-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Emobcn5tuhiKlFpf5mSBPEQeF5sV773pY8AwY3IUNE02ZoQsqai/Qko5NrWWkrB8 HvDRqkKfI+AXk6KJeDt1cw== 0000911420-02-000289.txt : 20021113 0000911420-02-000289.hdr.sgml : 20021113 20021113162945 ACCESSION NUMBER: 0000911420-02-000289 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20021113 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: COMVEST VENTURE PARTNERS LP CENTRAL INDEX KEY: 0001163944 IRS NUMBER: 134124841 STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: SC 13D MAIL ADDRESS: STREET 1: 830 THIRD AVENUE CITY: NEW YORK STATE: NY ZIP: 10022 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: COMDIAL CORP CENTRAL INDEX KEY: 0000230131 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 942443673 STATE OF INCORPORATION: DE FISCAL YEAR END: 0724 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-31140 FILM NUMBER: 02820377 BUSINESS ADDRESS: STREET 1: 1180 SEMINOLE TRAIL STREET 2: P O BOX 7266 CITY: CHARLOTTESVILLE STATE: VA ZIP: 22906-2200 BUSINESS PHONE: 8049782200 MAIL ADDRESS: STREET 1: 1180 SEMMINOLE TRAIL STREET 2: P O BOX 7266 CITY: CHARLOTTESVILLE STATE: VA ZIP: 22906 SC 13D 1 d851083.txt SCHEDULE 13D UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13D/A UNDER THE SECURITIES EXCHANGE ACT OF 1934 (Amendment No. 2)* COMDIAL CORPORATION (Name of Issuer) COMMON STOCK, PAR VALUE $.01 PER SHARE (Title of Class of Securities) 20033230 2 (CUSIP Number) JOSEPH P. WYNNE COMVEST VENTURE PARTNERS, L.P. 830 THIRD AVENUE NEW YORK, NEW YORK 10022 (212) 829-5839 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) With a copy to: ALAN I. ANNEX, ESQ. GREENBERG TRAURIG, LLP 200 PARK AVENUE NEW YORK, NEW YORK 10166 (212) 801-9200 SEPTEMBER 27, 2002 (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box [ ]. NOTE: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7 for other parties to whom copies are to be sent. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). 1 CUSIP NO. 09057C 106 SCHEDULE 13D - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY) COMVEST VENTURE PARTNERS, L.P. (13-4124841) - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* WC - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION DELAWARE - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER NUMBER OF 0 SHARES ---------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER OWNED BY EACH 46,670,121 REPORTING ---------------------------------------- PERSON 9 SOLE DISPOSITIVE POWER WITH 0 ---------------------------------------- 10 SHARED DISPOSITIVE POWER 46,670,121 - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 46,670,121 - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [X] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 61.3% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* PN - -------------------------------------------------------------------------------- * SEE INSTRUCTIONS BEFORE FILLING OUT 2 CUSIP NO. 09057C 106 SCHEDULE 13D - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY) COMVEST MANAGEMENT, LLC (06-1588640) - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* AF - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION DELAWARE - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER NUMBER OF 0 SHARES ---------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER OWNED BY EACH 46,670,121 REPORTING ---------------------------------------- PERSON 9 SOLE DISPOSITIVE POWER WITH 0 ---------------------------------------- 10 SHARED DISPOSITIVE POWER 46,670,121 - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 46,670,121 - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [X] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 61.3% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* OO - -------------------------------------------------------------------------------- * SEE INSTRUCTIONS BEFORE FILLING OUT 3 CUSIP NO. 09057C 106 SCHEDULE 13D - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY) COMMONWEALTH ASSOCIATES, L.P. (13-3467952) - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* OO - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION NEW YORK - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER NUMBER OF 0 SHARES ---------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER OWNED BY EACH 391,368 REPORTING ---------------------------------------- PERSON 9 SOLE DISPOSITIVE POWER WITH 0 ---------------------------------------- 10 SHARED DISPOSITIVE POWER 391,368 - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 391,368 - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 0.6% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* PN - -------------------------------------------------------------------------------- * SEE INSTRUCTIONS BEFORE FILLING OUT 4 CUSIP NO. 09057C 106 SCHEDULE 13D - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY) COMMONWEALTH ASSOCIATES MANAGEMENT COMPANY, INC. (13-3468747) - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* OO - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION NEW YORK - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER NUMBER OF 0 SHARES ---------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER OWNED BY EACH 391,368 REPORTING ---------------------------------------- PERSON 9 SOLE DISPOSITIVE POWER WITH 0 ---------------------------------------- 10 SHARED DISPOSITIVE POWER 391,368 - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 391,368 - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 0.6% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* CO - -------------------------------------------------------------------------------- * SEE INSTRUCTIONS BEFORE FILLING OUT 5 CUSIP NO. 09057C 106 SCHEDULE 13D - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY) COMMONWEALTH GROUP HOLDINGS, LLC (01-0622406) - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* OO - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION DELAWARE - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER NUMBER OF 0 SHARES ---------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER OWNED BY EACH 926,616 REPORTING ---------------------------------------- PERSON 9 SOLE DISPOSITIVE POWER WITH 0 ---------------------------------------- 10 SHARED DISPOSITIVE POWER 926,616 - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 926,616 - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 1.5% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* OO - -------------------------------------------------------------------------------- * SEE INSTRUCTIONS BEFORE FILLING OUT 6 CUSIP NO. 09057C 106 SCHEDULE 13D - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY) MICHAEL S. FALK - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* AF - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION USA - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER NUMBER OF 3,850,843 SHARES ---------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER OWNED BY EACH 47,988,105 REPORTING ---------------------------------------- PERSON 9 SOLE DISPOSITIVE POWER WITH 3,850,843 ---------------------------------------- 10 SHARED DISPOSITIVE POWER 47,988,105 - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 51,838,943 - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [X] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 63.9% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* IN - -------------------------------------------------------------------------------- * SEE INSTRUCTIONS BEFORE FILLING OUT 7 SCHEDULE 13D ITEM 1. SECURITY AND ISSUER. This Amendment No. 2 supplements and amends Schedule 13D, dated July 1, 2002, as amended by Amendment No. 1 on Schedule 13D/A dated July 24, 2002 filed on behalf of ComVest Venture Partners, L.P. ("ComVest"), ComVest Management, LLC ("ComVest Management"), Commonwealth Associates Management Company, Inc. ("CAMC"), Commonwealth Associates, LP ("Commonwealth"), and Michael S. Falk ("Falk"). This Amendment No. 2 supplements and amends Amendment No. 1 as set forth below. All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in Amendment No. 1. This Amendment No. 2 to the statement on Schedule 13D is being filed on behalf of ComVest, ComVest Management, CAMC, Commonwealth, Falk and Commonwealth Group Holdings, LLC ("Group Holdings"), and relates to the common stock, par value $0.01 per share (the "Common Stock") of Comdial Corporation, a Delaware corporation (the "Issuer"). The Issuer's principal executive offices are located at 106 Cattlemen Road, Sarasota, Florida 34232. The shares of Common Stock that are the subject of this statement include (i) shares of Common Stock; (ii) shares of Common Stock that are issuable upon conversion of the Issuer's 7% senior subordinated secured convertible notes (the "Notes"); and (iii) shares of Common Stock issuable upon conversion of warrants. ITEM 2. IDENTITY AND BACKGROUND. Item 2 is hereby amended and restated in its entirety as follows: This statement is filed jointly by (i) ComVest, a limited partnership organized under the laws of Delaware, whose principal business is investing in securities, (ii) ComVest Management, LLC, a limited liability company organized under the laws of Delaware, whose principal business is investing in securities; (iii) Commonwealth, a limited partnership organized under the laws of New York, whose principal business is venture capital and merchant banking; (iv) CAMC, a corporation organized under the laws of New York and the corporate general partner of Commonwealth; (v) Group Holdings, a limited liability company organized under the laws of Delaware, whose principal business is serving as a holding company; and (vi) Falk, an individual. ComVest, ComVest Management, Commonwealth, CAMC, and Falk are the "Reporting Persons." ComVest Management is the general partner of ComVest and is wholly-owned by CAMC. The managers of ComVest Management are Travis L. Provow ("Provow"), Falk and Keith Rosenbloom ("Rosenbloom"). Rosenbloom and Harold Blue ("Blue") are directors of CAMC, and Falk is Chairman of CAMC. Falk is also the principal stockholder of CAMC. The sole officer of CAMC is Joseph Wynne, Chief Financial Officer ("Wynne"). CAMC is the general and principal partner of Commonwealth. Group Holdings is an affiliate of Commonwealth, ComVest and CAMC. Falk, Blue and Rosenbloom are members and managers of Group Holdings. Falk is the principal member of Group Holdings. The business address for all of the Reporting Persons and the other individual described in Item 2 is 830 Third Avenue, 4th Floor, New York, New York 10022. All of the Reporting Persons and other individuals identified in this Item 2 are United States citizens. During the last five years, none of the individuals or entities identified in this Item 2 has been convicted in a criminal proceeding (excluding traffic violations and similar misdemeanors) or been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding, was or is subject to a judgment, decree or final 8 order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws of finding any violation with respect to such laws. ITEM 3. SOURCE AND AMOUNT OF FUNDS AND OTHER CONSIDERATION. Item 3 is hereby amended to add the following: Private Placement. In connection with the Issuer's private placement (the "Private Placement") of Units, on September 27, 2002 ComVest purchased 10 Units (each, a "Unit") from the Issuer in exchange for $1,000,000, pursuant to the terms and conditions of a Private Placement Subscription Agreement by and among the Issuer, ComVest and the other individuals named therein (the "Subscription Agreement"). Each Unit consisted of (i) a Note in the principal amount of $100,000 (the "Private Placement Notes"), and (ii) a 2-year warrant to purchase 500,000 shares at an exercise price of $.01 per share (the "Private Placement Warrants"). In connection with the sale of the Units to ComVest, the Issuer cancelled the Bridge Financing Notes and issued to ComVest a Note in the aggregate amount of $3,166,750, reflecting the combined sum of the aggregate outstanding principal amount of the cancelled Bridge Financing Notes (i.e., $2,166,750) and the aggregate principal amount of the Private Placement Notes (i.e., $1,000,000). As a result, ComVest was deemed to have purchased 31.6 Units and received Private Placement Warrants to purchase an aggregate of 15,833,750 shares of Common Stock (the "Warrant Shares") at an exercise price of $.01 per share. The source of the funds used to purchase the Units was the working capital of ComVest. Terms of the Private Placement Note. The maturity date (the "Maturity Date") of the Private Placement Note is the earlier of (i) September 27, 2005, (ii) a merger or combination of the Issuer in which the shareholders of the issuer prior to the transaction own less than a majority of the outstanding shares of the surviving or combined entity after such transaction, (iii) the sale or all or substantially all of the assets of the Issuer, or (iv) the purchaser by a single entity of person or group of affiliated entities or persons of issued and outstanding shares of the Issuer representing more than 50% of the voting power. The Private Placement Note shall accrue interest at a rate of 7% per annum and shall be payable quarterly in arrears on each of March 31, June 30, September 30 and December 31, commencing December 31, 2002, or earlier in the event the Private Placement Note is converted pursuant to the terms thereof. In the event the issuer extends the Maturity Date for a period of one year, or in the event the Issuer does not repay the Private Placement Note on the Maturity Date, the rate of interest shall be adjusted to 12% per annum from the Maturity Date until the date of repayment. The Issuer may prepay the Private Placement Notes upon 15 days' prior written notice; provided, however, that any such prepayment must be made pro rata among all of the holders of Private Placement Notes issued in the Private Placement. The Issuer must prepay the Private Placement Notes to the extent of (i) not less than 50% of the amount of any net proceeds in excess of $5,000,000 received from the sale of securities by the Issuer in any financing transaction resulting in gross proceeds of at least $5,000,000, and (ii) commencing September 27, 2004, not less than 50% of Excess Cash Flow (as defined in the Private Placement Warrant); provided, however, that any such prepayment must be made pro rata among all of the holders of Private Placement Notes issued in the Private Placement. Furthermore, the Private Placement Notes are subject to forfeiture, on a pro rata basis, if the Issuer repays the Private Placement Notes during the first 18 months following their issuance. 9 In the event the Issuer defaults in the payment of the Private Placement Note when due, ComVest may, at its option, convert all or a portion of the outstanding principal amount of the Private Placement Note, together with any accrued interest thereon, into shares of Common Stock at a conversion price per share equal to the lesser of (i) $.033 and (ii) 90% of the average closing price of the Common Stock for the 5 trading days immediately prior to the date of the notice of conversion. In addition, the Issuer shall have the right, in its sole discretion, to convert the outstanding principal amount of the Private Placement Note, and any accrued interest thereon, into shares of Common Stock (the "Automatic Conversion Shares") at a conversion price of $.033 per share in the event the average closing price per shares of the Common Stock is at least $1.00 per share for 20 consecutive trading days. The conversion prices set forth above are subject to customary anti-dilution adjustments. The shares of Common Stock issued to ComVest upon automatic conversion of the Private Placement Notes (the "Automatic Conversion Shares") are subject to certain registration rights, as set forth in detail in Item 6. Pursuant to a Security Agreement, dated as of September 27, 2002, by and among the Issuer, ComVest and the other individuals named therein, repayment of the Private Placement Note is secured by a second security interest in the Issuer's assets. In addition, the Private Placement Note is subject to the terms and conditions of a Subordination Agreement with the Issuer's senior bank lender. Terms of Private Placement Warrants. Pursuant to the terms of the Private Placement Warrants, of the 15,833,750 Private Placement Warrants issued to ComVest, a Private Placement Warrant to purchase 12,667,000 Warrant Shares is exercisable at an exercise price of $.01 per share. This Private Placement Warrant may be exercised at any time from September 27, 2002 through September 27, 2004. The Private Placement Warrant to purchase the remaining 3,166,750 Warrant Shares is exercisable at an exercise price of $.01 per share but may be exercised only between March 27, 2004 and September 27, 2004. This Private Placement Warrant is subject to forfeiture in the event the Private Placement Note is repaid in whole or in part prior to March 27, 2004. The Private Placement Warrants contain cashless exercise provisions and are subject to customary anti-dilution adjustments. In addition, the Warrant Shares are subject to certain registration rights, as further described in Item 6. Advisor Warrants. As previously reported, in connection with the Bridge Financings and pursuant to the terms of an Advisory Agreement, dated June 7, 2002, by and between the Issuer and Commonwealth (the "June Advisory Agreement"), on June 21, 2002 Commonwealth received an Advisor Warrant to purchase 2,257,268 shares of Common Stock. The Advisor Warrant is exercisable at an exercise price of $.01 per share and may be exercised at any time from June 21, 2002 through June 21, 2007. As previously reported, on June 21, 2002, Commonwealth allocated a portion of the Advisor Warrant to certain of its employees, retaining 718,148 Advisor Warrants. Commonwealth subsequently allocated 463,413 of the 718,148 Advisor Warrants to Group Holdings, retaining 254,735 Advisor Warrants. In connection with the Bridge Financings and pursuant to the terms of the June Advisory Agreement, on August 15, 2002, Commonwealth received an Advisor Warrant to purchase 316,587 shares of Common Stock. This Advisor Warrant is exercisable at an exercise 10 price of $.01 per share and may be exercised at any time from June 21, 2002 through June 21, 2007. On August 15, 2002, Commonwealth allocated a portion of this Advisor Warrant to certain of its employees and affiliates, including Blue who received 108,802 Advisor Warrants. Commonwealth retained an aggregate of 20,170 of these Advisor Warrants. In connection with the Bridge Financings and pursuant to the terms of the June Advisory Agreement, on September 9, 2002, Commonwealth received an Advisor Warrant to purchase 251,215 shares of Common Stock. This Advisor Warrant is exercisable at an exercise price of $.01 per share and may be exercised at any time from June 21, 2002 through June 21, 2007. On September 9, 2002, Commonwealth allocated a portion of this Advisor Warrant to certain of its employees and affiliates, including Wynne who received 45,408 Advisor Warrants. Commonwealth retained an aggregate of 79,880 of these Advisor Warrants. In connection with the Bridge Financings and pursuant to the terms of the June Advisory Agreement, on September 25, 2002, Commonwealth received an Advisor Warrant to purchase 17,162 shares of Common Stock. This Advisor Warrant is exercisable at an exercise price of $.01 per share and may be exercised at any time from June 21, 2002 through June 21, 2007. Commonwealth retained the full amount of this Advisor Warrant. In connection with the Bridge Financings and pursuant to the terms of the June Advisory Agreement, on September 26, 2002, Commonwealth received an Advisor Warrant to purchase 17,162 shares of Common Stock. This Advisor Warrant is exercisable at an exercise price of $.01 per share and may be exercised at any time from June 21, 2002 through June 21, 2007. Commonwealth retained the full amount of this Advisor Warrant. In connection with the Private Placement and pursuant to the terms of an Advisory Agreement, dated August 16, 2002, by and between the issuer and Commonwealth (the "August Advisory Agreement"), on September 27, 2002 Commonwealth received an Advisor Warrant to purchase 6,820,900 shares of Common Stock. This Advisor Warrant is exercisable at an exercise price of $.01 per share and may be exercised at any time from September 27, 2002 through September 27, 2007. On September 27, 2002, Commonwealth allocated a portion of this Advisor Warrant to certain of its employees and affiliates, including the following individuals identified in Item 2: Provow: 629,949 Advisor Warrants Rosenbloom: 564,741 Advisor Warrants Commonwealth retained an aggregate of 270 of these Advisor Warrants. In connection with the Private Placement and pursuant to the terms of the August Advisory Agreement, on October 29, 2002, Commonwealth received an Advisor Warrant to purchase 387,500 shares of Common Stock. This Advisor Warrant is exercisable at an exercise price of $.01 per share and may be exercised at any time from September 27, 2002 through September 27, 2007. On October 29, 2002, Commonwealth allocated the entire Advisor Warrant to Group Holdings. ITEM 4. PURPOSE OF TRANSACTION. Item 4 is hereby amended to add the following: In connection with the Private Placement and pursuant to the terms of the Subscription Agreement, ComVest purchased 10 Units for an aggregate purchase price of $1,000,000. In 11 connection with this transaction, the Issuer cancelled the Bridge Financing Notes and issued to ComVest a Note in the aggregate amount of $3,166,750, reflecting the combined sum of the aggregate outstanding principal amount of the cancelled Bridge Financing Notes (i.e., $2,166,750) and the aggregate principal amount of the Private Placement Notes (i.e., $1,000,000). As a result, ComVest effectively purchased 31.6 Units and received Private Placement Warrants to purchase an aggregate of 15,833,750 Warrant Shares at an exercise price of $.01 per share. ComVest purchased the Units for investment purposes. In the event the Issuer defaults in the payment of the Private Placement Note when due, ComVest may, at its option, convert all or a portion of the outstanding principal amount of the Private Placement Note, together with any accrued interest thereon, into shares of Common Stock at a conversion price per share equal to the lesser of (i) $.033 and (ii) 90% of the average closing price of the Common Stock for the 5 trading days immediately prior to the date of the notice of conversion. In addition, the Issuer shall have the right, in its sole discretion, to convert the outstanding principal amount of the Private Placement Note, and any accrued interest thereon, into Automatic Conversion Shares at a conversion price of $.033 per share in the event the average closing price per shares of the Common Stock is at least $1.00 per share for 20 consecutive trading days. Other than the possible acquisition of the Automatic Conversion Shares or other shares of Common Stock issuable to ComVest upon optional conversion of the Private Placement Note, ComVest does not have any current plans to acquire any additional shares of Common Stock of the Issuer. In addition, ComVest does not have any current plans to dispose of the Private Placement Notes. The Private Placement Warrant to purchase 12,667,000 Warrant Shares is exercisable at an exercise price of $.01 per share at any time from September 27, 2002 through September 27, 2004. The Private Placement Warrant to purchase the remaining 3,166,750 Warrant Shares is exercisable at an exercise price of $.01 per share but may be exercised only between March 27, 2004 and September 27, 2004. This Private Placement Warrant is subject to forfeiture in the event the Private Placement Note is repaid in whole or in part prior to March 27, 2004. Other than the possible exercise of the Private Placement Warrant to purchase 12,667,000 Warrant Shares, ComVest does not have any current plans to acquire any additional Warrant Shares. In addition, other than the possible forfeiture of the Private Placement Warrant to purchase 3,166,750 Warrant Shares to the Issuer, ComVest does not have any current plans to dispose of either of the Private Placement Warrants. See Item 3 for a description of the Advisor Warrants. Other than as set forth above, or as previously reported, the Reporting Persons have no present plans or proposals which relate to, or could result in, any of the matters referred to in paragraphs (a) through (j) of Item 4 of Schedule 13D. The Reporting Persons may, at any time and from time to time, renew or reconsider their position and formulate plans or proposals with respect thereto, but have no present intention of doing so. 5. INTEREST IN SECURITIES OF THE ISSUER. Item 5 is hereby amended to reflect that: (a) ComVest may be deemed to be the beneficial owner of an aggregate of 46,670,121 shares of Common Stock, representing approximately 61.3% of the issued and outstanding shares of Common Stock