-----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, TsylWwdGQA50snCRplaTBjMcDikD07uuSIZro0lxYsHEMksMkJhLJoUSVXc9Lkwx YO8LCHfB+eaFBUqFlclLWg== 0000911420-02-000310.txt : 20021126 0000911420-02-000310.hdr.sgml : 20021126 20021126172811 ACCESSION NUMBER: 0000911420-02-000310 CONFORMED SUBMISSION TYPE: PRE 14C PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20021126 FILED AS OF DATE: 20021126 FILER: 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: PRE 14C SEC ACT: 1934 Act SEC FILE NUMBER: 000-09023 FILM NUMBER: 02841571 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 PRE 14C 1 d853511.txt SCHEDULE 14C SCHEDULE 14C (RULE 14C-101) INFORMATION REQUIRED IN INFORMATION STATEMENT SCHEDULE 14C INFORMATION INFORMATION STATEMENT PURSUANT TO SECTION 14(C) OF THE SECURITIES EXCHANGE ACT OF 1934 FILED BY REGISTRANT [X] FILED BY PARTY OTHER THAN THE REGISTRANT [ ] CHECK THE APPROPRIATE BOX: [X] PRELIMINARY INFORMATION STATEMENT [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY [ ] DEFINITIVE INFORMATION STATEMENT RULE 14C-5(D)(2)) COMDIAL CORPORATION ------------------------------------------------------------------------------- (NAME OF REGISTRANT AS SPECIFIED IN CHARTER) PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX): [X] NO FEE REQUIRED. [ ] FEE COMPUTED ON TABLE BELOW PER EXCHANGE ACT RULES 14C-5(G) AND 0-11. (1) TITLE OF EACH CLASS OF SECURITIES TO WHICH TRANSACTION APPLIES: (2) AGGREGATE NUMBER OF SECURITIES TO WHICH TRANSACTION APPLIES: (3) PER UNIT PRICE OR OTHER UNDERLYING VALUE OF TRANSACTION COMPUTED PURSUANT TO EXCHANGE ACT RULE 0-11 (SET FORTH THE AMOUNT ON WHICH THE FILING FEE IS CALCULATED AND STATE HOW IT WAS DETERMINED): (4) PROPOSED MAXIMUM AGGREGATE VALUE OF TRANSACTION: (5) TOTAL FEE PAID: [ ] FEE PAID PREVIOUSLY WITH PRELIMINARY MATERIALS [ ] CHECK BOX IF ANY PART OF THE FEE IS OFFSET AS PROVIDED BY EXCHANGE ACT RULE 0-11(A)(2) AND IDENTIFY THE FILING FOR WHICH THE OFFSETTING FEE WAS PAID PREVIOUSLY. IDENTIFY THE PREVIOUS FILING BY REGISTRATION STATEMENT NUMBER, OR THE FORM OR SCHEDULE AND THE DATE OF ITS FILING. (1) AMOUNT PREVIOUSLY PAID: (2) FORM, SCHEDULE OR REGISTRATION STATEMENT NO.: (3) FILING PARTY: (4) DATE FILED: COMDIAL CORPORATION 106 CATTLEMEN ROAD SARASOTA, FLORIDA 34232 To Our Stockholders: The purpose of this letter is to inform you that we intend to take the following actions by written consent of our stockholders: 1. To amend our Third Amended and Restated Certificate of Incorporation to decrease the authorized number of shares of capital stock from five hundred two million (502,000,000) shares to sixty-two million (62,000,000) shares consisting of sixty million (60,000,000) shares of common stock and two million (2,000,000) shares of preferred stock; 2. To amend our Third Amended and Restated Certificate of Incorporation to provide for the declassification of our Board of Directors, so that each Director will serve for a one-year term. 3. To amend our 2002 Employee and Non-Employee Director Stock Incentive Plan (our "Stock Incentive Plan") to provide for the increase in the number of shares available for issuance under the plan to one million (1,000,000), par value $0.01 per share. 4. To re-elect six persons to our Board of Directors to serve until the next annual general meeting of stockholders and until their respective successors are elected and qualify. The holders of a majority of our outstanding common stock, owning approximately 74% of the outstanding shares of our common stock (the "Majority Stockholders"), have executed a written consent in favor of the actions described above. This consent will satisfy the stockholder approval requirement for the proposed action and allows us to take the proposed action on or after December __, 2002. After the close of business on November 25, 2002, we effectuated a one- for-fifteen reverse stock split. All relevant common stock references in this letter have been adjusted to reflect the reverse stock split. WE ARE NOT ASKING FOR YOUR PROXY. Because the written consent of the Majority Stockholders satisfies any applicable stockholder voting requirement of the Delaware General Corporation Law, our Third Amended and Restated Certificate of Incorporation and our By-Laws, we are not asking for a proxy and you are not requested to send one. The accompanying Information Statement is for information purposes only and explains the proposed amendments to our Third Amended and Restated Certificate of Incorporation, our Stock Incentive Plan, and the election of our Directors. Please read the accompanying Information Statement carefully. Order of the Board of Directors /s/ Ralph Dyer ------------------------------------ Ralph Dyer, Secretary December __, 2002 COMDIAL CORPORATION 106 CATTLEMEN ROAD SARASOTA, FLORIDA 34232 ________________ INFORMATION STATEMENT DECEMBER __, 2002 ________________ WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY. This Information Statement is being mailed on or about December __, 2002 to the stockholders of record of Comdial Corporation ("Comdial") at the close of business on November 14, 2002 (the "Record Date"). This Information Statement is being sent to you for information purposes only. No action is requested on your part. This Information Statement is being furnished to you to inform you of the adoption of resolutions (the "Stockholder Resolutions") by written consent by the holders of a majority (the "Majority Stockholders") of the outstanding shares of our common stock, par value $.01 per share ("Common Stock"). The resolutions adopted by the Majority Stockholders gives us the authority: 1. To amend our Third Amended and Restated Certificate of Incorporation to decrease the authorized number of shares of capital stock from five hundred two million (502,000,000) shares to sixty-two million (62,000,000) shares consisting of sixty million (60,000,000) shares of common stock and two million (2,000,000) shares of preferred stock; 2. To amend our Third Amended and Restated Certificate of Incorporation to provide for the declassification of our Board of Directors, so that each Director will serve for a one-year term. 3. To amend our 2002 Employee and Non-Employee Director Stock Incentive Plan (the "Stock Incentive Plan") to provide for the increase in the number of shares available for issuance under the plan to one million (1,000,000), par value $0.01 per share. 4. To re-elect six persons to our Board of Directors to serve until the next annual general meeting of stockholders and until their respective successors are elected and qualify. The board of directors of Comdial (the "Board of Directors") has adopted resolutions authorizing: (1) the amendment of our Third Amended and Restated Certificate of Incorporation to decrease the number of authorized shares of capital stock and to declassify our Board of Directors, (2) the amendment of our 2002 Employee and Non-Employee Director Stock Incentive Plan to provide for an increase in the number of shares issuable under the plan, (3) the re-election of our Board of Directors, and recommended that the stockholders adopt resolutions approving the same. As of the close of business on the Record Date, we had an aggregate of 4,184,989 shares of our Common Stock outstanding and no shares of Preferred Stock outstanding. Each outstanding share of Common Stock is entitled to one vote per share. The affirmative consent of the holders of a majority of the issued and outstanding shares of our Common Stock was necessary to approve the Stockholder Resolution in the absence of a meeting of stockholders. The Majority Stockholders own approximately 74% of the outstanding shares of our Common Stock. Accordingly, the requisite stockholder approvals of the Stockholder Resolution was obtained by the execution of the Majority Stockholders' written consents in favor of such actions, allowing us to take the proposed actions on or after December __, 2002. After the close of business on November 25, 2002, Comdial effectuated a one-for-fifteen reverse stock split. All relevant common stock references in this letter have been adjusted to reflect the reverse stock split. STOCKHOLDERS OF RECORD AT THE CLOSE OF BUSINESS ON NOVEMBER 14, 2002 SHALL BE ENTITLED TO RECEIVE THIS INFORMATION STATEMENT. BY ORDER OF THE BOARD OF DIRECTORS, /s/ Ralph Dyer ----------------------------------- Ralph Dyer, Secretary This Information Statement is first being mailed on or about December __, 2002. This Information Statement constitutes notice to our stockholders of corporate action by stockholders without a meeting as required by Section 228 of the Delaware General Corporation Law. The expenses of mailing this Information Statement will be borne by Comdial, including expenses in connection with the preparation and mailing of this Information Statement and all documents that now accompany or may hereafter supplement it. It is contemplated that brokerage houses, custodians, nominees, and fiduciaries will be requested to forward this Information Statement to the beneficial owners of our Common Stock held of record by such persons and that we will reimburse them for their reasonable expenses incurred in connection therewith. TABLE OF CONTENTS SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ................2 RESOLUTION #1 DECREASE IN AUTHORIZED SHARES ..................................4 General ..............................................................4 Consent Required .....................................................4 Purpose ..............................................................4 RESOLUTION #2 DECLASSIFICATION OF OUR BOARD OF DIRECTORS .....................4 Outstanding Shares and Voting Rights .................................4 Consent Required .....................................................5 RESOLUTION #3 AMENDMENT TO THE 2002 EMPLOYEE AND NON-EMPLOYEE DIRECTOR STOCK INCENTIVE PLAN ..........................................................5 Background and Purpose ...............................................5 Reasons for the Proposal .............................................5 Vote Required ........................................................5 Summary of the Plan ..................................................6 Federal Income Tax Consequences ......................................7 Resolution #4 Election of Directors ..........................................8 General ..............................................................8 Consent Required .....................................................8 Purpose ..............................................................8 Directors ............................................................8 Board Meetings .......................................................9 Committees ...........................................................9 Compensation of Directors ...........................................10 Executive Officers of the Company ...................................11 Family Relationships ................................................12 Involvement in Certain Legal Proceedings ............................12 Certain Relationships and Transactions ..............................12 Executive Compensation ..............................................12 Five Year Total Stockholder Return ..................................12 Compliance with Section 16(a) of the Securities and Exchange Act of 1934 ..............................................13 Report of the Compensation Committee of the Board of Directors ......14 Summary Compensation Table ..........................................15 Stock Options .......................................................16 Pension Plan / Benefit Restoration Plan .............................17 Alternative Pension Plan Disclosure .................................18 Executive Severance Plan ............................................18 Employment Agreements ...............................................19 INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON ......................20 Description of Our Common Stock .....................................20 Voting Rights .......................................................21 INDEX TO EXHIBITS ............................................................22 i EXHIBIT A: FORM OF FOURTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION EXHIBIT B: FORM OF AMENDED 2002 EMPLOYEE AND NON-EMPLOYEE DIRECTOR STOCK INCENTIVE PLAN EXHIBIT C: FORM OF EMPLOYMENT AGREEMENT BY AND BETWEEN COMDIAL CORPORATION AND TRAVIS LEE PROVOW EXHIBIT D: FORM OF EMPLOYMENT LETTER TO KENNETH CLINEBELL FROM COMDIAL CORPORATION ii This Information Statement is being provided to you solely for your information. The stockholders holding a majority of the outstanding voting Common Stock of Comdial (the "Majority Stockholders") have already agreed: 1. To amend our Third Amended and Restated Certificate of Incorporation to decrease the authorized number of shares of capital stock from five hundred two million (502,000,000) shares to sixty-two million (62,000,000) shares consisting of sixty million (60,000,000) shares of common stock and two million (2,000,000) shares of preferred stock; 2. To amend our Third Amended and Restated Certificate of Incorporation to provide for the declassification of our Board of Directors, so that each Director will serve for one-year term(s). 3. To amend our 2002 Employee and Non-Employee Director Stock Incentive Plan (the "Stock Incentive Plan") to provide for the increase in the number of shares available for issuance under the plan to one million (1,000,000), par value $0.01 per share. 4. To re-elect six persons to our Board of Directors to serve until the next annual general meeting of stockholders and until their respective successors are elected and qualify. REVERSE STOCK SPLIT As of the close of business on November 25, 2002, the Company effectuated a reverse stock split of its Common Stock having a ratio of one-for-fifteen (1:15) (the "Reverse Stock Split"). All references to Common Stock in this Information Statement are on a post Reverse Stock Split basis and have been adjusted, unless otherwise indicated. CHANGE IN CONTROL OF THE COMPANY As a result of its purchase on June 21, 2002 of Bridge Notes in the Bridge Financing, ComVest became the beneficial owner of the 1,555,167 shares of Common Stock issuable upon conversion of such Bridge Notes, representing approximately 71.25% of our outstanding shares of Common Stock as of June 21, 2002. ComVest Management LLC ("ComVest Management"), the general partner of ComVest, may be deemed to beneficially own such shares. ComVest used $1,750,000 of working capital to acquire the Bridge Notes. As a result of the Bridge Financing, the Advisory Agreement and related transactions that occurred on June 21, 2002, Michael S. Falk became the beneficial owner of an aggregate of 1,657,726 shares of our Common Stock, representing approximately 72.7% of the issued and outstanding shares of Common Stock of the Company as of June 21, 2002, as follows: (i) the 1,555,167 shares of Common Stock beneficially owned by ComVest, (ii) the 49,506 shares beneficially owned by Commonwealth, (iii) his 6,619 Advisory Shares, and (iv) the 46,434 shares issuable upon exercise of his Advisory Warrants. Mr. Falk is the Chairman and controlling equity owner of Commonwealth Associates Management Corp. (the general partner of Commonwealth and the parent company of ComVest Management) and a manager of ComVest Management. Mr. Falk received his Advisory Shares and Advisory Warrants as a distribution from Commonwealth to its employees and affiliates. As a result of these issuances of securities and the change in the majority of the members of the Board of Directors, there has been a change in control of the Company. The Board of Directors obtained a fairness opinion from the investment banking firm of Raymond James & Associates, Inc. in connection with the Bridge Financing. 1 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following tables set forth information, as of November 18, 2002, as to the beneficial ownership of the Common Stock by (i) each stockholder known by us to own beneficially five percent or more of the outstanding shares; (ii) each of our directors; (iii) each Named Executive Officer of the Company; and (iv) all of our executive officers and directors as a group, together with their percentage ownership and voting power.
