’s
Accrued Retention Bonus Liability").

                    (d)      Buyer will permit the
Former Ericsson Employees to participate in each of Buyer's employee benefit
plans and, for purposes thereof, Buyer will provide each Former Ericsson
Employee with credit for time served as an employee of Seller.

          2.6     Assignment of Contracts, Rights, etc.  Notwithstanding anything to the
contrary contained in this Agreement, this Agreement shall not constitute an
agreement to assign the right, title or interest of Seller in, to or under any
contract, license, lease, commitment, sales order, purchase order or other
agreement or any claim or right of any benefit arising thereunder or resulting
therefrom if any attempted assignment thereof, without the consent of a third
party thereto, would constitute a breach thereof or in any way adversely affect
the rights of Seller thereunder.  Seller
shall, in good faith, attempt to obtain, and Buyer shall cooperate with Seller
to obtain, any required third party consent to the assignment or transfer
thereof to Buyer.  If such consent is
not obtained, then with regard to any such contract, license, lease,
commitment, sales order, purchase order or other agreement or any claim or
right of any benefit arising thereunder or resulting therefrom
("Non-Assigned Contract"):

                    (a)      To the extent the
provisions of the Back to Back Agreement (the "Back to Back
Agreement") whereby Buyer assumes and agrees to perform Seller's
obligations, liabilities and duties under the Assumed Contracts are applicable
to such Non-Assigned Contract, then such provisions shall control, and

                    (b)      To the extent the
provisions of the Back to Back Agreement are not applicable to such
Non-Assigned Contract, Seller and Buyer shall cooperate in any reasonable
arrangements designed to provide Buyer with the benefits thereunder, including
enforcement for the benefit of Buyer of any and all rights of Seller against
such third party arising out of the cancellation by such third party or
otherwise.

                    (c)      Notwithstanding the
foregoing, the obligations of Seller under this Section 2.6 shall not include
any obligation to make any payment or to incur any economic burden, except to
the extent specified in the Back to Back Agreement.

          2.7     Responsibility for Other Liabilities.  Except for the Liabilities identified in
Sections 2.2, 2.4, 2.5 and 2.6 of this Agreement, Buyer shall not assume any of
Seller's Liabilities by virtue of this Agreement.  Specifically (without limitation), Buyer shall not assume:

                    (a)      any obligation or
liability related to accounts payable, accrued expenses or taxes arising prior
to the Closing Date;

                    (b)      liabilities relating to
environmental matters;

                    (c)      any liability or
obligation under contracts, agreements, arrangements and understandings of
Seller arising prior to the Closing Date, exclusive of liabilities or
obligations arising under the Assumed Contracts;

                    (d)      any intercompany debt or
other liability between the Seller or any shareholder or affiliate of Seller;
and

                    (e)      any other liability or
obligation of Seller, whether known or unknown, absolute or contingent.

          Notwithstanding
anything herein to the contrary, except as otherwise expressly provided herein,
Buyer is neither assuming nor agreeing to pay or discharge any of the claims
against, or Liabilities or obligations of, Seller or of any other party and
nothing in this Agreement shall be construed to the contrary.  All claims against, and Liabilities and
obligations of Seller, whether known or unknown, suspected or unsuspected,
direct or contingent, in litigation, threatened or not yet asserted or existing
with respect to any aspect of the Assets or the Service Business, or this
Agreement, arising or existing prior to or on the Closing Date or arising after
Closing on account of the Service Business prior to Closing are and shall
remain the responsibility of Seller.

ARTICLE 3

PAYMENT OF THE NET PURCHASE PRICE

          3.1     Net Purchase Price.  At the Closing, Buyer shall deliver to
Seller the net purchase price determined pursuant to Section 3.2 (the "Net
Purchase Price") in the form of Buyer's promissory note drawn in favor of
Seller substantially in the form attached hereto as Exhibit B (the
"Promissory Note").  At the
Closing, Seller and Buyer shall utilize for determining the Net Purchase Price
the listing of account balances as of November 30, 2000 included in the
Financial Information as the parties' estimate of amounts to be set forth in
listing of account balances of the Service Business as of the Closing Date (the
"Closing Account Balances"). 
The Net Purchase Price shall be adjusted when the Closing Account
Balances becomes available (not to be later than 30 days from the Closing Date)
and the resulting amount due to or from Seller (the "Purchase Price
Adjustment") shall be remitted by the appropriate party within three
business days thereafter.  In the event
that the Purchase Price Adjustment is in Buyer's favor, the amount thereof
shall be credited against Buyer's outstanding obligation under the Promissory
Note.  If the Purchase Price Adjustment
is in Seller's favor, Buyer shall deliver to Seller a promissory note in the
amount thereof substantially in the form of Exhibit B attached hereto (the
"Supplementary Promissory Note"). 
The Supplemental Promissory Note shall be payable in full six months from
the Closing Date.   The Net Purchase
Price may be further adjusted pursuant to Section 8.10(a).

          3.2     Determination of Net Purchase Price.  The Net Purchase Price shall be determined
as the sum of:  (i) the amount
attributable to the Inventories; (ii) the amount attributable to Furniture,
Fixtures and Equipment; and (iii) the amount attributable to the Other Tangible
Assets, less the sum of: (a) the aggregate amount of Customer
Prepayments described in Section 2.3; (b) the Warranty Obligation referred to
in Section 2.4; and (c) Seller’s Accrued Retention Bonus Liability referred to
in Section 2.5(c), all in accordance with the calculation methodologies
contained in Exhibit C hereto and as set forth in Schedule 3.2.

ARTICLE 4

REPRESENTATIONS AND
WARRANTIES OF SELLER

          Seller represents
and warrants to Buyer that except as provided in the disclosure schedules
attached hereto as Exhibit D (the "Disclosure Schedules"):

          4.1     Organization and Standing of Seller.  Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware.  Seller has all requisite
corporate power and authority to sell the Assets, free and clear of any and all
Liens.

          4.2     Due Authorization.  This Agreement has been duly authorized,
executed and delivered by Seller and constitutes a valid and binding agreement
of Seller, enforceable in accordance with its terms, except as such enforcement
may be limited by applicable bankruptcy, insolvency, moratorium, and other
similar laws relating to, limiting or affecting the enforcement of creditors
rights generally or by the application of
equitable principles.  As of the
Closing, all corporate action on the part of Seller required under applicable
law in order to consummate the transactions contemplated hereby will have
occurred.

          4.3     No
Conflict With Other Agreements.  
Neither the execution and delivery of this Agreement nor the carrying
out of the transactions contemplated thereby will result in any breach,
violation, termination or modification of, or be in conflict with, or require
any consent of any party to, any material contract, agreement, indenture,
mortgage, note or other instrument to which Seller is a party, or any permit,
judgment, decree or other Law applicable to Seller, which would result in the
creation of any Lien upon any of the Assets, which would create an obligation
to Buyer or which would affect Seller's ability to consummate the transactions
contemplated by this Agreement in a timely fashion.