of the Issuer. These holdings consist of: (i) 33,325,000 shares of Common 12 Stock; (ii) the right to acquire 12,667,000 Warrant Shares upon exercise of a Private Placement Warrant; and (iii) the right to acquire 678,121 shares of Common Stock upon exercise of an Advisor Warrant. This amount does not include the shares of Common Stock which may be issued upon conversion of the Private Placement Note held by ComVest in the principal amount of $3,166,750, because this Private Placement Note does not become convertible until certain events occur, which may or may not occur within the next 60 days. In addition, this amount does not include the Warrant Shares issuable to ComVest upon the exercise of a Private Placement Warrant to purchase 3,166,750 Warrant Shares, because this Private Placement Warrant does not become exercisable until March 27, 2004. ComVest Management, as the general partner of ComVest, may be deemed to beneficially own 46,670,121 shares of Common Stock beneficially owned by ComVest, representing approximately 61.3% of the issued and outstanding shares of Common Stock of the Issuer. Commonwealth may be deemed to be the beneficial owner of an aggregate of 391,368 shares of Common Stock, representing approximately 0.6% of the issued and outstanding shares of Common Stock of the Issuer. These holdings consist of: (i) 625 shares of Common Stock; (ii) the right to acquire 254,735 Warrant Shares upon exercise of an Advisor Warrant, pursuant to the terms of the previously described advisory agreement (each an "Advisor Warrant"); (iii) the right to acquire 1,364 Warrant Shares upon exercise of an Advisor Warrant; (iv) the right to acquire 20,170 Warrant Shares upon exercise of an Advisor Warrant; (v) the right to acquire 79,880 Warrant Shares upon exercise of an Advisor Warrant; (vi) the right to acquire 17,162 Warrant Shares upon exercise of an Advisor Warrant; (vii) the right to acquire another 17,162 Warrant Shares upon exercise of an Advisor Warrant; and (viii) the right to acquire 270 Warrant Shares upon exercise of an Advisor Warrant. All of these Advisor Warrants are exercisable immediately at an exercise price of $.01 per share. CAMC, as the general partner of Commonwealth, may be deemed to beneficially own the 391,368 shares of Common Stock beneficially owned by Commonwealth, representing approximately 0.6% of the issued and outstanding shares of Common Stock of the Issuer. Group Holdings may be deemed to be the beneficial owner of an aggregate of 926,616 shares of Common Stock, representing approximately 1.5% of the issued and outstanding shares of Common Stock of the Issuer. These holdings consist of: (i) 23,810 shares of Common Stock; (ii) the right to acquire 463,413 Warrant Shares upon exercise of an Advisor Warrant; (iii) the right to acquire 51,893 Warrant Shares upon exercise of an Advisor Warrant; and (iv) the right to acquire 387,500 Warrant Shares upon exercise of an Advisor Warrant. Falk may be deemed to be the beneficial owner of an aggregate of 51,838,948 shares of Common Stock, representing approximately 63.9% of the issued and outstanding shares of Common Stock of the Issuer. These holdings consist of: (i) the 46,670,121 shares of Common Stock beneficially owned by ComVest; (ii) the 391,368 shares of Common Stock beneficially owned by Commonwealth; (iii) 99,291 shares of Common Stock; (iv) the right to acquire 696,509 Warrant Shares upon the exercise of an Advisor Warrant; (v) the right to acquire 216,378 Warrant Shares upon the exercise of an Advisor Warrant; (vi) the right to acquire 2,838,665 Warrant Shares upon the exercise of an Advisor Warrant; and (vii) the 926,616 shares of Common Stock beneficially owned by Commonwealth. In his capacity as Chairman and controlling equity owner of CAMC, which is the general and principal partner of Commonwealth, the owner of all the interests in ComVest Management (the general partner of ComVest), and the principal member of Group Holdings, Falk may be deemed to share indirect voting 13 and dispositive power with respect to such entities' shares and may therefore be deemed to be the beneficial owner of such securities. (b) Number of shares as to which each such person has: (1) Sole power to vote or to direct the vote, and sole power to dispose or direct the disposition of: Name Number of Shares Michael S. Falk 3,850,843 (2) Shared power to vote or to direct the vote, and shared power to dispose or direct the disposition of: (i) ComVest, ComVest Management and Falk may be deemed to share such voting and disposition powers with respect to the 46,670,121 shares of Common Stock beneficially held by ComVest. (ii) Commonwealth, CAMC and Falk may be deemed to share such voting and disposition powers with respect to the 391,368 shares of Common Stock beneficially held by Commonwealth. (iii) Group Holdings and Falk may be deemed to share such voting and disposition powers with respect to the 926,616 shares of Common Stock beneficially held by Group Holdings. (c) Bridge Financings. As previously reported, in connection with a series of bridge financings consummated by the Issuer (the "Bridge Financings"), on June 21, 2002 ComVest purchased from the Issuer a Note in the principal amount of $1,750,000. Also as previously reported, subsequent to such purchase, ComVest converted $146,555.08 of the principal amount of this Note into 14,655,508 shares of Common Stock at a rate of $.01 per share, resulting in the outstanding principal amount of this Note being $1,603,445. Furthermore, as previously reported, on July 12, 2002, ComVest purchased an additional Note in the principal amount of $750,000. As previously reported, ComVest subsequently converted $186,695 of the principal amount of this Note into 18,669,492 shares of Common Stock, resulting in the outstanding principal amount of this Note being $563,305. Accordingly, ComVest received an aggregate of 33,325,000 shares of Common Stock in exchange for the conversion of an aggregate of $333,250 of the Notes held by ComVest. In addition, the aggregate outstanding principal amount of the foregoing Notes was $2,166,750 prior to September 27, 2002. As previously, reported, the source of the funds used to purchaser the foregoing Notes was the working capital of ComVest. For the purposes of this statement, the Notes described in this paragraph shall be referred to herein as the "Bridge Financing Notes." Advisor Warrants. As previously reported, in connection with the Bridge Financings and pursuant to the terms the June Advisory Agreement, on June 21, 2002 Commonwealth received an Advisor Warrant to purchase 2,257,268 shares of Common Stock. The Advisor Warrant is exercisable at an exercise price of $.01 per share and may be exercised at any time from June 21, 2002 through June 21, 2007. As previously reported, on June 21, 2002, Commonwealth allocated a portion of the Advisor Warrant to certain of its employees, retaining 718,148 Advisor Warrants. Commonwealth subsequently allocated 463,413 of the 718,148 Advisor Warrants to Group Holdings, retaining 254,735 Advisor Warrants. In connection with the Bridge Financings and pursuant to the terms of the June Advisory Agreement, on August 15, 2002, Commonwealth received an Advisor Warrant to purchase 316,587 shares of Common Stock. This Advisor Warrant is exercisable at an exercise price of $.01 per share and may be exercised at any time from June 21, 2002 through June 21, 2007. On August 15, 2002, Commonwealth allocated a portion of this Advisor Warrant to certain of its employees and affiliates, including Blue who received 108,802 Advisor Warrants. Commonwealth retained an aggregate of 20,170 of these Advisor Warrants. In connection with the Bridge Financings and pursuant to the terms of the June Advisory Agreement, on September 9, 2002, Commonwealth received an Advisor Warrant to purchase 251,215 shares of Common Stock. This Advisor Warrant is exercisable at an exercise price of $.01 per share and may be exercised at any time from June 21, 2002 through June 21, 2007. On September 9, 2002, Commonwealth allocated a portion of this Advisor Warrant to certain of its employees and affiliates, including Wynne who received 45,408 Advisor Warrants. Commonwealth retained an aggregate of 79,880 of these Advisor Warrants. 14 In connection with the Bridge Financings and pursuant to the terms of the June Advisory Agreement, on September 25, 2002, Commonwealth received an Advisor Warrant to purchase 17,162 shares of Common Stock. This Advisor Warrant is exercisable at an exercise price of $.01 per share and may be exercised at any time from June 21, 2002 through June 21, 2007. Commonwealth retained the full amount of this Advisor Warrant. In connection with the Bridge Financings and pursuant to the terms of the June Advisory Agreement, on September 26, 2002, Commonwealth received an Advisor Warrant to purchase 17,162 shares of Common Stock. This Advisor Warrant is exercisable at an exercise price of $.01 per share and may be exercised at any time from June 21, 2002 through June 21, 2007. Commonwealth retained the full amount of this Advisor Warrant. In connection with the Private Placement and pursuant to the terms of an Advisory Agreement, dated August 16, 2002, by and between the issuer and Commonwealth (the "August Advisory Agreement"), on September 27, 2002 Commonwealth received an Advisor Warrant to purchase 6,820,900 shares of Common Stock. This Advisor Warrant is exercisable at an exercise price of $.01 per share and may be exercised at any time from September 27, 2002 through September 27, 2007. On September 27, 2002, Commonwealth allocated a portion of this Advisor Warrant to certain of its employees and affiliates, including the following individuals identified in Item 2: Provow: 629,949 Advisor Warrants Rosenbloom: 564,741 Advisor Warrants Commonwealth retained an aggregate of 270 of these Advisor Warrants. In connection with the Private Placement and pursuant to the terms of the August Advisory Agreement, on October 29, 2002, Commonwealth received an Advisor Warrant to purchase 387,500 shares of Common Stock. This Advisor Warrant is exercisable at an exercise price of $.01 per share and may be exercised at any time from September 27, 2002 through September 27, 2007. On October 29, 2002, Commonwealth allocated the entire Advisor Warrant to Group Holdings. As previously reported, in connection with the Bridge Financings and pursuant to the terms of the June Advisory Agreement, on June 21, 2002, Commonwealth received an Advisor Warrant to purchase 544,807 shares of Common Stock. This Advisor Warrant is exercisable at an exercise price of $.01 per share and may be exercised at any time from June 21, 2002 through June 21, 2007. Commonwealth subsequently allocated 51,893 of this Advisor Warrant to Group Holdings. Commonwealth retained an aggregate of 1,364 of these Advisor Warrants. Commonwealth disclaims beneficial ownership of the Advisor Warrants held by Blue, Wynne, Provow, Rosenbloom and Group Holdings. Each of these individuals disclaims beneficial ownership of the securities beneficially owned by Commonwealth, other than that portion which corresponds with his equity ownership in CAMC, to the extent applicable. As members and managers of Group Holdings, each of Rosenbloom, Falk, Wynne and Blue could be deemed to beneficially own the portion of the Advisor Warrants held by Group Holdings which corresponds with his equity ownership in Group Holdings. Advisory Common Stock. As previously reported, in connection with the Bridge Financings and pursuant to the terms of the June Advisory Agreement, on June 21, 2002, Commonwealth received an aggregate of 250,000 shares of Common Stock (the "Advisory Common Stock"). Of the Advisory Common Stock, Commonwealth subsequently allocated 15 23,810 shares to Group Holdings. Commonwealth disclaims beneficial ownership of the 23,810 shares of Advisory Common Stock held by Group Holdings. As members and managers of Group Holdings, each of Rosenbloom, Falk, Wynne and Blue could be deemed to beneficially own the portion of the Advisor Common Stock held by Group Holdings which corresponds with his equity ownership in Group Holdings. The foregoing descriptions of the Subscription Agreement, Private Placement Note, Private Placement Warrants, and Advisory Agreement are not intended to be complete and are qualified in their entirety by the complete texts of the Subscription Agreement, Private Placement Note, and Private Placement Warrants are filed as Exhibits 2, 3, 4, and 5 hereto, respectively. (d) Not applicable. (e) Not applicable. ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO THE SECURITIES OF THE ISSUER. Item 6 is hereby amended to add the following: Pursuant to the terms of the June Advisory Agreement, Commonwealth agreed to assist the Issuer in raising approximately $3,000,000 in bridge financing and $12,000,000 in a private placement, assisting the Issuer in restructuring existing debt of the Issuer, and providing the Issuer with other financial advisory services, in exchange for 250,000 shares of Common Stock, a $500,000 cash fee, warrants to purchase the number of shares of Common Stock equal to 5% of the fully-diluted outstanding Common Stock upon the closing of the Bridge Financings, and a $15,000 advisory fee for 12 months. Effective November 15, 2002, Travis Lee Provow ("Provow"), a director of the Company, and an affiliate of Commonwealth, entered into an employment agreement with the Company. The June Advisory Agreement has been amended to provide for a 50% reduction in the advisory fee while Provow's employment agreement remains in effect. In addition, the Issuer agreed that in the event Commonwealth introduces the Issuer to a bank or other lending institution or assists the Issuer in obtaining a bank financing or other senior secured credit facility, the Issuer will pay Commonwealth a cash fee equal to 2% of the maximum amount of such financing or credit facility. Furthermore, the June Advisory Agreement provides that during the term of the June Advisory Agreement and for a 12-month period thereafter, Commonwealth shall have a right of first refusal to act as exclusive placement agent or financial advisor in connection with the Issuer raising any capital of $1,000,000 or more in a private placement, or as a managing or co-managing underwriter in connection with any public offering. Pursuant to the terms of the August Advisory Agreement, Commonwealth agreed to assist the Issuer in consummating the sale of not less than 100 Units and not more than 140 Units in the Private Placement for aggregate gross proceeds equal to at least $10,000,000 and at most $14,000,000. The August Advisory Agreement provided that the Private Placement offering could be increased by 20 Units at the option of Commonwealth to cover over-subscriptions. Pursuant to the terms of the Subscription Agreement, the Issuer agreed that it would prepare and file, no later than January 27, 2003 (i.e., 4 months following the date of the initial closing of the Private Placement), a registration statement under the Securities Act of 1933, as amended (the "1933 Act") with the Securities and Exchange Commission (the "Commission") covering the resale of the Warrant Shares and, to the extent applicable, the Automatic 16 Conversion Shares. In addition, the Issuer agreed to use its reasonable best efforts to cause such registration statement to become effective within 3 months thereafter. The Issuer also agreed that in the event (i) the Issuer's registration statement has not been declared effective within 7 months following the date of the initial closing of the Private Placement of (ii) the registration statement has been suspended beyond 60 days in any one instance or a total of 90 days in any 365-day period, then the Issuer shall pay to ComVest and the other holders of Automatic Conversion Shares and/or Warrant Shares a cash fee equal to 1.5% of the principal amount of all Private Placement Notes issued in the Private Placement until such time as the registration statement becomes effective or the suspension ceases. In addition, the Subscription Agreement provides that the Automatic Conversion Shares and the Warrant Shares are subject to customary "piggyback" registration rights. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS. Item 7 is hereby amended to add the following: Exhibit 1: Joint Filing Agreement, dated as of November 7, 2002. Exhibit 2: Private Placement Subscription Agreement, dated as of September 27, 2002, by and among the Issuer, ComVest and each other individual making a subscription pursuant thereto. Exhibit 3: 7% Senior Subordinated Secured Convertible Note, dated September 27, 2002, issued by the Issuer to ComVest. Exhibit 4: Warrant to purchase 12,667,000 shares of Common Stock, dated September 27, 2002. Exhibit 5: Warrant to purchase 3,166,750 shares of Common Stock, dated September 27, 2002. 17 SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: November 7, 2002 ComVest Venture Partners, LP By: ComVest Management, LLC, its General partner By: /s/ Michael S. Falk ------------------------------------- Name: Michael S. Falk Title: Manager 18 EXHIBIT INDEX Exhibit 1: Joint Filing Agreement, dated as of November 7, 2002. Exhibit 2: Private Placement Subscription Agreement, dated as of September 27, 2002, by and among the Issuer, ComVest and each other individual making a subscription pursuant thereto. Exhibit 3: 7% Senior Subordinated Secured Convertible Note, dated September 27, 2002, issued by the Issuer to ComVest. Exhibit 4: Warrant to purchase 12,667,000 shares of Common Stock, dated September 27, 2002. Exhibit 5: Warrant to purchase 3,166,750 shares of Common Stock, dated September 27, 2002. 19 EX-1 3 e851557.txt EXHIBIT 1 Exhibit 1 JOINT FILING AGREEMENT The undersigned hereby consent to the joint filing by any of them of a Statement on Schedule 13D and any amendments thereto, whether heretofore or hereafter filed, relating to the securities of Comdial Corporation, and hereby affirm that this Amendment No. 2 to the Schedule 13D is being filed on behalf of each of the undersigned. Dated: November 7, 2002 Commonwealth Associates, L.P. By: Commonwealth Associates Management Company, Inc., its general partner By:/s/ Joseph P. Wynne ---------------------------------------- Name: Joseph P. Wynne Title: Chief Financial Officer Dated: November 7, 2002 Commonwealth Associates Management Company, Inc. By: /s/ Joseph P. Wynne ------------------------------------------ Name: Joseph P. Wynne Title: Chief Financial Officer Dated: November 7, 2002 Commonwealth Group Holdings, LLC By: /s/ Michael S. Falk ---------------------------------------- Name: Michael S. Falk Title: Dated: November 7, 2002 ComVest Management, LLC By: /s/ Joseph P. Wynne ------------------------------------------ Name: Joseph P. Wynne Title: Chief Financial Officer Dated: November 7, 2002 /s/ Michael S. Falk --------------------------------------------- Michael S. Falk EX-2 4 e851590.txt EXHIBIT 2 Exhibit 2 COMDIAL CORPORATION PRIVATE PLACEMENT SUBSCRIPTION AGREEMENT (this "Subscription Agreement") made as of this 27th day of September, 2002 between Comdial Corporation, a corporation organized under the laws of the State of Delaware with offices at 106 Cattlemen Road, Sarasota, Florida 34232 (the "Company"), and the undersigned (the "Subscriber"). WHEREAS, the Company desires to issue in a private placement to "accredited investors" (the "Placement") a minimum of 100 (the "Minimum Offering") and a maximum of 140 (the "Maximum Offering") units ("Units") (or fractions thereof) on the terms and conditions set forth herein and in the related Confidential Offering Memorandum (together with all the Exhibits thereto, the "Memorandum"), and the Subscriber desires to acquire the number of Units set forth on the signature page hereof; and WHEREAS, the Maximum Offering may be increased without notice to the Subscribers by up to 20 Units at the discretion of Commonwealth Associates, L.P., the placement agent for the Placement (the "Placement Agent") for the purpose of covering over-subscriptions; and WHEREAS, each Unit shall consist of: (i) $100,000 principal amount of 7% senior subordinated secured convertible promissory notes substantially in the form attached as Exhibit (ii) to the Memorandum (the "Notes") and (ii) two-year warrants (the "Warrants") substantially in the forms attached as Exhibit (iii) to the Memorandum to purchase 500,000 shares of Common Stock (the "Warrant Shares") at an exercise price of $.01 per share; and WHEREAS, Warrants to purchase 100,000 Warrant Shares included in each Unit shall be subject to forfeiture in the event the Notes are repaid in full within 18-months after the initial closing of the Placement (the "Initial Closing"); WHEREAS, up to 40 Units of the Placement may be purchased by investors upon cancellation of outstanding 7% senior subordinated secured promissory notes issued by the Company in June, July and August 2002; and WHEREAS, the Notes shall be (i) secured by a second lien on the Company's assets pursuant to the terms of a security agreement in the form attached as Exhibit (iv) to the Memorandum (the "Security Agreement") and (ii) subject to a subordination agreement with the Company's senior bank lender in the form to be delivered (the "Subordination Agreement"); and WHEREAS, the Company can force conversion of the Notes into shares of the Company's common stock at the conversion rate of $.33 per share (subject to adjustment) on the terms and subject to the conditions set forth in the Notes (the "Automatic Conversion Shares"); and WHEREAS, the Warrant Shares and Automatic Conversion Shares are entitled to registration rights on the terms set forth in this Subscription Agreement; and WHEREAS, the Subscriber is delivering simultaneously herewith a completed confidential investor questionnaire (the "Questionnaire"). NOW, THEREFORE, for and in consideration of the premises and the mutual covenants hereinafter set forth, the parties hereto do hereby agree as follows: I. SUBSCRIPTION FOR UNITS AND REPRESENTATIONS BY AND COVENANTS OF SUBSCRIBER 1.1 SUBSCRIPTION FOR UNITS. Subject to the terms and conditions hereinafter set forth, the Subscriber hereby subscribes for and agrees to purchase from the Company such number of Units as is set forth upon the signature page hereof at a price equal to $100,000 per Unit and the Company agrees to sell such Units to the Subscriber for said purchase price. The purchase price is payable by certified or bank check made payable to "American Stock Transfer & Trust Company as escrow agent for Comdial Corporation" or by wire transfer of funds, contemporaneously with the execution and delivery of this Subscription Agreement. American Stock Transfer & Trust Company (the "Escrow Agent") shall act as such in accordance with the terms and conditions of an escrow agreement to be entered into among the Placement Agent, the Company and the Escrow Agent. 1.2 RELIANCE ON EXEMPTIONS. The Subscriber acknowledges that the Placement has not been reviewed by the United States Securities and Exchange Commission (the "SEC") or any state agency because of the Company's representations that this is intended to be a nonpublic offering exempt from the registration requirements of the Securities Act of 1933, as amended (the "1933 Act") and state securities laws. The Subscriber understands that the Company is relying in part upon the truth and accuracy of, and the Subscriber's compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Subscriber set forth herein and in the Questionnaire in order to determine the availability of such exemptions and the eligibility of the Subscriber to acquire the Units. 1.3 INVESTMENT PURPOSE. The Subscriber represents that the Notes and Warrants comprising the Units are being purchased for its own account, for investment purposes only and not for distribution or resale to others in contravention of the registration requirements of the 1933 Act. The Subscriber agrees that it will not sell or otherwise transfer the Notes, the Warrants, the Warrant Shares or, if applicable, the Automatic Conversion Shares (collectively, the "Securities") unless they are registered under the 1933 Act or unless an exemption from such registration is available. 1.4 ACCREDITED INVESTOR. The Subscriber represents and warrants that it is an "accredited investor" as such term is defined in Rule 501 of Regulation D promulgated under the 1933 Act, as indicated by its responses to the Questionnaire, and that it is able to bear the economic risk of any investment in the Units. The Subscriber further represents and warrants that the information furnished in the Questionnaire is accurate and complete in all material respects. 1.5 RISK OF INVESTMENT. The Subscriber recognizes that the purchase of Units involves a high degree of risk in that: (i) an investment in the Company is highly speculative and only investors who can afford the loss of their entire investment should consider investing in the Company and the Securities; (ii) transferability of the Securities is limited; and (iii) the Company may require substantial additional funds to operate its business and there can be no assurance that the Maximum Offering will be completed or that any other funds will be available to the 2 Company, in addition to all of the other risks set forth in the Company's SEC Documents (as defined in Section 2.5 hereof). 