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP PERCENT OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER (1) (1) ComVest Venture Partners, L.P.(3) 3,322,459 (2) 61.31% Michael S. Falk (3) 3,667,046 (4) 63.87% Keith Rosenbloom (5) 46,675 (6) * Travis L. Provow (5) 66,333 (7) * Sanford Schlitt (5) 667 (8) * Edwin W. Cooperman (5) * * Nickolas A. Branica (5) 676,004 (9) 15.36% Paul K. Suijk (5) 99,052 (10) 2.31% Lawrence K. Tate (5) 709 * Joe D. Ford (5) 312 * Robert Priddy 1,093,859 (11) 22.56% Shea Ventures, LLC 1,559,344 (12) 29.30% Winfield Capital Corp. 366,667 (13) 8.06% All directors and named officers as a group 4,495,913 81.54% (11 persons)
___________________ * Less than one percent. (1) The amount and percentage of securities beneficially owned by an individual are determined in accordance with the definition of beneficial ownership set forth in the regulations of the Securities and Exchange Commission. Such amounts may include securities owned by or for, among others, the spouse and/or minor children of the individual and any other relative who has the same home as such individual, as well as other securities as to which the individual has or shares voting or investment power or has the right to acquire within 60 days after November 18, 2002. Beneficial ownership may be disclaimed as to certain of the securities. Unless otherwise indicated, the persons and entities named have sole voting and dispositive power over their shares. The table above sets forth beneficial ownership and percentages of beneficial ownership of Common Stock. (2) Includes 2,221,667 shares owned, plus warrants to purchase 1,100,792 shares at $0.15 per share. ComVest is a Delaware limited partnership whose principal business is investing in securities. (3) The address for ComVest Venture Partners, L.P., ComVest Management, LLC, Commonwealth Associates, L.P., and Michael S. Falk is 830 Third Avenue, 4th Floor, New York, NY 10022. (4) Mr. Falk is a manager of ComVest Management and is Chairman and principal stockholder of Commonwealth Associates Management Company, Inc. ("CAMC"), which is general partner of Commonwealth Associates, L.P. ("Commonwealth"). Commonwealth was issued 24,435 shares of Common Stock and was granted warrants to purchase 226,947 shares of Common Stock pursuant to an advisory agreement between the Company and Commonwealth. Commonwealth subsequently distributed 16,625 of the shares and 200,989 of the warrants to its partners, including Mr. Falk and Messrs. Provow and Rosenbloom. In his capacity as Chairman and controlling equity owner of CAMC, Mr. Falk may be deemed to share indirect voting and dispositive power with respect to the shares beneficially owned by CAMC, ComVest and Commonwealth and may therefore be deemed to be beneficial 2 owner of such securities. In addition, Mr. Falk is the majority member of Commonwealth Associates Group Holdings, LLC ("Commonwealth Holdings"), and may therefore be deemed to be beneficial owner of securities beneficially owned by Commonwealth Holdings. Accordingly, Mr. Falk may be deemed to be beneficial owner of an aggregate of 3,667,046 shares as follows: (i) 6,619 shares owned, (ii) warrants to purchase 250,104 shares at $0.15 per share, (iii) 26,091 shares beneficially owned by Commonwealth, (iv) 3,322,458 shares beneficially owned by ComVest, and (v) 61,774 shares beneficially owned by Commonwealth Holdings. (5) c/o Comdial Corporation, 106 Cattlemen Road, Sarasota, Florida 34232 (6) Includes 898 shares owned, plus warrants to purchase 45,777 shares at $0.15 per share. (7) Includes 2,736 shares owned, plus warrants to purchase 63,596 shares at $0.15 per share. (8) Represents shares issuable upon the exercise of stock options. (9) Includes: (i) 33,334 options; (ii) 460,339 shares owned and (iii) 11,771 shares issuable upon the exercise of stock options; and (iii) warrants to purchase 170,560 shares at $0.15 per share. The options and warrants described in parts (i) and (iii) above were granted pursuant to an amendment to Mr. Branica's employment agreement dated June 20, 2002. (10) Includes 2,762 shares owned, 51,290 shares issuable upon the exercise of stock options, and shares issuable upon the exercise of stock warrants to purchase 45,000 shares at $0.15 per share, all of which were granted pursuant to an amendment to the terms of Mr. Suijk's continued employment with the Company dated June 20, 2002. (11) Includes 422,950 shares owned, plus warrants to purchase 670,859 shares at $0.15 per share. Mr. Priddy has a business address of 3435 Kingsboro Road, Apt. 1601, Atlanta, GA 30826. (12) Includes 422,117 shares owned, plus warrants to purchase 1,137,227 shares at $0.15 per share. Shea Ventures, LLC has a business address of 655 Brea Canyon Road, Walnut, CA 91789. (13) Represents warrants to purchase 366,667 shares at $0.15 per share. Winfield Capital Corp. has a business address of 237 Mamaroneck Avenue, White Plains, NY 10605. 3 RESOLUTION #1 DECREASE IN AUTHORIZED SHARES GENERAL Article 3 of our Third Amended and Restated Certificate of Incorporation (our "Certificate of Incorporation") currently authorizes us to issue up to 502,000,000 shares of capital stock consisting of 500,000,000 shares of our Common Stock and 2,000,000 shares of Preferred Stock, 1,000,000 shares of which are designated as Series B Alternate Rate Cumulative Convertible Preferred Stock (the "Series B Preferred Stock"). As of November 14, 2002 (the "Record Date") there were 4,184,989 shares of our Common Stock and no shares of Preferred Stock outstanding. We have reserved for issuance approximately 6,500,000 additional shares of our Common Stock for the conversion of outstanding derivative securities, excluding the number of shares required for the conversion of the promissory notes and warrants issued by us to investors and the placement agent in connection with the private placements, described herein. The Amendment to our Certificate of Incorporation (the "Amendment") attached hereto as Exhibit A, will decrease the number of authorized shares of our Common Stock by 440,000,000 shares to an aggregate number of authorized shares of our Common Stock of 60,000,000 shares. In addition, the Amendment will change the Series B Preferred Stock to ordinary blank check Preferred Stock. The number of authorized shares of Preferred Stock will remain at 2,000,000 shares. OUTSTANDING SHARES AND VOTING RIGHTS As of the Record Date we had 4,184,989 shares of Common Stock issued and outstanding, held by approximately 900 stockholders of record. These are the securities that would have been entitled to vote if a meeting was required to be held. Each share of our Common Stock is entitled to one (1) vote. The holders of a majority of our outstanding common stock (the "Majority Stockholders") have consented to the Amendment. CONSENT REQUIRED Approval of the Amendment required the consent of the holders of a majority of the outstanding shares of our Common Stock, as of the Record Date. The Majority Stockholders, who owned approximately 74% of the outstanding shares of our Common Stock as of the Record Date, have given their consent to the Amendment and accordingly, the requisite stockholder approval of the Amended Certificate was obtained by the execution of the Majority Stockholders' written consent in favor of the Amendment. PURPOSE On November 25, 2002, we effectuated the Reverse Stock Split having a ratio of one-for-fifteen (1:15). Pursuant to the Reverse Stock Split, the Company no longer needs the number of shares authorized. In addition, by reducing the number of authorized shares, the Company expects to lower its Delaware franchise tax liability. No further action by our stockholders will be necessary or sought prior to the issuance of the shares of our Common Stock that we will be authorized to issue after the Amendment is effective. RESOLUTION #2 DECLASSIFICATION OF OUR BOARD OF DIRECTORS GENERAL Article 6 of our Certificate of Incorporation currently provides for our Board to consist of three classes of directors, each class serving for staggered three year terms. The Board of Directors believes that it is in the best interest of the Company to Amend the Certificate of Incorporation to declassify the Board of Directors resulting in directors being elected for one-year terms. The Amendment, attached hereto as Exhibit A, provides for one class of directors, with each director serving until the next annual meeting of the Company. OUTSTANDING SHARES AND VOTING RIGHTS As of the Record Date we had approximately 4,184,989 shares of Common Stock issued and outstanding, held by approximately 900 stockholders of record. These are the securities that would have been entitled to vote if a meeting was required to be held. Each share of our Common Stock is entitled to one (1) vote. The Majority Stockholders have consented to the Amendment. 4 CONSENT REQUIRED Approval of the Amendment required the consent of the holders of a majority of the outstanding shares of our Common Stock, as of the Record Date. The Majority Stockholders, who owned approximately 74% of the outstanding shares of our Common Stock as of the Record Date, have given their consent to the Amendment and accordingly, the requisite stockholder approval of the Amended Certificate was obtained by the execution of the Majority Stockholders' written consent in favor of the Amendment. PURPOSE Our Board of Directors has determined that a classified board of directors may have the undesirable effect of making our Board of Directors less responsive to our stockholders. Therefore, our Board of Directors has recommended the declassification of our Board so that all of our directors are elected annually. RESOLUTION #3 AMENDMENT TO THE 2002 EMPLOYEE AND NON-EMPLOYEE DIRECTOR STOCK INCENTIVE PLAN The Comdial Corporation 2002 Employee and Non-Employee Director Stock Incentive Plan (the "2002 Plan") was adopted by our Board of Directors and approved by the stockholders of the Company at the special meeting held August 26, 2002. The 2002 Plan replaces the 1992 Stock Incentive Plan and 1992 Non-Employee Directors Stock Incentive Plan (together the "1992 Plans"), each of which expired according to their terms on March 5, 2002. As of July 12, 2002, 74,024 shares are subject to outstanding options under the 1992 Stock Incentive Plan and 2,722 shares are subject to outstanding options under the 1992 Non-Employee Directors Stock Incentive Plan. Because the 1992 Plans have expired, there are no longer any shares available for future grants under the 1992 Plans. The shares subject to outstanding options granted under the 1992 Plans will remain outstanding until their early exercise, expiration, termination or cancellation. 666,667 new shares of Common Stock have been reserved for issuance under the 2002 Plan and the issuance of restricted shares, options or other similar awards will be governed by the terms of the 2002 Plan. The 2002 Plan authorizes the Board of Directors or a committee appointed by the Board to administer the 2002 Plan (the "Committee") to grant options to purchase shares of the Company's Common Stock ("Options") and/or awards of restricted stock ("Restricted Stock") to officers, key employees, directors, consultants and advisors of the Company. BACKGROUND AND PURPOSE The Board of Directors has adopted an amendment to the 2002 Plan to increase the number of Options and shares of Restricted Stock available for issuance under the 2002 Plan. The Board of Directors has recommended that it be approved by Comdial's stockholders. In connection with the mailing of this Information Statement and the approval by the Majority Stockholders of the other resolutions described herein, the Majority Stockholders, who owned approximately 74% of the outstanding shares of our Common Stock as of the Record Date, have given their consent to approve the amendment of the 2002 Plan. REASONS FOR THE PROPOSAL The purposes of the 2002 Plan are to enable the Company to attract and retain officers and key employees and to align the interests of such persons, members of the Board of Directors and consultants of the Company with the interests of stockholders by giving them a personal interest in the value of the Company's Common Stock. In order for the purposes of the 2002 Plan to be fully realized, the Board of Directors recommended that the number of shares available for issuance under the 2002 Plan be increased to one million (1,000,000). The Majority Stockholders have approved the increase in the number of shares available for issuance under the 2002 Plan. VOTE REQUIRED Approval of this proposal requires the affirmative vote of a majority of our outstanding shares of common stock. The Majority Stockholders who owned approximately 74% of the outstanding shares of our common stock as of the Record Date, have 5 given their consent. The following is a summary of certain principal features of the Plan. The amended 2002 Plan is attached to this Information Statement as Exhibit B. SUMMARY OF THE PLAN THE FOLLOWING GENERAL DESCRIPTION OF CERTAIN FEATURES OF THE 2002 PLAN IS QUALIFIED IN ITS ENTIRETY TO REFERENCE TO THE 2002 PLAN, AS AMENDED, WHICH IS ATTACHED AS EXHIBIT B TO THIS PROXY STATEMENT. Shares Available Under the 2002 Plan. Subject to adjustment as provided in the 2002 Plan, the number of shares of Common Stock that may be issued or transferred and covered by outstanding awards granted under the 2002 Plan will not in the aggregate exceed one million (1,000,000) newly authorized shares of Common Stock available under the Plan which may be original issue shares, treasury shares, or a combination thereof. Eligibility. Officers, other key salaried employees of the Company, consultants of the Company and members of the Board of Directors may be selected by the Committee to receive benefits under the 2002 Plan. It is estimated that approximately forty (40) individuals currently are eligible to participate in the 2002 Plan. Options. Options granted to eligible employees under the 2002 Plan may be Options that are intended to qualify as "incentive stock options" within the meaning of Section 422 of the Code ("ISOs") or Options that are not intended to so qualify ("Nonstatutory Options"). Options granted to members of the Board of Directors or consultants will be Nonstatutory Options. The purchase price of the Common Stock that is the subject of any Option may be not less than the fair market value of the Common Stock on the date the Option is granted. ISOs granted to an individual who owns (or is deemed to own) at least 10% of the total combined voting power of all classes of stock of the Company must have an exercise price of at least 110% of the fair market value of the Common Stock on the date of grant and a term of no more than five years. The option price is payable at the time of exercise in (i) cash, (ii) delivery to the Company of whole shares of Common Stock already owned by the participant for at least six months, valued at fair market value on the day immediately preceding the date of exercise, (iii) at the discretion of the Committee, a recourse promissory note secured by a pledge of the shares of Common Stock and a personal guarantee, or (ix) a combination of any of the above equal to the Option price for the shares. The 2002 Plan also authorizes a participant to exercise an Option by delivery of a signed, irrevocable notice of exercise, accompanied by payment in full of the option price by the participant's stockbroker and an irrevocable instruction to the Company to deliver the shares of Common Stock issuable upon exercise of the Option promptly to the participant's stockbroker for the participant's account, provided that at the time of such exercise, such exercise would not be illegal under the federal securities laws, including laws governing margin loans. No Options may be exercised more than 10 years from the date of grant. Each employee's, director's or consultant's stock option agreement may specify the period of continuous service with the Company that is necessary before the Option will become exercisable. If the participant ends his or her employment or other relationship with the Company for any reason other than retirement, disability or death, the Options shall terminate immediately upon the date of termination, unless the Committee decides in its sole discretion, to waive the termination and amends the participant's option agreement to provide for an extended exercise period, all as specified in the employee's, director's or consultant's stock option agreement. Any option agreement may, in the Committee's sole discretion, allow for the participant, his or her personal representative or his or her heirs, to exercise the Options after the termination of his or her employment or other relationship with the Company for reason of the death or disability of the participant, provided, however, that in the event of the death of the participant, such Options may only be exercised for up to one year after death and, provided, further, that if such Options are ISOs, in the event of the disability of the participant, such ISOs may only be exercised for up to one year after disability of participant. Successive grants may be made to the same recipient regardless of whether Options previously granted to him or her remain unexercised. Transferability. No Option may be transferred other than by will or the laws of descent and distribution. Notwithstanding the foregoing, the Committee may, in its discretion, permit a participant to transfer all or a portion of his or her Options to members of his or her immediate family, to trusts for the benefit of members of his or her immediate family, or to family partnerships in which immediate family members are the only partners, provided that the participant receive no consideration for such transfer and that such Options shall be subject to termination as if the Options were in the hands of the transferor. The Committee may also, in its discretion, permit a consultant to transfer all or a portion of the Options granted by reason of services he or she performs for the Company as an employee or partner of a consulting firm to his or her consulting firm, provided that such Options shall still be subject to termination as if the Options were in the hands of the transferor, or permit a consultant which is organized as a partnership or limited liability 6 company to transfer the Options to its members, subject to termination if the consultant ends its relationship with the Company. Covenants Not to Compete. The Committee may, in its discretion, condition any Option granted to an employee, consultant or director on such participant's agreement to enter into a covenant not to compete with the Company as the Committee may deem to be desirable. Such covenant not to compete shall be set forth in the participant's stock option agreement, and the stock option agreement shall provide that the Option shall be forfeited immediately, whether otherwise vested or not, if the Board of Directors determines that the participant has violated his or her covenant not to compete. In addition, in the Committee's discretion, the participant's stock option agreement may also provide that if the participant breaches his or her covenant not to compete, the Company shall have the right to repurchase any shares of Common Stock previously issued to the participant pursuant to an exercise of the Option, at a repurchase price equal to the option price paid by the participant. Adjustments. The maximum number of shares that may be issued or transferred under the 2002 Plan and the number of shares covered by outstanding Options and the option prices per share applicable thereto are subject to adjustment in the event of stock dividends, stock splits, combinations, exchanges of shares, recapitalizations, mergers, consolidations, liquidation of the Company, and similar transactions or events. Administration and Amendments. The 2002 Plan will be administered by the Board of Directors, or if the Board determines it is desirable to delegate its authority to administer the 2002 Plan, by a committee appointed by the Board, which may be the Compensation Committee. In connection with its administration of the 2002 Plan, the Board and any committee are authorized to interpret the 2002 Plan and related agreements and other documents. The 2002 Plan may be amended from time to time by the Board of Directors in such respects as it deems advisable. Further approval by the stockholders of the Company will be required for any amendment that would (i) increase the aggregate number of shares of Common Stock that may be issued under the 2002 Plan, (ii) materially change the classes of persons eligible to participate in the Plan, or (iii) otherwise cause Rule 16b-3 under the Exchange Act to cease to be applicable to the 2002 Plan. No amendment may change the Plan so as to cause any Option intended to be an ISO to fail to meet the Internal Revenue Code requirements for an incentive stock option. No amendment may change any rights an optionee may have under any outstanding Option without the written consent of the optionee except for the termination of the Plan and outstanding Options upon adequate provision being made by the Board of Directors for the payment to an optionee of the excess of fair value, as defined in the Plan, over the exercise price for any vested Options. The Board may at any time terminate or discontinue the 2002 Plan. Unless terminated sooner, the 2002 Plan will continue in effect until all Options granted thereunder have expired or been exercised, provided that no Options may be granted after 10 years from the date the Board of Directors adopted the 2002 Plan. FEDERAL INCOME TAX CONSEQUENCES The following is a brief summary of certain of the federal income tax consequences of certain transactions under the 2002 Plan based on federal income tax laws in effect on April 13, 2002. This summary is not intended to be exhaustive and does not describe state or local tax consequences. Nonstatutory Options. In general, (i) an employee or director will not recognize taxable income at the time he or she is granted Nonstatutory Options; (ii) at the time of exercise of a Nonstatutory Option, ordinary income will be recognized by the employee in an amount equal to the difference between the option price paid for the shares and the fair market value of the shares; and (iii) at the time of sale of shares acquired pursuant to the exercise of a Nonstatutory Option, any appreciation (or depreciation) in the value of the shares after the date of exercise will be treated as either short-term or long-term capital gain (or loss) depending on how long the shares have been held. Incentive Stock Options. No income generally will be recognized by an employee upon either the grant or the exercise of an ISO. If the shares of Common Stock issued to an employee pursuant to the exercise of an ISO and the shares are not sold or otherwise transferred by the employee within two years after the date of grant or within one year after the transfer of the shares to the employee, then upon the sale of the shares any amount realized in excess of the option price will be taxed to the employee as long-term capital gain and any loss sustained will be a long-term capital loss. Although an employee will not realize ordinary income upon the exercise of an ISO, if the shares are sold or transferred after the expiration of the one-year or two-year holding periods described above, the excess of the fair market value of the Common Stock acquired at the time of exercise over the option price may constitute an adjustment in computing alternative minimum taxable income under Section 56 of the Code and, thus, may result in the imposition of the "alternative minimum tax" pursuant to Section 55 of the Code on the employee. If shares of Common Stock acquired upon the exercise of an ISO are disposed of before the expiration of one-year or two-year holding periods described above, including where the employee pays the option price through a so-called cashless exercise, the employee generally will recognize ordinary income in the year of disposition in an amount equal to any excess of the fair market value 7 of the shares at the time of exercise (or, if less, the amount realized on the disposition of the shares in a sale or exchange) over the option price paid for the shares. Any further gain (or loss) realized by the employee generally will be taxed as short-term or long-term capital gain (or loss) depending on the holding period. Tax Consequences to the Company. To the extent that the recipient of an Option recognizes ordinary income in the circumstances described above, the Company generally will be entitled to a corresponding federal income tax deduction, provided that, among other things, (i) the income meets the test of reasonableness, and is an ordinary and necessary business expense; (ii) the benefits do not constitute an "excess parachute payment" within the meaning of Section 280G of the Code; and (iii) the deduction is not disallowed because the compensation paid to the employee during the period exceeds the $1 million limitation on executive compensation of named executive officers. RESOLUTION #4 ELECTION OF DIRECTORS GENERAL Our Board of Directors is currently comprised of the following six individuals: Nickolas A. Branica, Michael S. Falk, Sanford Schlitt, Travis Lee Provow, Keith Rosenbloom and Edwin W. Cooperman (the "Current Board"). The Majority Stockholders have approved the re-election of the Current Board. Each of the directors shall serve until the next annual meeting of stockholders (or, if applicable, until the next succeeding written consent of the Company's stockholders in lieu of an annual meeting) and until his respective successor shall have been elected and qualified, or until his earlier death, resignation or removal. CONSENT REQUIRED Approval of the re-appointments to the Board of Directors has been consented to by the Majority Stockholders, who own approximately 74% of the outstanding shares of our Common Stock as of the Record Date. PURPOSE The Board of Directors deemed it in the best interests of Comdial to re-appoint each of the directors. DIRECTORS The following table contains certain information with respect to the directors and executive officers of Comdial.