          4.4     Title to Assets. At the Closing
Date, Seller will transfer to buyer good and marketable title to the Assets,
free and clear of any and all Liens.

          4.5     Litigation.  Schedule 4.5 sets forth, to Seller's
knowledge, a complete and accurate listing of currently pending and threatened
litigation, Claims and assessments (collectively, "Litigation")
relating to the Service Business, together with all Litigation arising in
connection with the Service Business during the previous four years.

          4.6     Buyer's Occupation of Facilities.  Upon the Closing of the transactions
contemplated by this Agreement, Buyer's employees and other representatives
shall be legally entitled to physically occupy each of the facilities
identified in Schedule 4.6 and maintain such occupancy for the period
indicated in Schedule 4.6, provided that Buyer complies with the reasonable
terms and conditions of each underlying lease agreement.  Schedule 4.6 sets forth a true and
correct itemization of each facility used in the Service Business on the date
hereof, including the square footage to be occupied by Buyer, the amount of
monthly rental and other charges to be paid by Buyer in connection therewith
and the remaining term of the underlying lease, as applicable.

          4.7     Year 2000 Warranty.  Seller's Remedy Ticketing System (including
all related hardware and software applications) to be transferred to Buyer
pursuant to Section 2.1 currently is Year 2000 Compliant and will remain Year
2000 Compliant at all times through and including the year 2001.  "Year 2000 Compliant" means the
system will:

                    (a)      Function without
interruption or human intervention with four digit year processing on all
Calendar Information, including without errors or interruptions from functions
which may involve Calendar Information from more than one century or leap
years, regardless of the date of processing or date of Calendar Information
(the term "Calendar Information" shall mean any data, input, or
output which includes an indication of date);

                    (b)      Provide results from any
operation accurately reflecting any Calendar Information used in the operation
performed, with output in any form having four digit years; and

                    (c)      Accept two digit year
Calendar Information in a manner that resolves any ambiguities as to century in
a defined manner.

          4.8     Financial Information; Closing Account
Balances.  Seller hereby represents
and warrants that the Financial Information and the Closing Account Balances
fairly, completely and accurately presents the information purported to be set
forth therein at the dates and for the periods covered thereby, in all material
respects.

          4.9     Third
Party Consents.  Except with respect
to Seller’s Assignment of those Assumed Contracts which, by their terms, do not
permit assignment by Seller, there are no authorizations, consents, approvals
or notices required to be obtained by Seller or waiting periods required to
expire, in order that this Agreement and the transactions provided for herein
may be consummated by Seller.

          4.10   Labor Matters.  Except with respect to the Agreement Between
Ericsson Inc. Business Systems and Communications Workers of America AFL-CIO
Local 1109 from February 1, 1999 through December 31, 2002, Seller is not a
party to any collective bargaining Agreement relating to the Former Ericsson
Employees.  No strike, work stoppage,
grievance, unfair labor practice claim, union organizing activity or other
labor difficulty or concerted employee action of any kind has occurred during
the five year period preceding the Closing Date, or currently is pending or, to
the Knowledge of Seller, threatened, which would materially adversely affect
any of the Assets, the Service Business or the transactions contemplated by
this Agreement.

          4.11   Absence of Certain Changes, Events or
Conditions.  With respect to the
Service Business, since May 31, 2000, there has not been (i) any change in the
Service Business' financial position, results of operations, manner of
conducting business, assets, Liabilities, net worth or business, other than
changes in the ordinary course of business which have been materially adverse,
(ii) any material change in the normal operations of the Service Business,
including any material reduction in revenues or profit margins other than in
the ordinary course, (iii) a pledge of the Assets or other encumbrance thereof,
or (iv) any other event or condition experienced by Seller of any character
(whether or not covered by insurance) which would create a Lien on any of the
Assets, create an obligation to Buyer, or which would materially affect the
transactions contemplated this Agreement.

          4.12   Taxes.  All Taxes relating to the Assets have been or will be paid in
full when due unless protested in good faith by Seller, and there is no Lien or
claim of any taxing authority on, or threatened against, any of the Assets, and
Seller has withheld and paid all required amounts in connection with amounts
paid or owing to any employees employed by Seller, independent contractors,
creditors or other third parties with respect to the Service Business.  Seller shall remain responsible for and
retain all liability with respect to federal, state and local Tax matters
relating to Seller for all periods prior to and including the Closing Date
regardless of when such Taxes are assessed.

          4.13   Bulk Sales Compliance and Transfer Taxes.  Neither the Sale and transfer of the Assets
to be acquired pursuant to this Agreement, will result in or be subject
to:  (a) any law which either:  (i) makes such sales or transfers
ineffective as to creditors of Seller or (ii) exposes Buyer to liabilities
asserted by creditors of Seller; or (b) any federal, state or local sales, use,
transfer, excise or license tax, fee or charge applicable to any of the Assets
to be acquired.

          4.14   Contracts.

                    (a)      All Assumed Contracts are
in full force and effect as of the date hereof.  To Seller's knowledge, no event has occurred or condition or
state of facts exists which, after notice or the passage of time, would constitute a
material default under any such Assumed Contract, as to time or manner of
performance, or as to warranties thereunder, or otherwise.  All Assumed Contracts will continue to be
binding in accordance with their respective terms until their respective
expiration dates.  Seller is not subject
to any liability or payment resulting from renegotiation of amounts paid it
under any Assumed Contract with the government of the United States or any
agency, department or other subdivision thereof.

                    (b)      Seller is in material
compliance with all applicable terms and requirements of each Assumed Contract.

                    (c)      Seller has not given to
or received from any other Person, at any time since May 31, 2000, any notice
or other communication (whether oral or written) regarding any actual, alleged,
possible, or potential violation or breach of, or default under, any Assumed
Contract.

                    (d)      There are no
renegotiations of, attempts to renegotiate, or, to the Knowledge of Seller,
outstanding rights to renegotiate any material amounts paid or payable to
Seller under any Assumed Contracts with any Person and to the Knowledge of
Seller, no such Person has made written demand for such renegotiation.

          4.15   Customers and Suppliers.  Schedule 4.15 sets forth a true and
complete listing all of the customers of the Service Business during the eight
month period ended November 30, 2000 and is a true and complete listing of all
suppliers and vendors for the Service Business to whom Seller paid in excess of
$10,000 during any three month period during the 18 month period preceding the
Closing Date.  Seller has no Knowledge
of claims or complaints by customers, suppliers or vendors of the Service Business
that would have, or may have, a material adverse effect on the Assets, the
Service Business or the transactions contemplated hereunder.

          4.16   Personnel Matters.  Schedule 4.16 hereto is a true and
correct schedule setting forth as of the date hereof, the names, job
designations and addresses of each of the Ericsson personnel employed in the
Service Business, the current remuneration of each, including fringe benefits,
and the basis for determining such remuneration if other than a fixed salary
rate.