1.6 INFORMATION. The Subscriber acknowledges that the Company has made available for its review: (a) the Company's Annual Report on Form 10-K for the year ended December 31, 2001, (b) the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2002, (c) the Company's Proxy Statement for the annual meeting of shareholders held on May 17, 2002, (d) the Company's Proxy Statement for the special meeting of shareholders to be held on August 26, 2002, (e) the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2002, and (f) the Company's Current Reports on Form 8-K filed with the SEC on April 10, 2002, July 5, 2002, July 24, 2002, August 5, 2002, August 7, 2002, August 27, 2002 and hereby represents that: (i) the Subscriber has been furnished by the Company during the course of this transaction with all information regarding the Company which it has requested; and (ii) that the Subscriber has been afforded the opportunity to ask questions of and receive answers from duly authorized officers of the Company concerning the terms and conditions of the Placement, and any additional information which it has requested, if any. 1.7 NO REPRESENTATIONS. The Subscriber hereby represents that, except as expressly set forth in (a) this Subscription Agreement, (b) the Memorandum, (c) the Notes, (d) the Warrants, (e) the Security Agreement, (f) the Subordination Agreement, and (g) all exhibits, schedules and appendices which are part of the aforementioned documents, (collectively, the "Offering Documents"), no representations or warranties have been made to the Subscriber by the Company or any agent, employee or affiliate of the Company, including the Placement Agent, and in entering into this transaction the Subscriber is not relying on any information other than that contained in the Offering Documents, the SEC Documents and the results of independent investigation by the Subscriber. 1.8 TAX CONSEQUENCES. The Subscriber acknowledges that the Placement may involve tax consequences and that the contents of the Offering Documents do not contain tax advice or information. The Subscriber acknowledges that he must retain his own professional advisors to evaluate the tax and other consequences of an investment in the Units. 1.9 TRANSFER OR RESALE. The Subscriber understands that Rule 144 (the "Rule") promulgated under the 1933 Act requires, among other conditions, a one-year holding period prior to the resale (in limited amounts) of securities acquired in a non-public offering without having to satisfy the registration requirements under the 1933 Act. The Subscriber understands and hereby acknowledges that the Company is under no obligation to register the securities comprising the Units under the 1933 Act, with the exception of certain registration rights covering the resale of the Warrant Shares and Automatic Conversion Shares set forth in Article V hereof. 1.10 LEGENDS. The Subscriber understands that the certificates or other instrument representing the Securities, until such time as they have been registered under the 1933 Act, shall bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of such certificates or other instruments): 3 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR (B) AN OPINION OF COUNSEL, IN A REASONABLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS, OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. The legend set forth above shall be removed and the Company shall issue a certificate or other instrument without such legend to the holder of the Securities upon which it is stamped, if (a) such Securities are being sold by the holder pursuant to an effective registration statement under the 1933 Act, (b) such holder delivers to the Company an opinion of counsel, in a reasonably satisfactory and acceptable form to the Company directed to the Company or expressly providing that the Company may rely thereon, that a disposition of the Securities is being made pursuant to an exemption from such registration, or (c) such holder provides the Company with reasonable assurance that a disposition of the Securities will be made pursuant to the Rule. 1.11 NO GENERAL SOLICITATION. The Subscriber represents that the Subscriber was not induced to invest by any of the following: (i) any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over the news or radio; and (ii) any seminar or meeting whose attendees were invited by any general solicitation or advertising. 1.12 VALIDITY; ENFORCEMENT. If the Subscriber is a corporation, partnership, trust or other entity, the Subscriber represents and warrants that: (a) it is authorized and otherwise duly qualified to purchase and hold the Units; and (b) that this Subscription Agreement has been duly and validly authorized, executed and delivered and constitutes the legal, binding and enforceable obligation of the undersigned. 1.13 ADDRESS. The Subscriber hereby represents that the address of Subscriber furnished by the Subscriber at the end of this Subscription Agreement is the undersigned's principal residence if the Subscriber is an individual or its principal business address if it is a corporation or other entity. 1.14 NO HEDGING TRANSACTIONS. The Subscriber hereby agrees not to engage in any Hedging Transaction until such time as the Underlying Shares have been registered for resale under the 1933 Act or may otherwise be sold in the public market without an effective registration statement under the 1933 Act. "Hedging Transaction" means any short sale (whether or not against the box) or any purchase, sale or grant of any right (including, without limitation, any put or call option) with respect to any security (other than a broad-based market basket or index) that includes, relates to or derives any significant part of its value from the Company's Common Stock or any rights, warrants, options or other securities that are convertible into, or exercisable or exchangeable for, Common Stock. 4 1.15 PLACEMENT AGENT. The Subscriber agrees that neither the Placement Agent or any of its directors, officers, employees or agents shall be liable to any Subscriber for any action taken or omitted to be taken by it in connection therewith, except for willful misconduct or gross negligence. 1.16 FOREIGN SUBSCRIBER. If the Subscriber is not a United States person, such Subscriber hereby represents that it has satisfied itself as to the full observance of the laws of its jurisdiction in connection with any invitation to subscribe for the Securities comprising the Units or any use of this Subscription Agreement, including: (a) the legal requirements within its jurisdiction for the purchase of the Units; (b) any foreign exchange restrictions applicable to such purchase; (c) any governmental or other consents that may need to be obtained; and (d) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale or transfer of the Securities. Such Subscriber's subscription and payment for, and his or her continued beneficial ownership of the Securities, will not violate any applicable securities or other laws of the Subscriber's jurisdiction. 1.17 NASD MEMBER. The Subscriber acknowledges that if it is a Registered Representative of a NASD member firm, the Subscriber must give such firm notice required by the NASD's Rules of Fair Practice, receipt of which must be acknowledged by such firm on the signature page hereof. 1.18 BOARD DESIGNEE. The Subscriber agrees that the Placement Agent shall have the right, on behalf of the Subscribers, to choose the individual designee to the Company's board of directors which the investors in the Placement have the right to designate under the terms described in the Memorandum. The Subscriber hereby authorizes the Placement Agent to make that choice unless and until the Required Holders (as defined in Section 5.2 hereof) advise the Placement Agent or the Company in writing of their choice of an alternate designee. II. REPRESENTATIONS BY THE COMPANY The Company represents and warrants to the Subscriber, except as set forth in the disclosure schedules attached hereto: 2.1 SECURITIES LAW COMPLIANCE. The offer, offer for sale, and sale of the Units have not been registered under the 1933 Act. The Units are to be offered, offered for sale and sold in reliance upon the exemptions from the registration requirements of Section 4 of the 1933 Act. The Company will use its best efforts to conduct the Placement in compliance with the requirements of Regulation D of the General Rules and Regulations under the 1933 Act and applicable state "blue sky" laws, and the Company will file all appropriate notices of offering with the SEC. The Company has prepared the Offering Documents. The Offering Documents will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances in which they were made, not misleading. If at any time prior to the completion of the Placement or other termination of this Subscription Agreement any event shall occur as a result of which it might become necessary to amend or supplement the Offering Documents so that they do not include any untrue statement of any material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances then existing, not misleading, the 5 Company will promptly notify the Subscriber and will supply the Subscriber with amendments or supplements correcting such statement or omission. 2.2 ORGANIZATION AND QUALIFICATION. The Company is duly organized and validly existing in good standing under the laws of the jurisdiction in which it is organized, and has the requisite power and authorization to own its properties and to carry on its business as now being conducted except as may be provided by the Company's agreements with Bank of America. The Company is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which its ownership of property or the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect. As used in this Subscription Agreement, "Material Adverse Effect" means any material adverse effect on the business, properties, assets, operations, results of operations, financial condition or prospects of the Company, or on the transactions contemplated hereby, or by the other Offering Documents or the agreements and instruments to be entered into in connection herewith or therewith, or on the authority or ability of the Company to perform its obligations under the Offering Documents. The Company does not have any operating subsidiaries other than as set forth in Schedule 2.4 to this Agreement and all of the non-operating subsidiaries are wholly-owned by the Company. 2.3 CAPITALIZATION. The authorized, issued and outstanding capital stock of the Company prior to the consummation of the transactions contemplated hereby is set forth in Schedule 2.3 to this Subscription Agreement. All of such outstanding shares have been and are, or upon issuance will be duly authorized, validly issued, fully paid and non-assessable. Except as disclosed in Schedule 2.3, (i) no shares of the Company's capital stock are subject to preemptive rights under Delaware law or any other similar rights or any liens or encumbrances suffered or permitted by the Company; (ii) there are no outstanding debt securities issued by the Company; (iii) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exchangeable for, any shares of capital stock of the Company, or contracts, commitments, understandings or arrangements by which the Company is or may become bound to issue additional shares of capital stock of the Company or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exchangeable for, any shares of capital stock of the Company; (iv) there are no agreements or arrangements under which the Company is obligated to register the sale of any of their securities under the 1933 Act; (v) there are no outstanding securities of the Company that contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company is or may become bound to redeem a security of the Company; (vi) there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Securities as described in the Offering Documents that shall not have been waived prior to the Initial Closing; and (vii) the Company does not have any stock appreciation rights or "phantom stock" plans or agreements or any similar plan or agreement. To the knowledge of the Company, all prior sales of securities of the Company were either registered under the 1933 Act and applicable state securities laws or exempt from such registration, and, to the knowledge of the Company, no security holder has any rescission rights with respect thereto. 2.4 SUBSIDIARIES AND INVESTMENTS. Other than as set forth in Schedule 2.4 to this Subscription Agreement, the Company has no subsidiaries, and the Company does not own, 6 directly or indirectly, any capital stock or other equity ownership or proprietary interests in any other corporation, association, trust, partnership, joint venture or other entity. 2.5 SEC DOCUMENTS; FINANCIAL STATEMENTS. Since December 31, 2001, the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934 (the "Exchange Act") (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein being hereinafter referred to as the "SEC Documents"). The Company has made available to the Subscriber or its representatives copies of the SEC Documents. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (a) as may be otherwise indicated in such financial statements or the notes thereto, or (b) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments that would not be material). The Company has no reason to believe its independent auditors will withhold their consent to the inclusion of their audit opinion concerning the Company's financial statements which are to be included in any Registration Statement. 2.6 ABSENCE OF CHANGES. Since June 30, 2002, other than as set forth in the SEC Documents and Schedule 2.6 to this Subscription Agreement, the Company has not (i) incurred any debts, obligations or liabilities, absolute, accrued, contingent or otherwise, whether due or to become due, except current liabilities incurred in the usual and ordinary course of business and consistent with past practices, having individually or in the aggregate a Material Adverse Effect, (ii) made or suffered any changes in its contingent obligations by way of guaranty, endorsement (other than the endorsement of checks for deposit in the usual and ordinary course of business), indemnity, warranty or otherwise, (iii) discharged or satisfied any liens or paid any obligation or liability other than current liabilities shown on the balance sheet dated as of June 30, 2002, and current liabilities incurred since the date of the balance sheet dated as of June 30, 2002, in each case in the usual and ordinary course of business and consistent with past practices, (iv) mortgaged, pledged or subjected to lien any of its assets, tangible or intangible, (v) sold, transferred or leased any of its assets except in the usual and ordinary course of business and consistent with past practices, (vi) cancelled or compromised any debt or claim, or waived or released any right, of material value, (vii) suffered any physical damage, destruction or loss (whether or not covered by insurance) adversely affecting the properties, business or prospects of the Company, (viii) entered into any transaction other than in the usual and ordinary course of business except for this Subscription Agreement and the other Offering Documents and the related agreements referred to herein and therein, (ix) encountered 7 any labor difficulties or labor union organizing activities, (x) made or granted any wage or salary increase or entered into any employment agreement, (xi) issued or sold any shares of capital stock or other securities or granted any options with respect thereto, or modified any equity security of the Company, (xii) declared or paid any dividends on or made any other distributions with respect to, or purchased or redeemed, any of its outstanding equity securities, (xiii) suffered or experienced any change in, or condition affecting, its condition (financial or otherwise), properties, assets, liabilities, business operations, results of operations or prospects other than changes, events or conditions in the usual and ordinary course of its business and consistent with past practices, having (either by itself or in conjunction with all such other changes, events and conditions) a Material Adverse Effect or (xiv) made any change in the accounting principles, methods or practices followed by it or depreciation or amortization policies or rates theretofore adopted. 2.7 TITLE. Except as set forth in or contemplated by Schedule 2.7 to this Subscription Agreement, the Company has good and marketable title to all properties and assets owned by it, free and clear of all liens, charges, encumbrances or restrictions, except such as are not significant or important in relation to the Company's business; all of the material leases and subleases under which the Company is the lessor or sublessor of properties or assets or under which the Company holds properties or assets as lessee or sublessee are in full force and effect, and the Company is not in default in any material respect with respect to any of the terms or provisions of any of such leases or subleases, and no material claim has been asserted by anyone adverse to rights of the Company as lessor, sublessor, lessee or sublessee under any of the leases or subleases mentioned above, or affecting or questioning the right of the Company to continued possession of the leased or subleased premises or assets under any such lease or sublease. The Company owns or leases all such properties as are necessary to its operations as described in the Offering Documents. 2.8 PROPRIETARY RIGHTS. Except as set forth on Schedule 2.8, the Company owns, or is duly licensed to use or possess, or possesses exclusive and enforceable rights to use all patents, patent applications, trademarks, service marks, copyrights, trade secrets, processes, formulations, technology or know-how used in the conduct of its business (the "Proprietary Rights"). Except as set forth on Schedule 2.8 to this Subscription Agreement, the Company has not received any notice of any claims, nor does it have any knowledge of any threatened claims, and knows of no facts which would form the basis of any claim, asserted by any person to the effect that the sale or use of any product or process now used or offered by the Company or proposed to be used or offered by the Company infringes on any patents or infringes upon the use of any such Proprietary Rights of another person and, to the best of the Company's knowledge, no others have infringed the Company's Proprietary Rights. 2.9 LITIGATION. Except as set forth in or contemplated by Schedule 2.9 to this Subscription Agreement, there is no material action, suit, investigation, customer complaint, claim or proceeding at law or in equity by or before any arbitrator, court, governmental instrumentality or agency, self-regulatory organization or body or public board now pending or, to the knowledge of the Company, threatened against the Company of any of the Company's officers or directors in their capacities as such (or basis therefor known to the Company), the adverse outcome of which would have a Material Adverse Effect. Except as set forth on Schedule 2.9, the Company is not subject to any judgment, order, writ, injunction or decree of 8 any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign that have a Material Adverse Effect. 2.10 NON-DEFAULTS; NON-CONTRAVENTION. Except as set forth in or contemplated by Schedule 2.10 to this Subscription Agreement, the Company is not in violation of or default under, nor will the execution and delivery of this Subscription Agreement or any of the other Offering Documents or consummation of the transactions contemplated herein or therein result in a violation of or constitute a default in the performance or observance of any obligation under: (i) its Certificate of Incorporation, or its By-laws; or (ii) any indenture, mortgage, contract, material purchase order or other agreement or instrument to which the Company is a party or by which it or its property is bound, where such violation or default would have a Material Adverse Effect; or (iii) any material order, writ, injunction or decree of any court of any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign (including, to the Company's knowledge, federal and state securities laws and regulations ),where such violation or default would have a Material Adverse Effect, and there exists no condition, event or act that constitutes a default under any of the foregoing, which in either case would have a Material Adverse Effect. 2.11 TAXES. The Company has filed all tax returns that are required to be filed by it or otherwise met its disclosure obligations to the relevant agencies and all such returns are true and correct. The Company has paid or adequately provided for all tax liabilities of the Company as reflected on such returns or pursuant to any assessments received by it or that it is obligated to withhold from amounts owing to any employee, creditor or third party. The Company has properly accrued all taxes required to be accrued by GAAP consistently applied. The income tax returns of the Company have not been audited by any government or regulatory authorities with in the last five years. The Company has not waived any statute of limitations with respect to taxes or agreed to any extension of time with respect to any tax assessment or deficiency. 2.12 COMPLIANCE WITH LAWS; LICENSES, ETC. Except as set forth on Schedule 2.12, the Company has not received notice of any violation of or noncompliance with any laws, ordinances, regulations and orders applicable to its business that would have a Material Adverse Effect and that has not been cured. The Company has all material licenses and permits and other governmental certificates, authorizations and permits and approvals (collectively, "Licenses") required by every government or regulatory body for the operation of its business as currently conducted and the use of its properties. The Licenses are in full force and effect and to the Company's knowledge no violations currently exist in respect of any License and no proceeding is pending or threatened to revoke or limit any thereof. 2.13 AUTHORIZATION; ENFORCEMENT; VALIDITY. The Company has the requisite corporate power and authority to enter into and perform its obligations under this Subscription Agreement and the other Offering Documents, to file and perform its obligations under the Offering Documents, and to issue the Securities in accordance with the terms of the Offering Documents. The execution and delivery of the Offering Documents by the Company and the consummation by the Company of the transactions contemplated by the Offering Documents, including without limitation the issuance of the Securities, have been duly authorized by the Company's board of directors and no further consent or authorization is required by the 9 Company, its board of directors or its stockholders. This Section 2.13 is subject to the exceptions set forth on Schedule 2.13. 2.14 AUTHORIZATION OF SECURITIES. The issuance, sale and delivery of the Notes and the Warrants have been duly authorized by all requisite corporate action of the Company. When so issued, sold and delivered in accordance with the Offering Documents for the consideration set forth therein, the Notes and the Warrants will be duly executed, issued and delivered and will constitute valid and legal obligations of the Company enforceable in accordance with their respective terms and, in each case, will not be subject to preemptive or any other similar rights of the stockholders of the Company or others which rights shall not have been waived prior to the Initial Closing. Prior to the Initial Closing, the Warrant Shares will be duly reserved for issuance upon exercise of all or any of the Warrants and when so issued, sold, paid for and delivered for the consideration set forth in the Offering Documents, the Warrant Shares will be validly issued and outstanding, fully paid and nonassessable, and not subject to preemptive or any other similar rights of the stockholders of the Company or others which rights shall not have been waived prior to the Initial Closing. This Section 2.14 is subject to the exceptions set forth on Schedule 2.14. 2.15 EXEMPTION FROM REGISTRATION. Assuming the accuracy of the information provided by the respective Subscribers in the Subscription Agreements, the offer and sale of the Units pursuant to the terms of this Subscription Agreement are exempt from the registration requirements of the 1933 Act and the rules and regulations promulgated thereunder. To the Company's knowledge, the Company is not disqualified from the exemption under Regulation D by virtue of the disqualifications contained in Rule 505(b)(2)(iii) or Rule 507 promulgated thereunder. 