NAME AGE POSITION AFTER MERGER SINCE ---- --- --------------------- ----- Nickolas A. Branica 49 Director October 2000 Michael S. Falk 40 Director October 2002 Sanford Schlitt 57 Director October 2001 Travis Lee Provow 44 Director June 2002 Keith Rosenbloom 34 Director August 2002 Edwin W. Cooperman 58 Director October 2002
SANFORD SCHLITT has been President of Spenford Funding Group, Inc., a privately held Sarasota, Florida firm engaged in business consulting and financing, since 1987. Mr. Schlitt has had extensive experience in private industry, previously serving as Chairman of the Board of Reliance Audio Visual Corp., President of Bruning Microfilm Corporation, President of Preflight Film Processing Corp. and as senior executive of many other successful business ventures. Concurrent with his business career, Mr. Schlitt served 35 years with the Air Force Reserve, retiring in 2001 as a Brigadier General. In his last ten years of duty, Mr. Schlitt was assigned directly to the Secretary of the Air Force at the Pentagon as the Senior Reserve Officer in Acquisition. His responsibilities included assisting in setting Air Force wide policies for the science, technology, program management, contracting and acquisition of weapon systems and associated support. Mr. Schlitt has also served on the staffs of Senator and later Vice President Hubert H. Humphrey, and of Senator Walter F. Mondale. Mr. Schlitt has served as a director of the Company since 2001 and is Chairman of the Audit and Nominating Committees, and also serves as a member of the Governance Committee. NICKOLAS A. BRANICA has been President and Chief Executive Officer of Comdial since October 2000. In 1992, Mr. Branica 8 started Key Voice Technologies, Inc.("KVT") in Sarasota, Florida, and served as its President and Chief Executive Officer. In March 1996, Comdial Corporation acquired KVT with the stipulation that Mr. Branica would remain as President and Chief Executive Officer of KVT. Before joining Comdial, Mr. Branica held management positions with Elcotel and Compass Technologies/Octel Corporation, both public telecommunications companies. Mr. Branica has served as a director of the Company since 2000 and serves on the Governance Committee. T. LEE PROVOW has been Chairman of the Executive Committee of Comdial since November 2002. In addition, Mr. Provow has served as President and Managing Director of Commonwealth Holdings, LLC, a private investment fund, since January 2002. He is also a Manager of ComVest Management, ComVest's general partner. From January 2000 to December 2001, he served as the President and Chief Executive Officer of Intelispan, a provider of network solutions and enabler or electronic communications. Mr. Provow was appointed to our Board of Directors in June 2002 as a designee of ComVest. In October 2002, Mr. Provow was appointed Chairman of the Board of Directors, and Mr. Provow also serves on the Compensation and Nominating Committees. KEITH ROSENBLOOM has served as Managing Director of Merchant Banking for Commonwealth for more than the last five years. He is also a Manager of ComVest Management, ComVest's general partner. Mr. Rosenbloom was appointed to our Board of Directors in August 2002 as a designee of ComVest. EDWIN M. COOPERMAN is the Chairman and CEO of Edmarc Investments, a consulting firm and Principal of T.C. Solutions, an investment and financial services consulting firm. Previously, Mr. Cooperman was Chairman of the Travelers Bank Group and Executive Vice President Travelers Group. After joining Travelers in 1991, Mr. Cooperman became Chairman and CEO of Primerica Financial Services Group, comprising Primerica Financial Services, Benefit Life Insurance Company and Primerica Financial Services Canada. Prior to this, Mr. Cooperman was at American Express where he became Chairman and Co-Chief Executive of Travel Related Services, North America. He serves as a director of Proxymed Inc, and the Grannum Mutual Fund and also serves on the Foundation Boards of Ohio State University and Queens College. Mr. Cooperman was appointed to the Board of Directors in October 2002 and serves as Chairman of the Compensation and Governance Committees, and as a member of the Audit Committee. MICHAEL S. FALK co-founded Commonwealth Associates in 1988 and in 1995 became Chairman, Chief Executive Officer, and President. Under Mr. Falk's leadership, Commonwealth has become a leading private equity financier of emerging technology companies. Mr. Falk is responsible for Commonwealth's strategy and direction and spends the majority of his time working closely with Commonwealth's portfolio companies. He is a director of Proxymed and Intraware. Mr. Falk was appointed to the Board of Directors in October 2002 and serves on the Compensation Committee. BOARD MEETINGS The Board of Directors held four (4) regularly scheduled meetings and ten (10) special meetings in 2001. During 2001, all directors attended at least 75% of the aggregate number of meetings of the Board of Directors and standing Committees on which they served. COMMITTEES Our Board of Directors has established Audit, Compensation, Nominating and Governance Committees. The Audit Committee held six (6) meetings in 2001. The Audit Committee's principal functions are to recommend to the Board of Directors the firm of independent auditors to serve the Company each fiscal year and to review the plan and results of the audit by the independent accountants as well as the scope, results, and adequacy of the Company's systems of internal accounting controls and procedures. The Audit Committee reviews the independence of such accountants and reviews their fees for audit and non-audit services rendered to the Company. On October 3, 2002, Mr. Cooperman was appointed to the Board and to the Audit Committee. In addition, in November 2002, the Board appointed Mr. Rosenbloom to serve as a non-voting observer of the Audit Committee. Accordingly, the Audit Committee currently has two independent director members. The Compensation Committee held two (2) meetings in 2001. Its principal functions are to approve remuneration of the officers of the Company, review certain benefit programs, and approve and administer remuneration plans, including the stock incentive plan and any employee bonus programs of the Company. The Report of the Compensation Committee on executive compensation is set forth beginning on page 14 of this Information Statement. In November 2002, the Board appointed Mr. Cooperman, Mr. Provow and Mr. Falk to the Compensation Committee and appointed Mr. Cooperman as Chairman. The Nominating Committee held one (1) meeting in 2001. Currently, Mr. Provow and Mr. Schlitt are members of the Nominating Committee, with Mr. Schlitt acting as Chairman. 9 The principal functions of the Nominating Committee are to review candidates and recommend to the Board of Directors nominees for membership on the Board of Directors. In fulfilling this responsibility, the Nominating Committee will consider recommendations received from stockholders and other qualified sources. Stockholder recommendations must be in writing and addressed to the Chairman of the Nominating Committee, c/o Corporate Secretary, Comdial Corporation, 106 Cattlemen Road, Sarasota, Florida 34232. If a stockholder intends to make a nomination at any Annual Meeting, the Bylaws of the Company require that the stockholder deliver a notice to the Company not less than 120 days in advance of the anniversary date of the date on which the Company's Proxy Statement was released to its stockholders in connection with the previous year's annual meeting of stockholders, setting forth (i) the name and address of the stockholder who intends to make the nomination; (ii) the name, address, and principal occupation of such proposed nominee; (iii) a representation that the stockholder is entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (iv) the consent of each proposed nominee to serve as a director of the Company if so elected; and (v) the total number of shares of common stock of the Company that will be voted for each proposed nominee and the number of shares of common stock of the Company owned by the notifying stockholder. The Chairman of the meeting, in his discretion, may refuse to acknowledge the nomination or disregard the nomination of any person not made in compliance with the foregoing procedure. By requiring advance notice of stockholder nominations, the Bylaws afford the Board of Directors the opportunity to consider the qualifications of the proposed nominees and, to the extent deemed necessary or desirable by the Board, to inform stockholders about such qualifications. The Bylaws do not give the Board of Directors any power to approve or disapprove of stockholder nominations for election of directors. However, they may have the effect of precluding a contest for the election of directors if their procedures are not followed, and therefore may discourage or deter a stockholder from conducting a solicitation of proxies to elect his or her own slate of directors. In November 2002, the Board formed the Governance Committee and appointed Mr. Cooperman, Mr. Schlitt and Mr. Branica to that committee with Mr. Cooperman to serve as Chairman. The purpose of the Governance Committee shall be to consider and recommend policies and procedures for the Company to adhere to in order to maintain compliance with state and federal laws, rules and regulations affecting corporate governance, including securities laws and the rules governing listing on several national stock exchanges. COMPENSATION OF DIRECTORS During 2001, non-employee directors of the Company received an annual retainer fee of $18,000 payable in equivalent monthly installments of $1,500. By resolution dated March 1, 2002, the Board also approved the payment to each director of meeting fees in the amount of $1,000 per regular meeting of the Board attended by such director, and $500 for special meetings of the Board and meetings of the three committees of the Board, as long as substantial business of the Company was conducted at such special meetings or committee meetings. In addition, the Chair of the Audit Committee is paid $1,000 for each meeting of that committee. The Board, with the approval of the stockholders, adopted the 1992 Plans which plans provided for certain stock-related compensation for non-employee Directors and employees of the Company, respectively. Both of the 1992 Plans expired as of March 5, 2002. Because of the expiration of the aforementioned plans, the Company approved the 2002 Plan to provide a plan for use by the Board of Directors to incentivize existing and new employees, officers and non-employee directors. The Company and the Majority Stockholders have approved an amendment to the 2002 Plan to increase the numbers of Options and shares of Restricted Stock eligible for issuance under the 2002 Plan. The 2002 Plan, as amended, is more fully described in this Information Statement under "Proposal No. 3." Under the 1992 Non-Employee Directors Stock Incentive Plan, as amended (the "Directors Plan"), a director of the Company who was not otherwise an employee of the Company or any of its subsidiaries and had not been an employee for a period of at least one year was eligible to receive automatic grants of options and awards of shares of Common Stock. An aggregate of 13,333 shares of Common Stock was reserved for issuance under the Directors Plan. The Directors Plan provided that each newly-elected director who was eligible to participate in the plan on the date of his or her first election to the Board would automatically receive an option to purchase 222 shares of Common Stock. The Directors Plan, as amended, further provided that, for each fiscal year in which the Company had net income, each director then in office would receive an automatic award of 222 shares of Common Stock in the following year, unless the Board suspended all or any part of such award. Because the Company did not have net income for fiscal year 2001, no director was entitled to an award of shares of the Company's Common Stock under the Directors Plan. On March 1, 2002, the number of initial options awarded to new directors was changed by resolution to an award of options to purchase 667 shares of Common Stock. This amendment was made applicable to all directors who, as of March 1, 2002, had not been granted their initial stock options. All stock options granted under the Directors Plan were non-statutory options. The option exercise price was the fair market value of the shares of Common Stock at the time the option is granted. All of the options are immediately exercisable; provided, however, that they may be exercised only while the holder is a director or within 36 months of the date he or she ceases to be a director, and in no event may any such option be exercised more than ten years after the date of grant. In November 2002, the Board approved the granting of options to purchase 16,667 shares of Common Stock to existing independent directors and to newly 10 appointed or elected independent directors. Provided the grantee remains a director of the Company, one-third (1/3) of these stock options are exercisable one year after the date of grant, two-thirds (2/3) are exercisable two years after the date of grant and all such options are fully exercisable three years after the date of grant. On November 12, 2002, Mr. Schlitt and Mr. Cooperman were each granted options to purchase 16,667 shares of Common Stock at an exercise price of $1.95 per share, the fair market value of the Common Stock on the date of grant. Mr. Branica and Mr. Provow are the only Company employees who are currently members of the Board of Directors. Messrs. Falk and Rosenbloom are not qualified as independent directors because of their affiliation with ComVest and Commonwealth. Messrs. Falk, Rosenbloom, Branica and Provow did not receive any compensation for serving as a director. EXECUTIVE OFFICERS OF THE COMPANY The following table lists the executive officers of the Company. All executive officers are appointed annually by, and serve at the discretion of, our Board of Directors.
NAME AND AGE POSITION WITH THE COMPANY BUSINESS EXPERIENCE DURING PAST FIVE YEARS Current Executive Officers Nickolas A. Branica (49) President and Chief Executive Mr. Branica was appointed President and Chief Officer Executive Officer of Comdial in October 2000. In 1992, Mr. Branica founded Key Voice Technologies, Inc. ("KVT") in Sarasota, Florida, and served as its President and Chief Executive Officer. In March 1996, Comdial Corporation acquired KVT with the stipulation that Mr. Branica would remain as President and Chief Executive Officer of KVT. Prior to joining Comdial, Mr. Branica held management positions with Elcotel and Compass Technologies/Octel Corporation, both public telecommunications companies. Kenneth M. Clinebell (41) Senior Vice President, Chief Mr. Clinebell joined Comdial as the Company's Chief Financial Officer and Treasurer Financial Officer and Treasurer in November 2002. Prior to joining Comdial, Mr. Clinebell held various positions at Vicorp, Inc., a multi-national software development company. Mr. Clinebell joined Vicorp, Inc. in 1994 as a member of the senior executive team and then later served as Chief Financial Officer and Interim Chief Executive Officer. From 1998 to 1994, Mr. Clinebell served as Controller and Manager of Financial Reporting at Kimmons Corporation, a construction real estate and insurance conglomerate. He also acted as Audit Manager at Laventhal & Horwath, CPAs from 1983 to 1988.
11
NAME AND AGE POSITION WITH THE COMPANY BUSINESS EXPERIENCE DURING PAST FIVE YEARS Current Executive Officers Travis Lee Provow (44) Chairman of the Executive Mr.Provow has been Chairman of the Executive Committee of Committee the Company since November 2002. In addition, Mr. Provow has served as President and Managing Director of Commonwealth Holdings, LLC, a private investment fund, since January 2002. He is also a Manager of ComVest Management, ComVest's general partner. From January 2000 to December 2001, he served as the President and Chief Executive Officer of Intelispan, a provider of network solutions and enabler of electronic communications. Ralph R. Dyer (42) Vice President, General Mr. Dyer was elected as Vice President and General Counsel, and Secretary Counsel in September 2001. He has responsibility for legal and corporate functions of the Company. Prior to joining Comdial, Mr. Dyer was Senior Corporate Counsel for Intermedia Communications Inc. from 1998 until 2001. Mr. Dyer was Director of Legal Affairs for Americatel Corporation from 1994 until 1998 and Contract Administrator for Americatel in 1993 and 1994. Carla K. Luke (32) Vice President of Finance and Ms. Luke, a CPA, became Vice President of Finance Controller and Controller in January 2002. Prior to joining Comdial, Ms. Luke was Corporate Controller and Assistant Controller for Vicorp, Inc., a multi-national software developer from December 1996 until July 2001. Previously, Ms. Luke was Accounting Supervisor for Danka Business Systems, PLC in 1995 and 1996 and was Audit Senior with Coopers & Lybrand LLP from 1992 to 1995.
FAMILY RELATIONSHIPS There is no family relationship between any director or executive officer of the Company. INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS There are no legal proceedings involving the directors or executive officers. CERTAIN RELATIONSHIPS AND TRANSACTIONS Messrs. Provow, Rosenbloom, and Falk, members of our Board of Directors, are affiliates of ComVest and Commonwealth. For information regarding the Company's transactions with ComVest and Commonwealth, see "Change in Control of the Company" and "Interest of Certain Persons in Matters to be Acted Upon." EXECUTIVE COMPENSATION The following sections disclose detailed information about cash and equity-based executive compensation paid by the Company to certain of its executive employees. The information is comprised of a five-year stock performance graph, a Report of the Company's Compensation Committee of the Board of Directors, a Summary Compensation Table, and additional tables that provide further details on stock options and pension benefits. FIVE YEAR TOTAL STOCKHOLDER RETURN The following performance table compares the cumulative total return, assuming the reinvestment of dividends, for the period from December 31, 1996 through December 31, 2001, from an investment of $100 in (i) the Company's Common Stock, (ii) the Nasdaq Market Index, and (iii) a peer group index constructed by the Company (the "Peer Group Index"). 12 COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES AND EXCHANGE ACT OF 1934 The Company believes that during 2001 all reports for the Company's executive officers and directors that were required to be filed under Section 16 of the Exchange Act were timely filed, except that Nickolas A. Branica did not timely file three reports required by Section 16(a). A Form 5 "Annual Statement of Changes in Beneficial Ownership," reporting Mr. Branica's purchase of 70,500 shares of the Company's Common Stock in three separate transactions in 2001 was sent to the Securities and Exchange Commission on March 1, 2002. [OBJECT OMITTED]
1996 1997 1998 1999 2000 2001 COMDIAL CORPORATION 100.00 148.00 141.00 159.00 16.50 5.28 PEER GROUP INDEX 100.00 199.45 236.53 253.73 78.64 194.70 NASDAQ MARKET INDEX 100.00 122.32 172.52 304.29 191.25 152.46
The Nasdaq Market Index tracks the aggregate price performance of equity securities of companies traded on the National Association of Securities Dealers Automated Quotation National Market System (the "Nasdaq National Market"). The Company's Common Stock was previously traded on the Nasdaq Small Cap Market The Company's Common Stock is currently quoted on the Pink Sheets Electronic Quotation Service. Media General Financial Services supplied the necessary information to construct the table, including the Peer Group Index. The Peer Group Index consists of the following companies: Inter-Tel, Inc. and Vodavi Technology, Inc. The Company selected these two companies as the peer group because their lines of business most closely match the lines of business in which the Company is currently primarily engaged. Although Avaya Inc. and Nortel Networks are also major competitors of the Company, these two companies have been excluded from the peer group because they are much larger than the Company and derive most of their revenues from other lines of business. The returns of each peer group issuer have been weighted according to the respective issuer's stock market capitalization at the beginning of each period for which a return is indicated. The performance of any individual company's common stock is influenced not only by its own performance and future prospects, but also by a number of external factors over which the Company and its management have indirect or no control, including general economic conditions, expectations for the company's future performance, and conditions affecting or expected to affect the company's industry. In addition, stock performance can be affected by factors such as trading volume, analytical research 13 coverage by the investment community, and the propensity of stockholders to hold the stock for investment purposes. The relative weight of these factors also changes over time. Consequently, stock performance, including measurement against indexes, may not be representative of a company's financial performance for given periods of time. REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS The Company's executive compensation package for its executive officers consists of three elements: base salary, annual performance-based incentive, and stock option grants. Compensation Principles. The Committee believes that the executive compensation package should provide incentives to achieve both current and longer-term strategic management goals of the Company, with the ultimate objective of enhancing stockholder value. The three elements of the compensation plan are designed to achieve this objective. The base salaries are set at levels believed by the Committee to be sufficient to attract and retain qualified officers, with a significant portion of the cash compensation being in the form of performance-based incentives dependent upon meeting specified Company annual financial goals. Stock option grants are intended to serve as an incentive to achieve the overall longer-term objective of enhancing stockholder value. Salaries. In general, base salary levels are set at levels believed by the Committee to be sufficient to attract and retain qualified executives, when considered with the other components of the executive compensation package. Annually, the Committee reviews the compensation of the executive officers. In addition, the Committee retains an independent consulting company and considers its report of the compensation paid by companies in the same or similar industries. The Committee considers the remuneration analysis in conjunction with the Company's overall performance as measured by achievement of the Company's objectives and the development and succession of sound management practices and skilled personnel. The Company's primary objective, as noted above, has been the implementation of financial stability, the development of new products, and growth. In order to attract and retain qualified executive personnel, base salary levels have reflected a necessary balance between (i) the competitive level set by the industry and (ii) the Company's overall financial performance. Annual Incentives. The Committee has established a formal plan for awarding incentive compensation to officers. The plan accounts for the cost of invested capital and is designed to focus the attention of the executive officers on both income statement and balance sheet performance. The Committee believes that the plan is supportive of the Company's continued focus on improved financial results and positioning the Company for continued growth. Early each year, the Committee sets the required levels for each performance objective. The Company's actual performance for a year is then measured against the predetermined levels to calculate annual incentive payments, if any. For 2001, Mr. Branica received a bonus payment of $15,000 pursuant to a two year employment agreement he entered into in September 2001. No other cash bonuses were awarded to any officers. In December 2001, Mr. Branica and Mr. Suijk were each awarded 2,222 options in the Company's Common Stock pursuant to a bonus plan that was established for these officers based on the attainment of three corporate objectives: completion of the sale and leaseback of the Company's Charlottesville, Virginia property, completion of the Company's manufacturing outsourcing project for 2001 and reduction in the Company total debt to less than $18 million by the end of 2001. The bonus plan provided for the award of 3,333 options based on attainment of all three said objectives. The Company attained the first two of these objectives and thus Messrs. Branica and Suijk were awarded 2,222 options each, two-thirds of the 3,333 options that were available for each executive under the plan. Stock Options. Stock options comprise one part of the executive compensation package. This component is intended to encourage key employees to remain in the employ of the Company by offering them an opportunity for ownership in the Company, and to provide them with a long-term interest in the Company's overall performance as reflected by the performance in the market of the Company's Common Stock. During 2001, 11 eligible employees were awarded stock options to acquire a total of 31,711 shares of the Company's Common Stock. The Company's executive officers were awarded stock options in 2001, totaling 29,778 shares. Messrs. Branica, Suijk, Dyer, Kenneth W. Noack, and David P. Berg were awarded options in 2001. Compensation of the Chief Executive Officer. The Committee determined the compensation of the Company's Chief Executive Officer, Mr. Branica, for the 2001 fiscal year in a manner consistent with the guidelines and policies described above. In September 2001, the Committee set Mr. Branica's base salary at $325,000 with a performance bonus for 2001 based upon the attainment of certain objectives. Prior to September 2001, Mr. Branica's base salary had been set at $295,000. No bonus was earned under the plan established by the Committee for 2001. Upon the election of Mr. Branica to the position of Chief Executive Officer in 2000, the Committee granted Mr. Branica options for the purchase 13,333 shares of Common Stock, and in 2001, Mr. Branica was awarded an additional 16,667 options as part of the employment agreement he entered into with the Company in September 2001. As noted above, Mr. Branica was also paid a $15,000 bonus pursuant to entering into the September employment agreement. 14 In establishing the Chief Executive Officer's compensation in prior years, the Committee has compared the compensation of the Company's Chief Executive Officer to the relative performance of the Company with respect to various peer groups. The Committee did not make a comparison for the 2001 fiscal year and did not engage a compensation consultant during the 2001 fiscal year. In setting Mr. Branica's 2001 fiscal year compensation, the Committee considered the compensation paid to his predecessor and the needs of the Company for the executive leadership. The Committee believes that the structure of incentives to Mr. Branica is appropriate for Mr. Branica's role as Chief Executive Officer and the current status of the Company. The Committee believes that Mr. Branica's actual compensation for the 2001 fiscal year was appropriate in light of the above considerations. SUBMITTED BY THE COMPENSATION COMMITTEE FOR FISCAL YEAR ENDED 2001: ROBERT P. COLLINS (CHAIR) DAVID P. BERG SANFORD SCHLITT SUMMARY COMPENSATION TABLE The following summary compensation table presents information about the compensation paid by the Company during its three most recent fiscal years to those individuals who were (i) the Company's Chief Executive Officer (the "CEO") at the end of the last completed fiscal year, regardless of compensation level and (ii) the Company's most highly compensated executive officer other than the CEO who was serving as an executive officer at the end of the last completed fiscal year and whose total annual salary and bonus for the last completed fiscal year exceeded $100,000 and (iii) two additional individuals who served as executive officers during 2001 (collectively, the "Named Executive Officers").