          4.17   Employee Benefit Matters.

                    (a)      Except as contemplated by
Section 2.5, Buyer will not be subject to any obligations or liability under
any of the Employee Plans.  The term
"Employee Plans" refers to all employment contracts, employee benefit
plans as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), pension plans, bonus, profit sharing,
stock option or other agreements or arrangements, including any
hospitalization, disability or other insurance plans, vacation and sick pay
policies, or any other employee fringe benefit plan providing for employee
benefits to which Seller is a party or by which Seller is bound in connection
with the Service Business. Except as contemplated by Section 2.5, Buyer is not responsible
for any severance pay or other payments on account of termination by Seller of
any of the Former Ericsson Employees or other employees of Seller.

                    (b)      None of the Employee
Plans is a "multi-employer plan" as defined in Section 3(37) of
ERISA.

                    (c)      In
each case where Seller, its parent or any affiliate has terminated a defined
benefit pension plan that is subject to Title I of ERISA relating to the
employees of the Service Business, assets have been sufficient so that all
required benefits in fact have been provided. 
As of the Closing, Seller will terminate the Former Ericsson Employees
under the current terms and conditions of its Employee Plans.

          4.18   Brokers' Fees.  No broker, finder or other person or entity
acting in a similar capacity has participated on behalf of Seller in connection
with the transactions contemplated by this Agreement.  Seller has not incurred any Liability for brokers' fees, finders'
fees, agents' commissions or other similar forms of compensation in connection
with this Agreement or the transactions contemplated hereby.

          4.19   No Significant Items Excluded.  Other than Seller's relationships relating
to Seller's manufacturing operations, there are no assets or properties of
Seller or agreements, contracts or commitments to which Seller is a party that
are of material importance to the ongoing operation of the Service Business by
Buyer that are to being transferred to Buyer under the terms of this Agreement.

          4.20   Notice of Customer Cancellations and
Non-Renewals.  Seller has not
received oral or written notice, or other evidence or indication of any kind or
nature, that any one or more of the customer contracts identified in Schedule
1.1(a) will be cancelled prior to its expiration or will not be renewed
upon its expiration.

ARTICLE 5

REPRESENTATIONS AND
WARRANTIES OF BUYER

          Buyer
represents and warrants to Seller as follows:

          5.1     Organization and Standing of Buyer.  Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Minnesota.

          5.2     Authorization and Enforceability.  Buyer has all requisite corporate power and
authority to enter into this Agreement and to carry out the transactions
contemplated hereby and to perform its obligations hereunder.   All necessary and appropriate action has
been taken by Buyer with respect to the execution and delivery of this
Agreement and the performance of Buyer's obligations hereunder.  The execution and delivery of this Agreement
and the consummation of the transactions hereunder by Buyer will not (a) result
in the breach of any of the terms or conditions of, or constitute a default
under, the Articles of Incorporation or the Bylaws of Buyer or (b) violate any
Law or any order, writ, injunction or decree of any Governmental Authority.  This Agreement constitutes the valid and
binding obligations of Buyer, enforceable against Buyer in accordance with its
terms.

          5.3     No
Conflict With Other Agreements. 
Neither the execution and delivery of this Agreement nor the carrying
out of the transactions contemplated thereby will result in any breach,
violation, termination or modification of, conflict with or require the consent
of any party to any material agreement to which Buyer is a party, which would
affect Buyer's ability to consummate the transactions contemplated by this
Agreement in a timely fashion.

          5.4     Approval.  The Board of Directors of Buyer has approved the execution of
this Agreement and the transactions contemplated hereby.

          5.5     Third Party Consents.  There are no authorizations, consents,
approvals or notices required to be obtained or given by Buyer or waiting
periods required to expire, in order that this Agreement and the transactions
provided for herein may be consummated by Buyer.

          5.6     Brokers' Fees.  Buyer has not incurred any liability for
brokers' fees, finders fees, agents' commissions or other similar forms of
compensation in connection with this Agreement or the transactions contemplated
hereby for which Seller shall have any responsibility.

ARTICLE 6

CLOSING

          6.1     Closing.  Subject to satisfaction or waiver of all
conditions precedent set forth in Articles 9 and 10 of this Agreement, the
closing of the transactions contemplated by this Agreement (the
"Closing") shall take place on December 29, 2000 or the day on which
the last of the conditions precedent set forth in Articles 9 and 10 of this
Agreement has been satisfied, subject to the provisions of Section 13.4 (the
"Closing Date") or at such other time, date and place as the parties
may agree.

          6.2     Obligations
of Seller.  At or prior to the
Closing, Seller shall deliver to Buyer, in each case, in form and substance
satisfactory to Buyer:

                    (a)      an
Assignment and Bill of Sale, in the form attached hereto as Exhibit E, and such
other instruments of transfer or assignment as shall be necessary or
appropriate to vest in the Buyer good and marketable title to the Assets;

                    (b)      copies
of all of the Assets which are in the form of documentation, including without
limitation, customer contracts, customer lists, employment contracts, personnel
records, maintenance contracts and configuration files;

                    (c)      a certificate of the Chief Executive Officer, President or
other duly authorized officer of Seller, dated as of the Closing Date, to the
effect that (i) all of the representations and warranties made by the Seller
upon the execution and delivery of this Agreement remain true and correct as of
the Closing Date and (ii) Seller has performed and complied with in all
material respects all of the covenants, agreements and obligations set forth in
this Agreement to be performed or complied with by it on or prior to the
Closing Date; and

                    (d)      such
other documents as may be described in Article 9 of this Agreement.

          6.3     Obligations
of Norstan.  At the Closing, Norstan
shall deliver:

                    (a)      the
Net Purchase Price in accordance with Article 3 of this Agreement;

                    (b)      a
certificate of the Chief Executive Officer or President of Buyer, dated as of
the Closing Date, to the effect that (1) all of the representations and
warranties made by the Buyer upon the execution and delivery of this Agreement
remain true and correct as of the Closing Date and (2) Buyer has performed and
complied with in all material respects all of the covenants, agreements and
obligations set forth in this Agreement to be performed or complied with by it
on or prior to the Closing Date;

                    (c)      copies
of resolutions adopted by the Board of Directors of Buyer duly authorizing and
approving the execution of this Agreement and the consummation of the
transactions contemplated hereby, certified by an appropriate officer as being
true and correct as of the Closing Date; and

                    (d)      such
other documents as may be described in Article 10 of this Agreement.

          6.4     Further
Documents or Necessary Action. 
Buyer and Seller each agree to take all such further actions on or after
the Closing Date as may be reasonably necessary, desirable or appropriate in
order to confirm or effectuate the transactions contemplated by this Agreement.

ARTICLE 7

POST CLOSING MATTERS

          7.1     Payments
and Other Property Received.  Seller
and Buyer each agree that after the Closing Date they will hold and will
promptly transfer and deliver to the other, from time to time as and when
received by them, any cash, checks with appropriate endorsements (using all
commercially reasonable efforts not to convert such checks into cash), or other
property that they may receive on or after the Closing Date which properly
belongs to the other party, including without limitation any insurance
proceeds, and will account to the other for all such receipts.