2.16 REGISTRATION RIGHTS. Except as set forth in Schedule 2.16 to this Subscription Agreement, no person has any right to cause the Company to effect registration under the 1933 Act of any securities of the Company. 2.17 BROKERS. Neither the Company nor any of its officers, directors, employees or stockholders has employed any broker or finder in connection with the transactions contemplated by this Subscription Agreement. 2.18 TITLE TO SECURITIES. When the Notes and the Warrants have been duly delivered to the purchasers participating in the Placement and payment shall have been made therefor, the several purchasers shall receive from the Company good and marketable title to such securities free and clear of all liens, encumbrances and claims whatsoever (with the exception of claims arising through the acts or omissions of the purchasers and except as arising from applicable federal and state securities laws), and the Company shall have paid all taxes, if any, in respect of the original issuance thereof. 2.19 TAKEOVER PROTECTIONS; RIGHTS AGREEMENT. The Company and the Board have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Certificate of Incorporation or the laws of the state of its incorporation which is or could become applicable to the Subscriber as a result of the transactions contemplated by this Subscription Agreement, including without 10 limitation, the Company's issuance of the Securities and the Subscriber's ownership of the Securities. The Company has not adopted a shareholder rights plan or similar arrangement relating to accumulations of beneficial ownership of Common Stock or a change in control of the Company. Notwithstanding the forgoing, the Company's certificate of incorporation allows for the issuance of blank check preferred stock without the vote of its stockholders. 2.20 RIGHT OF FIRST REFUSAL. No person, firm or other business entity is a party to any agreement, contract or understanding, written or oral entitling such party to a right of first refusal with respect to offerings by the Company other than Commonwealth Associates, L.P. 2.21 CONSENTS. Except as contemplated by this Subscription Agreement, to the Company's knowledge, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency or any regulatory or self-regulatory agency in order for it to execute, deliver or perform any of its obligations under or contemplated by the Offering Documents. Except as otherwise provided in the Offering Documents, all consents, authorizations, orders, filings and registrations that the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. The Company is unaware of any facts or circumstances that might prevent the Company from obtaining or effecting any of the foregoing. 2.22 NO GENERAL SOLICITATION. None of the Company, any of its affiliates, and, to the Company's knowledge, any person acting on its behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the 1933 Act) in connection with the offer or sale of the Securities. 2.23 NO INTEGRATED OFFERING. None of the Company, any of its affiliates, and any person acting on its behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would require registration of the Securities under the 1933 Act or cause the Placement to be integrated with prior offerings by the Company for purposes of the 1933 Act or any applicable stockholder approval provisions, including without limitation, under the rules and regulations of any exchange or automated quotation system on which any of the securities of the Company are listed or designated, if such integration would adversely impact the Company's ability to complete the Placement or any subsequent registration of the securities underlying the Units. None of the Company, its affiliates and any person acting on its behalf have taken any action or steps referred to in the preceding sentence that would require registration of any of the Securities under the 1933 Act or cause the Placement to be integrated with other offerings. 2.24 FOREIGN CORRUPT PRACTICES. Neither the Company nor any director, officer, agent, employee or other person acting on behalf of the Company has, in the course of its actions for, or on behalf of, the Company, (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds, (ii) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or (iii) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee. 11 111. TERMS OF SUBSCRIPTION 3.1 OFFERING PERIOD. The offering period for the Placement will continue until the earlier of (a) 11:59 PM Eastern time on September 27, 2002 or (b)the sale of the Maximum Offering (the "Termination Date"). Provided the Minimum Offering shall have been subscribed for on or prior to the Termination Date, funds representing the sale thereof shall have cleared, and all conditions to closing in the Agency Agreement have been satisfied or waived and neither the Company nor the Placement Agent have notified the other that they do not intend to effect the closing of the Minimum Offering. The Initial Closing shall take place at the offices of counsel to the Placement Agent, Loeb & Loeb, 345 Park Avenue, New York, New York 10154, or such other location as mutually agreed to by the Company and the Placement Agent within three business days thereafter. At the Initial Closing, payment for the Units issued and sold by the Company shall be made against delivery of the Notes and the Warrants comprising such Units. Subsequent closings (each of which shall be deemed a "Closing" hereunder) shall take place at any time prior to the Termination Date as may be mutually agreed to by the Company and the Placement Agent. The date of the last closing of the Placement is hereinafter referred to as the "Final Closing" and the date of any Closing hereunder is hereinafter referred to as a "Closing Date." 3.2 EXPENSES. Simultaneously with payment for and delivery of the Units at each Closing, the Company shall pay to the Placement Agent a cash fee equal to 7% of the gross proceeds of the Units sold and shall issue to the Placement Agent and its designees five-year warrants (the "Agent's Warrants") to purchase that number of shares of Common Stock as equals 10% of the Warrant Shares issuable upon exercise of the Warrants sold in the Offering at an exercise price of $.01 per share. The Company shall also reimburse the Placement Agent for actual out-of-pocket expenses incurred in connection with the Offering, including, without limitation, the reasonable fees and expenses of its counsel (Loeb & Loeb LLP), due diligence investigation expenses, travel and mailing expenses. The Company shall also pay all expenses in connection with the qualification of the Securities under the blue sky laws of the states which the Placement Agent shall designate, including legal fees, filing fees and disbursements of Placement Agent's counsel in connection with such blue sky matters. 3.3 ESCROW. Pending the sale of the Units, all funds paid hereunder shall be deposited by the Company in escrow with the Escrow Agent. If the Company shall not have obtained the Minimum Offering on or before the Termination Date, then this subscription shall be void and all funds paid hereunder by the Subscriber, without interest, shall be promptly returned to the Subscriber, subject to Section 3.5 hereof. 3.4 CERTIFICATES. The Subscriber hereby authorizes and directs the Company, upon each Closing in the Offering, to deliver the Notes and Warrants to be issued to such Subscriber pursuant to this Subscription Agreement either (a) to the Subscriber's address indicated in the Questionnaire, or (b) directly to the Subscriber's account maintained with the Placement Agent, if any. 3.5 RETURN OF FUNDS. The Subscriber hereby authorizes and directs the Company to return any funds for unaccepted subscriptions to the same account from which the funds were drawn, including any customer account maintained with the Placement Agent. 12 IV. CONDITIONS TO CLOSING. The Subscriber's obligation to purchase the Units is subject to the satisfaction of the following conditions, any one or more of which may be waived or modified by the Subscribers. 4.1 BANK RESTRUCTURING. ComVest Venture Partners, L.P. or the Company, as its assignee, shall have completed the acquisition of the debt and shares of preferred stock held by Bank of America, N.A (collectively, the "BOA Debt") and the BOA Debt shall have been restructured on terms acceptable to the Company and the Placement Agent. 4.2 NEW PROCEEDS. The Company (or the Escrow Agent, as applicable) will have received at least $10,000,000 in the aggregate from this Placement and a new senior credit facility. 4.3 MATERIAL ADVERSE EVENT. There shall not have occurred, at any time prior to the closing of this subscription (i) any domestic or international event, act or occurrence that has materially disrupted, or in the Subscriber's opinion will in the immediate future materially disrupt, the securities markets; (ii) a general suspension of, or a general limitation on prices for, trading in securities on the New York Stock Exchange or the Nasdaq - Amex Stock Exchange; (iii) any outbreak of major hostilities or other national or international calamity; (iv) any banking moratorium declared by a state or federal authority; (v) any moratorium declared in foreign exchange trading by major international banks or other persons; (vi) any material interruption in the mail service or other means of communication within the United States; (vii) any material adverse change in the business, properties, assets, results of operations, or financial condition of the Company; or (viii) any material adverse change in the market for securities in general or in political, financial, or economic conditions. V. REGISTRATION RIGHTS 5.1 AUTOMATIC REGISTRATION. The Company hereby agrees with the holders of the Securities or their transferees (other than a transferee who acquires shares pursuant to Rule 144 or an effective registration statement) (collectively, the "Holders") that no later than four months following the date of the Initial Closing, the Company shall prepare and file a registration statement under the 1933 Act with the SEC covering the resale of the Warrant Shares and, if applicable, the Automatic Conversion Shares (collectively, the "Reserved Shares"), and the Company will use its reasonable best efforts to cause such registration to become effective within three months thereafter. In the event that the Company's registration statement has not been declared effective by the SEC within seven months following the date of the Initial Closing or if the registration statement has been suspended beyond 60 days in any one instance or a total of 90 days in any 365-day period, the Company shall pay to the Holders a cash fee equal to 1.5% of the principal amount of the Notes until such time as the registration is effective or the suspension ceases and the prospectus may be used. The Company's obligation to keep the registration statement effective shall continue until the earlier of (a) the date that all of the Reserved Shares have been sold pursuant to Rule 144 under the 1933 Act or an effective registration statement, or (b) such time as the Reserved Shares are eligible for immediate resale pursuant to Rule 144(k) under the 1933 Act. 5.2 "PIGGYBACK" REGISTRATION RIGHTS. At any time after the Initial Closing, if the Company shall determine to proceed with the actual preparation and filing of a new 13 registration statement under the 1933 Act in connection with the proposed offer and sale of any of its securities by it or any of its security holders (other than a registration statement on Form S-4, S-8 or other limited purpose form), the Company will give written notice of its determination to all record holders of the Reserved Shares. Upon the written request from any Holders (the "Requesting Holders"), within 15 days after receipt of any such notice from the Company, the Company will, except as herein provided, cause all of the Reserved Shares covered by such request (the "Requested Stock") held by the Requesting Holders to be included in such registration statement, all to the extent requisite to permit the sale or other disposition by the prospective seller or sellers of the Requested Stock; provided, further, that nothing herein shall prevent the Company from, at any time, abandoning or delaying any registration. If any registration pursuant to this Section 5.2 shall be underwritten in whole or in part, the Company may require that the Requested Stock be included in the underwriting on the same terms and conditions as the securities otherwise being sold through the underwriters. In such event, the Requesting Holders shall, if requested by the underwriters, execute an underwriting agreement containing customary representations and warranties by selling stockholders and a lock-up on Reserved Shares not being sold. If in the good faith judgment of the managing underwriter of such public offering the inclusion of all of the Requested Stock would reduce the number of shares to be offered by the Company or interfere with the successful marketing of the shares of stock offered by the Company, the number of shares of Requested Stock otherwise to be included in the underwritten public offering may be reduced pro rata (by number of shares) among the Requesting Holders and all other holders of registration rights who have requested inclusion of their securities or excluded in their entirety if so required by the underwriter. To the extent only a portion of the Requested Stock is included in the underwritten public offering, those shares of Requested Stock which are thus excluded from the underwritten public offering and any other securities of the Company held by such holders shall be withheld from the market by the Holders thereof for a period, not to exceed 90 days, which the managing underwriter reasonably determines is necessary in order to effect the underwritten public offering. The obligation of the Company under this Section 5.2 shall not apply after the earlier of (a) the date that all of the Reserved Shares have been sold pursuant to Rule 144 under the 1933 Act or an effective registration statement, or (b) such time as the Reserved Shares are eligible for immediate resale pursuant to Rule 144(k) under the 1933 Act. 5.3 REGISTRATION PROCEDURES. To the extent required by Sections 5.1 or 5.2, the Company will: (a) prepare and file with the SEC a registration statement with respect to such securities, and use its reasonable best efforts to cause such registration statement to become and remain effective; (b) prepare and file with the SEC such amendments to such registration statement and supplements to the prospectus contained therein as may be necessary to keep such registration statement effective; (c) furnish to the Holders participating in such registration and to the underwriters of the securities being registered such reasonable number of copies of the registration statement, preliminary prospectus, final prospectus and such other documents as such underwriters may reasonably request in order to facilitate the public offering of such securities; 14 (d) use its reasonable best efforts to register or qualify the securities covered by such registration statement under such state securities or blue sky laws of such jurisdictions as the Holders may reasonably request in writing within 20 days following the original filing of such registration statement, except that the Company shall not for any purpose be required to execute a general consent to service of process or to qualify to do business as a foreign corporation in any jurisdiction wherein it is not so qualified; (e) notify the Holders, promptly after it shall receive notice thereof, of the time when such registration statement has become effective or a supplement to any prospectus forming a part of such registration statement has been filed; (f) notify the Holders promptly of any request by the SEC for the amending or supplementing of such registration statement or prospectus or for additional information; (g) prepare and file with the SEC, promptly upon the request of any Holders, any amendments or supplements to such registration statement or prospectus which, in the opinion of counsel for such Holders (and concurred in by counsel for the Company), is required under the 1933 Act or the rules and regulations thereunder in connection with the distribution of Common Stock by such Holders; (h) prepare and promptly file with the SEC and promptly notify such Holders of the filing of such amendment or supplement to such registration statement or prospectus as may be necessary to correct any statements or omissions if, at the time when a prospectus relating to such securities is required to be delivered under the 1933 Act, any event shall have occurred as the result of which any such prospectus or any other prospectus as then in effect would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading; and (i) advise the Holders, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the SEC suspending the effectiveness of such registration statement or the initiation or threatening of any proceeding for that purpose and promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued. The Holders shall cooperate with the Company in providing the information necessary to effect the registration of their Reserved Shares, including completion of customary questionnaires. Failure to do so may result in exclusion of such Holders' Reserved Shares from the registration statement. 15 5.4 EXPENSES. (a) With respect to the any registration required pursuant to Section 5.1 or 5.2 hereof, all fees, costs and expenses of and incidental to such registration, inclusion and public offering (as specified in paragraph (b) below) in connection therewith shall be borne by the Company, provided, however, that the Holders shall bear their pro rata share of the underwriting discount and commissions and transfer taxes. (b) The fees, costs and expenses of registration to be borne by the Company as provided in paragraph (a) above shall include, without limitation, all registration, filing, and NASD fees, printing expenses, fees and disbursements of counsel and accountants for the Company, fees of counsel to the Holders (not to exceed $15,000 in the aggregate) and all legal fees and disbursements and other expenses of complying with state securities or blue sky laws of any jurisdictions in which the securities to be offered are to be registered and qualified (except as provided in 5.4(a) above). Fees and disbursements of counsel for the Holders in excess of $15,000 and any other expenses incurred by the Holders not expressly included above shall be borne by the Holders (on a pro rata basis if and to the extent required by state securities laws). 5.5 INDEMNIFICATION. (a) The Company will indemnify and hold harmless each Holder of Reserved Shares which are included in a registration statement pursuant to the provisions of Sections 5.1 and 5.2 hereof, its directors and officers, and any underwriter (as defined in the 1933 Act) for such Holder and each person, if any, who controls such Holder or such underwriter within the meaning of the 1933 Act, from and against, and will reimburse such Holder and each such underwriter and controlling person with respect to, any and all loss, damage, liability, cost and expense to which such Holder or any such underwriter or controlling person may become subject under the 1933 Act or otherwise, insofar as such losses, damages, liabilities, costs or expenses are caused by any untrue statement or alleged untrue statement of any material fact contained in such registration statement, any prospectus contained therein or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading; provided, however, that the Company will not be liable in any such case to the extent that any such loss, damage, liability, cost or expenses arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by or on behalf of such Holder, such underwriter or such controlling person in writing specifically for use in the preparation thereof. (b) Each Holder of Reserved Shares included in a registration pursuant to the provisions of Sections 5.1 or 5.2 hereof will indemnify and hold harmless the Company, its directors and officers, any controlling person and any underwriter from and against, and will reimburse the Company, its directors and officers, any controlling person and any underwriter with respect to, any and all loss, damage, liability, cost or expense to which the Company or any controlling person and/or any underwriter may become subject under the 1933 Act or otherwise, insofar as such losses, damages, liabilities, costs or expenses are caused by any untrue statement or alleged untrue statement of any material fact contained in such registration statement, any prospectus contained therein or any amendment or supplement thereto, or arise out of or are 16 based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was so made in reliance upon and in strict conformity with written information furnished by or on behalf of such Holder specifically for use in the preparation thereof. (c) Promptly after receipt by an indemnified party pursuant to the provisions of paragraph (a) or (b) of this Section 5.5 of notice of the commencement of any action involving the subject matter of the foregoing indemnity provisions such indemnified party will, if a claim thereof is to be made against the indemnifying party pursuant to the provisions of said paragraph (a) or (b), promptly notify the indemnifying party of the commencement thereof; but the omission to so notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise under this Section except to the extent the defense of the claim is prejudiced. In case such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party shall have the right to participate in, and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party, provided, however, if counsel for the indemnifying party concludes that a single counsel cannot under applicable legal and ethical considerations, represent both the indemnifying party and the indemnified party, the indemnified party or parties have the right to select separate counsel to participate in the defense of such action on behalf of such indemnified party or parties; provided that there shall be no more than one such separate counsel. After notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party pursuant to the provisions of said paragraph (a) or (b) for any legal or other expense subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation, unless (i) the indemnified party shall have employed counsel in accordance with the provisions of the preceding sentence, (ii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after the notice of the commencement of the action or (iii) the indemnifying party has, in its sole discretion, authorized the employment of counsel for the indemnified party at the expense of the indemnifying party. VI. MISCELLANEOUS 6.1 NOTICE. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Subscription Agreement must be in writing and will be deemed to have been delivered: (a) upon receipt, when delivered personally, (b) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party), or (c) one (1) business day after deposit with an overnight courier service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be: 17 If to the Company: Comdial Corporation 106 Cattlemen Road Sarasota, Florida 34232 Telephone: (941) 922-3800 Facsimile: (941) 925-7989 Attention: Paul K. Suijk, Chief Financial Officer With a copy to: Greenberg Traurig, LLP MetLife Building 200 Park Avenue New York, New York 10166 Telephone: (212) 801-9323 Facsimile: (212) 801-6400 Attention: Alan I. Annex If to the Subscriber, to its address and facsimile number set forth at the end of this Subscription Agreement, or to such other address and/or facsimile number and/or to the attention of such other person as specified by written notice given to the Company five (5) days prior to the effectiveness of such change. Written confirmation of receipt (a) given by the recipient of such notice, consent, waiver or other communication, (b) mechanically or electronically generated by the sender's facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission, or (c) provided by an overnight courier service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from an overnight courier service in accordance with clause (a), (b) or (c) above, respectively. 