Summary Compensation Table: ANNUAL COMPENSATION(1) LONG-TERM COMPENSATION ---------------------- ---------------------- ALL OTHER NAME AND PRINCIPAL 2001 BASE COMPENSATION POSITION YEAR SALARY ($) BONUS OPTIONS GRANTED (#) ($) -------- ---- ---------- ----- ------------------- --- Nickolas A. Branica, 2001 297,126 15,000 18,889 20,709(2) President and Chief 2000 188,920 101,409 13,333 Executive Officer Paul K. Suijk, Former Senior Vice 2001 241,500 0 2,222 3,029(3) President and Chief 2000 181,800 0 13,333 92,000 Financial Officer Joe D. Ford, Former Vice 2001 110,000 0 0 23,412(5) President (4) 2000 123,377 0 1,000 4,920 1999 117,515 37,840 260 Lawrence K. Tate, Former Vice 2001 108,461 0 0 21,443(7) President (6) 2000 116,912 0 1,333 4,020 1999 122,948 14,000 260
(1) While the Named Executive Officers received perquisites or other personal benefits in the years shown, in accordance with Securities and Exchange Commission regulations, the value of these benefits are not indicated since they did not exceed the lesser of $50,000 or 10% of the individual's salary and bonus in any year. (2) Includes $4,645 in matching contributions made by the Company to its 401(k) plan for the benefit of Mr. Branica, $2,728 in country club dues, $12,969 in automobile payments and $368 in imputed income from group term life insurance coverage. (3) Includes $2,787 in matching contributions made by the Company to its 401(k) plan for the benefit of Mr. Suijk and $242 in imputed income from group term life insurance coverage. (4) Mr. Ford was employed by the Company through October 29, 2001. (5) Includes $20,000 in severance payments, $3,150 in matching contributions made by the Company to its 401(k) plan for the benefit of Mr. Ford and $261 in imputed income from group term life insurance coverage. (6) Mr. Tate was employed by the Company through November 16, 2001. 15 (7) Includes $13,846 in severance payments, $3,428 in country club dues, $3,669 in matching contributions made by the Company to its 401(k) plan for the benefit of Mr. Tate and $500 in imputed income from group term life insurance coverage. STOCK OPTIONS The Company had adopted the Comdial Corporation 1992 Stock Incentive Plan (the "Stock Incentive Plan"). The Stock Incentive Plan expired on March 5, 2002. The Stock Incentive Plan was intended to further the long-term stability and financial success of the Company by attracting and retaining key employees through the use of stock incentives, including stock options. The Company had reserved a total of 136,667 shares of Common Stock for issuance pursuant to incentive awards made under the Stock Incentive Plan. The following table sets forth additional information concerning individual grants of stock options made under the Stock Incentive Plan during the last completed fiscal year to each of the Named Executive Officers: Option Grants In Last Fiscal Year
POTENTIAL REALIZED VALUE AT ASSUMED RATES OF STOCK PRICE APPRECIATION FOR INDIVIDUAL GRANTS OPTION TERM(1) % OF TOTAL OPTIONS OPTIONS GRANTED TO EXERCISE OR GRANTED(2) EMPLOYEES IN BASE PRICE EXPIRATION NAME (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($) Nickolas A. Branica 16,667 52.56% $6.15 12/3/2011 $64,462 $163,359 2,222 7.01% $6.15 12/3/2011 $8,595 $21,781 Paul K. Suijk 2,222 7.01% $6.15 12/3/2011 $8,595 $21,781 Joe D. Ford 0 Lawrence K. Tate 0
(1) The potential realized values in the table assume that the market price of the Company's Common Stock appreciates in value from the date of grant to the end of the option term at the annualized rates of five percent and ten percent, respectively. The actual value, if any, an executive may realize will depend on the excess, if any, of the stock price over the exercise price on the date the option is exercised. There is no assurance that the value realized by an executive will be at or near the value estimated in the table. (2) All options granted to Messrs. Suijk and Branica were issued on December 3, 2001. The grant to Mr. Branica in the amount of 16,667 options vests as follows: 25% on the grant date, and the remainder on the earlier of five years from the grant date or 25% when the Company's Common Stock trades for at least $30.00 for 30 consecutive trading days, 25% when the Company's Common Stock trades for at least $45.00 for 30 consecutive trading days and the remaining 25% when the Company's Common Stock trades for at least $60.00 for 30 consecutive trading days. All other options vest 50% after one year and 25% after each of years two and three. All of the above options were granted with an exercise price equal to the market price of the Company's Common Stock on the grant date. The following table sets forth information concerning each exercise of stock options during the 2001 fiscal year by each of the Named Executive Officers and the fiscal year-end value of unexercised options, provided on an aggregated basis: Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Unexercised Option Values 16
(A) (B) (C) (D) (E) NUMBER OF VALUE OF SECURITIES UNEXERCISED UNDERLYING IN-THE-MONEY(2) UNEXERCISED OPTIONS OPTIONS AT FY-END AT FY-END (#) ($) SHARES ACQUIRED VALUE(1) REALIZED EXERCISABLE/ EXERCISABLE/ NAME ON EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE Nickolas A. Branica 0 $0.00 11,313/21,402 $0.00/$0.00 Paul K. Suijk 0 $0.00 4,167/11,389 $0.00/$0.00 Joe D. Ford 0 $0.00 0/0 $0.00/$0.00 Lawrence K. Tate 0 $0.00 0/0 $0.00/$0.00
(1) The dollar values referred to in columns (C) and (E) are calculated by determining the difference between the fair market value of the securities underlying the options and the exercise price of the options at exercise or fiscal year-end, respectively. (2) Options are in-the-money if the fair market value of the underlying securities exceeds the exercise price of the option. PENSION PLAN / BENEFIT RESTORATION PLAN The Company has a pension plan covering hourly and salaried employees, including the executive officers. The plan was frozen as of September 3, 2000. All employees ceased accruing additional retirement benefits under the plan on that date. The plan will continue to require Company contributions for tax-deferred pension accruals for benefits accrued prior to September 3, 2000. The amount of contributions is actuarially determined in order to fund for each participating employee a benefit based on the two factors of career average compensation (as of September 3, 2000) and years of service (as of September 3, 2000). For highly compensated employees, such as the executive officers, the amount of benefits under the pension plan is limited in order to qualify under Federal tax laws. To maintain compensation competitiveness and to restore retirement benefits for executives who are affected by tax law limits on benefits under the pension plan, the Company also has a benefit restoration plan. The benefit restoration plan was frozen as of July 26, 2000. All employees ceased the accrual of benefits under that plan, effective July 26, 2000. Any employee who was not vested in the benefit restoration plan as of July 26, 2000 forfeited all benefits under that plan. Together the benefit restoration plan and the pension plan provide benefits to employees affected by tax law limits at approximately the same percentage of compensation as other employees. The following pension plan table shows estimated annual combined benefits payable from the pension plan and the benefit restoration plan upon retirement at age 65 in specified compensation and years of service classifications:
Pension Plan and Benefit Restoration Plan Table Estimated Annual Benefits Payable by the Plan at Retirement with Years of Service Indicated Remuneration 15 20 25 30 35 - ------------ -- -- -- -- -- $100,000 $26,789 $35,719 $44,648 $53,578 $62,507 $125,000 $33,914 $45,219 $56,523 $67,828 $79,132 $150,000 $41,039 $54,719 $68,398 $82,078 $95,757 $175,000 $48,164 $64,219 $80,273 $96,328 $112,382 $200,000 $55,289 $73,719 $92,148 $110,578 $129,007 $225,000 $62,414 $83,219 $104,023 $124,828 $145,632 $250,000 $69,539 $92,719 $115,898 $139,078 $162,257
17
Remuneration 15 20 25 30 35 - ------------ -- -- -- -- -- $275,000 $76,664 $102,219 $127,773 $153,328 $178,882 $300,000 $83,789 $111,719 $139,648 $167,578 $195,507 $325,000 $90,914 $121,219 $151,523 $181,828 $212,132
Prior to September 3, 2000, the pension plan covers a participant's compensation including bonuses and incentive pay for hourly employees and excluding deferred or supplemental compensation or other forms of compensation, if any, paid by the Company; provided, however, that the amount of a participant's annual compensation taken into account under the plan for any year may be subject to certain limitations under the pension plan or in accordance with applicable law. As to Messrs. Branica, Ford and Tate, the amounts set forth in the Summary Compensation Table under the headings "Salary" and "Bonus" are covered by the pension plan and benefit restoration plan. As of September 3, 2000, Messrs. Branica, Ford and Tate had 5, 18 and 18 years of credited service, respectively. There are several different forms of benefit options available under the Company's pension plan, including Straight Life Annuity, 5 Years Certain & Life Annuity, 10 Years Certain & Life Annuity, Level Income Life Annuity (age 62 and 65), Contingent Annuitant Option, and Joint and Survivor Option. The Level Income Life Annuity balances retirement income from the pension plan and social security benefits so that income remains more or less constant regardless of when social security benefits begin. ALTERNATIVE PENSION PLAN DISCLOSURE In 2001, Messrs. Ford and Tate as well as William Mustain, the Company's former CEO and Keith Johnstone, a former Vice President, remained eligible to receive supplemental retirement benefits under the benefit restoration plan. The supplemental retirement benefit is equal to 40% of the executive's average compensation until September 3, 2000 reduced by the sum of the executive's (1) pension plan benefit, (2) benefit restoration plan amount, and (3) estimated social security benefit. Average compensation is the average earnings (including elective deferrals) during the last 24 months of employment decreased by any retention bonus paid on a change in control and any income from restricted stock or stock options. The supplemental retirement benefit is reduced by 0.25% for each month that the payment date precedes the date the executive attains age 62. In December 2001, the Company reached agreement with Mr. Mustain which, among other things, reduced Mr. Mustain's total remaining entitlement under the benefit restoration plan from $1,102,328 to be paid by January 2002, to $288,314 to be paid in five (5) equal annual installments commencing in 2004. In March 2002, the Company reached agreement with Messrs. Johnstone, Ford and Tate whereby the Company agreed to pay them $218,391, $175,875 and $122,438, respectively, in exchange for their agreement with respect to termination of the benefit restoration plan and a release of further liabilities on the part of the Company with respect to that plan. The foregoing amounts to Johnstone, Ford and Tate are payable in 36 monthly installments of $1,250 each and then a balloon payment of the remaining balance the amount of which will be the respective total payable as set forth above less the total of the installment payments. No interest is payable. These agreements enabled the Company to terminate the benefit restoration plan and to thus recognize the gain in its financial statements from the reduction negotiated with Mr. Mustain. EXECUTIVE SEVERANCE PLAN Effective as of September 5, 1995, the Board of Directors adopted a severance plan for the Company's executive officers (as the same may be amended from time to time, the "Executive Severance Plan"). The Executive Severance Plan was revised as of November 15, 2000 to reduce the benefits payable under the plan. The Executive Severance Plan is designed to provide for the payment of severance benefits if an executive officer is terminated without cause, or if the executive terminates with good reason within 90 days (previously two years) after a change of control. The Executive Severance Plan covers the Company's Chief Executive Officer, President, Senior Vice Presidents, Chief Financial Officer, and Vice Presidents. In addition, the Compensation Committee of the Board of Directors can specifically designate other employees to participate. The persons covered by the Executive Severance Plan are hereinafter referred to as the "Covered Executives." The severance period over which payments are made varies with the job classification of the Covered Executive as follows: (i) 18 months for the President, Chief Executive Officer or Chief Financial Officer (formerly 24 months for the President or Chief Executive Officer), (ii) 6 months for a Senior Vice President or Vice President of Engineering (formerly 18 months), and (iii) 3 months for other Vice Presidents (formerly 12 months). Other designated participants would have individual periods established, not longer than 12 months (formerly 24 months). Under the Executive Severance Plan, if a Covered Executive is terminated by the Company without Good Cause (as defined below) or if he or she terminates employment with Good Reason (as defined below) within 90 days (formerly 24 months) following a Change of Control (as defined below), the Covered Executive is entitled to receive monthly payments of his or her final salary (or the Covered Executive's salary at a Change of Control, if larger). Prior to November 15, 2000, a Covered Executive's average bonus was also covered. The Covered Executive would receive these payments even if he or she is employed by another company during the severance period. The Company may pay the severance benefit in a lump sum at its option. The Covered Executive's spouse or other 18 named beneficiary is entitled to any unpaid benefit after death. In addition, the Covered Executive would receive health, life and disability insurance coverage for the severance period. The Covered Executive would have to contribute toward the premiums for any insurance to the same extent as when employed. Insurance benefits would cease if the Covered Executive is employed by another company and is covered by similar benefits. As a condition to receiving benefits, the Covered Executive would be required to execute a complete release of the Company from all claims, including all claims relating to the Covered Executive's employment and his or her termination of employment. The Covered Executive's benefit would be reduced to avoid application of the "excess parachute payment" restrictions after a Change of Control. An excess parachute payment is subject to an additional 20% excise tax payable by the employee and an excess parachute payment is not deductible by the employer. In general, an excess parachute payment is a payment made due to a Change of Control that exceeds three times the employee's average compensation for the prior five years. The Board of Directors can amend or terminate the Executive Severance Plan in the future, except in two circumstances. First, after a Change of Control, the Plan cannot be amended or terminated for 90 days. Second, an amendment or termination cannot affect the benefits of a terminated Covered Executive then receiving benefits. With respect to the termination of any Covered Executive by the Company, the term "Good Cause" means the (a) fraud or material misappropriation by the Covered Executive with respect to the business or assets of the Company; (b) the persistent refusal or willful failure of the Covered Executive materially to perform his or her duties and responsibilities to the Company, which continues after the Covered Executive receives notice of such refusal or failure; (c) conduct by the Covered Executive that constitutes disloyalty to the Company and that materially harms or has the potential to cause material harm to the Company; (d) the Covered Executive's conviction of a felony or crime involving moral turpitude; (e) the use of drugs or alcohol that interferes materially with the performance by the Covered Executive's of his or her duties; or (f) the violation of any significant Company policy or practice, including but not limited to the Company policy prohibiting sexual harassment. With respect to a termination by a Covered Executive after a Change of Control, "Good Reason" would exist if, without the Covered Executive's express written consent, (a) there is a significant adverse change in such Covered Executive's authority or in his or her overall working environment; (b) such officer is assigned duties materially inconsistent with his duties, responsibilities and status at the time of a Change of Control; (c) there is a reduction, which is not agreed to by the Covered Executive, in the Covered Executive's rate of base salary or bonus percentage; or (d) the Company changes by 50 miles or more the principal location at which such officer is employed. Under the plan, a "Change of Control" is defined as the occurrence of any of the following events: (a) the acquisition by any unrelated person of beneficial ownership of 40% or more of the then outstanding shares of Common Stock of the Company (or the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of Directors); (b) as a result of, or in connection with, any tender or exchange offer, merger or other business combination, sale of stock or assets or contested election, or any combination of the foregoing transactions, the persons who were Directors of the Company before such transaction shall cease to constitute a majority of the Board of Directors of the Company or any successor to the Company; (c) approval by the stockholders of the Company of a reorganization, merger or consolidation with respect to which the persons who were shareholders of the Company immediately before the transaction do not, immediately after the transaction, beneficially own more than 50% of the then outstanding shares of Common Stock of the Company or the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of Directors, or (d) a sale or other disposition of all or substantially all the assets of the Company, other than in the ordinary course of business. EMPLOYMENT AGREEMENTS In connection with his resignation as chief executive officer of the Company in October 2000, Mr. Mustain and the Company entered into a separation agreement. The Company agreed to continue Mr. Mustain's salary from October 3, 2000 to December 31, 2000 and to pay Mr. Mustain severance of $100,000 per year for three years through December 2003. Mr. Mustain agreed to deferred payment of his benefits under the benefit restoration plan and the Company agreed to extend Mr. Mustain's stock options for one additional year through December 2001. In December 2001, the Company and Mr. Mustain reached agreement on substantially reduced payments under the benefit restoration plan as described more fully above, and the parties each executed a general release of claims in favor of the other party. The Company presently has an employment contract with Mr. Branica. Mr. Branica had an employment agreement in connection with his service as President of Key Voice Technologies before his election as Chief Executive Officer of the Company. That employment agreement had a five-year term that expired on March 20, 2001. In September 2001, the Board approved a new two 19 year employment agreement with Mr. Branica. The agreement provides for a base salary of $325,000 per year and a bonus payable upon the attainment of certain Company objectives. In addition, Mr. Branica's employment agreement also provided for the granting of 13,333 stock options which were issued in December 2001, and the payment of a $15,000 bonus which was paid in September 2001. The Company and Mr. Branica entered into an amendment to his employment agreement on June 20, 2002. The amendment provided for: (a) a reduction in Mr. Branica's annual salary to $225,000; (b) establishment of a performance bonus plan, the terms of which are to be determined by the Compensation Committee, providing for payment of a bonus of 100% of Mr. Branica's annual salary; (c) the granting of stock options to purchase 26,667 shares plus a number of shares equivalent to 2% of the fully diluted Common Stock of the Company, two days following closing of the Bridge Financing, 26,667 of which options are fully vested, except that all of the options granted in the amendment are subject to termination if the Company fails to complete the Subsequent Placement by September 27, 2002; and (d) the granting of warrants to purchase 55,000 shares of Common Stock at $0.15 per share in full satisfaction of a performance bonus previously awarded that remained unpaid. In December 2001, the Company provided Mr. Suijk a letter describing the terms of his continued employment with the Company. Mr. Suijk is no longer the Company's chief financial officer and the Company is currently in negotiations with Mr. Suijk regarding the terms of a separation agreement. The Company entered into an employment agreement with Mr. Provow in November 2002, whereby Mr. Provow agreed to serve as the Company's Chairman of the Executive Committee beginning on November 25, 2002. A copy of Mr. Provow's employment agreement is attached hereto as Exhibit C. The term of Mr. Provow's employment is for six months and is renewable for a further six months upon the mutual agreement of both the Company and Mr. Provow. Pursuant to the terms of the employment agreement, Mr. Provow is to be paid at the rate of $180,000 per year and was issued options to purchase 166,667 shares of Common Stock at the exercise price of $1.80 per share. The options were issued outside of the Company's existing stock option plan and become exercisable in increments of one-third of the total grant as of each anniversary of Mr. Provow's employment with the Company, provided that Mr. Provow remains either an employee or director of the Company. In November 2002, the Company provided a letter to Mr. Clinebell offering him employment as the Company's Senior Vice President, Chief Financial Officer and Treasurer. The letter, a copy of which is attached hereto as Exhibit D, described some of the terms of Mr. Clinebell's employment with the Company including an annual salary of $180,000 and the granting of options to purchase 80,000 shares of Common Stock at an exercise price of $1.80 per share. Such stock options are exercisable in increments of one-third of the total grant as of each anniversary of Mr. Clinebell's employment with the Company. Further, the letter sets forth that, in the event of termination of Mr. Clinebell's employment after the first year thereof, the Company would pay severance pay equal to six (6) months of Mr. Clinebell's salary subject to the terms of the Company's existing Executive Severance Plan (except without regard to any provision of that Plan that might otherwise entitle Mr. Clinebell to severance in excess of six months), and that such severance would also be paid