          7.2     Third Party
Consents.  If the transfer of any of
the Assets requires any third party consents, Seller shall use all commercially
reasonable efforts to obtain such consents and Buyer shall give Seller all
reasonable assistance in such efforts. 
Until such consent is obtained, or, if such consent cannot be obtained,
the parties shall jointly procure that another solution is found which is
acceptable to both parties.  Upon
Seller’s request, Buyer shall, in the event of an agreement, perform such
agreements in the name of Seller to the extent permitted but on Buyer’s account
(i.e. all revenues and costs attributable to the agreement shall be allocated
to Buyer).  When attempting to obtain
the relevant third party consents, Seller shall not agree to any amendments of
the agreements included in the Assets, unless Buyer so agrees in writing.

          7.3     Actions
for the Completion of the Transfer. 
After the Closing Date, Buyer and Seller shall execute such other
documents or take such other actions to the extent they have not been
accomplished on the Closing Date, as shall be required in order to transfer the
Assets to Buyer.

ARTICLE 8

COVENANTS AND AGREEMENTS

          Seller covenants to and agrees with Buyer,
and Buyer covenants to and agrees with Seller, as follows:

          8.1     Conduct
of Business Pending the Closing. 
During the period from the date of this Agreement to the Closing Date,
Seller shall conduct the operations of the Service Business in the ordinary and
usual course and maintain its records and books of account in a manner
consistent with prior periods.  Seller
shall exercise reasonable efforts to preserve intact the present business
organization and personnel of Seller and the present goodwill of Seller with
persons having business dealings with it. 
Except as otherwise required or contemplated hereby, Seller further
covenants and agrees that, from the date of this Agreement to the Closing Date,
it shall not, without the written consent of Buyer:

                    (a)      enter
into any negotiations, discussions or agreements contemplating, affecting or
respecting the Assets or Seller's ability to transfer the Assets;

                    (b)      enter
into any negotiations, discussions or agreements contemplating or respecting
the acquisition of the Assets or any other material component of the Service
Business, whether through a sale of stock, a merger or consolidation, the sale
of all or substantially all of the assets of Seller, any type of
recapitalization or otherwise;

                    (c)      incur
any Liabilities or take any action that would materially diminish the value of
the Assets; or

                    (d)      take
any action which would materially interfere with or prevent performance of this
Agreement.

          8.2     Access by Buyer.  During the period from the date of this
Agreement to the Closing Date, Seller shall cause Buyer, its agents and
representatives to be given full access during normal business hours to the
premises, buildings, offices, books, records, assets (including the Assets),
Liabilities, operations, contracts, files, personnel, financial and tax
information and other data and information relating to the Service Business and
the Assets, and shall cooperate with Buyer in conducting its due diligence
investigation thereof; provided, however, that Buyer will provide
Seller with reasonable notice prior to entering Seller’s premises and such
access shall not unreasonably interfere with the normal operations and employee
relationships of Seller.

          8.3     Confidentiality.   Each party and its affiliates will hold,
and will use their best efforts to cause their respective partners, officers,
directors, employees, and other agents to hold, in confidence, all confidential
documents and information concerning the other party furnished to such party or
its affiliates in connection with the transactions contemplated by this
Agreement, except to the extent that such information can be shown to have been
(i) in the public domain through no fault of such party, or (ii) later lawfully
acquired by such party on a nonconfidential basis from sources other than the
other party or any of its affiliates; provided that such party may disclose
such information in connection with the transactions contemplated by this
Agreement to the partners, officers, directors, employees and other agents of
such party or its affiliates so long as such persons are informed by such party
of the confidential nature of such information and are directed by such party
to keep such information confidential and not to use it for any purpose other
than its intended use; and provided, further that if any person described in
the immediately preceding proviso breaches its confidentiality obligations, the
party to whom the disclosure is attributable will inform the other parties and
will take reasonable steps at the request of such other parties to enforce such
obligation.  Notwithstanding the
foregoing, each party may disclose such information if (i) required to disclose
it by judicial or administrative process or by other requirements of law, or
(ii) necessary to establish such party’s position in any litigation or any
arbitration or other proceeding based upon or in connection with the subject
matter of this Agreement.  Prior to any
disclosure pursuant to the preceding sentence, the disclosing party shall give
reasonable prior notice to the other party to this Agreement of such intended
disclosure and, if requested by such party, shall use all reasonable efforts to
obtain a protective order or similar protection for such information or data
and shall otherwise disclose such information and data to the extent and only
to the extent necessary to comply with any applicable rule, regulation or
policy of a governmental entity or securities exchange.  The obligation of a party hereto to hold any
such information in confidence shall be satisfied if it exercises the same care
with respect to such information as it would take to preserve the
confidentiality of its own similar information, but in no event less than a
reasonable level of care.

          8.4     Notice
of Breach or Failure of Condition. 
Seller and Buyer agree to give prompt notice to the other of the
occurrence of any event or the failure of any event to occur that might
preclude or interfere with the timely satisfaction of any condition precedent
to the obligations of Seller or Buyer under this Agreement.

          8.5     Best
Efforts.  Seller and Buyer shall use
their respective commercially reasonable best efforts to obtain all consents or
approvals necessary to bring about the satisfaction of the conditions required
to be performed, fulfilled or complied with by them pursuant to this Agreement and
to take or cause to be taken all action, and to do or cause to be done all
things, necessary, proper or advisable under applicable Laws to consummate and
make effective the transactions contemplated by this Agreement as expeditiously
as practicable.

          8.6     Records.  During the period commencing as of the
Closing Date and ending on the second anniversary of the Closing Date, Seller
shall continue to be obligated to deliver any and all Records to Buyer as Buyer
may reasonably request in writing within a reasonable period of time following
Seller's receipt of each such request unless, due to circumstances beyond
Seller's control, it is impracticable for Seller to do so, in which event
Seller shall deliver the requested Records to Buyer as soon as practicable.  During the aforementioned period, Seller
shall provide Buyer with reasonable access to, and the cooperation of, any and
all persons employed by Seller and possessing knowledge regarding the Records
or accessing information contained therein.

          8.7     Employment
Offers.  Buyer agrees to offer
employment to each of the Former Ericsson Employees substantially on the term
and conditions set forth on Schedule 8.7 attached hereto.  Seller acknowledges and agrees that the
preceding provision vests no right in Seller to enforce Buyer's terms and
conditions of employment with the Former Ericsson Employees, nor is the
preceding provision intended by the parties to vest third-party beneficiary
rights in any of the Former Ericsson Employees.