6.2 ENTIRE AGREEMENT; AMENDMENT. This Subscription Agreement supersedes all other prior oral or written agreements between the Subscriber, the Company, their affiliates and persons acting on their behalf with respect to the matters discussed herein, and this Subscription Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Subscriber makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Subscription Agreement may be amended or waived other than by an instrument in writing signed by the Company and the holders of at least a majority of the principal amount of the Notes then outstanding or if prior to the Closing, the Subscribers purchasing at least a majority of the Units to be purchased at the Closing (the "Required Holders"), or if the Notes have been repaid or converted in full, the holders of at least a majority of the Reserved Shares then outstanding. Without the written consent of all holders, no such amendment shall be effective to the extent that it applies to less than all of the holders of the Securities then outstanding on a uniform non-discriminatory basis or increases the liability of a holder. 6.3 SEVERABILITY. If any provision of this Subscription Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Subscription Agreement in that jurisdiction 18 or the validity or enforceability of any provision of this Subscription Agreement in any other jurisdiction. 6.4 GOVERNING LAW; JURISDICTION; JURY TRIAL. All questions concerning the construction, validity, enforcement and interpretation of this Subscription Agreement shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the federal courts sitting in the Southern District of New York, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Subscription Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereby irrevocably waives any right it may have, and agrees not to request, a jury trial for the adjudication of any dispute hereunder or in connection with or arising out of this Subscription Agreement or any transaction contemplated hereby. 6.5 HEADINGS. The headings of this Subscription Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Subscription Agreement. 6.6 SUCCESSORS AND ASSIGNS. This Subscription Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, including any purchasers of the Notes and Warrants. The Company shall not assign this Subscription Agreement or any rights or obligations hereunder without the prior written consent of the holders of at least a majority the Securities then outstanding, except by merger or consolidation. The Subscriber may assign some or all of its rights hereunder without the consent of the Company, provided, however, that any such assignment shall not release the Subscriber from its obligations hereunder unless such obligations are assumed by such assignee and the Company has consented to such assignment and assumption, which consent shall not be unreasonably withheld. 6.7 SURVIVAL. The representations and warranties of the Company and the Subscriber contained in Articles I and II and the agreements set forth in this Article VI shall survive the Final Closing for a period of two years. 6.8 FURTHER ASSURANCES. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Subscription Agreement and the consummation of the transactions contemplated hereby. 19 6.9 NO STRICT CONSTRUCTION. The language used in this Subscription Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party, notwithstanding anything herein to the contrary. 6.10 LEGAL REPRESENTATION. The Subscriber acknowledges that: (a) it has read this Subscription Agreement and the exhibits hereto; (b) it understands that the Company has been represented in the preparation, negotiation, and execution of this Subscription Agreement by Greenberg Traurig, LLP, counsel to the Company; (c) it understands that the Placement Agent has been represented by Loeb & Loeb LLP and that such counsel has not represented and is not representing any other Subscriber; (d) it has either been represented in the preparation, negotiation, and execution of this Subscription Agreement by legal counsel of its own choice, or has chosen to forgo such representation by legal counsel after being advised to seek such legal representation; and (e) it understands the terms and consequences of this Subscription Agreement and is fully aware of its legal and binding effect. 6.11 EXPENSES OF ENFORCEMENT. The Company shall pay all fees and expenses (including reasonable fees and expenses of counsel and other professionals) incurred by the Subscriber or any successor holder of Securities in enforcing any of its rights and remedies under this Subscription Agreement. 6.12 CONFIDENTIALITY; REQUIRED PRESS RELEASE. The Subscriber agrees that it shall keep confidential and not divulge, furnish or make accessible to anyone, the confidential information concerning or relating to the business or financial affairs of the Company, if any, contained in the Offering Documents to which it becomes privy until such information has been publicly disclosed by the Company or until such information is no longer material. The Company agrees that within two business days after the closing of the Placement, it shall issue a press release which shall set forth all of the material terms of the Placement, including pricing. 6.13 COUNTERPARTS. This Subscription Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party; provided that a facsimile signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile signature. 6.14 NOTICE TO RESIDENTS OF FLORIDA: The Notes and the Warrants offered herein have not been registered with the Florida Division of Securities. Pursuant to Florida Statutes, Section 517.061(11)(a)(5), an investor may elect, within three (3) business days after delivery of their Subscription Agreement and the purchase price for the Notes and the Warrants, to withdraw their subscription and receive a full refund (without interest) of such purchase price. This withdrawal will be without any further liability to any person. To accomplish such withdrawal, an investor should send a letter or telegram to the Company, indicating the intention to withdraw, postmarked prior to the end of the third business day after delivery of funds to the Company, return receipt requested, to ensure that it is received and to evidence the time when it is mailed. Any oral requests for rescission should be accompanied by a request for written confirmation that the oral request was received on a timely basis. 20 IN WITNESS WHEREOF, the parties have executed this Subscription Agreement as of the day and year first written above. SUBSCRIBER**: CO-SUBSCRIBER**: /s/ Joseph P. Wynne - ----------------------------------- --------------------------------------- Signature of Subscriber Signature of Co-Subscriber ComVest Venture Partners - ----------------------------------- --------------------------------------- Name of Subscriber [please print] Name of Co-Subscriber [please print] - ----------------------------------- --------------------------------------- Address of Subscriber Address of Co-Subscriber - ----------------------------------- --------------------------------------- Social Security or Taxpayer Social Security or Taxpayer Identification Number of Subscriber Identification Number of Co-Subscriber - -------------------------------------------------------------------- Name of Holder(s) as it should appear on the security certificates* [please print] *Please provide the exact names that you wish to see on the certificates (1) For individuals, print full name of subscriber. (2) For joint, print full name of subscriber and all co-subscribers. (3) For corporations, partnerships, LLC, print full name of entity, including "&," "Co.," "Inc.," "etc.," "LLC," "LP," etc. (4) For Trusts, print trust name (please contact your trustee for the exact name that should appear on the certificates). (5) For IRA account maintained at Commonwealth, print "Wexford Clearing Corp. as C/F FBO [client name]." LRX- Subscription Accepted: - ----------------------------------- Comdial Corporation Subscriber's Account Number at Commonwealth Associates, if applicable Dollar Amount of Units Subscribed For: By: ------------------------------------ Name: Paul K. Suijk $----------------------------------- Title: Chief Financial Officer $ -------------------------------------- Amount of Unit Subscription Accepted **If Subscriber is a Registered The undersigned NASD member firm Representative with an Name of NASD acknowledges receipt of the notice Member firm or an affiliated person required by Rule 3040 of the NASD of an NASD member firm, have the Conduct Rules. acknowledgement to the right signed by the appropriate party. --------------------------------------- Name of NASD Member By ------------------------------------- Authorized Officer Accepted 21 EX-3 5 e851707.txt EXHIBIT 3 Exhibit 3 THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE TRANSFERRED UNTIL (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO OR (ii) RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE SECURITIES ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER NOR IS SUCH TRANSFER IN VIOLATION OF ANY APPLICABLE STATE SECURITIES LAWS. THIS LEGEND SHALL BE ENDORSED UPON ANY NOTE ISSUED IN EXCHANGE FOR THIS NOTE OR ANY SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE. THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF THE COMPANY AND PAYEE HEREUNDER ARE SUBJECT TO THE SUBORDINATION PROVISIONS SET FORTH IN SECTION 2 HEREOF. IN THE EVENT OF A CONFLICT BETWEEN ANY TERMS OF THIS NOTE AND THE TERMS OF SUCH SECTION 2, THE TERMS OF SECTION 2 SHALL GOVERN. ------------------------------------------------------------- COMDIAL CORPORATION No.6 $3,166,750 September 27, 2002 SENIOR SUBORDINATED SECURED CONVERTIBLE NOTE Comdial Corporation, a Delaware corporation (the "Company"), for value received, hereby promises to pay to the order of ComVest Venture Partners, L.P. (the "Payee") at the offices of the Company on the earlier of (the "Maturity Date"): (1) September 27, 2005; (ii) a merger or combination of the Company in which the shareholders of the Company prior to the transaction own less than a majority of the outstanding shares of the surviving or combined entity after such transaction; (iii) the sale of all or substantially all of the assets of the Company to one or more third parties; or (iv) the purchase by a single entity or person or group of affiliated entities or persons of issued and outstanding shares of the Company representing more than 50% of the voting power, the principal sum of Three Million One Hundred Sixty-Six Thousand Seven Hundred Fifty Dollars ($3,166,750) or such lesser principal amount as shall at such time be outstanding hereunder (the "Principal Amount"). The Maturity Date set forth in clause (1) may be extended by the Company for up to one year (the "Extension Option") upon notice to the Payee, subject to the provisions of Section 3B hereof. Each payment by the Company pursuant to this Note shall be made without set-off or counterclaim and shall be made in lawful currency of the United States of America and in immediately available funds. Interest on this Note shall accrue on the Principal Amount outstanding from time to time at a rate per annum computed in accordance with Section 3 hereof and shall be payable quarterly in arrears on each March 31, June 30, September 30 and December 31 commencing December 31, 2002 (each, an "Interest Payment Date") or earlier upon conversion of this Note pursuant to the provisions of Sections 6A or 6B hereof. All payments by the Company hereunder shall be applied first to pay any interest which is due, but unpaid, then to reduce the Principal Amount. The Company (i) waives presentment, demand, protest or notice of any kind in connection with this Note and (ii) agrees to pay to the Payee, on demand, all costs and expenses (including reasonable legal fees and expenses) incurred in connection with the enforcement and collection or this Note. This Note is issued in connection with a private placement (the "Placement") through Commonwealth Associates, L.P. ("Commonwealth") of identical notes (together with this Note, the "Notes") pursuant to a subscription agreement (the "Subscription Agreement") between the Company and the Payee, copies of which are available for inspection at the Company's principal office. Notwithstanding any provision to the contrary contained herein, this Note is subject and entitled to those terms, conditions, covenants and agreements contained in the Subscription Agreement that are expressly applicable to the Notes. Any transferee of this Note, by its acceptance hereof, assumes the obligations of the Payee in the Subscription Agreement with respect to the conditions and procedures for transfer of this Note. Reference to the Subscription Agreement shall in no way impair the absolute and unconditional obligation of the Company to pay both principal hereof and interest hereon as provided herein. The Company is issuing to Winfield Capital Corp. 12% senior subordinated secured convertible promissory notes (the "Senior Notes") in connection with a private placement through Commonwealth as placement agent. The Senior Notes shall be senior in right of security and payment to the Notes. The obligations of the Company under the Notes are secured by a junior lien on substantially all of the Company's assets, including its intellectual property rights, as set forth in and pursuant to a General Security Agreement (the "Security Agreement") of even date herewith. 1. Prepayment. Subject to the subordination provisions of Section 2 hereof, this Note may be prepaid in whole or in part at any time upon fifteen (15) days' prior written notice to the Payee; provided, however, that any such prepayment must be pro rats among the Notes. Subject to the subordination provisions of Section 2 hereof, this Note must be prepaid on a pro rata basis to the extent of(i) not less than fifty percent (50%) of the amount of any net proceeds in excess of five million dollars (after payment of commissions) received from the sale of securities by the Company in any financing transaction resulting in gross proceeds of at least five million dollars and (ii) commencing September 27, 2004, not less than fifty percent (50%) of Excess Cash Flow. "Excess Cash Flow" shall mean as of the applicable Interest Payment Date, (i) the Company's operating cash flow for the quarterly period ending the calendar month immediately preceding such Interest Payment Date (the "Relevant Quarter"), minus (without duplication of deductions) (ii) the sum of: (a) the Company's debt service for the Relevant Quarter (exclusive of mandatory prepayments made pursuant to this Section 1); (b) aggregate capital expenditures incurred by the Company during the Relevant Quarter; (c) optional prepayments made pursuant to this Section 1 during the Relevant Quarter; and (d) taxes paid by the Company during the Relevant Quarter. 2. Subordination. The Company, for itself, its successors and assigns, covenants and agrees, and the Payee and each successive holder of this Note, by its acceptance of this Note, likewise covenants and agrees (expressly for the benefit of the present and future holders of the Senior Debt (as hereinafter defined)), that the payment of principal of, and interest on, this Note is hereby expressly subordinated in right of payment to the prior payment in full of the principal of, premium (if any) and interest on, all Senior Debt of the Company (other than the Notes), hereafter incurred or created. "Senior Debt" means, collectively, (i) all Indebtedness for 2 Borrowed Money (and all renewals, extensions, refundings, amendments and modifications of any such Indebtedness for Borrowed Money); (ii) all payment obligations of the Company pursuant to any capitalized lease with an entity that is not an affiliate of the Company, unless by the terms of the instrument creating or evidencing any such indebtedness it is expressly provided that such indebtedness is not superior in right of payment to the Notes; and (iii) all secured payment obligations of the Company to Winfleld Capital Corp. arising from a loan in the aggregate principal amount of up to $2,000,000. "Indebtedness for Borrowed Money" means (i) all secured payment obligations of the Company to a bank, insurance company, finance company or other institutional lender or other entity regularly engaged in the business of extending credit in the form of borrowed money, in respect of extensions of credit to the Company (or to a subsidiary of the Company to the extent such obligations are guaranteed by the Company pursuant to a written guarantee executed by the appropriate officers of the Company) or any pledgor or guarantor of letters of credit posted on behalf of the Company and (ii) all obligations, contingent or otherwise, relative to the face amount of all asset-based letters of credit, whether or not drawn, and banker's acceptances, in each case issued for the account of the Company (other than such as may be for the benefit of an affiliate of the Company). The provisions of this Section 2 are not for the benefit of the Company, but are solely for the purpose of defining the relative rights of the holders of the Senior Debt, on the one hand, and the holders of the Notes, on the other hand. Nothing contained herein (i) shall impair, as between the Company and the holder of this Note, the obligations of the Company, which are absolute and unconditional, to pay to the holder hereof all amounts payable in respect of this Note as and when the same shall become due and payable in accordance with the terms hereof or (ii) is intended to or shall affect the relative rights of the holder of this Note and the creditors of the Company, or (iii) shall prevent the holder of this Note from exercising all rights, powers and remedies otherwise permitted by applicable law or upon a default or Event of Default under this Note as set forth in these subordination provisions. 3. Computation of Interest. All computations of interest hereunder shall be made based on the actual number of days elapsed in a year of 365 days (including the first day but excluding the last day during which any such Principal Amount is outstanding). A. Base Interest Rate. Subject to Sections 3B and 3C below, the outstanding Principal Amount shall bear interest at the rate of seven percent (7%) per annum. B. Penalty Interest. In the event the Extension Option is exercised by the Company or this Note is not otherwise repaid on the Maturity Date, the rate of interest applicable to the unpaid Principal Amount shall be adjusted to twelve percent (12%) per annum from the Maturity Date until repayment; provided, that in no event shall the interest rate exceed the Maximum Rate provided in Section 3C below. C. Maximum Rate. In the event that it is determined that, under the laws relating to usury applicable to the Company or the indebtedness evidenced by this Note ("Applicable Usury Laws"), the interest charges and fees payable by the Company in connection herewith or in connection with any other document or instrument executed and delivered in 3 connection herewith cause the effective interest rate applicable to the indebtedness evidenced by this Note to exceed the maximum rate allowed by law (the "Maximum Rate"), then such interest shall be recalculated for the period in question and any excess over the Maximum Rate paid with respect to such period shall be credited, without further agreement or notice, to the Principal Amount outstanding hereunder to reduce said balance by such amount with the same force and effect as though the Company had specifically designated such extra sums to be so applied to principal and the Payee had agreed to accept such extra payment(s) as a premium-free prepayment. All such deemed prepayments shall be applied to the principal balance payable at maturity. In no event shall any agreed-to or actual exaction as consideration for this Note exceed the limits imposed or provided by Applicable Usury Laws in the jurisdiction in which the Company is resident applicable to the use or detention of money or to forbearance in seeking its collection in the jurisdiction in which the Company is resident. 4. Covenants of Company. A. Affirmative Covenants. So long as this Note shall be outstanding, the Company covenants and agrees to the following: (i) Taxes and Levies. The Company will promptly pay and discharge all material taxes, assessments, and governmental charges or levies imposed upon the Company or upon its income and profits, or upon any of its property, before the same shall become delinquent, as well as all material claims for labor, materials and supplies which, if unpaid, might become a lien or charge upon such properties or any part thereof provided, however, that the Company shall not be required to pay and discharge any such tax, assessment, charge, levy or claim so long as the validity thereof shall be contested in good faith by appropriate proceedings and the Company shall set aside on its books adequate reserves in accordance with generally accepted accounting principles ("GAAP") with respect to any such tax, assessment, charge, levy or claim so contested. (ii) Maintenance of Existence. The Company will do or cause to be done all things reasonably necessary to preserve and keep in full force and effect its corporate existence, rights and franchises and comply with all laws applicable to the Company, except where the failure to comply would not have a material adverse effect on the Company or otherwise in connection with an acquisition of the Company. (iii) Maintenance of Property. The Company will at all times maintain, preserve, protect and keep its property used or useful in the conduct of its business in good repair, working order and condition, and from time to time make all needful and proper repairs, renewals, replacements and improvements thereto as shall be reasonably required in the conduct of its business. (iv) Books and Records. The Company will at all times keep true and correct books, records and accounts reflecting all of its business affairs and transactions in accordance with GAAP. (v) Notice of Certain Events. The Company will give prompt written notice (with a description in reasonable detail) to the Payee of the occurrence of any Event of 4 Default or any event which, with the giving of notice or the lapse of time, would constitute an Event of Default. (vi) Board Designee. The Company shall appoint one director to the Board designated by the Required Holders (as defined in Section 7A hereof) or Commonwealth on behalf of the Noteholders. B. Negative Covenants. So long as this Note shall be outstanding, the Company covenants and agrees to the following: (i) Liquidation, Dissolution. The Company will not liquidate or dissolve, consolidate with, or merge into or with, any corporation or entity, except that (1) any wholly-owned subsidiary may merge with another wholly-owned subsidiary or with the Company (so long as the Company is the surviving corporation and no Event of Default shall occur as a result thereof) and (2) the Company may complete a merger or consolidation if the surviving entity has cash and cash equivalents and/or net assets which are either (a) equal to or greater than the then outstanding Principal Amount and accrued interest on the Notes or (b) equal to or greater than the Company's cash and cash equivalents and/or net assets immediately prior to such merger or consolidation. (ii) Sales of Assets. The Company will not sell, transfer, lease or otherwise dispose of, or grant options, warrants or other rights with respect to, all or substantially all of its properties or assets to any person or entity other than in connection with a transaction covered by clause (i) above unless this Note is repaid in full prior to or in connection with such transaction; provided that this clause (ii) shall not restrict any disposition made in the ordinary course of business and consisting of (a) capital goods which are obsolete or have no remaining useful life; or (b) finished goods inventories. (iii) Transactions with Affiliates. The Company will not enter into any transaction, including, without limitation, the purchase, sale, lease or exchange of property, real or personal, the purchase or sale of any security, the borrowing or lending of any money, or the rendering of any service, with any person or entity affiliated with the Company (including officers, directors and shareholders owning 3% or more of the Company's outstanding capital stock), except (a) transactions valued at less than $25,000 entered into in the ordinary course of and pursuant to the reasonable requirements of its business and upon fair and reasonable terms not less favorable than would be obtained in a comparable arms-length transaction with any other person or entity not affiliated with the Company, (b) transactions with Commonwealth or any of its affiliates, or (c) transactions approved by a majority of the independent members of the Board of Directors. (iv) Investments. The Company will not purchase, own, invest in or otherwise acquire, directly or indirectly, any stock or other securities or make or permit to exist any investment or capital contribution or acquire any interest whatsoever in any other person or entity or permit to exist any loans or advances for such purposes except for investments in direct 5 obligations of the United States of America or any state thereof or any agency thereof, obligations guaranteed by the United States of America or any state thereof and certificates of deposit or other obligations of any bank or trust company organized under