for termination prior to the end of the first year of employment if Mr. Clinebell's employment is terminated by the Company without "Good Cause," or if Mr. Clinebell terminates his employment with "Good Reason," within 90 days of a "Change of Control" (as each of those terms are defined in the Executive Severance Plan). Mr. Clinebell accepted the terms of employment offering by the Company, as outlined in the letter. INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON ComVest Venture Partners, L.P. ("ComVest") owns approximately 53% of our Common Stock and is the holder of a Placement Note in the amount of $3,166,750. Michael S. Falk, Keith Rosenbloom and Travis Lee Provow are managers of ComVest. Michael S. Falk is Chairman and Chief Executive Officer of Commonwealth. Commonwealth is an affiliate of ComVest and acted as the placement agent (the "Placement Agent") for recent private placements. The Placement Agent is interested in Comdial complying with the terms of the private placements. Keith Rosenbloom, Harold Blue, T. Lee Provow and Michael S. Falk are directors of Commonwealth Associates Management Company, Inc., which is the general partner of the Placement Agent. Michael S. Falk, T. Lee Provow, and Keith Rosenbloom are also current Directors of Comdial and each has been re-elected. In connection with the recent private placements, the Placement Agent received warrants to acquire 454,727 shares of Common Stock at an exercise price of $0.15 per share. Nickolas A. Branica, our chief executive officer and a director, beneficially owns approximately 11% of our Common Stock and is the holder of a Placement Note in the amount of $433,350. DESCRIPTION OF OUR COMMON STOCK All outstanding shares of our Common Stock are fully paid and non-assessable. Each share of the outstanding Common Stock is entitled to participate equally in dividends as and when declared by the Board of Directors and is entitled to participate equally in any distribution of net assets made to the stockholders upon our liquidation. There are no redemption, sinking fund, conversion or preemptive rights with respect to the shares of our Common Stock. All shares of our Common Stock have equal 20 rights and preferences. The holders of our Common Stock are entitled to one vote for each share held of record on all matters voted upon by stockholders. VOTING RIGHTS Each share of Common Stock is entitled to one vote in the election of directors and other matters. Common stockholders are not entitled to preemptive or cumulative voting rights. By Order of the Board of Directors /s/ Ralph Dyer -------------------------------------- Ralph Dyer, Secretary November 26, 2002 21 INDEX TO EXHIBITS EXHIBIT DESCRIPTION ------- ----------- A Form of Fourth Amended and Restated Certificate of Incorporation B Form of Amended 2002 Employee and Non-Employee Director Stock Incentive Plan C Form of Employment Agreement by and between Comdial Corporation and Travis Lee Provow D Form of Employment Letter to Kenneth Clinebell from Comdial Corporation 22 EX-99.1 3 e853238.txt EXHIBIT A EXHIBIT A FOURTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF COMDIAL CORPORATION The following Fourth Amended and Restated Certificate of Incorporation: (i) amends and restates the provisions of the Third Amended and Restated Certificate of Incorporation of Comdial Corporation (the "Corporation"), filed with the Secretary of State of the State of Delaware under the same name on November 11, 2002, as amended and (ii) has been duly proposed by the board of directors of the Corporation and duly adopted by the stockholders of the Corporation in accordance with the provisions of Sections 242 and 245 of the Delaware General Corporation Law. The original Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware under the same name on April 6, 1982. ARTICLE 1 - NAME The name of the Corporation is: COMDIAL CORPORATION ARTICLE 2 - PURPOSE The purpose of this corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. ARTICLE 3 - CAPITAL STOCK The aggregate number of shares of capital stock which the corporation has the authority to issue is Sixty Two Million (62,000,000), which is divided into two classes as follows: Two Million (2,000,000) shares of Preferred Stock with a par value of $10.00 per share, and Sixty Million (60,000,000) shares of Common Stock with a par value of $0.01 per share. The designations, voting powers, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions of the above classes of stock are as follows: I. Preferred Stock (1) Issuance in Series. Shares of Preferred Stock may be issued in one or more series at such time or times, and for such consideration or considerations as the board of directors may determine. All shares of any one series of Preferred Stock will be identical with each other in all respects, except that shares of one series issued at different times may differ as to dates for which dividends thereon may be cumulative. All series will rank equally and be identical in all respects except as permitted by the following provisions of paragraph 2 of this Division I. (2) Authority of the Board with Respect to Series. The board of directors is authorized, at any time and from time to time, to provide for the issuance of the shares of Preferred Stock in one or more series with such designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof as are stated and expressed in the resolution or resolutions providing for the issue thereof adopted by the board of directors, and as are not stated and expressed in this Certificate of Incorporation or any amendment hereto including, but not limited to, determination of any of the following: (i) The number of shares constituting that series and the distinctive designation of that series; (ii) The dividend rate or rates on the shares of that series, whether dividends shall be cumulative, and, if so, from which date or dates, the payment date or dates for dividends and the relative rights of priority, if any, of payment of dividends on shares of that series; (iii) Whether that series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; (iv) Whether that series shall have conversion privileges, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the board of directors shall determine; (v) Whether or not the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including that date or date upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; (vi) Whether that series shall have a sinking or retirement fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of such sinking or retirement fund; 2 (vii) The rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the corporation, and the relative rights of priority, if any, of payment of shares of that series; (viii) Any other preferences, privileges and powers, and relative participating, optional or other special rights, and qualifications, limitations or restrictions of a series, as the board of directors may deem advisable and are not inconsistent with the provisions of this Certificate of Incorporation. (3) Dividends. Dividends on outstanding shares of Preferred Stock shall be paid or declared and set apart for payment in accordance with their respective preferential and relative rights before any dividends shall be paid or declared and set apart for payment on the outstanding shares of Common Stock with respect to the same dividend period. (4) Liquidation. If upon any voluntary or involuntary liquidation, dissolution or winding up of the corporation, the assets available for distribution to holders of shares of Preferred Stock of all series shall be insufficient to pay such holders the full preferential amount to which they are entitled, then such assets shall be distributed ratably among the shares of all series of Preferred Stock in accordance with the respective preferential and relative amounts (including unpaid cumulative dividends, if any) payable with respect thereto. (5) Reacquired Shares. Shares of Preferred Stock which have been issued and reacquired in any manner by the corporation (excluding, until the corporation elects to retire them, shares which are held as treasury shares but including shares redeemed, shares purchased and retired, and shares which have been converted into shares of Common Stock) will have the status of authorized and unissued shares of Preferred Stock and may be reissued. (6) Voting Rights. Unless and except to the extent otherwise required by law or provided in the resolution or resolutions of the board of directors creating any series of Preferred Stock pursuant to this Division I, the holders of the Preferred Stock shall have no voting power with respect to any matter whatsoever. In no event shall the Preferred Stock be entitled to more than one vote in respect of each share of stock except as may be required by law or by this Certificate of Incorporation. II. Common Stock (1) Dividends. 3 Subject to the preferential rights of the Preferred Stock, the holders of the Common Stock are entitled to receive, to the extent permitted by law, such dividends as may be declared from time to time by the board of directors. (2) Liquidation. In the event of the voluntary or involuntary liquidation, dissolution, distribution of assets or winding up of the corporation, after distribution in full of the preferential amounts, if any, to be distributed to the holders of shares of Preferred Stock, holders of Common Stock shall be entitled to receive all of the remaining assets of the corporation of whatever kind available for distribution to stockholders ratably in proportion to the number of shares of Common Stock held by them respectively. The board of directors may distribute in kind to the holders of Common Stock such remaining assets of the corporation or may sell, transfer or otherwise dispose of all or any part of such remaining assets to any other corporation, trust or other entity and receive payment therefor in cash, stock or obligations of such other corporations, trust or other entity, or combination thereof in kind to holders of Common Stock. The merger or consolidation of the corporation into or with any other corporation, or the merger of any other corporation into it, or any purchase or redemption of shares of stock of the corporation of any class, shall not be deemed to be a dissolution, liquidation or winding up of the corporation for the purposes of this paragraph. (3) Voting Rights. Except as may be otherwise required by law or this Certificate of Incorporation, each holder of Common Stock has one vote in respect of each share of stock held by him of record on the books of the corporation on all matters voted upon by the stockholders. ARTICLE 4 - EXISTENCE The corporation is to have perpetual existence. ARTICLE 5 - AMENDMENT OF BYLAWS In furtherance and not in limitation of the powers conferred by statute, the board of directors is authorized to adopt, amend and repeal the Bylaws of this corporation. ARTICLE 6 - DIRECTORS (a) The number of directors of the corporation shall be fixed from time to time in the manner set for the in the Bylaws. (b) Each director shall serve for a term of one year from the date of the annual meeting at which such director was elected until his/her successor shall have been 4 elected and qualified. . Directors in office on the effective date of this Restated Certificate of Incorporation will continue to serve until the next annual meeting. (c) In the event of any increase or decrease in the authorized number of directors, each director then serving shall nevertheless continue as a director of the class of which he or she is a member until the expiration of his or her term, or his or her prior death, retirement or resignation. (d) Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director and the directors so chosen shall hold office until the next election of the class for which such directors shall have been chosen, and until their successors shall be elected and qualified. If there are no directors in office, then an election of directors may be held in the manner provided by statute. (e) Vacancies in more than one class of directors shall be filled, and newly created or eliminated directorships shall be apportioned among the three classes of directors, so that the number of directors in each class will be as nearly equal as possible. ARTICLE 7 - AMENDMENT OF CERTIFICATE OF INCORPORATION The corporation reserves the right to amend, alter, change or repeal any provision contained in this Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred on stockholders herein are granted subject to this reservation. ARTICLE 8 - COMPROMISE OR ARRANGEMENT WITH CREDITORS Whenever a compromise or arrangement is proposed between this corporation and its creditors or any class of them and/or between this corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this corporation or of any creditor or stockholder thereof, or on the application of any receiver or receivers appointed for this corporation under the provision of 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this corporation under the provisions of 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, 5 and/or on all of the stockholders or class of stockholders, of this corporation, as the case may be, and also on this corporation. ARTICLE 9 - REGISTERED OFFICE AND AGENT The address of the registered office of this corporation in the State of Delaware is 9 East Loockerman Street, in the City of Dover, county of Kent, and the name of its registered agent at that address is National Registered Agents, Inc. ARTICLE 10 - DIRECTOR'S LIABILITY; INDEMNIFICATION No director of the corporation shall be personally liable to the corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director involving any act or omission of any such director occurring on or after May 14, 1987; provided, however, that the foregoing provision shall not eliminate or limit the liability of directors (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of the State of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit. Any repeal or modification of this Article by the stockholders of the corporation shall be prospective only, and shall not adversely affect any limitation on the personal liability of the director of the corporation in respect of any acts or omissions occurring prior to such repeal or modification, or any such limitation existing at the time of such repeal or modification. IN WITNESS WHEREOF, executed in the name of Comdial Corporation by its President and its Secretary, who declare, affirm, acknowledge and certify under penalties of perjury, that this their free act and deed and the facts restated herein are true. Dated: December __, 2002 COMDIAL CORPORATION By: --------------------------------- Name: Title: ATTEST: _____________________ ____________Secretary (Corporate Seal) 6 EX-99.2 4 e854809.txt EXHIBIT B EXHIBIT B COMDIAL CORPORATION 2002 EMPLOYEE AND NON-EMPLOYEE DIRECTOR STOCK INCENTIVE PLAN I. PURPOSE. The purpose of this Comdial Corporation 2002 Employee and Non-Employee Director Stock Incentive Plan (the "2002 Plan") is to promote the growth and profitability of Comdial Corporation, a Delaware corporation (the "Corporation") by rewarding and incentivizing individuals who make valuable contributions to the Corporation's success, including officers and employees of the Corporation and its subsidiaries, and directors, consultants and advisors of the Corporation. The 2002 Plan has been approved by the Board of Directors effective as of July 2, 2002, and approved by the Company's stockholders on August 26, 2002. The 2002 Plan was amended on December ___, 2002, and has been updated to reflect the one-for-fifteen reverse stock split effectuated by the Corporation on November 26, 2002. The 2002 Plan is intended to replace the two stock option plans previously maintained by the corporation, the 1992 Stock Incentive Plan (as amended by the First Amendment dated March 23, 1995, Second Amendment dated August 7, 1995, Third Amendment dated February 6, 1996 and Fourth Amendment dated February 6, 1998) and the 1992 Non-Employee Directors Stock Incentive Plan (as amended by the First Amendment dated March 23, 1995, Second Amendment dated August 7, 1995, Third Amendment dated November 6, 1997 and fourth Amendment dated February 6, 1998), and previously approved by the stockholders. II. DEFINITIONS. The following terms shall have the meanings shown: 2.1 "Board of Directors" or "Board" means the Board of Directors of the Corporation. 2.2 "Change of Control" means any event described in Section 8.1. 2.3 "Code" means the Internal Revenue Code of 1986, as the same may be amended from time to time. 2.4 "Committee" means the Committee appointed by the Board of Directors to administer the Plan pursuant to Article X of the Plan. This Committee may, but is not required to be, identical to the Compensation Committee. 2.5 "Common Stock" means the common stock, par value $.01 per share, of the Corporation, except as provided in Section 8.2 of the Plan. 2.6 "Compensation Committee" shall mean the Compensation Committee of the Board of Directors. All persons appointed to be members of the Compensation Committee shall be directors who qualify as "non-employee directors" within the meaning of Rule 16b-3 and "outside directors" within the meaning of Treasury Regulation Section 1.162-27. 2.7 "Consultant" shall mean any person (including corporations, partnerships and limited liability companies as well as individuals) engaged by the Corporation to perform services for the Corporation or any Subsidiary on a regular and on-going basis who is not a common law employee of the Corporation. 2.8 "Date of Grant" means the date specified by the Plan Administrator on which a grant of Options, or a grant or sale of Restricted Shares shall become effective. 2.9 "Director" means a person serving as a member of the Board of Directors, whether or not he or she is also an Employee. 2.10 "Disability" means a medically diagnosable mental or physical condition which the Committee has determined, based on such medical evidence as it may find satisfactory, will prevent a Participant from performing his or her duties for the Corporation and is expected to be permanent. 2.11 "Employee" means any person performing services for the Corporation or any Subsidiary as a common law employee. The Committee may, in its discretion, treat any individual as an Employee for purposes of this Plan even if he or she is not employed by the Corporation, including individuals who regularly perform services for the Corporation but are paid by another employer pursuant to an employee leasing agreement or similar staffing arrangement, as long as he or she could properly be classified as a common law employee of the Corporation for payroll tax purposes. 2.12 "Executive Officer" means any Named Executive Officer and any other officer of the Corporation who is subject to the reporting requirements of Section 16 of the Securities and Exchange Act of 1934. 2.13 "Fair Market Value" means the fair market value of a share of Common Stock as determined by the Committee by reference to the closing price quotation, or, if none, the average of the bid and asked prices, reported on Nasdaq as of the most recent available date with respect to the sale of Common Stock. 2.14 "Incentive Stock Options" or "ISOs" means Options intended to qualify for favorable tax treatment as incentive stock options under Code Section 422. 2.15 "Named Executive Officer" shall mean the Company's Chief Executive Officer and the four highest compensated officers (other than the Chief Executive Officer), as determined pursuant to the executive compensation disclosure rules under the Securities Exchange Act of 1934. 2 2.16 "Nonstatutory Options" shall mean Options which are not intended to qualify as ISOs. 2.17 "Option Agreement" means a written agreement between the Corporation and a Participant who has been granted Options under this Plan. Each Option Agreement shall be subject to the terms and conditions of the Plan. 2.18 "Option Price" means, with respect to any Option, the amount designated in a Participant's Option Agreement as the price per share he or she will be required to pay to exercise the Option and purchase the shares subject to such Option. 2.19 "Option" or "Options" means any rights granted to a Participant to purchase shares of Common Stock granted pursuant to Article IV of this Plan, including Incentive Stock Options subject to the additional requirements described in Article V. 2.20 "Participant" shall mean any current or former Employee, or any Consultant or Director, who has been granted Options or Restricted Stock under the terms of this Plan. 2.21 "Plan" means this Comdial Corporation 2002 Employee and Non-Employee Director Stock Incentive Plan, as the same may be amended from time to time. 2.22 "Restricted Stock" means shares of Common Stock that are issued to eligible Participants and made subject to restrictions in accordance with Article VI of the Plan. 2.23 "Restricted Stock Agreement" means a written agreement between the Corporation and a Participant who has been granted or sold Restricted Stock pursuant to Article VI of the Plan. 2.24 "Subsidiary" shall mean any corporation which, on the date of determination, qualifies as a subsidiary corporation of the Corporation under Section 425(f) of the Code. 2.25 "Ten Percent Shareholder" shall mean any qualified Participant who, at the time an ISO is granted owns (within the meaning of Section 425(d) of the Code) more than ten percent of the voting power of all classes of stock of the Corporation. III. ELIGIBILITY. 3.1 Participation. The Committee may grant Options and/or awards of Restricted Stock under this Plan to any officer or other Employee of the Corporation or any Subsidiary. The Committee may grant Options and/or awards of Restricted Stock to any Director, subject to the restrictions in Section 3.3. In granting such awards and determining their form and amount, the Committee shall give consideration to the functions and responsibilities of the individual, his or her potential contributions to profitability and sound growth of the Corporation and such other factors as the Committee may, in its discretion, deem relevant. The Committee may also grant Options or awards of Restricted Stock to Consultants. In granting such awards and determining their form and amount, the Committee shall 3 consider the extent of the individual's relationship to the Corporation, his or her potential contributions to its financial success, the potential adverse accounting consequences to the Corporation of stock option grants to Consultants, and such other factors as the Committee may, in its discretion, deem to be relevant. 3.2 Executive Officers. Notwithstanding Section 3.1 or any other provisions of this Plan, any Named Executive Officer shall not be granted Options, or awards of Restricted Stock unless the grant has been approved by the Compensation Committee, and all grants to Executive Officers must be approved in advance by either the Committee or the Compensation Committee. 