          8.8     Transition
of Personnel.

                    (a)      During
the 10-day period commencing with the parties' execution and delivery of this
Agreement, Buyer shall extend to each of the persons identified in Exhibit A
hereto (each a "Service Business Worker;" collectively, the
"Service Business Workers") written offers of employment requiring
written acceptance thereof within five days of receipt of the employment
offer.  On or before the Closing Date,
Buyer shall deliver to Seller a written notice setting forth the identity of
each Service Business Worker who has accepted Buyer's employment offer.

                    (b)      In
the event that less than 80 percent of the Service Business Workers designated
in Exhibit A as technicians and/or less than 80 percent of the Service Business
Workers designated in Exhibit A as members of the TAC Support Group have
accepted Buyer's offer of employment, an "emergency period" of 60
days will commence on the Closing Date, during which:

                              (i)       Seller
and Buyer shall jointly prepare and implement, as soon as practicable, a plan
of reallocation of resources, drawing personnel (if available) from Buyer and
its affiliates and, where necessary, from Seller and its affiliates to: (a)
perform the functions associated with employment positions not accepted by
Service Business Workers (the "Shortfall Positions"); and (b) provide
technical training to replacement personnel designated by Buyer.  Seller will bear all compensation, travel,
training and related expenses incurred by Seller during the emergency period.

                              (ii)      Seller
shall provide to Buyer, at no cost to Buyer, the additional on-site service,
support and management assistance, together with Seller's regional and global
assistance center resources, all as necessary and appropriate to prevent or
alleviate customer concerns regarding the operation of the Service Business.

                              (iii)     Seller will cooperate
with Buyer to recruit replacement
personnel for the Shortfall Positions and shall bear 50 percent of expenses
incurred by the parties in connection therewith.

                    (c)      In
the event that less than 60 percent of the Service Business Workers designated
in Exhibit A as technicians and/or less than 60 percent of the Service Business
Workers designated in Exhibit A as members of the TAC Support Group have
accepted Buyer's offer of employment, the emergency period referred to in
subsection (b) above shall be extended for an additional 60 days (120 days in
the aggregate).

          8.9     Non-Solicitation
of Employees.    Seller and Buyer
agree that during the two-year period commencing on the Closing Date, neither
will, without the prior written consent of the other, directly or indirectly,
induce, solicit, endeavor to entice or attempt to induce any employee of the
other party to leave the employ of the other party, or in any way interfere
adversely with the relationship between any such employee and the other party.

          8.10   Inspection
of Assets.

                    (a)      Inventories:  During the period commencing upon the
Closing Date and ending 90 days thereafter, Buyer may return for credit or
exchange (at Seller's option) any Inventories mutually determined by Buyer and
Seller to be defective.  The Net
Purchase Price and Buyer's obligation to Seller as evidenced by the Promissory
Note referred to in Section 3.1 hereof shall be reduced by the amount of Buyer's
replacement cost attributable to Inventories returned for credit.

                    (b)      Other
Assets:          During the period
commencing upon the date the parties hereto execute and deliver this Agreement
and ending on the Closing Date, Seller shall provide Buyer and Buyer's
representatives and agents with reasonable access to the Furniture, Fixtures
and Equipment and the Other Tangible Assets (the "Other Assets") for
the purpose of physically inspecting the same. 
In the event that Buyer identifies Other Assets not in good operating
condition (the "Defective Items"), Buyer shall deliver written notice
of same (the "Inspection Notice") to Seller on or before the Closing
Date.  Seller shall have a period of 60
days following receipt of the Inspection Notice to repair, or cause to be
repaired at Seller's expense, the Defective Items.

ARTICLE 9

CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER

          Buyer’s obligation to participate in the
Closing is subject to the satisfaction of all of the following conditions,
except to the extent expressly waived in writing by Buyer:

          9.1     Representations
and Warranties True at Closing.  The
representations and warranties of Seller contained in this Agreement shall have
been true and correct in all material respects when made and shall be true and
correct in all material respects on the Closing Date as though such
representations and warranties were made again on the Closing Date.

          9.2     Performance.  Seller shall have performed and complied in
all material respects with all agreements and conditions required by this
Agreement to be performed or complied with by Seller prior to or at the
Closing, including, without limitation, the delivery to Buyer of the documents
listed in Section 6.2.

          9.3     Litigation.  On the Closing Date, there shall not be any
pending or threatened Proceeding in any court or by or before any Governmental
Authority with a view to seek, or in which it is sought, to restrain or
prohibit the consummation of the transactions contemplated by this Agreement or
in which it is sought to obtain divestiture, rescission or damages in connection
with the transactions contemplated by this Agreement and no investigation by
any Governmental Authority shall be pending which might result in any such
Proceeding.

          9.4     No
Adverse Changes.  Except as
contemplated by this Agreement, there shall have been no material adverse
change in the condition, prospects, Assets, business or operations, financial
or otherwise, of the Service Business from the date of the Financial
Information to the Closing Date.

          9.5     Certificate.  Seller shall have delivered to Buyer a
certificate, dated as of the Closing Date, of the Seller to the effect that the
conditions set forth in Sections 9.1, 9.2, 9.3, 9.4 and 9.7 have been
satisfied.

          9.6     Other
Agreements.  Buyer and Seller shall
each have executed and delivered the Distribution Agreement, the Back to Back
Agreement, the Administrative and Back Office Service Agreement, and the Shared
Office Rental Agreement.

          9.7     Access
to Information Systems.  On the
Closing Date, Buyer shall have been granted satisfactory access to the Remedy
Ticketing System and Seller's SAP information system as contemplated by Section
8.6.

ARTICLE 10

CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER

          All obligations of Seller under this
Agreement are subject to the satisfaction by Buyer at or before the Closing of
all of the following conditions, except to the extent expressly waived in
writing by Seller:

          10.1   Representations
and Warranties True at Closing.  The
representations and warranties of Buyer contained in this Agreement shall have
been true and correct in all material respects when made and shall be true and
correct in all material respects on the Closing Date as though such
representations and warranties were made again on the Closing Date.

          10.2   Performance.  Buyer shall have performed and complied, in
all material respects, with all agreements and conditions required by this
Agreement to be performed or complied with by Buyer prior to or at the Closing
including, without limitation, the delivery to Seller of the documents listed
in Section 6.3.

          10.3   Certificate.  Buyer shall have delivered to Seller a
certificate, dated as of the Closing Date, to the effect that the conditions
set forth in Sections 10.1, 10.2 and 10.5 have been satisfied.

          10.4   Other
Agreements. Buyer and Seller shall each have executed and delivered the
Distribution Agreement, the Back to Back Agreement, the Administrative and Back
Office Service Agreement, and the Shared Office Rental Agreement.

          10.5   Litigation.  On the Closing Date, there shall not be any
pending or threatened Proceeding in any court or by or before any Governmental
Authority with a view to seek, or in which it is sought, to restrain or
prohibit the consummation of the transactions contemplated by this Agreement or
in which it is sought to obtain divestiture, rescission or damages in
connection with the transactions contemplated by this Agreement and no
investigation by any Governmental Authority shall be pending which might result
in any such Proceeding.