the laws of the United States or any state thereof and having capital and surplus of at least $500,000,000; provided, however, that nothing contained in this clause (iv) shall preclude the Company from making acquisitions, organizing and making advances to subsidiaries, and entering into joint ventures or other business arrangements for the purpose of expanding its business. (v) Proration of Payments. The Company shall not make or permit any payment or other recovery (whether voluntary, involuntary, by application of setoff or otherwise) on account of the Principal Amount or interest payable hereunder in excess of the Payee's pro rata share of payments then being made in respect of all Notes. (vi) Indebtedness. Except for the Senior Debt, the Company will not create, incur, assume or suffer to exist, contingently or otherwise, any indebtedness for borrowed money that is either (i) pari passu or senior in right of payment to the Notes, (ii) subordinated in right of payment to the Notes if such indebtedness is due and payable prior to the Maturity Date, or (iii) at the time of incurrence would preclude the timely repayment of this Note or otherwise render the Company unable to pay its debts as they become due. (vii) Negative Pledge. The Company will not hereafter create, incur, assume or suffer to exist any mortgage, pledge, hypothecation, assignment, security interest, encumbrance, lien (statutory or other), preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement and any financing lease) (each, a "Lien") upon any of its property, revenues or assets, whether now owned or hereafter acquired, except: (a) Liens granted to secure indebtedness incurred to finance the acquisition (whether by purchase or capitalized lease) of tangible assets, but only on the assets acquired with the proceeds of such indebtedness; (b) Liens for taxes, assessments or other governmental charges or levies not at the time delinquent or thereafter payable without penalty or being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books; (c) Liens of carriers, warehousemen, mechanics, materialmen and landlords incurred in the ordinary course of business for sums not overdue or being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with (GAAP shall have been set aside on its books; (d) Liens (other than Liens arising under the Employee Retirement Income Security Act of 1974, as amended, or Section 412(n) of the Internal Revenue Code of 1986, as amended) incurred in the ordinary course of business in connection with workers' compensation, unemployment insurance or other forms of governmental insurance or benefits, or to secure performance of tenders, statutory obligations, leases and contracts (other than for borrowed money) entered into in the ordinary course of business or to secure obligations on surety or appeal bonds; 6 (e) judgment Liens in existence less than sixty (60) days after the entry thereof or with respect to which execution has been stayed; (f) rights of return granted by the Company to supply houses; and (g) any other Permitted Liens (as defined in the Security Agreement). (viii) Dividends. The Company will not declare or pay any dividends or distributions on its outstanding capital stock other than as may be provided for in any currently existing certificates of designation or certificates of amendment with respect to shares of preferred stock. (ix) Acceleration of Payments. The Company shall not make any accelerated payment under any agreement, lease, loan or any other similar instrument, whether due to settlement, entry of judgment or otherwise, which shall exceed $50,000 in any one instance or $100,000 in the aggregate. Notwithstanding the preceding sentence, the Company shall be permitted to pay the accounts payable reflected on the balance sheet of the Company contained in the most recently filed Quarterly Report on Form l0-Q and other payables which are incurred in the ordinary course of business. (x) Executive Compensation and Retention. Except as the Company may be obligated to do pursuant to any existing employment agreement and except for options and bonuses to be granted to executive officers as set forth on Schedule 2.3 to the Subscription Agreement, the Company shall not increase the cash or non-cash compensation payable to Nickolas A. Branica, Paul K. Suijk, Ralph R. Dyer, Kenneth W. Noack and Carla K. Luke, or hire any new senior executives without the approval of the majority of the independent members of the Board. (xi) Issuance of Securities. Except as otherwise provided for herein, the Company shall not, without the prior written consent of the Required Holders, issue any securities that are redeemable or otherwise provide for cash payments to the holders thereof if such payments can be made prior to the Maturity Date. 5. Events of Default. A. The term "Event of Default" shall mean any of the events set forth in this Section 5A: (i) Non-Payment of Obligations. The Company shall default in the payment of the Principal Amount when and as the same shall become due and payable, whether by acceleration or otherwise, or shall default in the payment of accrued interest on this Note which default shall not be cured within ten (10) business days after the applicable Interest Payment Date. 7 (ii) Non-Performance of Affirmative Covenants. The Company shall default in any material respect in the due observance or performance of any covenant set forth in Section 4A, which default shall continue uncured for ten (10) days. (iii) Non-Performance of Negative Covenants. The Company shall default in any material respect in the due observance or performance of any covenant set forth in Section 4B. (iv) Non-Performance of Other Obligations. The Company shall default in the due observance or performance of any other material covenant or agreement on the part of the Company to be observed or performed pursuant to the terms hereof, which default shall continue uncured for five (5) days after such default has been discovered by the Company. (v) Bankruptcy, etc. The Company shall: (a) apply for, consent to, or acquiesce in, the appointment of a trustee, receiver, sequestrator or other custodian for the Company or any of its property, or make a general assignment for the benefit of creditors; (b) in the absence of such application, consent or acquiesce in, permit or suffer to exist the appointment of a trustee, receiver, sequestrator or other custodian for the Company or for any part of its property, (c) permit or suffer to exist the commencement of any bankruptcy, reorganization, debt arrangement or other case or proceeding under any bankruptcy or insolvency law, or any dissolution, winding up or liquidation proceeding, in respect of the Company and, if such case or proceeding is not commenced by the Company or converted to a voluntary case, such case or proceeding shall be consented to or acquiesced in by the Company or shall result in the entry of an order for relief or shall remain for 60 days undismissed; or (d) take any corporate or other action authorizing or in furtherance of, any of the foregoing. (vi) Breach of Representations or Warranties. Any material representation or warranty of the Company contained in the Subscription Agreement or Warrants is or shall be incorrect in any material respect when made. (vii) Cross-Acceleration. Any indebtedness for borrowed money of the Company or any subsidiary in an aggregate principal amount exceeding $50,000 (1) shall be duly declared to be or shall become due and payable prior to the stated maturity thereof, or (2) shall not be paid as and when the same becomes due and payable, including any applicable grace period. (viii) Cross-Default. The occurrence of an Event of Default under the Senior Notes. B. Action if Bankruptcy. If any Event of Default described in clauses (v)(a) through (c) of Section 5A shall occur, the outstanding Principal Amount of this Note and all 8 other obligations hereunder shall automatically be and become immediately due and payable, without notice or demand, C. Action if Other Event of Default. If any Event of Default (other than any Event of Default described in clauses (v)(a) through (c) of Section 5A) shall occur for any reason, whether voluntary or involuntary, and be continuing, the Holders may, upon notice to the Company, declare all or any portion of the outstanding Principal Amount of this Note, together with interest accrued thereon to be due and payable and any or all other obligations hereunder to be due and payable, whereupon the full unpaid Principal Amount, such accrued interest and any and all other such obligations which shall be so declared due and payable shall be and become immediately due and payable, without further notice, demand, or presentment. D. Remedies. Subject to the provisions of Section SC and 7A hereof, in case any Event of Default shall occur and be continuing, the holders of not less than 25% of the outstanding aggregate Principal Amount of the Notes may proceed to protect and enforce their rights by a proceeding seeking the specific performance of any covenant or agreement contained in this Note or in aid of the exercise of any power granted in this Note or may proceed to enforce the payment of this Note or to enforce any other legal or equitable rights as such holders shall determine. 6. Conversion of Note. A. Automatic Conversion. The Company shall have the right, at its sole discretion, to convert the outstanding Principal Amount into Common Stock at a conversion once equal to $0.33 per share (the "Automatic Conversion Price"), subject to adjustment pursuant to Section 6D, if: (i) the average closing price per share of the Company's Common Stock equals or exceeds $1.00 for twenty (20) consecutive trading days ending within five days of the notice to the Payee of conversion pursuant to this Section 6B; (ii) the Common Stock is then trading on the Nasdaq SmallCap Market, the Nasdaq National Market or a national securities exchange; (iii) either a registration statement covering the resale of the Conversion Shares has been declared effective by the Securities and Exchange Commission and remains effective or Rule 144(k) is available for resale of the Conversion Shares; and (iv) the Conversion Shares are not subject to any contractual restrictions on transferability with the Company, its underwriter or agent. Upon conversion of this Note pursuant to this Section 6B, all accrued and unpaid interest shall be due and payable in cash. The shares of Common Stock issuable upon conversion of this Note in accordance with Sections 6A and 6B hereof are referred to herein as the "Conversion Shares." B. Optional Conversion upon certain Event of Default. In the event that the Company defaults in the payment of any Principal Amount under this Note when due (at the Maturity Date, by acceleration or otherwise), the Payee shall have the right, at its option, to convert all or any of the outstanding Principal Amount and any accrued but unpaid interest into shares of Common Stock at a conversion price per share equal to the lesser of (i) the Automatic Conversion Price and (ii) 90% of the average closing price of the Common Stock for the five trading days immediately prior to the date of the notice of conversion (or, if the Common Stock has ceased trading, the average closing price for the last five available trading days). Upon 9 cancellation of this Note pursuant to this Section 6B, all accrued and unpaid interest shall be due and payable in cash. C. Adjustment of Automatic Conversion Price. The Automatic Conversion Price in effect at any time and the number and kind of securities issuable upon conversion of the Notes shall be subject to adjustment from time to time upon the happening of certain events as follows: (i) In case the Company shall hereafter (a) declare a dividend or make a distribution on its outstanding shares of Common Stock in shares of Common Stock, (b) subdivide or reclassify its outstanding shares of Common Stock into a greater number of shares, or (c) combine or reclassify its outstanding shares of Common Stock into a smaller number of shares, the Automatic Conversion Price in effect at the time of such dividend or distribution or of the effective date of such subdivision, combination or reclassification shall be adjusted so that it shall equal the price determined by multiplying the Automatic Conversion Price by a fraction, the denominator of which shall be the number of shares of Common Stock outstanding after giving effect to such action, and the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such action. Such adjustment shall be made successively whenever any event listed above shall occur (ii) In case the Company shall fix a record date for the issuance of rights or warrants to all holders of its Common Stock entitling them to subscribe for or purchase shares of Common Stock (or securities convertible into Common Stock) at a price (the "Subscription Price") (or having a conversion price per share) less than the Automatic Conversion Price on such record date, the Automatic Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Automatic Conversion Price in effect immediately prior to the date of such issuance by a fraction, the numerator of which shall be the sum of (x) the number of Common Stock Equivalents Outstanding (as defined below) on the record date mentioned below and (y) the number of additional shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock so offered (plus the aggregate conversion price of the convertible securities so offered) would purchase at the Automatic Conversion Price in effect immediately prior to the issuance, and the denominator of which shall be the sum of (x) the number of Common Stock Equivalents Outstanding on such record date and (y) the number of additional shares of Common Stock offered for subscription or purchase (or into which the convertible securities so offered are convertible). For purposes of this Section 6C, "Common Stock Equivalents Outstanding" shall mean the number of shares of Common Stock that is equal to the sum of (1) all shares of Common Stock of the Company that are outstanding at the time in question, plus (2) all shares of Common Stock of the Company issuable, directly or indirectly, upon conversion of all shares of preferred stock or other stock or other securities convertible into or exchangeable, directly or indirectly, for shares of Common Stock without the payment of additional consideration ("Convertible Securities") that are outstanding at the time in question. Such adjustment shall be made successively whenever such rights or warrants are issued and shall become effective immediately after the record date for the determination of shareholders entitled to receive such rights or warrants; and to the extent that shares of Common Stock are not delivered (or securities convertible into Common Stock are not delivered) after the expiration of such rights or warrants the Automatic Conversion Price shall be readjusted to the Automatic Conversion Price which would then be in effect had the adjustments 10 made upon the issuance of such rights or warrants been made upon the basis of delivery of only the number of shares of Common Stock (or securities convertible into Common Stock) actually delivered. (iii) In case the Company shall hereafter distribute to the holders of its Common Stock evidences of its indebtedness or assets (excluding cash dividends or distributions and dividends or distributions referred to in Subsection (i) above) or subscription rights or warrants (excluding those referred to in Subsection (ii) above), then in each such case the Automatic Conversion Price in effect thereafter shall be determined by multiplying the Automatic Conversion Price in effect immediately prior thereto by a fraction, the numerator of which shall be (x) the total number of Common Stock Equivalents Outstanding multiplied by the current market price per share of Common Stock, less (y) the fair market value (as determined by the Company's Board of Directors) of said assets or evidences of indebtedness so distributed or of such tights or warrants, and the denominator of which shall be the total number of Common Stock Equivalents Outstanding multiplied by such current market price per share of Common Stock. Such adjustment shall be made successively whenever such a record date is fixed. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date for the determination of shareholders entitled to receive such distribution. (iv) In case the Company shall hereafter issue shares of its Common Stock (excluding shares (a) issued in any of the transactions described in Subsections (i), (ii) or (v), (b) issued to shareholders of any corporation which merges into the Company in proportion to their stock holdings of such corporation immediately prior to such merger, upon such merger, (c) issued in a bona fide public offering pursuant to a firm commitment underwriting, (d) issued in connection with an acquisition of a business or technology which has been approved by a majority of the Company's non-employee directors, (e) issued in connection with the payment of interest or dividends with respect to any securities issued to investors or Commonwealth and/or their designees in connection with the Placement or upon conversion or exercise of such securities, or (f) issued upon exercise of options, warrants, convertible securities and convertible debentures) for a consideration per share (the "Offering Price") less than the Automatic Conversion Price, the Automatic Conversion Price shall be adjusted immediately thereafter so that it shall equal the price determined by multiplying the Automatic Conversion Price in effect immediately prior thereto by a fraction, the numerator of which shall be the sum of (x) the number of Common Stock Equivalents Outstanding immediately prior to the issuance of such additional shares and (y) the number of shares of Common Stock which the aggregate consideration received for the issuance of such additional shares would purchase at the Automatic Conversion Price in effect immediately prior to the issuance, and the denominator of which shall be the number of Common Stock Equivalents Outstanding immediately after the issuance of such additional shares. Such adjustment shall be made successively whenever such an issuance is made, and to the extent that shares of Common Stock (or securities convertible into Common Stock), expire, are cancelled or are redeemed after their issuance, the Automatic Conversion Price shall be readjusted to the Automatic Conversion Price that would then be in effect had the adjustments made upon the issuance of convertible securities been made upon the basis of delivery of only the number of shares of Common Stock (or securities convertible into Common Stock) actually issued. 11 (v) In case the Company shall hereafter issue any securities convertible into or exercisable or exchangeable for its Common Stock (excluding (a) securities issued in transactions described in Subsections (ii), (iii) and (iv)(a) through (f), (b) options granted to the Company's officers, directors, employees and consultants under a plan or plans adopted by the Company's Board of Directors, if such options would otherwise be included in this Subsection (v) (but only to the extent that the aggregate number of shares issuable upon exercise of the options excluded hereby and issued after the date hereof, shall not exceed 10% of the Company's Common Stock outstanding, on a fully diluted basis, at the time of any issuance unless such excess issuances are approved by the non-employee members of the Company's Board of Directors or by a committee comprised of a majority of non-employee directors) and (c) options, warrants, convertible securities and convertible debentures outstanding as of the date hereof or upon issuance, or subsequent exercise or conversion of, or in connection with the payment of in kind interest or dividends with respect to, any securities issued to investors or Commonwealth and/or their designees in connection with the Placement, or upon conversion or exercise of such securities) for a consideration per share of Common Stock (the "Exchange Price") initially payable and thereafter deliverable upon conversion, exercise or exchange of such securities (determined as provided in Subsection (vii) below) less than the Automatic Conversion Price, the Automatic Conversion Price shall be adjusted immediately thereafter so that it shall equal the price determined by multiplying the Automatic Conversion Price in effect immediately prior thereto by a fraction, the numerator of which shall be the sum of (x) the number of Common Stock Equivalents Outstanding immediately prior to the issuance of such securities and (y) the number of shares of Common Stock which the aggregate consideration paid for such securities (plus the aggregate exercise price if such convertible securities are options or warrants) would purchase the Automatic Conversion Price and the denominator of which shall be the sum of (x) the number of Common Stock Equivalents Outstanding immediately prior to such issuance and (y) the maximum number of shares of Common Stock of the Company deliverable upon conversion, exercise or exchange of such securities at the initial Exchange Price. Such adjustment shall be made successively whenever such an issuance is made; and to the extent that shares of Common Stock are not delivered after the expiration of such securities the Automatic Conversion Price shall be readjusted to the Automatic Conversion Price which would then be in effect had the adjustments made upon the issuance of such securities been made upon the basis of delivery of only the number of shares of Common Stock actually delivered. (vi) No adjustment in the Automatic Conversion Price shall be required unless such adjustment would require an increase or decrease of at least two cents ($0.02) in such price; provided, however, that any adjustments which by reason of this Section 6C are not required to be made shall be carried forward and taken into account in any subsequent adjustment required to be made hereunder. (vii) For purposes of any computation respecting consideration received pursuant to Subsections (iv) and (v) above, the following shall apply: (a) in the case of the issuance of shares of Common Stock for cash, the consideration shall be the amount of such cash, provided that in no case shall any deduction be made for any commissions, discounts or other expenses incurred by the Company for any underwriting of the issue or otherwise in connection therewith; 12 (b) in the case of the issuance of shares of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair market value thereof as determined in good faith by the Board of Directors of the Company (irrespective of the accounting treatment thereof), whose determination shall be conclusive; and in the case of the issuance of securities convertible into or exchangeable for shares of Common Stock, the aggregate consideration received therefor shall be deemed to be the consideration received by the Company for the issuance of such securities plus the additional minimum consideration, if any, to be received by the Company upon the conversion or exchange thereof (the consideration in each case to be determined in the same manner as provided in clauses (a) and (b) of this Subsection (vii)). (viii) All calculations under this Section 6C shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. Anything in this Section 6C to the contrary notwithstanding, the Company shall be entitled, but shall not be required, to make such changes in the conversion price, in addition to those required by this Section 6C, as it shall determine, in its sole discretion, to be advisable in order that any dividend or distribution in shares of Common Stock, or any subdivision, reclassification or combination of Common Stock, hereafter made by the Company shall not result in any Federal Income tax liability to the holders of Common Stock or securities convertible into Common Stock (including the Notes). (ix) In the event that at any time, as a result of an adjustment made pursuant to Subsection (i) above, the Payee thereafter shall become entitled to receive any shares of the Company, other than Common Stock, thereafter the number of such other shares so receivable upon conversion of this Note shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in Subsections (i) to (viii), inclusive above. D. Mechanics of Conversion. (i) Optional Conversion. Before the Payee shall be entitled to convert this Note into the Conversion Shares pursuant to Section 6C hereof, the Payee shall surrender this Note, duly endorsed, at the office of the Company, and shall give written notice to the Company at its principal corporate office, of the election to convert some or all of the Principal Amount of the same and shall state therein the name or names in which the certificate or certificates for the Conversion Shares are to be issued. The Company shall, as soon as practicable thereafter, issue and deliver to the Payee, a certificate or certificates for the number of Conversion Shares to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the Note to be converted, and the person or persons entitled to receive the Conversion Shares issuable upon such conversion shall be treated for all purposes as the record holder or holders of such securities as of such date. If less than the entire Principal Amount is converted, the amount converted shall be treated as a payment of the Principal Amount in the order of maturity. 