3.3 Directors. Members of the Board of Directors who are officers of the Corporation or Consultants shall be eligible for Options or other awards under this Plan on the same terms as other officers or Consultants. Other members of the Board of Directors who are not Employees shall be eligible for Options or Restricted Stock awards to the extent specified in such general policy on compensation of nonemployee Directors as may be established by the Board of Directors. IV. OPTIONS. 4.1 Terms and Conditions. Subject to Section 3.2 and 3.3, the Committee may, in its sole discretion, from time to time grant Options to any officer, Employee, Director or Consultant of the Corporation or any Subsidiary selected by the Committee pursuant to Section 3.1. The grant of an Option to a Participant shall be evidenced by a written Option Agreement in substantially the form approved by the Committee. Such Option shall be subject to the following express terms and conditions and to such other terms and conditions, not inconsistent with the terms of this Plan, as the Committee may determine to be appropriate. (a) Shares Covered. The Committee shall, in its discretion, determine the number of shares of Common Stock to be covered by the Options granted to any Participant. The maximum number of shares of Common Stock with respect to which Options may be granted to any Participant during any one calendar year is 333,333 shares. (b) Exercise Period. The term of each Option shall be for such period as the Committee shall determine, but for not more than ten years from the Date of Grant thereof. The Committee shall also have the discretion to determine when each Option granted hereunder shall become exercisable, and to prescribe any vesting schedule limiting the exercisability of such Options as it may deem appropriate. (c) Option Price. The Option Price payable for the shares of Common Stock covered by any Option shall be determined by the Committee, but shall in no event be less than the Fair Market Value of Common Stock on the Date of Grant. (d) Exercise of Options. A Participant may exercise his or her Options from time to time by written notice to the Corporation of his or her intent to exercise the Options with respect to a specified number of shares. The specified number of shares will be issued and transferred to the Participant upon receipt by the Corporation of (i) such notice and (ii) payment in 4 full for such shares, and (iii) receipt of any payments required to satisfy the Corporation's tax withholding obligations pursuant to Section 7.3. (e) Payment of Option Price Upon Exercise. Each Option Agreement shall provide that the Option Price for the shares with respect to which an Option is exercised may be paid to the Corporation at the time of exercise, in the form of (i) cash, (ii) delivery to the Corporation of whole shares of Common Stock already owned by the Participant for at least six months, valued at their Fair Market Value on the day immediately preceding the date of exercise, (iii) at the discretion of the Committee, a recourse promissory note secured by a pledge of the shares of Common Stock and a personal guarantee, or (iv) a combination of any of the above equal to the Option Price for the shares. (f) Cashless Exercises. Alternatively, the Corporation may permit the Participant to exercise an Option by delivery of a signed, irrevocable notice of exercise, accompanied by payment in full of the Option Price by the Participant's stockbroker and an irrevocable instruction to the Corporation to deliver the shares of Common Stock issuable upon exercise of the Option promptly to the Participant's stockbroker for the Participant's account, provided that at the time of such exercise, such exercise would not be illegal under the federal securities laws, including laws governing margin loans. 4.2 Effect of Termination. (a) If a Participant's employment or other relationship with the Corporation (or with the relevant Subsidiary) terminates for any reason other than retirement, disability or death, his or her vested Options shall terminate ninety (90) days from the date of termination of employment or other relationship, and his or her unvested Options shall terminate immediately upon the date of the termination of employment or other relationship; provided that, the Committee may determine, in its sole discretion, at the time of the grant that the Participant's Option Agreement should provide for an extended exercise period after such termination of employment or other relationship. (b) Any Option Agreement may, in the Committee's sole discretion, include such provisions as the Committee deems advisable with respect to the Participant's right to exercise the Option subsequent to retirement, or subsequent to termination of such employment (or other relationship) by reason of total and permanent disability (within the meaning of Section 22(e)(3) of the Code); provided, that, in no event shall any Option be exercisable after the fixed termination date set forth in the Participant's Option Agreement pursuant to Section 4.1(b); and provided further that no ISO shall be exercisable at any time subsequent to the expiration of the period of three (3) months from the date of retirement, or twelve (12) months from the date of termination. (c) Any Option Agreement may, in the Committee's sole discretion, provide that, in the event of the Participant's death while he or she has the right to exercise his or her Options, the Options may be exercised (to the extent they had become exercisable prior to the time of the Participant's death), during such period of up to one year after date of the Participant's death as the Committee deems to be appropriate, by the personal representative of the Participant's estate, or by the person or persons to whom the Options shall have been transferred by will or by the laws 5 of descent and distribution; provided that, in no event shall any option be exercisable after the fixed termination date set forth in the Participant's Option Agreement. (d) Any Option Agreement may, in the Committee's sole discretion, provide that, in the event the Participant continues to actively perform services for the Corporation as a Consultant or Non-Employee Director after his or her employment terminates, his or her Options shall continue to be exercisable during any period in which he or she is actively performing such services as a Consultant, but in no event after the fixed termination date set forth in the Option Agreement pursuant to Section 4.1(b). (e) The Committee may, in its sole discretion, decide at the time an Option is granted that the Participant's Option Agreement should include such terms as the Committee determines are desirable providing for accelerated vesting and exercisability of all or part of the Participant's Options if the Participant's employment or consulting relationship with the Corporation is terminated prematurely, including upon termination (i) without good cause, (ii) in connection with a Change in Control as defined in Section 7.1 below, or (iii) in violation of the terms of any agreement between the Corporation and the Participant. (f) For purposes of this Section 4.2, the Committee shall determine the date of termination of any Participant, based on its judgment as to when the Participant is no longer employed as a common law employee or Consultant of the Corporation or any Subsidiary. Part-time or non-exclusive employment by the Corporation may be considered employment by the Corporation as long as the Participant is treated as an Employee for purposes of FICA and payroll taxes, as shall employment by a Subsidiary. In addition, the Committee shall have full discretion to determine whether a Participant's reduction in hours, medical or disability leave, FMLA leave, absence on military or government service, or other authorized leave of absence, shall constitute a termination of employment for purposes of this Plan. (g) If a Non-Employee Director shall cease to serve as a member of the Board of Directors as a result of such Non-Employee Director resignation from the Board (other than as a result of retirement or total Disability) or such Non-Employee Director's decision not to stand for reelection at the expiration of his or her term of office, or such Non-Employee Director is not nominated by the Board to stand for election at the Special Stockholders' Meeting at which his or her term of office expires, or, if nominated, such person is not reelected, then all Options held by such Participant may be exercised at any time within three (3) years after the date of such cessation of service; provided, however, (i) only Options exercisable by the Participant at the time of the cessation of service as a Non-Employee Director may be exercised after such cessation, and (ii) no Option may be exercised after the expiration date of such Option. If a Participant is removed from the Board by the stockholders of the Company for cause (for these purposes, cause shall include, but not be limited to, dishonesty, incompetence, moral turpitude, other misconduct of any kind and the refusal to perform his or her duties and responsibilities for any reason other than illness or incapacity), then all unexercised Options held by such Participant shall immediately be canceled and terminate. 6 4.3 Incentive Stock Options. The Options granted under this Plan may be either Incentive Stock Options or options not intended to constitute incentive stock options qualifying under Code Section 422; provided that, Incentive Stock Options may only be granted to individuals who are Employees; and further provided, any Incentive Stock Option shall be subject to the additional requirements stated in Article V of this Plan. 4.4 Non-Assignability. Options granted under this Plan shall generally not be assignable or transferable by the Participant, except by will or by the laws of descent and distribution, or as described in the next paragraph. Notwithstanding the foregoing, the Committee may, in its discretion, permit an individual Participant to transfer all or a portion of his or her Options to members of his or her immediate family, to trusts for the benefit of members of his immediate family, or to family partnerships in which immediate family members are the only partners, provided that the Participant may receive no consideration for such transfers, and that such Options shall still be subject to termination in accordance with Section 4.2 above in the hands of the transferee. The Committee may also, in its discretion, permit a Consultant to transfer all or a portion of the Options granted by reason of services he or she performs for the Corporation as an employee or partner of a consulting firm to his or her consulting firm, provided that such Options shall still be subject to termination in accordance with Section 4.2 above in the hands of the transferee, or permit a Consultant which is organized as a partnership or limited liability company to transfer the Options to its members, subject to termination in accordance with Section 4.2 if the Consultant ends its relationship with the Corporation. 4.5 Covenants Not to Compete. The Committee may, in its discretion, condition any Option granted to an Employee, Consultant or Director on such Participant's agreement to enter into such covenant not to compete with the Corporation as the Committee may deem to be desirable. Such covenant not to compete shall be set forth in the Participant's Stock Option Agreement, and the Stock Option Agreement shall provide that the Option shall be forfeited immediately, whether otherwise vested or not, if the Board of Directors determines that the Participant has violated his or her covenant not to compete. In addition, in the Committee's discretion, the Participant's Stock Option Agreement may also provide that if the Participant breaches his or her covenant not to compete, the Corporation shall have the right to repurchase any shares of Common Stock previously issues to the Participant pursuant to an exercise of the Option, at a repurchase price equal to the Option Price paid by the Participant. 4.6 Authority to Waive Restrictions on Exercisability. The Board of Directors may, in its discretion, determine at any time that all or any portion of the Options granted to one or more Participants under the Plan shall, notwithstanding any restrictions on exercisability imposed or stated in the Option Agreement pursuant to Section 4.1(b), become immediately exercisable in full. The Board of Directors may make such further adjustments to the terms of such Options as it may deem necessary or appropriate in connection therewith, including amending the Option Agreement to recognize that all or a portion of the Options no longer qualify as ISOs under Section 5. V. INCENTIVE STOCK OPTIONS. The Committee may, in its discretion, specify that any Options granted to a Participant who is an individual employed by the Corporation or a Subsidiary as an Employee shall be ISOs 7 qualifying under Code Section 422 as may be amended from time to time with any such amendment to be incorporated herein without further shareholder approval. 5.1 Each Stock Option Agreement which provides for the grant of ISOs shall expressly state that such Options are intended to qualify as ISOs. Each provision of the Plan and of each Stock Option Agreement relating to an Option designated as an ISO shall be construed so that such Option qualifies as an ISO, and any provision that cannot be so construed shall be disregarded. 5.2 Any Options granted under this Plan which are designated as ISOs shall comply with the following additional requirements: (a) The aggregate Fair Market Value (determined at the time an ISO is granted) of the shares of Common Stock (together with all other stock of the Corporation and all stock of any Parent or Subsidiary) with respect to which the ISOs may first become exercisable by an individual Participant during any calendar year, under all stock option plans of the Corporation (or any Parent or Subsidiaries) shall not exceed $100,000. To the extent this limitation would otherwise be exceeded, the Option shall be deemed to consist of an ISO for the maximum number of shares which may be covered by ISOs pursuant to the preceding sentence, and a nonstatutory option for the remaining shares subject to the Option. (b) The Option Price payable upon the exercise of an ISO shall not be less than the Fair Market Value of a share of Common Stock on the Date of Grant. (c) In the case of an ISO granted to a Participant who is a Ten Percent Shareholder of the Corporation, the period of the Option shall not exceed five years from the Date of Grant, and the Option Price shall not be less than 110 percent of the Fair Market Value of Common Stock on the Date of Grant. (d) No ISO granted under this Plan shall be assignable or transferable by the Participant, except by will or by the laws of descent and distribution. During the life of the Participant, any ISO shall be exercisable only by the Participant. (e) Any ISO granted under the Plan shall terminate no more than ninety (90) days after termination of the Participant's employment as an Employee, except that pursuant to Section 4.2(b) and (c) above such exercise period may be extended for up to one year after the date of any termination of employment by reason of the Participant's death or disability. VI. RESTRICTED STOCK. 6.1 Rights As A Shareholder. The Committee may, in its discretion, grant a Participant an award consisting of shares of Restricted Stock. At the time of the award, the Committee shall cause the Corporation to deliver to the Participant, or to a custodian or an escrow agent designated by the Committee, a certificate or certificates for such shares of Restricted Stock, registered in the name of the Participant. The Participant shall have all the rights of a stockholder with respect to such Restricted Stock, subject to the terms and conditions, including forfeiture or resale to such Corporation, if any, as the Committee may determine to be desirable pursuant to Section 6.3 of the 8 Plan. The Committee may designate the Corporation or one or more of its executive officers to act as custodian or escrow agent for the certificates. 6.2 Awards and Certificates. (a) A Participant granted an award of Restricted Stock shall not be deemed to have become a stockholder of the Corporation, or to have any rights with respect to such shares of Restricted Stock, until and unless such Participant shall have executed a restricted stock agreement or other instrument evidencing the award and delivered a fully executed copy thereof to the Corporation and otherwise complied with the then applicable terms and conditions of such award. (b) When a Participant is granted shares of Restricted Stock, the Corporation shall issue a stock certificate or certificates in respect of shares of Restricted Stock. Such certificates shall be registered in the name of the Participant, and shall bear an appropriate legend referring to the terms, conditions and restrictions applicable to such award substantially in the following form: "The transferability of the shares of stock represented by this Certificate are subject to the terms and conditions (including forfeiture) of a Restricted Stock Agreement entered into between the registered owner and Comdial Corporation. A copy of such Agreement is on file in the offices of the Secretary of the Corporation, 106 Cattlemen Road, Sarasota, Florida, 34232. (c) Except as may be otherwise determined by the Committee (or as required in order to satisfy the tax withholding obligations imposed under Section 10.3 of this Plan), Participants granted awards of Restricted Stock under this Plan will not be required to make any payment or provide consideration to the Corporation other than the rendering of services. 6.3 Restrictions and Forfeitures. Restricted Stock awarded to a Participant pursuant to this Article VI shall be subject to the following restrictions and conditions: (a) During a period set by the Committee of not less than six (6) months, but not more than ten (10) years, commencing with the date of an award (the "Restriction Period"), the Participant will not be permitted to sell, transfer, pledge or assign shares of Restricted Stock awarded to him or her. Within these limits, the Committee may provide for the lapse of such restrictions in installments where deemed appropriate. (b) Except as provided in Section 6.3(a), the Participant shall have with respect to the Restricted Stock all of the rights of a stockholder of the Corporation, including the right to vote the shares and receive dividends and other distributions. (c) Subject to the provisions of Section 6.3(d), upon any termination of the Participant's employment or other relationship with the Corporation during the Restriction Period for any reason, all shares of Restricted Stock with respect to which the restrictions have not yet expired shall be forfeited to the Corporation, or, in the case of shares of Restricted Stock sold to the Participant, repurchased by the Corporation at the initial purchase price. 9 (d) In the event of a Participant's retirement from his or her employment (or other relationship) with the Corporation, total Disability, or death, or in cases of special circumstances, the Committee may, in its sole discretion, when it finds that a waiver would be in the best interests of the Corporation, waive in whole or in part any or all remaining restrictions with respect to such Participant's Restricted Stock. (e) Notwithstanding the other provisions of this Section 6.3, the Committee may adopt rules which would permit a gift by a Participant of shares of Restricted Stock to a spouse, child, stepchild, grandchild or to a trust the beneficiary or beneficiaries of which shall be either such a person or persons or the Participant, provided that the Restricted Stock so transferred shall be similarly restricted. The Committee may also, in its discretion, permit a Consultant to transfer all or a portion of the Restricted Stock granted by reason of services he or she performs for the Corporation as an employee or partner of a consulting firm to his or her consulting firm, provided that such Restricted Stock shall still be subject to termination in accordance with Subsection 7.3(c) above in the hands of the transferee, or permit a Consultant which is organized as a partnership or limited liability company to transfer its Restricted Stock to its members, subject to termination in accordance with Section 6.3(c) if the Consultant ends its relationship with the Corporation. (f) Any attempt to dispose of shares of Restricted Stock in a manner contrary to the restrictions set forth herein shall be ineffective. (g) Nothing in this Section 6.3 shall preclude a Participant from exchanging any Restricted Stock for any other shares of the Common Stock that are similarly restricted. VII. CHANGE IN CONTROL TRANSACTIONS. 7.1 Change in Control. For purposes of this Plan, a "Change in Control" shall include any of the events described below: (a) The acquisition in one or more transactions of more than fifty-one percent (51%) of the Corporation's outstanding Common Stock, or the equivalent in voting power of any classes or classes of securities of the Corporation entitled to vote in elections of directors by any corporation, or other person or group (within the meaning of Section 14(d)(2) of the Securities Exchange Act of 1934, as amended); (b) Any merger or consolidation of the Corporation into or with another corporation in which the Corporation is not the surviving entity, or any transfer or sale of substantially all of the assets of the Corporation or any merger or consolidation of the Corporation into or with another corporation in which the Corporation is the surviving entity and, in connection with such merger or consolidation, all or part of the outstanding shares of Common Stock shall be changed into or exchanged for other stock or securities of the Corporation or any other person, or cash, or any other property. 10 (c) Any person, or group of persons, commences a tender offer for at least fifty-one percent (51%) of the Corporation's Common Stock. 