ARTICLE 11

NON-COMPETITION

          11.1   Covenant
Not to Compete.  During the
five-year period commencing on the Closing Date, Seller and Seller's affiliates
in which Seller has more than a 20 percent equity interest are prohibited from
selling or installing Products to or for end users or providing maintenance services
to end users with respect to the Products within the United States and Canada.

          11.2   Remedies.  It is recognized that damages in the event of breach of this
Article 11 would be difficult, if not impossible, to ascertain, and it is
therefore agreed that Buyer, in addition to and without limiting any other
remedy or right it may have, shall have the right to an injunction or other
equitable relief in any court of competent jurisdiction enjoining any such
breach.  The existence of this right
shall not preclude any other rights and remedies at law or in equity which
buyer or Seller may have.

          11.3   Invalidity.  It is the desire and intent of the parties to this Agreement that
the provisions of this Article 11 shall be enforced to the fullest extent
permissible under the Law.  If any
particular provisions or portion of this Article shall be adjudicated to be
invalid or unenforceable, this Article shall be deemed amended to delete
therefrom or restrict the application of such provision or portion adjudicated
to be invalid or unenforceable to the extent (but only to the extent) required
to render such provision or portion valid and enforceable, such amendment to
apply only with respect to the operation of such Article in the particular
jurisdiction in which such adjudication is made.

ARTICLE 12

INDEMNIFICATION AND RELATED MATTERS

          12.1   Survival.  The several representations, warranties,
covenants, and agreements of the parties contained in this Agreement shall
survive the Closing Date for a period of 24 months following the Closing Date
(the "Indemnification Period").

          12.2   Seller’s
Indemnity.  During the
Indemnification Period (or thereafter solely with respect to any claim for
which a claim for indemnification has been made prior to expiration of the
Indemnification Period), from and after the Closing Date (subject to the
limitations in Sections 12.3 and 12.4) Seller shall indemnify and hold harmless
Buyer from and against any and all demands, claims, losses, liabilities,
actions, assessments, taxes, penalties, costs and expenses (including
reasonable attorney’s fees and expenses), (collectively "Losses")
incurred or suffered by Buyer, and its officers, directors, employees, agents
and representatives, arising out of, resulting from, or relating to any breach
of the representations, warranties, covenants made by Seller, or obligations of
Seller, in this Agreement or the Back to Back Agreement, any liability of
Seller not expressly assumed by Buyer under the terms of this Agreement and all
losses, costs, damages, liabilities obligations and reasonable expenses related
to or arising out of the operation of the Service Business prior to the Closing
Date (exclusive of liability amounts set forth in Schedule 3.2).  Notwithstanding the foregoing, Seller shall
not be liable to indemnify Buyer for Losses which arise out of any acts or
omissions of Buyer, Buyer's affiliates or their respective officers, directors,
employees, agents and representatives.

          12.3   Limitation
on Seller’s Indemnity. 
Notwithstanding anything else to the contrary contained in this
Agreement, Seller shall not be liable to indemnify Buyer for any Losses unless
and until the aggregate amount of all such Losses, timely notice of which has
been given as provided in this Agreement, exceeds $100,000 (the "Threshold
Amount").  At such time and to such
extent as the aggregate Losses exceeds the Threshold Amount, Buyer shall be
indemnified for such Losses, including the Threshold Amount. Except with
respect to Losses arising in any way from third-party claims, Buyer may not
recover from Seller pursuant to this Article 12 Losses in excess of the Net
Purchase Price, as adjusted pursuant to Section 3.2 hereof.

          12.4   Buyer’s
Indemnity. During the Indemnification Period (or thereafter solely with
respect to any claim for which a claim for indemnification has been made prior
to expiration of the Indemnification Period), from and after the Closing Date,
Buyer shall indemnify and hold harmless Seller from and against any and all
Losses incurred or suffered by Seller, and its officers, directors, employees,
agents and representatives, arising out of, resulting from, or relating to (i)
any breach of any of the representations, warranties or covenants made by Buyer
in this Agreement; (ii) any breach of any of the representations, warranties,
covenants or performance obligations made by Buyer in the Back to Back
Agreement; and (iii) Buyer's use of the Assets or the operation of the Service
Business subsequent to the Closing Date. 
Except with respect to Losses arising in any way from third-party
claims, Seller may not recover from Buyer pursuant to this Article 12 Losses in
excess of the Net Purchase Price, as adjusted pursuant to Section 3.2 hereof.

          12.5   Indemnification
Procedure.

                    (a)      In
the event that any party hereto shall sustain or incur any Losses in respect of
which indemnification may be sought by such party pursuant to this Article 12,
the party seeking such indemnification (the "Indemnitee") shall
assert a claim for indemnification by giving prompt written notice thereof (the
"Notice") which shall describe in reasonable detail the facts and
circumstances upon which the asserted claim for indemnification is based along
with a copy of the claim or complaint, to the party providing indemnification
(the "Indemnitor"). The failure of the Indemnitee to give the
Indemnitor prompt notice as provided herein shall not relieve the Indemnitor of
any of its obligations hereunder, except to the extent that the Indemnitor is
materially prejudiced by such failure. 
For purposes of this Section 12.4, any Notice which is sent within 15
days of the date upon which the Indemnitee learned of such Loss shall be deemed
to have been a "prompt notice." The Indemnitor shall have thirty (30)
days from the date such notice is received to provide the Indemnitee with
written notice of its acceptance of responsibility for the asserted claim (in
whole or in part), or its rejection of the same, unless the claim (i) relates
to a lawsuit filed by a third party, in which case the Indemnitor shall respond
at least ten (10) days prior to the date a responsive pleading is due, or (ii)
requires an immediate response, as in the case of a cease and desist demand by
a third party or a notice to show cause, in which case the Indemnitor shall
respond in a prompt, timely manner. 
Failure to respond within such period shall constitute rejection of the
claim. If the claim is rejected, the parties shall make good faith efforts to
resolve the matter by agreement. If no such agreement can be reached within
sixty (60) days of the Indemnitor’s receipt of the Notice, the matter shall be
sent to arbitration for resolution in accord with the provisions of Section
13.7 hereof.

                    (b)      If
the claim is based on a claim by a third party, the Indemnitor will be entitled
to participate in the negotiation or administration thereof and, to the extent
that such claim relates to the liability of the Indemnitor, to assume the
defense thereof with counsel reasonably satisfactory to the Indemnitee.  The Indemnitee shall have the right to
employ separate counsel in any such action or claim and to participate in the
defense thereto, but the fees and expenses of such counsel shall not be at the
expense of the Indemnitor unless (i) the Indemnitor shall have timely failed to
assume the defense of such claim, (ii) the employment of such counsel has been
specifically authorized in writing by the Indemnitor, or (iii) the Indemnitor’s
counsel is prohibited under applicable rules of professional responsibility
from representing the interests of both parties in such defense.  If the Indemnitor responds within the time
period set forth above by notifying the Indemnitee that the Indemnitor will
assume the defense of the claim, no indemnification payment shall be due until
the matter giving rise to the claim is resolved.  If the Indemnitor does not assume the defense of the claim, the
Indemnitee may assume the defense and seek indemnification from time to time as
the amount of the claim for which it is entitled to be indemnified becomes
liquidated.  Notwithstanding the
foregoing, neither Party shall pay, settle or compromise any such claim without
the prior written approval of the other Party, which approval shall not be
unreasonably withheld, conditioned or delayed; provided, that the Indemnitor
may pay, settle or compromise any such claim or proceeding without the consent
of the Indemnitee if such claim requires solely the payment of money and is
solely the liability of the Indemnitor. In connection with any claims based on
claims by third parties, the Indemnitee shall cooperate fully to make available
to the defending party all pertinent information under its control.