13 (ii) Automatic Conversion. Before the Company shall be entitled to convert this Note into the Conversion Shares pursuant to Section 6A hereof, the Company shall deliver to the Payee at its address appearing on the records of the Company a written notice of the imminent conversion of this Note (the "Conversion Notice"), requesting surrender of this Note for cancellation and written instructions regarding the registration and delivery of certificates for the Conversion Shares. In the event the Payee receives a Conversion Notice, the Payee shall be required to surrender this Note for cancellation within five business days of the Conversion Notice (the "Conversion Date"), but the failure of the Payee so to surrender this Note shall not affect the conversion of the outstanding Principal Amount into Conversion Shares, provided that if the Note is not surrendered, an affidavit of lost note shall be provided. No holder of this Note shall be entitled upon conversion of this Note to have the Conversion Shares registered in the name of another person or entity without first complying with all applicable restrictions on the transfer of this Note. In the event the Payee does not provide the Company with written instructions regarding the registration and delivery of certificates for the Conversion Shares, the Company shall issue such shares in the name of the Payee and shall forward such certificates to the Payee at its address appearing on the records of the Company. The person entitled to receive the Conversion Shares shall be deemed to have become the holder of record of such shares at the close of business on the Conversion Date and the person entitled to receive share certificates for the Conversion Shares shall be regarded for all corporate purposes after the Conversion Date as the record holder of the number of Conversion Shares to which it is entitled upon the conversion. The Company may rely on record ownership of this Note for all corporate purposes, notwithstanding any contrary notice. After the Conversion Date, this Note shall, until surrendered to the Company, represent the right to receive the Conversion Shares; provided, however, that the Company shall have no obligation to issue the Conversion Shares until the Payee has delivered either this Note or an affidavit of loss. E. Cash Payments. No fractional shares (or scrip representing fractional shares) of Common Stock shall be issued upon conversion of this Note. In the event that the conversion of the Principal Amount of this Note would result in the issuance of a fractional share of Common Stock the Company shall pay a cash adjustment in lieu of such fractional share to the holder of this Note based upon the applicable conversion price. F. Stamp Taxes, etc. The Company shall pay all documentary, stamp or other transactional taxes attributable to the issuance or delivery of shares of Common Stock upon conversion of this Note; provided, however, that the Company shall not be required to pay any taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificate for such shares in a name other than that of the holder of this Note, and the Company shall not be required to issue or deliver any such certificate unless and until the person requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the Company's satisfaction that such tax has been paid. G. Validity of Stock. All shares of Common Stock that may be issued upon conversion of this Note will, upon issuance by the Company in accordance with the terms of this Note, be validly issued, free from all taxes and liens with respect to the issuance thereof (other than those created by the holders), free from all pre-emptive or similar rights and fully paid and non-assessable. 14 H. Reservation of Shares. The Company covenants and agrees that it shall use its reasonable best efforts to file, within 60 days after the initial issuance of the Notes, an amendment to its certificate of incorporation increasing the authorized number of shares of Common Stock to not less than 500,000,000 and to thereafter reserve the maximum number of shares of Common Stock available for issuance and/or delivery upon conversion of the Notes (assuming a lowest possible default conversion price of $.05 per share) out of its authorized but unissued shares. I. Notice of Certain Transactions. In case at any time: (i) The Company shall declare any dividend upon, or other distribution in respect of, its Common Stock; (ii) The Company shall offer for subscription to the holders of its Common Stock any additional shares of stock of any class or any other securities convertible into shares of stock or any Tights to subscribe thereto; (iii) There shall be any capital reorganization or reclassification of the capital stock of the Company, or a sale of all or substantially all of the assets of the Company, or a consolidation or merger of the Company with another corporation (other than a merger with a subsidiary in which merger the Company is the continuing corporation and which does not result in any reclassification); or (iv) There shall be a voluntary or involuntary dissolution; liquidation or winding up of the Company; then, in any one or more of said cases, the Company shall cause to be mailed to the Payee at the earliest practicable time (and, in any event not less than 10 days before any record date or other date set for definitive action), written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights or such reorganization, reclassification, sale, consolidation, merger or dissolution, liquidation or winding-up shall take place, as the case may be. Such notice Shall also set forth such facts as shall indicate the effect of such action (to the extent such effect may be known at the date of such notice) on the applicable conversion price and the kind and amount of the shares of stock and other securities and property deliverable upon the conversion of this Note. Such notice shall also specify the date as of which the holders of the Common Stock of record shall participate in said dividend, distribution or subscription tights or shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, sale, consolidation, merger or dissolution, liquidation or winding-up, as the case may be. Nothing herein shall be construed as the consent of the holder of this Note to any action otherwise prohibited by the terms of this Note or as a waiver of any such prohibition. J. Notice of Maturity Date. The Company shall give written notice to the Payee not less than 10 business days prior to the occurrence of an event described in clause (ii), (iii) or (iv) of the first paragraph of this Note which is expected to result in the Maturity Date. 7. Amendments and Waivers. 15 A. The provisions of this Note, including, but not limited to, any decision to convert the Note, any waiver of the restrictive covenants or adjustment provision and any change to a conversion price, may from time to time be amended, modified or waived, if such amendment, modification or waiver is in writing and consented to by the Company and the Holders of not less than 50% in Principal Amount of the Notes then outstanding (the "Required Holders"); provided, however, that no such amendment, modification or waiver which would (i) modify this Section 7A, (ii) extend the Maturity Date for more than one year, or (iii) reduce the Principal Amount or any amounts payable hereunder or (iv) not be uniform and nondiscriminatory as to any particular Note, shall be made without the consent of the Payee of each Note so affected. B. Except as provided herein, no failure or delay on the part of the Payee in exercising any power or right under this Note shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right. No notice to or demand on the Company in any case shall entitle it to any notice or demand in similar or other circumstances. No waiver or approval by the Payee shall, except as may be otherwise stated in such waiver or approval, be applicable to subsequent transactions. No waiver or approval hereunder shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder. C. To the extent that the Company makes a payment or payments to the Payee, and such payment or payments or any part thereof are subsequently for any reason invalidated, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all rights and remedies therefor, shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. D. After any waiver, amendment or supplement under this section becomes effective, the Company shall mail to the Payee a copy thereof. 8. Miscellaneous A. Registered Holder. The Company may consider and treat the person in whose name this Note shall be registered as the absolute owner thereof for all purposes whatsoever (whether or not this Note shall be overdue) and the Company shall not be affected by any notice to the contrary. In case of transfer of this Note by operation of law, the transferee agrees to notify the Company of such transfer and of its address, and to submit appropriate evidence regarding such transfer so that this Note may be registered in the name of the transferee. This Note is transferable only on the books of the Company by the Holder hereof, in person or by attorney, on the surrender hereof, duly endorsed. Communications sent to any registered owner shall be effective as against all Holders or transferees of the Note not registered at the time of sending the communication. B. Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of New York. Sections 5-1401 and 5-1402 of the General Obligations Law of the State of New York shall apply to this Note and the Company hereby 16 waives any right to stay or dismiss on the basis of forum non conveniens any action or proceeding brought before the courts of the State of New York sitting in New York County or of United States of America for the Southern District of New York and hereby submits to the jurisdiction of such courts. C. Notices. Unless otherwise provided, all notices required or permitted under this Note shall be in writing and shall be deemed effectively given (1) upon personal delivery to the party to be notified, (ii) upon confirmed delivery by Federal Express or other nationally recognized courier service providing next-business-day delivery, or (iii) three business days after deposit with the United States Postal Service, by registered or certified mail, postage prepaid and addressed to the party to be notified, in each case at the address set forth below, or at such other address as such party may designate by written notice to the other party (provided that notice of change of address shall be effective upon receipt by the party to whom such notice is addressed). If sent to Payee, notices shall be sent to the address set forth in the Subscription Agreement. If sent to the Company, notices shall be sent to the following address: Comdial Corporation 106 Cattlemen Road Sarasota, Florida 34232 Attention: Paul Suijk D. Parties in Interest. All covenants, agreements and undertakings iii this Note binding upon the Company or the Payee shall bind and inure to the benefit of the successors and permitted assigns of the Company and the Payee, respectively, whether so expressed or not. E. Waiver of Jury Trial. THE PAYEE AND THE COMPANY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS NOTE OR ANY OTHER DOCUMENT OR INSTRUMENT EXECUTED AND DELIVERED IN CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE PAYEE OR THE COMPANY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PAYEE'S PURCHASE OF THIS NOTE. IN WITNESS WHEREOF, the Company has caused this Note to be signed in its name by its duly authorized officer. COMDIAL CORPORATION By --------------------------------------- Name: Nickolas A. Branica Title: President and Chief Executive Officer EX-4 6 e851645.txt EXHIBIT 4 Exhibit 4 THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE TRANSFERRED UNTIL (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO OR (ii) RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE SECURITIES ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER NOR IS SUCH TRANSFER IN VIOLATION OF ANY APPLICABLE STATE SECURITIES LAWS. THIS LEGEND SHALL BE ENDORSED UPON ANY WARRANT ISSUED IN EXCHANGE FOR THIS WARRANT OR ANY SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT. WARRANT TO PURCHASE COMMON STOCK OF COMDIAL CORPORATION PW-6A This is to Certify That, FOR VALUE RECEIVED, ComVest Venture Partners, L.P. or assigns ("Holder"), is entitled to purchase, subject to the provisions of this Warrant, from Comdial Corporation, a Delaware corporation (the "Company"), Twelve Million Six Hundred Sixty-Seven Thousand (12,667,000) fully paid, validly issued and nonassessable shares of the common stock of the Company ("Common Stock") at a price of $.01 per share at any time or from time to time during the period from September 27, 2002 through September 27, 2004 (the "Exercise Period"). The number of shares of Common Stock to be received upon the exercise of this Warrant and the price to be paid for each share of Common Stock may be adjusted from time to time as hereinafter set forth. The shares of Common Stock deliverable upon such exercise, and as adjusted from time to time, are hereinafter sometimes referred to as 'Warrant Shares" and the exercise price of a share Common Stock in effect at any time and as adjusted from time to time is hereinafter sometimes referred to as the "Exercise Price." This Warrant, together with warrants of like tenor, constituting in the aggregate warrants (the "Warrants") to purchase up to a maximum of 56,000,000 shares of Common Stock, is being issued in connection with a private placement of the Company's securities through Commonwealth Associates, L.P., as placement agent. (a) EXERCISE OF WARRANT. (1) This Warrant may be exercised in whole or in part at any time or from time to time during the Exercise Period; provided, however, that (i) if such day is a day on which banking institutions in the State of New York are authorized by law to close, then on the next succeeding day which shall not be such a day, and (ii) in the event of any merger, consolidation or sale of substantially all the assets of the Company as an entirety, resulting in any distribution to the Company's stockholders, prior to termination of the Exercise Period, the Holder shall have the right to exercise this Warrant commencing at such time through the termination of the Exercise Period into the kind and amount of shares of stock and other securities and property (including cash) receivable by a holder of the number of shares of Common Stock into which this Warrant might have been exercisable immediately prior thereto. This Warrant may be exercised by presentation and surrender hereof to the Company at its principal office with the Purchase Form annexed hereto duly executed and accompanied by payment of the Exercise Price for the number of Warrant Shares specified in such form. As soon as practicable after each such exercise of this Warrant, following the receipt of good and available funds, the Company shall issue and deliver to the Holder a certificate or certificates for the Warrant Shares issuable upon such exercise, registered in the name of the Holder or its designee and bearing a restrictive legend substantially similar to the one set forth on the front page of this Warrant. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the Warrant Shares purchasable thereunder. As of the end of business on the date of receipt by the Company of this Warrant at its office in proper form for exercise, the Holder shall be deemed to be the holder of record of the shares of Common Stock issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such shares shall not then be physically delivered to the Holder. (2) At any time during the Exercise Period, the Holder may, at its option, exercise this Warrant on a cashless basis by exchanging this Warrant, in whole or in part (a "Warrant Exchange"), into the number of Warrant Shares determined in accordance with this Section (a)(2), by surrendering this Warrant at the principal office of the Company or at the office of its stock transfer agent, accompanied by a properly prepared notice stating such Holder's intent to effect such exchange, the number of Warrant Shares to be exchanged and the date on which the Holder requests that such Warrant Exchange occur (the "Notice of Exchange"). The Warrant Exchange shall take place on the date specified in the Notice of Exchange or, if later, the date the Notice of Exchange is received by the Company (the "Exchange Date"). Certificates for the shares issuable upon such Warrant Exchange and, if applicable, a new warrant of like tenor evidencing the balance of the shares remaining subject to this Warrant, shall be issued as of the Exchange Date and delivered to the Holder as soon as practicable following the Exchange Date and, if deemed appropriate by the Company, bearing a restrictive legend substantially similar to the one set forth on the front page of this Warrant. In connection with any Warrant Exchange, this Warrant shall represent the right to subscribe for and acquire the number of Warrant Shares equal to (i) the number of Warrant Shares specified by the Holder in its Notice of Exchange (the "Total Number") less (ii) the number of Warrant Shares equal to the quotient obtained by dividing (A) the product of the Total Number and the existing Exercise Price by (B) the current market value of a share of Common Stock. Current market value shall have the meaning set forth in Section (c) below, except that for purposes hereof, it shall mean the highest price for the five days immediately preceding the date of the Notice of Exchange. (b) RESERVATION OF SHARES. The Company shall at all times reserve for issuance and/or delivery upon exercise of the Warrants such number of shares of Common Stock as shall be required for issuance and delivery upon exercise of the Warrants. 2 (c) FRACTIONAL SHARES. No fractional shares or scrips representing fractional shares shall be issued upon the exercise of this Warrant. With respect to any fraction of a share called for upon any exercise hereof, the Company shall pay to the Holder an amount in cash equal to such fraction multiplied by the current market value of a share, determined as follows: (1) If the Common Stock is listed on a national securities exchange or admitted to un]Listed trading privileges on such exchange or listed for trading on the Nasdaq Stock Market, the current market value shall be the last reported sale price of the Common Stock on such exchange or market on such trading day or if no such sale is made on such day, the average closing bid and asked prices for such day on such exchange or market; or (2) If the Common Stock is not so listed or admitted to unlisted trading privileges, but are traded in the over-the-counter market, the current market value shall be the mean of the average of the last reported bid and asked prices reported by the National Quotation Bureau, Inc. for such trading day; or (3) If the Common Stock is not so listed or admitted to unlisted trading privileges and bid and asked prices are not so reported, the current market value shall be an amount, not less than book value thereof as at the end of the most recent fiscal year of the Company ending prior to such business day, determined in such reasonable manner as may be prescribed by the Board of Directors of the Company. (d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company or at the office of its stock transfer agent, if any, for other warrants of different denominations entitling the holder thereof to purchase in the aggregate the same number of shares of Common Stock purchasable hereunder. Upon surrender of this Warrant to the Company at its principal office or at the office of its stock transfer agent, if any, with the Assignment Form annexed hereto duly executed by the Holder and funds sufficient to pay any transfer tax delivered by the Holder, the Company shall, without charge, subject to the Holder's compliance with the restrictive legend set forth on the front page of this Warrant, execute and deliver a new Warrant in the name of the assignee named in such instrument of assignment and this Warrant shall promptly be cancelled. This Warrant may be divided or combined with other warrants that carry the same rights upon presentation hereof at the principal office of the Company or at the office of its stock transfer agent, if any, together with a written notice specifying the denominations in which new warrants are to be issued to the Holder and signed by the Holder hereof. The term "Warrants" as used herein includes any warrants into which this Warrant may be divided or exchanged. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company will execute and deliver a new Warrant of like tenor and date. Any such new Warrant executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at any time enforceable by anyone. (e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be entitled to any rights of a shareholder in the Company, either at law or equity, and the rights of the Holder 3 are limited to those expressed in this Warrant and are not enforceable against the Company except to the extent set forth herein. (f) ADJUSTMENT PROVISIONS. The Exercise Price in effect at any time and the number and kind of securities purchasable upon the exercise of the Warrants shall be subject to adjustment from time to time upon the happening of certain events as follows: (1) In case the Company shall hereafter (i) declare a dividend or make a distribution on its outstanding Common Stock in shares of Common Stock, (ii) subdivide or reclassify its outstanding Common Stock into a greater number of shares, or (iii) combine or reclassify its outstanding Common Stock into a smaller number of shares, the Exercise Price in effect at the time of the record date for such dividend or distribution or of the effective date of such subdivision, combination or reclassification shall be adjusted so that it shall equal the price determined by multiplying the Exercise Price by a fraction, the denominator of which shall be the number of shares of Common Stock outstanding after giving effect to such action, and the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such action. Such adjustment shall be made successively whenever any event listed above shall occur. (2) Whenever the Exercise Price payable upon exercise of each Warrant is adjusted pursuant to Subsection (1), the number of Warrant Shares purchasable upon exercise of this Warrant shall simultaneously be adjusted to the number of Warrant Shares resulting from multiplying the number of Warrant Shares initially issuable upon exercise of this Warrant by the Exercise Price in effect immediately prior to such adjustment and dividing the product so obtained by the Exercise Price, as adjusted. (3) In the event that at any time, as a result of an adjustment similar to any adjustment made pursuant to Subsection (1) above, the Holder of this Warrant thereafter shall become entitled to receive any shares of the Company, other than Common Stock, thereafter the number of such other shares so receivable upon exercise of this Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in Subsection (1) above. (4) Irrespective of any adjustments in the Exercise Price or the number or kind of shares purchasable upon exercise of this Warrant, Warrants theretofore issued may continue to express the same price and number and kind of shares as are stated in the similar Warrants initially issuable pursuant to this Warrant. (g) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be outstanding, (i) if the Company shall pay any dividend or make any distribution upon the Common Stock or (ii) if the Company shall offer to the holders of Common Stock for subscription or purchase by them any share of any class or any other tights or (iii) if any capital reorganization of the Company, reclassification of the capital stock of the Company, consolidation or merger of the Company with or into another corporation, sale, lease or transfer of all or substantially all of the property and assets of the Company to another corporation, or voluntary or involuntary dissolution, liquidation or winding up of the Company shall be effected, then in any such case, the Company shall cause to be mailed by certified mail to the Holder, at 4 least fifteen days prior the date specified in (x) or (y) below, as the case may be, a notice containing a brief description of the proposed action and stating the date on which (x) a record is to be taken for the purpose of such dividend, distribution or rights, or (y) such