7.2 Effect of Change in Control. In the event of a pending or threatened Change in Control, the Committee may, in its sole discretion, take any one or more of the following actions with respect to any one or more Participants (other than with respect to Named Executive Officers): (i) Accelerate the exercise dates of any outstanding Options and make outstanding Options fully vested and exercisable; (ii) Determine that all or any portion of conditions associated with a Restricted Stock award have been met; (iii) Grant a cash bonus award to any of the holders of outstanding Options; (iv) Pay cash to any or all Option holders in exchange for the cancellation of their outstanding Nonstatutory Options or Restricted Stock; (v) Make any other adjustments or amendments to the Plan and outstanding Options, or Restricted Stock awards and/or substitute new Options or other awards. With respect to any Named Executive Officer, any such action shall be effective only if it is approved by Compensation Committee comprised exclusively of outside directors within the meaning of Code Section 2(m). In exercising its authority under this Section 7.2, the Committee shall consider any adverse accounting or federal income tax consequences that may result from any acceleration of vesting or repurchase of Options. The Committee shall have no duty to apply any action taken under this Section uniformly to all Participants, and may choose, in its sole discretion, whether or not the Options or Restricted Stock held by any particular Participant will be affected (subject to any pre-existing provisions in the Participant's Option Agreement or employment agreement with the Corporation requiring accelerated vesting upon a Change in Control). 7.3 Involuntary Termination Following a Change in Control. If a Participant's employment with the Corporation (or its successor) is involuntarily terminated without cause during the period of twelve (12) months following a Change in Control, and the Participant's Options and Restricted Stock had not already become fully vested pursuant to Section 7.2 as a result of the Change in Control, the Participant's Options shall become fully vested and immediately exercisable in full for a period lasting for at least ninety (90) days after the date of the Participant's termination, and any Restricted Stock award held by the Participant shall become fully vested and nonforfeitable. 11 VIII. AGGREGATE LIMITATION ON SHARES OF COMMON STOCK. 8.1 Number of Shares of Common Stock. (a) Shares of Common Stock which may be issued to Participants pursuant to Options, or Restricted Stock awards granted under the Plan may be either authorized and unissued shares of Common Stock or of Common Stock held by the Corporation as treasury stock. (b) The number of shares of Common Stock reserved for issuance under this Plan shall not exceed 1,000,000 shares of Common Stock available under the Plan, subject to such adjustments as may be made pursuant to Section 8.2. (c) For purposes of Section 8.1(b), upon the exercise of an Option, the number of shares of Common Stock available for future issuance under the Plan shall be reduced by the number of shares actually issued to the Participant, exclusive of any shares surrendered to the Corporation as payment of the Option price. (d) Any shares of Common Stock subject to an Option which for any reason is cancelled, terminates unexercised or expires, shall again be available for issuance under the Plan. (e) In the event that any award of Restricted Stock is forfeited, cancelled or surrendered for any reason, the shares of Common Stock constituting such Restricted Stock award shall again be available for issuance under the Plan. 8.2 Adjustments of Stock. In the event of any change or changes in the outstanding Common Stock of the Corporation by reason of any stock dividend, recapitalization, reorganization, merger, consolidation, split-up, combination or any similar transaction, the Board of Directors shall adjust the number of shares of Common Stock which may be issued under this Plan, the number of shares of Common Stock subject to Options theretofore granted under this Plan, the Option Price of such Options, the number of shares of Restricted Stock shall each be adjusted and make any and all other adjustments deemed appropriate by the Board of Directors in such manner as the Board of Directors deems appropriate to prevent substantial dilution or enlargement of the rights granted to any Participant. New option rights may be substituted for the Options granted under the Plan, or the Corporation's duties as to Options outstanding under the Plan may be assumed by a Subsidiary, by another corporation or by a parent or subsidiary (within the meaning of Section 425 of the Code) of such other corporation, in connection with any merger, consolidation, acquisition, separation, reorganization, liquidation or like occurrence in which the Corporation is involved. In the event of such substitution or assumption, the term Common Stock shall thereafter include the stock of the corporation granting such new option rights or assuming the Corporation's duties as to such Options. 12 IX. MISCELLANEOUS. 9.1 General Restriction. Any Option or Restricted Stock award granted under this Plan shall be subject to the requirement that, if at any time the Committee shall determine that any registration of the shares of Common Stock, or any consent or approval of any governmental body, or any other agreement or consent, is necessary as a condition of the granting of an Option or other award, or the issuance of Common Stock in satisfaction thereof, such Common Stock will not be issued or delivered until such requirement is satisfied in a manner acceptable to the Committee. 9.2 Withholding Taxes. (a) If the Corporation determines that the Corporation has any tax withholding obligation with respect to a Participant, the Corporation shall have the right to require that Participant to remit to the Corporation an amount sufficient to satisfy any federal, state and local withholding tax requirements prior to the delivery of any shares of Common Stock under the Plan. If a Participant sells, transfers, assigns or otherwise disposes of shares of Common Stock acquired upon the exercise of an ISO within two (2) years after the date on which the ISO was granted or within one (1) year after the receipt of the shares of Common Stock by the Participant, the Participant shall promptly notify the Corporation of such disposition and the Corporation shall have the right to require the Participant to remit to the Corporation the amount necessary to satisfy any federal, state and local tax withholding requirements imposed on the Corporation by reason of such disposition. (b) The Corporation shall have the right to withhold from payments made in cash to a Participant under the terms of the Plan, an amount sufficient to satisfy any federal, state and local withholding tax requirements imposed with respect to such cash payments. (c) Amounts to which the Corporation is entitled pursuant to Section 9.2(a) or (b), may be paid, at the election of the Participant and with the approval of the Committee, either (i) paid in cash, (ii) withheld from any salary or other compensation payable to the Participant by the Corporation, including cash payments made under this Plan, or (iii) in shares of Common Stock otherwise issuable to the Participant upon exercise of an Option, that have a Fair Market Value on the date on which the amount of tax to be withheld is determined (the "Tax Date") not less than the minimum amount of tax the Corporation is required to withhold. A Participant's request to have shares of Common Stock withheld that are otherwise issuable shall be in writing, shall be irrevocable upon approval by the Committee, and shall be delivered to the Corporation prior to the exercise of an Option. (d) Tax Loans. In the discretion of the Board of Directors, the Company may make a loan to a Participant in connection with the exercise of an Option in an amount not to exceed the grossed up amount of any Federal and state taxes payable in connection with such exercise, for the purpose of assisting such Participant to exercise such Option. Any such loan may be secured by the related shares of Common Stock or other collateral deemed adequate by the Board of Directors and will comply in all respects with all applicable laws and regulations. The Board of Directors may adopt policies regarding eligibility for such loans, the maximum amounts 13 thereof and any terms and conditions not specified in the Plan upon which such loans will be made. In no event will the interest rate be lower than the minimum rate at which the Internal Revenue Service would not impute additional taxable income to the Participant. 9.3 Investment Representation. If the Committee determines that a written representation is necessary in order to secure an exemption from registration under the Securities Act of 1933, the Committee may demand that the Participant deliver to the Corporation at the time of any exercise of any Option, or at time of the transfer of shares of Restricted Stock, any written representation that Committee determines to be necessary or appropriate for such purpose, including but not limited to a representation that the shares to be issued are to be acquired for investment and not for resale or with a view to the distribution thereof. If the Committee makes such a demand, delivery of a written representation satisfactory to the Committee shall be a condition precedent to the right of the Participant to acquire such shares of Common Stock. 9.4 Non-Uniform Determinations. The Committee's determinations under this Plan (including without limitation its determinations of the persons to receive Options or awards of Restricted Stock, the form, amount and timing of such awards and the terms and provisions of such awards) need not be uniform and may be made by it selectively among Participants who receive, or are eligible to receive, awards under this Plan, whether or not such Participants are similarly situated. 9.5 No Rights as Shareholders. Participants granted Options under this Plan shall have no rights as shareholders of the Corporation as applicable with respect thereto unless and until certificates for shares of Common Stock are issued to them. 9.6 Transfer Restrictions. The Committee may determine that any Common Stock to be issued by the Corporation upon the exercise of Options shall be subject to such further restrictions upon transfer as the Committee determines to be appropriate. 9.7 No Right to Employment. Nothing in this Plan or in any Option Agreement entered into pursuant to it shall confer upon any participating employee the right to continue in the employment of the Corporation or affect any right which the Corporation may have to terminate the employment of such participating employee. Similarly, nothing in this Plan or in any Option Agreement entered into pursuant to it shall confer upon any participating Non-Employee Director, Advisor or Consultant the right to continue his or her relationship with the Corporation or affect any right which the Corporation may have to terminate such relationship. 9.8 Fractional Shares. The Corporation shall not be required to issue any fractional shares of Common Stock pursuant to this Plan. The Board of Directors may provide for the elimination of fractions or for the settlement thereof in cash. 9.9 General Restriction. Any Option granted under this Plan shall be subject to the requirement that, if at any time the Board of Directors shall determine that any registration of the shares of Common Stock, or any consent or approval of any governmental body, or any other agreement or consent, is necessary as a condition of the granting of an Option, or the issuance of 14 Common Stock in satisfaction thereof, such Common Stock will not be issued or delivered until such requirement is satisfied in a manner acceptable to the Board of Directors. X. ADMINISTRATION OF THE PLAN. 10.1 Committee. (a) The Plan shall be administered on a day to day basis by the Board of Directors or, if the Board determines it is desirable to delegate its authority to administer the Plan, by a Committee appointed by the Board of Directors. The Plan Committee appointed by the Board may be the Compensation Committee of the Board of Directors or one or more directors or executive or officers of the Corporation serving under the supervision of such Compensation Committee, and, except as expressly stated otherwise in this Plan with respect to Executive Officers, need not be composed of directors or directors who qualify as "disinterested" within the meaning of SEC Rule 16b-3. The Plan Committee shall serve at the pleasure of the Board of Directors. (b) If the Committee is not the Board of Directors, the Committee shall be monitored and supervised by the Compensation Committee of the Board of Directors with respect to any actions related to Named Executive Officers. All grants of Options or Restricted Stock to Executive Officers shall be approved in advance by the Compensation Committee. (c) The Committee shall have the authority, in its discretion but subject to Sections 3.2 and 3.3 of this Plan, and subject to the overall supervision of the Compensation Committee or the Board, from time to time: (i) to grant Options, or shares of Restricted Stock to eligible employees, Directors and Consultants, as provided for in this Plan; (ii) to prescribe such limitations, restrictions and conditions upon any such awards as the Committee shall deem appropriate; or (iii) to determine the periods during which Options may be exercised and to accelerate the exercisability of outstanding Options, or the vesting of Restricted Stock, as it may deem appropriate; (d) The Committee shall have the authority, in its discretion, from time to time, to: (i) modify, cancel, or replace any prior Options or other awards and to amend the relevant Option Agreements or Restricted Stock Agreements with the consent of the affected Participants, including amending such agreements to amend vesting schedules, extend exercise periods or increase or decrease the Option Price for Options, as it may deem to be necessary; and (ii) to interpret the Plan, to adopt, amend and rescind rules and regulations relating to the Plan, and to make all other determinations and to take all other action necessary or advisable for the implementation and administration of the Plan. A majority of the Committee shall constitute a quorum, and the action of a majority of members of the Committee present at any meeting at which a quorum is present, or acts unanimously adopted in writing without the holding of a meeting, shall be the acts of the Committee. (e) All actions taken by the Committee shall be final, conclusive and binding upon any eligible Participant. Neither the Committee nor any members of the Committee shall be 15 liable for any action taken or decision made in good faith relating to the Plan or any award thereunder. XI. AMENDMENT AND TERMINATION. 11.1 Amendment or Termination of the Plan. The Board of Directors may at any time terminate this Plan or any part thereof and may from time to time amend this Plan as it may deem advisable, provided however, the Board of Directors shall obtain stockholder approval of any amendment for which stockholder approval is required under Section 422 of the Code, or for which stockholder approval requirements are imposed on the corporation by the listing rules of any stock exchange on which the common stock is listed. The termination or amendment of this Plan shall not, without the consent of the Participant, affect any Participant's rights under an award previously granted, provided however, the Board of Directors shall have the right without the consent of any Participant to terminate the Plan and terminate any options previously granted to Participants under the Plan if the Corporation makes adequate provision for the payment to any such Participant, for any vested options, of the excess of the Fair Value of the covered shares over the exercise price of such vested options, with any unvested options and options with exercise prices in excess of the Fair Value being terminated without any payment to or further action or consent of any Participants. For purposes of this Section 11.1 Fair Value shall be the Fair Market Value unless the Board of Directors approves a transaction for the sale of the Corporation which equates to a higher per share value. 11.2 Term of Plan. Unless previously terminated pursuant to Section 11.1, the Plan shall terminate on August 26, 2012, the tenth anniversary of the date on which the Plan became effective, and no Options, or awards of Restricted Stock may be granted on or after such date. 16 EX-99.3 5 e854683.txt EXHIBIT C EXHIBIT C EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT ("Agreement"), dated as of November 18, 2002, by and between Comdial Corporation (the "Company"), a Delaware corporation, having offices at 106 Cattlemen Road, Sarasota, Florida 34232 and Travis Lee Provow, who resides at 310 Pilgrimage Pt., Alpharetta, GA 30022 (the "Executive"). W I T N E S S E T H : WHEREAS, the Company is engaged in the business of develops and markets sophisticated communications solutions for small to mid-sized offices, government, and other organizations (the "Business"); and WHEREAS, the Executive has certain experience relating to the Business of the Company; and WHEREAS, the Company desires to retain the services of the Executive; and WHEREAS, the Company and the Executive desire to enter into this Agreement to set forth the terms and conditions of the employment relationship between the Company and the Executive; and WHEREAS, the Company desires to issue to the Executive certain stock options of the Company (the "Stock Options") pursuant to a stock option agreement (the "Stock Option Agreement"); and NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. NATURE OF EMPLOYMENT. (a) The Company hereby engages the Executive as an employee holding the office of Chairman of the Executive Committee, for the period specified in Section 2(a) below (the "Term"), and the Executive accepts such employment, on the terms and conditions set forth in this Agreement. Throughout the Term, subject to the direction of the Board of Directors and the Company's officers designated by the Board of Directors, the Executive shall perform and discharge well and faithfully the duties that may be assigned to him from time to time by the Company in connection with the conduct of its Business. (b) Throughout the Term hereunder, the Executive will devote such time as is reasonably necessary to the performance of his duties and shall not, without the written consent of the Chief Executive Officer of the Company, render to others any service of any kind for compensation. Notwithstanding the foregoing, during the Term, the Executive shall devote not less than thirty-five (35) hours of his business and professional time per week to the performance of of his duties hereunder. During the time that the Executive is an employee of the Company and for one (1) year thereafter, the Executive will not engage in any business activities that are directly or indirectly competitive with any business conducted by the Company or any of its subsidiaries or affiliates; (ii) observe and carry out such reasonable rules, regulations, policies, directions and restrictions as may be established from time to time by the Board of Directors of the Company (the "Board"), including but not limited to, the standard policies and procedures of the Company as in effect from time to time; and (iii) do such traveling as may reasonably be required in connection with the performance of such duties and responsibilities. Nothing in this Agreement shall in any way be construed to limit the Executive's ability to dedicate his business and professional time to matters unrelated to the business conducted by the Company or any of its subsidiaries or affiliates; provided, however, that such matters do not contravene the terms and conditions set forth herein. (c) the Executive acknowledges that Sections 5 and 6 of this Agreement contain non-competition and non-disclosure or proprietary information provisions, and the Executive agrees to comply with these provisions. The Executive understands that entering into and complying with these provisions is a condition to the Executive's employment with the Company and that failure to comply with the terms and conditions of these provisions may result in termination "for cause" under this Agreement. 2. TERM OF EMPLOYMENT. (a) Subject to prior termination in accordance with paragraph 2(b) below, the term of this Agreement and the Executive's employment hereunder shall be for a term of six months commencing on the date of this Agreement; and following such Term, this Agreement shall thereafter renew for an additional term of six months; provided, however that the Executive and the Company each consents in writing to such renewal, and unless either party gives written notice of termination to the other party not less than thirty (30) days prior to the end of any term (in which event this Agreement shall terminate effective as of the close of such term). (b) This Agreement may be terminated: (i) upon mutual written agreement of the Company and the Executive; (ii) at the option of the Company, upon written notice to the Executive, "for cause" (as hereinafter defined); (iii) at the option of the Company in the event of the "permanent disability" (as hereinafter defined) of the Executive; or (iv) upon the death of the Executive. (c) As used herein, the term "for cause" shall mean and be limited to: (i) any willful and material breach of this Agreement by the Executive; (ii) any willful or gross neglect by the Executive of his duties and responsibilities hereunder; (iii) any fraud, criminal misconduct, breach of fiduciary duty, dishonesty, or gross and willful misconduct by the Executive in connection with the performance of his duties and responsibilities hereunder; (iv) the Executive being legally intoxicated or under the influence of illegal or illegally obtained 2 drugs during business hours or while on call, or being habitually drunk or addicted to drugs (provided that this shall not restrict the Executive from taking physician-prescribed medication in accordance with the applicable prescription); (v) the commission by the Executive of any felony or crime of moral turpitude; (vi) any action by the Executive which may materially impair or damage the reputation of the Company; (vii) insubordinate disregard of any lawful direction given to the Executive by the President or the Board of Directors; or (viii) repeated failure or refusal to comply with the Company's policies and procedures. (d) As used herein, the term "permanent disability" shall mean, and be limited to, any physical or mental illness, disability or impairment that prevents or may reasonably be expected to prevent the Executive from continuing for the performance of his normal duties and responsibilities hereunder for a period in excess of four consecutive months. For purposes of determining whether a "permanent disability" has occurred under this Agreement, the written determination thereof by two (2) qualified practicing physicians selected and paid for by the Company (and reasonably acceptable to the Executive) shall be conclusive. (e) Upon any termination of this Agreement as hereinabove provided, the Company's obligations under this Agreement to pay further compensation shall cease forthwith, except that the Executive (or his estate or legal representatives, as the case may be) shall be entitled to receive any and all unpaid Base Salary appropriately prorated to and as of the effective date of termination (based on the number of days elapsed prior to the date of termination), and any other amounts then due and payable to the Executive hereunder. All such payments shall be made on the next applicable payment date therefor (as provided in Section 3 below) following the effective date of termination. Such payments shall constitute all amounts to which the Executive shall be entitled upon termination of this Agreement, except as provided in Section 6. 