          12.6   Limitation of
Liability. EXCEPT WITH RESPECT TO LOSSES ARISING IN ANY WAY FROM
THIRD-PARTY CLAIMS, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY SPECIAL,
INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES IN CONNECTION WITH THIS AGREEMENT
OR THE TRANSACTION CONTEMPLATED HEREBY WHETHER BASED ON ACTION OR CLAIM IN
CONTRACT, EQUITY, INDEMNITY, TORT (INCLUDING NEGLIGENCE), INTENDED CONDUCT,
STRICT LIABILITY OR OTHERWISE, EVEN IF SUCH DAMAGES ARE FORESEEABLE.

ARTICLE 13

TERMINATION

          13.1   Termination by Mutual Consent.  At any time prior to the Closing, this
Agreement may be terminated by the mutual written consent of Seller and Buyer
without liability on the part of Seller or Buyer.

          13.2   Termination Upon Breach or Default.  If Seller or Buyer shall materially default
in the observance or in the due and timely performance of any of the covenants
contained in this Agreement, or if there shall have been a material breach by
any of the parties of any of the representations or warranties set forth in
this Agreement, which breach continues following delivery of written notice to
the other party and a reasonable opportunity to cure, the nonbreaching or nondefaulting
party may terminate this Agreement, without prejudice to its rights and
remedies available at law, including the right to recover expenses, costs and
other damages.

          13.3   Termination Based Upon Failure of
Conditions.  If any of the
conditions of this Agreement to be complied with or performed by a party on or
before the Closing Date, shall not have been complied with or performed in all
material respects by such date and such noncompliance or nonperformance shall
not have been waived in writing by the other party, the party to whom the
benefit of such condition runs may, upon written notice, terminate this
Agreement.

          13.4   Failure to Close.  This Agreement may be terminated by Buyer or
the Seller if the transactions contemplated hereby have not been consummated by
January 31, 2001; provided that, neither party will be entitled to terminate
this Agreement pursuant to this Section 13.4 if its willful breach of this
Agreement has prevented the consummation of the transactions contemplated
hereby.

          13.5   Termination
Based Upon Order of Governmental Authority.  This Agreement will terminate without liability to either Seller
or Buyer in the event that any Governmental Authority shall have issued an
order, decree or ruling or taken any other action permanently enjoining,
restraining or otherwise prohibiting the consummation of the transactions
contemplated hereunder and such order, decree or ruling or other action shall
have become final and nonappealable.

          13.6   Effect of Termination  In the event of termination of this
Agreement by either Buyer or Seller as provided in Sections 13.1, 13.3, 13.4
and 13.5, this Agreement shall become void and there shall be no liability on
the part of either Buyer or Seller or their respective shareholders, officers,
or directors, except that Sections 14.06 and 14.10 hereof shall survive
indefinitely.

          13.7   Dispute Resolution  Any dispute among the parties hereto before
the Closing, may be resolved by application to any court of competent
jurisdiction. Any dispute among the parties hereto arising on or after the
Closing Date shall be resolved in accordance with the arbitration provisions of
this Section 13.7.

                    (a)      The
parties shall attempt in good faith to resolve any dispute arising out of or
relating to this Agreement, the breach, termination or validity thereof
promptly by negotiation between executives who have authority to settle the
controversy. Any party may give the other written notice that a dispute exists
(a "Notice of Dispute").  The
Notice of Dispute shall include a statement of such party's position.  Within twenty (20) business days of the
delivery of the Notice of Dispute, executives of both parties shall meet at a
mutually acceptable time and place, and thereafter as long as they both
reasonably deem necessary, to exchange relevant information and attempt to
resolve the dispute.  If the matter has
not been resolved within 45 days of the disputing party's Notice of Dispute, or
if the parties fail to meet within 20 days, either party may initiate
arbitration of the controversy or claim as provided hereinafter.

          If a negotiator intends to be accompanied at
a meeting by an attorney, the other negotiator shall be given at least three
working days' notice of such intention and may also be accompanied by an
attorney.  All negotiations pursuant to
this clause are confidential and shall be treated as compromise and settlement
negotiations for purposes of the Federal Rules of Evidence and state rules of
evidence.

                    (b)      Any controversy or claim
arising out of or relating to this Agreement, the breach, termination or
validity thereof, or the transactions contemplated herein, if not settled by
negotiation as provided in paragraph (a) of this Section 13.7, shall be settled
by arbitration in Minneapolis, Minnesota, in accordance with the CPR Rules for
Non-Administered Arbitration of Business Disputes, by three arbitrators.  Each party shall choose one arbitrator and
the two arbitrators so chosen shall choose a third arbitrator who must be a retired
judge of a state or federal court of the United States. The arbitrators shall
be appointed as provided by CPR Rule 5, Selection of Arbitrators by the
parties.  The arbitration procedure
shall be governed by the United States Arbitration Act, 9 U.S.C. §1–16,
and the award rendered by the arbitrators shall be final and binding on the
parties and may be entered in any court having jurisdiction thereof.

                    (c)      Each party shall have
discovery rights as provided by the Federal Rules of Civil Procedure within the
limits imposed by the arbitrators; provided, however, that all
such discovery shall be commenced and concluded within one hundred twenty (120)
days of the selection of the third arbitrator.

                    (d)      It is the intent of the
parties that any arbitration shall be concluded as quickly as reasonably
practicable.  Unless the parties
otherwise agree, once commenced, the hearing on the disputed matters shall be
held four days a week until concluded, with each hearing date to begin at
9:00 a.m. and to conclude at 5:00 p.m.  The arbitrators shall use all reasonable efforts to issue the
final award or awards within a period of thirty (30) days after closure of the
proceedings.  Failure of the arbitrators
to meet the time limits of this Section 13.7(d) shall not be a basis for
challenging the award.

                    (e)      The arbitrators shall
instruct the non–prevailing parties to pay all costs of the proceedings,
including the fees and expenses of the arbitrators and the reasonable
attorneys' fees and expenses of the prevailing parties.  If the arbitrators determine that there is
not a prevailing party, each party shall be instructed to bear its own costs
and to pay one–half of the fees and expenses of the arbitrators.