reclassification, reorganization, consolidation, merger, conveyance, lease, dissolution, liquidation or winding up is to take place and the date, if any is to be fixed, as of which the holders of Common Stock or other securities shall receive cash or other property deliverable upon such reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up. (h) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any reclassification, capital reorganization or other change of outstanding Common Stock of the Company, or in case of any consolidation or merger of the Company with or into another corporation (other than a merger with a subsidiary in which merger the Company is the continuing corporation and which does not result in any reclassification, capital reorganization or other change of outstanding Common Stock of the class issuable upon exercise of this Warrant) or in case of any sale, lease or conveyance to another corporation of the property of the Company as an entirety, the Company shall, as a condition precedent to such transaction and to the extent reasonably deemed necessary, cause effective provisions to be made so that the Holder shall have the right thereafter by exercising this Warrant at any time prior to the expiration of the Warrant, to purchase the kind and amount of shares of stock and other securities and property receivable upon such reclassification, capital reorganization and other change, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock that might have been purchased upon exercise of this Warrant immediately prior to such reclassification, change, consolidation, merger, sale or conveyance. Any such provision shall include provision for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. The foregoing provisions of this Section (h) shall similarly, apply to successive reclassifications, capital reorganizations and changes of Common Stock and to successive consolidations, mergers, sales or conveyances. In the event that in connection with any such capital reorganization or reclassification, consolidation, merger, sale or conveyance, additional shares of Common Stock shall be issued in exchange, conversion, substitution or payment, in whole or in part, for a security of the Company other than Common Stock, any such issue shall be treated as an issue of Common Stock covered by the provisions of Subsection (1) of Section (f) hereof. (i) REGISTRATION UNDER THE SECURITIES ACT OF 1933. The holders of the Warrants and the Warrant Shares or their transferees (other than a transferee who acquires shares pursuant to Rule 144 or an effective registration statement) shall be entitled to the registration rights set forth in the Private Placement Subscription Agreement (the "Subscription Agreement") dated the date hereof between the Company and the Holder. The provisions of Article V of the Subscription Agreement are incorporated herein by reference as if fully set forth herein. (j) MODIFICATION OF AGREEMENT. The provisions of this Warrant may from time to time be amended, modified or waived, if such amendment, modification or waiver is applicable to all of the Warrants and is in writing and consented to by the Company and the holders of at least a majority of the outstanding Warrants and Warrant Shares and such amendment, modification or waiver shall be binding upon the holder of this Warrant (and any assignee thereof) regardless of whether the holder consented to such amendment, modification or waiver; provided that nothing shall prevent the Company and a Registered Holder from 5 consenting to modifications to this Warrant which affect or are applicable to such Registered Holder only. IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in its name by its duly authorized officer. COMDIAL CORPORATION By: /s/ Nickolas A. Branica --------------------------------- Nickolas A. Branica, President and ChiefExecutive Officer Dated: September 27, 2002 6 PURCHASE FORM Dated________________________ (1) The undersigned hereby irrevocably elects to exercise the within Warrant to the extent of purchasing _____ shares of Common Stock of Comdial Corporation (or such number of shares of Common Stock or other securities or property to which the undersigned is entitled in lieu thereof or in addition thereto under the provisions of the Warrant). (2) The undersigned elects to exercise the within Warrant on a cashless basis pursuant to the provisions of Section (a)(2) of the Warrant by checking below: _____ check if cashless exercise; or (3) The undersigned encloses herewith a bank draft, certified check or money order payable to the Company in payment of the exercise price determined under, and on the terms specified in, the Warrant. (4) The undersigned hereby irrevocably directs that the said shares be issued and delivered as follows: Name(s) in Full Address(es) Number of Shares S.S. or IRS # - -------------------------------- Signature of Subscriber - -------------------------------- Print Name 7 ASSIGNMENT FORM FOR VALUE RECEIVED, _____________ hereby sells, assigns and transfers unto Name ------------------------------------------- (Please typewrite or print in block letters) Address ----------------------------------------- the right to purchase Common Stock represented by this Warrant to the extent of _______ shares as to which such right is exercisable and does hereby irrevocably constitute and appoint ____________ Attorney, to transfer the same on the books of the Company with full power of substitution in the premises. Date -------------------------------------------- Signature --------------------------------------- 8 EX-5 7 e851689.txt EXHIBIT 5 EXHIBIT 5 THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE TRANSFERRED UNTIL (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO OR (ii) RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE SECURITIES ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER NOR IS SUCH TRANSFER IN VIOLATION OF ANY APPLICABLE STATE SECURITIES LAWS. THIS LEGEND SHALL BE ENDORSED UPON ANY WARRANT ISSUED IN EXCHANGE FOR THIS WARRANT OR ANY SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT. WARRANT TO PURCHASE COMMON STOCK OF COMDIAL CORPORATION PW-6B This is to Certify That, FOR VALUE RECEIVED, ComVest Venture Partners, L.P. or assigns ("Holder"), is entitled to purchase, subject to the provisions of this Warrant, from Comdial Corporation, a Delaware corporation (the "Company"), Three Million One Hundred Sixty-Six Thousand Seven Hundred Fifty (3,166,750) fully paid, validly issued and nonassessable shares of the common stock of the Company ("Common Stock") at a price of $.01 per share at any time or from time to time during the period from March 27, 2004 through September 27, 2004 (the "Exercise Period"). The number of shares of Common Stock to be received upon the exercise of this Warrant and the price to be paid for each share of Common Stock may be adjusted from time to time as hereinafter set forth. The shares of Common Stock deliverable upon such exercise, and as adjusted from time to time, are hereinafter sometimes referred to as "Warrant Shares" and the exercise price of a share Common Stock in effect at any time and as adjusted from time to time is hereinafter sometimes referred to as the "Exercise Price." This Warrant, together with warrants of like tenor, constituting in the aggregate warrants (the "Warrants") to purchase up to a maximum of 14,000,000 shares of Common Stock, is being issued in connection with a private placement of the Company's securities through Commonwealth Associates, L.P., as placement agent (the "Placement"). (a) EXERCISE OF WARRANT; FORFEITURE OF WARRANT. (1) Subject to the provisions of Subsection (3) below, this Warrant may be exercised in whole or in part at any time or from time to time during the Exercise Period; provided, however, that (I) if such day is a day on which banking institutions in the State of New York are authorized by law to close, then on the next succeeding day which shall not be such a day, and (ii) in the event of any merger, consolidation or sale of substantially all the assets of the Company as an entirety, resulting in any distribution to the Company's stockholders, prior to termination of the Exercise Period, the Holder shall have the right to exercise this Warrant commencing at such time through the termination of the Exercise Period into the kind and amount of shares of stock and other securities and property (including cash) receivable by a holder of the number of shares of Common Stock into which this Warrant might have been exercisable immediately prior thereto. This Warrant may be exercised by presentation and surrender hereof to the Company at its principal office with the Purchase Form annexed hereto duly executed and accompanied by payment of the Exercise Price for the number of Warrant Shares specified in such form. As soon as practicable after each such exercise of this Warrant, following the receipt of good and available funds, the Company shall issue and deliver to the Holder a certificate or certificates for the Warrant Shares issuable upon such exercise, registered in the name of the Holder or its designee and bearing a restrictive legend substantially similar to the one set forth on the front page of this Warrant. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the Warrant Shares purchasable thereunder. As of the end of business on the date of receipt by the Company of this Warrant at its office in proper form for exercise, the Holder shall be deemed to be the holder of record of the shares of Common Stock issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such shares shall not then be physically delivered to the Holder. (2) At any time during the Exercise Period, the Holder may, at its option, exercise this Warrant on a cashless basis by exchanging this Warrant, in whole or in part (a "Warrant Exchange"), into the number of Warrant Shares determined in accordance with this Section (a)(2), by surrendering this Warrant at the principal office of the Company or at the office of its stock transfer agent, accompanied by a properly prepared notice stating such Holder's intent to effect such exchange, the number of Warrant Shares to be exchanged and the date on which the Holder requests that such Warrant Exchange occur (the "Notice of Exchange"). The Warrant Exchange shall take place on the date specified in the Notice of Exchange or, if later, the date the Notice of Exchange is received by the Company (the "Exchange Date"). Certificates for the shares issuable upon such Warrant Exchange and, if applicable, a new warrant of like tenor evidencing the balance of the shares remaining subject to this Warrant, shall be issued as of the Exchange Date and delivered to the Holder as soon as practicable following the Exchange Date and, if deemed appropriate by the Company, bearing a restrictive legend substantially similar to the one set forth on the front page of this Warrant. In connection with any Warrant Exchange, this Warrant shall represent the right to subscribe for and acquire the number of Warrant Shares equal to (i) the number of Warrant Shares specified by the Holder in its Notice of Exchange (the "Total Number") less (ii) the number of Warrant Shares equal to the quotient obtained by dividing (A) the product of the Total Number and the existing Exercise Price by (B) the current market value of a share of Common Stock. Current market value shall have the meaning set forth in Section (c) below, except that for purposes hereof, it shall mean the highest price for the five days immediately preceding the date of the Notice of Exchange. (3) To the extent that the 7% senior subordinated secured notes issued by the Company in connection with the Placement are repaid in whole or in part within 18 months after the initial closing of the Placement, a pro rata portion of the Warrants will be forfeited by the Holder (the "Forfeited Warrants") and returned to the Company and the remaining Warrants will 2 be retained by the Holder. In such event, this Warrant immediately will be deemed null and void with respect to the Forfeited Warrants. (b) RESERVATION OF SHARES. The Company shall at all times reserve for issuance and/or delivery upon exercise of the Warrants such number of shares of Common Stock as shall be required for issuance and delivery upon exercise of the Warrants. (c) FRACTIONAL SHARES. No fractional shares or scrips representing fractional shares shall be issued upon the exercise of this Warrant. With respect to any fraction of a share called for upon any exercise hereof, the Company shall pay to the Holder an amount in cash equal to such fraction multiplied by the current market value of a share, determined as follows: (1) If the Common Stock is listed on a national securities exchange or admitted to unlisted trading privileges on such exchange or listed for trading on the Nasdaq Stock Market, the current market value shall be the last reported sale price of the Common Stock on such exchange or market on such trading day or if no such sale is made on such day, the average closing bid and asked prices for such day on such exchange or market; or (2) If the Common Stock is not so listed or admitted to unlisted trading privileges, but are traded in the over-the-counter market, the current market value shall be the mean of the average of the last reported bid and asked prices reported by the National Quotation Bureau, Inc. for such trading day; or (3) If the Common Stock is not so listed or admitted to unlisted trading privileges and bid and asked prices are not so reported, the current market value shall be an amount, not less than book value thereof as at the end of the most recent fiscal year of the Company ending prior to such business day, determined in such reasonable manner as may be prescribed by the Board of Directors of the Company. (d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company or at the office of its stock transfer agent, if any, for other warrants of different denominations entitling the holder thereof to purchase in the aggregate the same number of shares of Common Stock purchasable hereunder. Upon surrender of this Warrant to the Company at its principal office or at the office of its stock transfer agent, if any, with the Assignment Form annexed hereto duly executed by the Holder and funds sufficient to pay any transfer tax delivered by the Holder, the Company shall, without charge, subject to the Holder's compliance with the restrictive legend set forth on the front page of this Warrant, execute and deliver a new Warrant in the name of the assignee named in such instrument of assignment and this Warrant shall promptly be cancelled. This Warrant may be divided or combined with other warrants that carry the same rights upon presentation hereof at the principal office of the Company or at the office of its stock transfer agent, if any, together with a written notice specifying the denominations in which new warrants are to be issued to the Holder and signed by the Holder hereof. The term "Warrants" as used herein includes any warrants into which this Warrant may be divided or exchanged. Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and 3 cancellation of this Warrant, if mutilated, the Company will execute and deliver a new Warrant of like tenor and date. Any such new Warrant executed and delivered shall constitute an additional contractual obligation on the part of the Company, whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at any time enforceable by anyone. (e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be entitled to any rights of a shareholder in the Company, either at law or equity, and the rights of the Holder are limited to those expressed in this Warrant and are not enforceable against the Company except to the extent set forth herein. (f) ADJUSTMENT PROVISIONS. The Exercise Price in effect at any time and the number and kind of securities purchasable upon the exercise of the Warrants shall be subject to adjustment from time to time upon the happening of certain events as follows: (1) In case the Company shall hereafter (i) declare a dividend or make a distribution on its outstanding Common Stock in shares of Common Stock, (ii) subdivide or reclassify its outstanding Common Stock into a greater number of shares, or (iii) combine or reclassify its outstanding Common Stock into a smaller number of shares, the Exercise Price in effect at the time of the record date for such dividend or distribution or of the effective date of such subdivision, combination or reclassification shall be adjusted so that it shall equal the price determined by multiplying the Exercise Price by a fraction, the denominator of which shall be the number of shares of Common Stock outstanding after giving effect to such action, and the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such action. Such adjustment shall be made successively whenever any event listed above shall occur. (2) Whenever the Exercise Price payable upon exercise of each Warrant is adjusted pursuant to Subsection (1), the number of Warrant Shares purchasable upon exercise of this Warrant shall simultaneously be adjusted to the number of Warrant Shares resulting from multiplying the number of Warrant Shares initially issuable upon exercise of this Warrant by the Exercise Price in effect immediately prior to such adjustment and dividing the product so obtained by the Exercise Price, as adjusted. (3) In the event that at any time, as a result of an adjustment similar to any adjustment made pursuant to Subsection (1) above, the Holder of this Warrant thereafter shall become entitled to receive any shares of the Company, other than Common Stock, thereafter the number of such other shares so receivable upon exercise of this Warrant shall be subject to adjustment from time to tune in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in Subsection (1) above. (4) Irrespective of any adjustments in the Exercise Price or the number or kind of shares purchasable upon exercise of this Warrant, Warrants theretofore issued may continue to express the same price and number and kind of shares as are stated in the similar Warrants initially issuable pursuant to this Warrant. (g) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be outstanding, (i) if the Company shall pay any dividend or make any distribution upon the 4 Common Stock or (ii) if the Company shall offer to the holders of Common Stock for subscription or purchase by them any share of any class or any other rights or (iii) if any capital reorganization of the Company, reclassification of the capital stock of the Company, consolidation or merger of the Company with or into another corporation, sale, lease or transfer of all or substantially all of the property and assets of the Company to another corporation, or voluntary or involuntary dissolution, liquidation or winding up of the Company shall be effected, then in any such case, the Company shall cause to be mailed by certified mail to the Holder, at least fifteen days prior the date specified in (x) or (y) below, as the case may be, a notice containing a brief description of the proposed action and stating the date on which (x) a record is to be taken for the purpose of such dividend, distribution or rights, or (y) such reclassification, reorganization, consolidation, merger, conveyance, lease, dissolution, liquidation or winding up is to take place and the date, if any is to be fixed, as of which the holders of Common Stock or other securities shall receive cash or other property deliverable upon such reclassification, reorganization, consolidation, merger, conveyance, dissolution, liquidation or winding up. (h) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any reclassification, capital reorganization or other change of outstanding Common Stock of the Company, or in case of any consolidation or merger of the Company with or into another corporation (other than a. merger with a subsidiary in which merger the Company is the continuing corporation and which does not result in any reclassification, capital reorganization or other change of outstanding Common Stock of the class issuable upon exercise of this Warrant) or in case of any sale, lease or conveyance to another corporation of the property of the Company as an entirety, the Company shall, as a condition precedent to such transaction and to the extent reasonably deemed necessary, cause effective provisions to be made so that the Holder shall have the right thereafter by exercising this Warrant at any time prior to the expiration of the Warrant, to purchase the kind and amount of shares of stock and other securities and property receivable upon such reclassification, capital reorganization and other change, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock that might have been purchased upon exercise of this Warrant immediately prior to such reclassification, change, consolidation, merger, sale or conveyance. Any such provision shall include provision for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Warrant. The foregoing provisions of this Section (h) shall similarly apply to successive reclassifications, capital reorganizations and changes of Common Stock and to successive consolidations, mergers, sales or conveyances. In the event that in connection with any such capital reorganization or reclassification, consolidation, merger, sale or conveyance, additional shares of Common Stock shall be issued in exchange, conversion, substitution or payment, in whole or in part, for a security of the Company other than Common Stock, any such issue shall be treated as an issue of Common Stock covered by the provisions of Subsection (1) of Section (f) hereof. (i) REGISTRATION UNDER THE SECURITIES ACT OF 1933. The holders of the Warrants and the Warrant Shares or their transferees (other than a transferee who acquires shares pursuant to Rule 144 or an effective registration statement) shall be entitled to the registration rights set forth in the Private Placement Subscription Agreement (the "Subscription Agreement") dated the date hereof between the Company and the Holder. The provisions of Article V of the Subscription Agreement are incorporated herein by reference as if fully set forth herein. 5 (j) MODIFICATION OF AGREEMENT. The provisions of this Warrant may from time to time be amended, modified or waived, if such amendment, modification or waiver is applicable to all of the Warrants and is in writing and consented to by the Company and the holders of at least a majority of the outstanding Warrants and Warrant Shares and such amendment, modification or waiver shall be binding upon the holder of this Warrant (and any assignee thereof) regardless of whether the holder consented to such amendment, modification or waiver; provided that nothing shall prevent the Company and a Registered Holder from consenting to modifications to this Warrant which affect or are applicable to such Registered Holder only. IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in its name by its duly authorized officer. COMDIAL CORPORATION By: ------------------------------------ Nickolas A. Branica, President and Chief Executive Officer Dated: September 27, 2002 6 PURCHASE FORM Dated _________________ (1) The undersigned hereby irrevocably elects to exercise the within Warrant to the extent of purchasing _____ shares of Common Stock of Comdial Corporation (or such number of shares of Common Stock or other securities or property to which the undersigned is entitled in lieu thereof or in addition thereto under the provisions of the Warrant). (2) The undersigned elects to exercise the within Warrant on a cashless basis pursuant to the provisions of Section (a)(2) of the Warrant by checking below: ________ check if cashless exercise; or (3) The undersigned encloses herewith a bank draft, certified check or money order payable to the Company in payment of the exercise price determined under, and on the terms specified in, the Warrant. (4) The undersigned hereby irrevocably directs that the said shares be issued and delivered as follows: Name(s) in Full Address(es) Number of Shares S.S. or IRS # - -------------------- ------------------ ------------------- ----------------- - -------------------- ------------------ ------------------- ----------------- - -------------------- ------------------ ------------------- ----------------- - ------------------------------------- Signature of Subscriber - ------------------------------------- Print Name 7 ASSIGNMENT FORM FOR VALUE RECEIVED, _____________ hereby sells, assigns and transfers unto Name ----------------------------------------- (Please typewrite or print in block letters) Address -------------------------------------- the right to purchase Common Stock represented by this Warrant to the extent of _____ shares as to which such right is exercisable and does hereby irrevocably constitute and appoint ___________ Attorney, to transfer the same on the books of the Company with full power of substitution in the premises. 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