3. COMPENSATION AND BENEFITS. (a) BASE COMPENSATION. As compensation for his services to be rendered hereunder, the Company shall pay to the Executive a base salary at the rate of $180,000 per annum (the "Base Salary"), which shall be payable in periodic installments in accordance with the standard payroll practices of the Company in effect from time to time, and shall be subject to required tax and payroll withholdings. (b) BONUS COMPENSATION. In addition to the Base Salary, the Executive will be entitled to receive a bonus and/or other incentive compensation in an amount to be determined by the Compensation Committee of the Board of Directors of the Company; provided, however, that the failure of the Company to award any such bonus and/or other incentive compensation shall not give rise to any claim against the Company. The amount, if any, and timing of such bonus, shall be determined by the Compensation Committee of the Board of Directors of the Company in its sole discretions. (c) STOCK OPTIONS. Upon the date hereof, the Company also shall grant to the Executive 2,500,000 Stock Options to be priced based upon the current trading price of the Company's common stock. Such Stock Options shall vest as set forth in the Stock Option Agreement. 3 (d) EXPENSES. Throughout the period of the Executive's employment hereunder, the Company shall also reimburse the Executive, upon presentment by the Executive to the Company of appropriate receipts and vouchers therefor, for any reasonable out-of-pocket business expenses incurred by the Executive in connection with the performance of his duties and responsibilities hereunder; provided, however, that no reimbursement shall be required to be made for any expense which is not properly deductible (in whole or in part) by the Company for income tax purposes, or for any expense item which has not previously been approved if and to the extent required in accordance with the Company's standard policies and procedures in effect from time to time. 4. VACATION, PERSONAL DAYS AND SICK DAYS. The Executive shall further be entitled to paid vacation, holidays, personal days and sick days in accordance with the Company's standard policies and procedures in effect from time to time. 5. NONDISCLOSURE OF CONFIDENTIAL AND PROPRIETARY INFORMATION. During the time that the Executive is an employee and thereafter (the "Relationship"), the Executive agrees to the following: (a) The Executive acknowledges that during the term of this Relationship, the Executive will have access to and possession of trade secret, confidential information, and proprietary information (collectively, as defined more extensively below, "Confidential Information") of the Company, its subsidiaries and affiliates and their respective clients. The Executive recognizes and acknowledges that this Confidential Information is valuable, special and unique to the Company's business, and that access to and knowledge thereof are essential to the performance of the Executive's duties to the Company. During the term of this Relationship and thereafter, the Executive will keep secret and will not use or disclose to any person or entity other than the Company, in any fashion or for any purpose whatsoever, any Confidential Information relating to the Company or its clients except at the request or the Company. (b) The term "Confidential Information", includes, but is not limited to, information written, in digital form, in graphic form, electronically stored, orally transmitted or memorized concerning: (i) the Company's business or operations plans, strategies, portfolio, prospects or objectives; (ii) the Company's structure, products, product development, technology, distribution, sales, services, support and marketing plans, practices, and operations; (iii) the prices, costs, and details of the Company's services; (iv) research and development, new products, licenses, operations or plans; 4 (v) trade secrets, proprietary information, trade and service marks, inventions, mask works, ideas, processes, formulas, source and object codes, data, programs, technology, writings, software programs, other works of authorship, know-how, discoveries, developments, designs, schematics, manuals, drawings, techniques, employee suggestions, development tools, computer printouts, and improvements; (vi) clients and client lists (including without limitation, the identities or clients, names, addresses, contact, persons and the clients' business status or needs); (vii) information regarding the skills, compensation and benefits of other employees of the Company; (viii) financial records, unpublished financial statements, financial condition, results of the Company's operations and related information about the Company; (ix) any other financial, commercial, business or technical information related to any of the products or services made, developed or sold by the Company or its clients. (c) The Executive further recognizes that the Company has received and in the future will receive from third parties confidential or proprietary information ("Third Party Information") subject to a duty on the Company's part to maintain the confidentiality of such information and to use it only for certain limited purposes. During the term of this Relationship, the Executive will hold Third Party Information in the strictest confidence and will not disclose to anyone (other than Company personnel who need to know such information in connection with their work for the Company) or use, except in connection with work for the Company, Third Party Information unless expressly authorized by the Company in writing. (d) The Executive further agrees to store and maintain all Confidential Information in a secure place. On the termination of the relationship, the Executive agrees to deliver all records, data, information, and other documents produced or acquired during the term of this relationship, and all copies thereof, to the Company. Such material at all times will remain the exclusive property of the Company, unless otherwise agreed to in writing by the Company. Upon termination of the relationship, the Executive agrees to make no further use of any Confidential Information on his or her own behalf or on behalf of any other person or entity other than the Company. (e) During the term of this Relationship, the Executive will not improperly use or disclose any confidential information or trade secrets, if any, of any former employer or any other person to whom the Executive has an obligation of confidentiality, and will not bring onto the premises of the Company any unpublished documents or any property belonging to any former employer or any other person to whom the Executive has an obligation of confidentiality unless consented to in writing by that former employer or person. 5 6. AGREEMENT NOT TO COMPETE. (a) During the period of his employment with the Company and for a period of twelve months thereafter ("Period of Restriction"), the Executive will not, directly or indirectly, for his own account or on behalf of any other party or as an employer, employee, consultant, manager, agent, broker, contractor, stockholder, director or officer of a corporation, investor, owner, lender, partner, joint venturer, licensor, licensee, sales representative, distributor, or otherwise: (i) Conduct any business with any company which does business by engaging in the research, design, production, development, manufacture, licensing, patenting, marketing or sale of any services, programs or products which provide similar functions to any of the Company's services, programs or products, or by engaging in, or contributing the Executive's knowledge and abilities to, any business or entity in direct or indirect competition with the Company by becoming an owner, officer, director, significant stockholder, employee, partner, commissioned salesperson, agent, representative or consultant of or for any such business or entity, except on behalf of the Company as part of the Executive's normal duties as an employee of the Company or as authorized in writing by the Company. (ii) Directly or indirectly, for his own account or for the benefit of others, solicit, hire or retain any employee of the Company or its affiliates or persuade or entice any employee of the Company or its affiliates to leave the employ of the Company or its affiliates. (iii) Molest or interfere with the goodwill and relationship with any of the customers or subscribers of the Company or its affiliates. (b) The Executive agrees that any breach of this Section 6 shall cause the Company substantial and irrevocable damage and therefore, in the event of any such breach, the Executive agrees that (i) the Executive shall not be entitled to any further payments due under the terms of this Agreement, and (ii) any stock option granted but not exercised shall be void and have no further force or effect. Furthermore, in addition to any other remedies that may be available, the Company shall have the right to seek specific performance and injunctive relief as set forth in Section 8, without the need to post a bond or other security. (c) The Executive further acknowledges that the covenants contained in this Section 6 are (i) a material part of this Agreement and if this Agreement is terminated for any reason, the Executive will be able to earn a livelihood without violating these provisions and (ii) reasonably limited and in furtherance of the legitimate business interests of the Company. 6 7. RETURN OF COMPANY PROPERTY. When the Executive leaves the employ of the Company, the Executive will deliver to the Company (and will not keep in his possession, recreate or deliver to anyone else) any and all devices, records, recordings, data, notes, reports, proposals, lists (including, but not limited to, customer lists), correspondence, specifications, drawings, blueprints, sketches, materials, computer materials, equipment, other documents or property, together with all copies thereof (in whatever medium recorded), belonging to the Company, its successors or assigns. The Executive further agrees that any property situated on the Company's premises and owned by the Company, including computer disks and other digital, analog or hard copy storage media, filing cabinets or other work areas, is subject to inspection by Company personnel at any time with or without notice. Prior to leaving, the Executive will cooperate with the Company in completing and signing the Company's termination statement for technical and management personnel. 8. LEGAL AND EQUITABLE REMEDIES. Because the Executive's services are personal and unique and because the Executive may have access to and become acquainted with the Proprietary Information of the Company, and because the parties agree that irrepressible harm would result in the event of a breach of Sections 5, 6, and 7 by the Executive, the Company may not have an adequate remedy at law, the Company will have the right to enforce Sections 5, 6, and 7 and any of their provisions by injunction, restraining order, specific performance or other injunction relief, without bond, and without prejudice to any other rights and remedies that the Company may have for a breach of this Agreement. Employer's remedies under this Section 9 are not exclusive, and shall not prejudice or prohibit any other rights or remedies under this Agreement or otherwise. Notwithstanding anything to the contrary herein and except as part of the Executive's normal duties as an employee of the Company or as authorized in writing by the Company, any use by the Executive during the Restricted Period of any trade secrets or customer lists, or any direct solicitation by the Executive of any existing customer or employee of the Company, shall be presumed to be an irreparable injury to the Company and may be specifically enjoined. 9. NO CONFLICTING OBLIGATIONS. The Executive represents that his compliance with the terms of this Agreement and his performance as an executive of the Company does not and shall not breach any agreement to keep in confidence information acquired by the Executive in confidence or in trust prior to employment by the Company. The Executive has not entered into, and agrees not to enter into, any agreement, either written or oral, in conflict herewith. 10. NOTIFICATION OF NEW EMPLOYER. In the event that the Executive leaves the employ of the Company, the Executive hereby agrees to notify his new employer of those of his obligations that are continuing under this Agreement. 7 11. NOTICES. Any notice of communication permitted or required by this Agreement shall be in writing and delivered personally or via overnight courier or certified mail, return receipt requested: If to the Company: Comdial Corporation 106 Cattlemen Road Sarasota, Florida 34232 Attn: General Counsel If to the Executive: Travis Lee Provow 310 Pilgrimage Pt. Alpharetta, GA 30022 12. OPPORTUNITY FOR REVIEW. THE EXECUTIVE ACKNOWLEDGES THAT THE EXECUTIVE HAS BEEN OFFERED ADEQUATE OPPORTUNITY TO REVIEW THIS AGREEMENT, THE EXECUTIVE HAS REVIEWED THIS AGREEMENT CAREFULLY AND HAS HAD AMPLE OPPORTUNITY TO OBTAIN ADVICE AS TO THE MEANING OF THE TERMS, COVENANTS AND AGREEMENTS CONTAINED HEREIN FROM SUCH PROFESSIONAL ADVISORS AS THE EXECUTIVE HAS DEEMED APPROPRIATE OR NECESSARY. The Executive further acknowledges that the Company will be irreparably harmed if the Executive discloses the contents hereof, whether orally or in writing, to any person or party except as permitted by this Agreement or as may be required under applicable law and, therefore, the Executive affirms that any such disclosure shall be deemed a material breach of this Agreement. Notwithstanding the foregoing, the Executive may disclose and review this Agreement with any of the Executive's professional advisors provided such advisors undertake to retain the confidentiality of the content of this Agreement. 13. GENERAL. (a) No waiver by the Company of any breach of this Agreement will be a waiver of any preceding or subsequent breach. No waiver by the Company of any right under this Agreement will be construed as a waiver of any other right. The Company will not be required to give notice to enforce strict adherence to all terms of this Agreement. (b) Neither this Agreement nor any rights or obligations hereunder may be assigned by either party without the express prior written consent of the other party. (c) The captions and paragraph headings used in this Agreement are for convenience of reference only, and will not affect the construction or interpretation of this Agreement or any of the provisions hereof. 8 (d) The validity and construction of this Agreement or any of its provisions will be governed by and constructed in accordance with the laws of the State of Florida without regard to its conflicts of law. Each of the parties hereto submits to the exclusive jurisdiction of the United States District Court for the Southern District of Florida located in Tampa, Florida, or if such court lacks subject matter jurisdiction, to the jurisdiction of the Supreme Court of the State of Florida, County of Hillsborough. Each of the parties hereto specifically waives any objection that it may otherwise have to the jurisdiction or venue of any such Courts or that such Courts are an inconvenient forum and acknowledges that service of process may be made by mailing a copy thereof in accordance with the provisions of Section 11. However, any dispute arising under, out of, in connection with, or in relation to: the Executive's employment with the Company; the termination of that employment; this Agreement or the making, validity, interpretation or breach thereof, will be determined and settled by arbitration before a single arbitrator at the offices of the American Arbitration Association ("AAA") located in Tampa, Florida or an office located nearest to Tampa, Florida, pursuant to the rules then obtaining of the AAA. Any award rendered will be final and conclusive upon the parties, and judgment thereon may be entered in any court of competent jurisdiction. The arbitrator will have no authority to add to or to modify any provision of this Agreement and may in no event award punitive damages. The prevailing party in such an arbitration proceeding will be entitled to recover from the other party his attorneys' fees, all reasonable out-of-pocket costs and disbursements, as well as all charges which may be made for the cost of the arbitration and the fees of the arbitrator, but nothing in this Section 13(d) will preclude the Company from obtaining injunctive relief as set forth in Section 8 above. (e) This Agreement will be binding upon and will inure to the benefit of the parties hereto and their respective heirs, executors, administrators, personal representatives, successors and permitted assigns. (f) This Agreement may be executed in counterparts, each of which will be deemed to be an original hereof, but all of which together will constitute one and the same instrument. (g) This Agreement constitutes the sole and entire agreement and understanding between the parties hereto as to the subject matter hereof, and supersedes all prior discussions, agreements and understandings of every kind and nature between them as to such subject matter. (h) This Agreement is intended for the sole and exclusive benefit of the parties hereto and their respective heirs, executors, administrators, personal representatives, successors and permitted assigns, and no other person or entity will have any right to rely on this Agreement or to claim or derive any benefit herefrom absent the express written consent of the party to be charged with such reliance or benefit. (i) If any provision of this Agreement is held invalid or unenforceable, either in its entirety or by virtue of its scope or application to given circumstances, such provision will thereupon be deemed modified only to the extent necessary to render same valid, or not applicable to given circumstances, or excised from this Agreement, as the situation may require; 9 and this Agreement will be construed and enforced as if such provision had been included herein as so modified in scope or application, or had not been included herein, as the case may be. (j) The provisions of this Agreement will survive the termination of the Employee's employment and the assignment of this Agreement by the Company to any successor in interest or other assignee. THE EMPLOYEE UNDERSTANDS THAT THIS AGREEMENT RESTRICTS HIS RIGHT TO COMPETE DURING AND SUBSEQUENT TO HIS EMPLOYMENT, RESTRICTS HIS RIGHT TO DISCLOSE OR USE THE COMPANY'S CONFIDENTIAL AND PROPRIETARY INFORMATION DURING AND SUBSEQUENT TO HIS EMPLOYMENT, AND AFFECTS HIS RIGHTS TO INVENTIONS THE EXECUTIVE MADE DURING THE EXECUTIVE'S EMPLOYMENT. THE EXECUTIVE HAS READ THIS AGREEMENT CAREFULLY, AND FULLY UNDERSTANDS ITS TERMS. IN WITNESS THEREOF, the parties have executed and delivered this Agreement on the date first written above. COMDIAL CORPORATION By: ------------------------------------- Name: Title: By: ------------------------------------- (TRAVIS LEE PROVOW) 10 EX-99.4 6 e854785.txt EXHIBIT D EXHIBIT D [COMDIAL LETTERHEAD] November 15, 2002 Mr. Ken Clinebell Re: Senior Vice President, Chief Financial Officer and Treasurer Dear Mr. Clinebell: Comdial Corporation ("Comdial" or the "Company") would like to offer you the position of Senior Vice President, Chief Financial Officer and Treasurer at an annual salary of $180,000, with your employment to commence as of the date of this letter. In addition to the above salary, you will be eligible to be paid a bonus in an amount up to fifty percent (50%) of your annual salary. The terms and conditions of your bonus eligibility are to be established by the Company within sixty (60) days of the date of this letter. Also, you will receive options to purchase 1,200,000 shares of the Company's common stock pursuant to the terms of the Company's 2002 Employee and Non-Employee Director Stock Incentive Plan. Such stock options shall be subject to an exercise price equal to the closing price of the stock as listed in the "Pink Sheets" as of the date of this letter, which price is $0.12 per share. All such stock options shall be subject to vesting in increments of one-third upon each anniversary of your first day of employment, until fully vested and provided that you remain employed by the Company. The number of options to be issued is subject to a pro rata reduction in the event the Company effects a reverse-split of its stock. No longer than 180 days from the date of this letter, the Company will re-evaluate the compensation package offered to you for your role, with potential consideration to increase your base salary, provide a car allowance and/or increase the number of stock options granted. The review will be performed by the CEO, and any changes in your compensation package are subject to approval by the Compensation Committee of the Company's Board of Directors. You will also be entitled to receive six (6) months of severance pay after one (1) year of employment. Such severance shall be paid subject to the terms, conditions and limitations set forth in the Company's existing Executive Severance Plan; provided that, no provisions of the Executive Severance Plan that would otherwise entitle you to severance in excess of that described in this letter shall apply. Notwithstanding the foregoing, if your employment is terminated without "Good Cause," or if you terminate your employment with "Good Reason," within 90 days of a "Change of Control" (as each of those capitalized terms are defined in the Executive Severance Plan), occurring at any time during your employment with the Company, including within the first year, you shall be entitled to receive the severance pay described in this paragraph above. Mr. Ken Clinebell November 15, 2002 Page 2 As an employee of Comdial, you will be entitled to all employee benefits currently offered by the Company, including: medical insurance, medical and prescription drug card, dental insurance, short and long-term disability, life insurance, 401(k) plan, educational reimbursement, holidays, sick leave, vacation time, military leave, bereavement leave, voting time off and jury duty leave. Your medical benefits will be effective on your start date. An outline of these benefits is attached. Should you have any benefit questions, please contact Ms. Beverly Korshun, Manager Payroll & Benefits, at (941) 554-5000, ext. 1123. We look forward to you being part of the Comdial team. If you have any questions I can answer for you, please contact me at (941) 554-5000, ext.1101. Sincerely, Nickolas A. Branica President & CEO Cc: Lee Provow, Chairman of the Board HR -----END PRIVACY-ENHANCED MESSAGE-----