                    (f)       Any
award entered by the arbitrators may be enforced by a judgment entered in a
court of competent jurisdiction.

          13.8   Remedies  It is understood that, in the event of any party's breach of its
respective agreements as herein provided or any party's failure to perform the
covenants set forth in this Agreement required to be performed by it, the
measure of damages at law to the affected party will be difficult to ascertain
and the remedy at law may be inadequate. Accordingly, it is specifically agreed
that either Buyer or Seller, as the case may be, shall be entitled to the
remedy of specific performance to enforce the terms and conditions of this
Agreement.

ARTICLE 14

GENERAL

          14.1   Entire
Agreement.  This Agreement, and the
exhibits and schedules hereto and the agreements specifically referred to
herein set forth the entire agreement and understanding of Seller and Buyer in
respect of the transactions contemplated hereby and supersede all prior
agreements, arrangements and understandings relating to the subject matter
hereof.  No representation, promise,
inducement or statement or intention has been made by Seller or Buyer that is
not embodied in this Agreement or in the documents specifically referred to
herein and neither Seller nor Buyer shall be bound by or liable for an alleged
representation, promise, inducement or statement of intention not so set forth.

          14.2   Binding Effect;
Benefits; Assignments.  The terms of
this Agreement shall be binding upon, inure to the benefit of and be
enforceable by and against Seller and its successors and authorized assigns,
and Buyer and its successors and authorized assigns.  Nothing in this Agreement, express or implied, is intended to
confer upon any other person any rights or remedies under or by reason of this
Agreement except as expressly indicated herein.  Neither Seller nor Buyer shall assign any of their respective
rights or obligations under this Agreement to any other Persons without the
prior written consent of the other party, except as provided in this Section
14.2.  The parties may assign their
rights and privileges under this Agreement to any “Affiliate” where “Affiliate”
means any company or legal entity which controls, is controlled by, or is under
common control of Buyer or Seller respectively, but any such company or other
legal entity shall be deemed to be an Affiliate only as long as such control exists
and for the purposes of this definition, "control" means direct or
indirect ownership of at least fifty percent (50%) of the voting power of the
shares or other securities for election of directors (or other managing
authority) of the controlled or commonly controlled entity.  Without the prior written consent of the
other party, for any assignment under this Agreement, the assigning party shall
remain fully responsible for all of its obligations under this Agreement.

          14.3   Construction.  The headings of the sections and paragraphs
of this Agreement have been inserted for convenience of reference only and
shall in no way restrict or otherwise modify any of the terms or provisions
hereof.  The language used in this
Agreement shall be deemed to be the language chosen by the parties to this
Agreement to express their mutual intent, and no rule of strict construction
shall be applied against any party.

          14.4   Amendment
and Waiver.  This Agreement may be
amended, modified, superseded or canceled and any of the terms, covenants,
representations, warranties or conditions hereof may be waived only by a
written instrument executed by Seller and Buyer or, in the case of a waiver, by
or on behalf of the party waiving compliance.

          14.5   Governing
Law.  This Agreement shall be
governed by and construed in accordance with the laws of the State of Delaware
as applicable to contracts made and to be performed in Delaware, without regard
to conflict of laws principles.

          14.6   Public Disclosure.  Except as required by Law, neither Buyer nor
Seller shall make any public disclosure of the existence or terms of this
Agreement or the transactions contemplated hereby without the prior written
consent of the other party, which consent shall not be unreasonably withheld.  In the event that Seller or Buyer determines
that the disclosure of the existence or terms of this Agreement is required by
Law, such party shall so notify the other parties and shall provide to the
other party a copy of any such public disclosure prior to releasing the same.

          14.7   Notices.  All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given when delivered in person,
by facsimile, receipt confirmed, or on the next business day when sent by overnight
courier or on the second succeeding business day when sent by registered or
certified mail (postage prepaid, return receipt requested) to the respective
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):

 

	 

  	
  If to
  Seller:
  
	 
  	
            Ericsson, Inc.
  
	 
  	
            Attention: Bo Larsson
  
	 
  	
            1555 Adams Drive
  
	 
  	
            Menlo Park, CA 94025
  
	 
  	
            Telephone: 650-210-6848
  
	 
  	 
  
	 
  	
            with a copy to:
  
	 
  	
            Eileen C. Pruette, Esq.
  
	 
  	
            Associate General Counsel
  
	 
  	
            Ericsson Inc.
  
	 
  	
            7001 Development Drive
  
	 
  	
            Research Triangle Park, NC 
  27709
  
	 
  	
            Telephone:  919-472-7549
  
	 
  	
            Telecopier:  919-472-7454
  
	 
  	 
  
	 
  	
  If to Buyer:
  
	 
  	
            Norstan Communications, Inc.
  
	 
  	
            Attention: Jerry P. Lehrman, Esq.
  
	 
  	
            5101 Shady Oak Road
  
	 
  	
            Minnetonka, MN 55343-4100
  
	 
  	
            Telephone:  952-352-4075
  
	 
  	
            Telecopier:  952-352-4907
  
	 
  	 
  
	 
  	
            with a copy to:
  
	 
  	
            Philip J. Tilton, Esq.
  
	 
  	
            Maslon Edelman Borman & Brand, LLP
  
	 
  	
            3300 Wells Fargo Center
  
	 
  	
            90 South 7th Street, Suite 3300
  
	 
  	
            Minneapolis, Minnesota 55402
  
	 
  	
            Telephone:  612- 672-8357
  
	 
  	
            Telecopier:  612-672-8397
  

Either
party may change its address by prior written notice to the other party.

          14.8   Counterparts.  This Agreement may be executed in
counterparts, each of which when so executed shall be deemed to be an original
and such counterparts shall together constitute one and the same
instrument.  A facsimile signature on
any counterpart shall be deemed to be an original signature.

          14.9   Severability.  In the event that any provision in this
Agreement shall be held invalid, illegal or unenforceable in a jurisdiction,
such provision shall be modified or deleted, as to the jurisdiction involved,
only to the extent necessary to render the same valid, legal and enforceable,
and the validity, legality and enforceability of the remaining provisions
hereof shall not in any way be affected or impaired thereby nor shall the
validity, legality or enforceability of such provision be affected thereby in
any other jurisdiction.

          14.10 Expenses.  Each party shall pay their own respective expenses, costs and
fees incurred in connection with the negotiation, preparation, execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby, including, without limitation, the fees and expenses of
their respective legal counsel, accountants and financial advisors.

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

  NORSTAN COMMUNICATIONS,
INC.

 

  By:     _________________________________

  ERICSSON INC.

 

  By:     _________________________________

 

EXHIBITS

 

	
  Exhibit A

  	

Former Ericsson Employees

  
	

Exhibit B

  	

Promissory Note

  
	

Exhibit C

  	

Purchase Price Calculation Methodologies

  
	

Exhibit D

  	

Disclosure Schedules

  
	

Exhibit E

  	

Assignment and Bill of Sale

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